In the good old days of the Cold War, when the West had one of its periodic financial panics, we always had the Soviets on hand to remind us of the mortality of capitalism.

As the Dow Jones tumbled and bankers threw themselves from Wall Street window ledges, Moscow could be relied on to produce some cheerful bigwig from the Politburo to explain that things like this never happened under communism. With some deft quote from Karl Marx (or, if he was subtle, John Maynard Keynes) the clever Russian would lecture us on the essential crisis of capitalism and its inevitable collapse under the weight of its own contradictions.

These days, the Soviets are long gone, in hot pursuit of profits on global energy markets, and the communists in China have got the most overheated stock market in the world. But even in our post-historical age, we are not quite free from the occasional lapse of faith. Today, financial alarms still have the power to induce a sense of existential crisis, at least for our economic system if not for ourselves.

The tendency is made worse of course by a modern media obsessed with presenting every spot of bother as the End of the World. The poor Russians. If only they’d known. Their endless prating about alienation and surplus labour was no match for a modern business reporter in search of a headline. This summer’s malaise in financial markets is a powerful case in point. Armed with their quiver of short, handy nouns, the scribblers besiege us daily with Panics, Crashes, Crunches, and my personal favourite, Meltdowns.

But to be fair, the capacity of the current financial mess to frighten is greatly enhanced by its apparent complexity, the incomprehensibility of it all.

In the past you thought you vaguely understood what drove markets down. The economy stalled unexpectedly, profits dropped and stock prices followed. But even the keen reader of the financial pages must find his eyes glazing over when the conversation turns to collateralised debt obligations and asset-backed securities, alpha-seeking hedge funds and sub-prime mortgages.

Personally, I love the verbal obscurantism of financial terminology. But when you discover that the Fed doesn’t actually set the fed funds rate and that the discount rate, which it does set, is at a premium to fed funds, the temptation is to roll over and beg not to be disturbed until the commissars for financial stability are in charge.

And yet we must still carefully ponder our current problems, not because they show us the essential weakness of our modern system but because they show us how strong it is, how efficient, how durable; and above all, how brilliant capitalism is at reinventing itself.

First, just as Voltaire noted that the French needed to shoot the occasional admiral from time to time to encourage the others, so capitalism needs a few good collapses to keep it on the right path. As they always do, the roots of the current crisis lie in an earlier period of happy excess. Although in the US the housing boom would go on for ever, people — borrowers as well as lenders — got lazier and lazier about inspecting the shaky foundations on which it was based. Far from representing a collapse of confidence in the system, financial crises are capitalism’s way of purging itself of the excesses and foolishness.

Now it’s true, you don’t want every correction to wipe out half the wealth of the country, as used to be the case, a tendency that had the effect of encouraging capitalism’s critics. But nowadays that doesn’t happen – which is the second cause for restrained optimism. The financial authorities have truly learnt the lessons of the big disasters of the past and now act quickly to stop the bleeding.

There’s a bit of fuss in the US this week about whether the Federal Reserve, the central bank, through its injections of cheap money into the system, is bailing out financial institutions that have got themselves into difficulties. But this is silly. As though it would be better for everybody if they repeated the excellent example of the 1930s and stood by while the devil took not only the hindmost, but most of the industrialised world.

The third reason for cheer in the current gloom is the stabilising interconnectedness of the global economy. This may sound odd. When someone defaults on a mortgage in Ohio and it causes a crisis for a bank in Frankfurt, isn’t there something wrong?

On the contrary, financial innovation in the past ten years has enabled financial markets — and the customers they serve — to spread risk around the world. When troubles arise in one market it is much more efficient, and safer, if the consequences are spread thinly around the globe.

The important lesson here, in fact, is that it is not an excess of free markets that has brought us low, but not enough. Widely available and reliable information is essential to the functioning of markets. The problems at too many banks and hedge funds this month is that they have invested in US assets, backed by dodgy mortgages that were wrongly categorised as healthy.

But the biggest cause for comfort in the current crisis goes to the very heart of modern capitalism. Most of the coverage in the past few weeks has focused on the iniquity of an economic system so dependent on financial institutions. Trillions of dollars of financial assets slosh around the world every day at the flick of a switch. Doesn’t that make us horribly vulnerable to sudden changes of sentiment?

The answer is no. In fact it is the very growth of global financial markets that has given us so much of the prosperity we enjoy today.

We no longer have boom-and-bust economics. Instead we have long cycles of growth punctuated by short downturns; and that is thanks in very large part to the efficiency of our modern financial markets.

The only really big danger in the current crisis is that we overreact to it. That in our panicky reaction to an inevitable fear of the inevitable, we insist on new regulatory burdens for our markets. That we shrink from the risk-taking that leads us to seek new markets in our increasingly interconnected — and prosperous — global economy.

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