The Clinton Campaign unveiled their health care plan this week. It features a mixed bag of carrots and sticks that are to end the cost spiral and give universal coverage for all Americans (see note 1 below for summary). HillaryCareII will be financed by increasing taxes for the rich and reinvesting the savings from running a more efficient system. Efficiencies will be gained by promoting the adoption of information technology to cut costs, research and promotion of best practices for providers and paying for prevention rather than acute care.
HillaryCareII features the “Principles of Shared Responsibility”:
1. Drug companies should offer fair prices
2. Insurance companies should cover everyone regardless of pre-existing conditions, expectations of illness
3. Providers should collaborate to provide quality care
4. Employers should contribute to health coverage, large firms required to provide insurance; small business should take advantage of tax credits
5. Government will make insurance affordable through tax credits, provide a safety net so that insurance is not a financial burden, and will end cost spiral.
6. Individuals required to buy insurance
It is easy to see that while HillaryCare II may reach universal coverage for all Americans, it will not solve the problems of the current health system, including the cost spiral. This is because HillaryCareII does nothing to question the paradigm under which the current system rests: that government can rationally design the reimbursement mechanisms and set payment rates for provider services, the same governmental comand and control tactics that have failed int he past.
Democratic and Republican reform initiatives leave untouched Medicare’s command system of setting prices for health services based on costs of production. The prices of healthcare services (or any consumer good for that matter) are NOT based on the costs of labor, supplies, rent, capital, etc. Medicare administrators and their supporters in academia and government have the cause and effect relationship between prices and costs exactly backwards! Costs of production do not cause prices. Prices are set by the subjective judgments and valuations of individual producers and consumers exchanging goods in a free market, irrespective of production costs. In response to these prices and expected profits, entrepreneurs and business managers bid up the prices of factors of production like labor and supplies. That in the long run or that in perfectly competitive markets prices equal costs of production plus the interest rate is irrelevant. What determines the price of a service here and now is the short run adjustment mechanisms that allow producers to bid for factors of production to meet a consumer need and make a profit.
When Medicare tells providers what they will get paid for a heath service, it sends a signal to providers to bid up the prices of labor, supplies and equipment to meet the new price level. The result is a feedback loop between Medicare and providers, out of control costs, distortions in labor markets for physicians and nurses and a capital structure for health services ready to break down. The solution to the government induced mess in healthcare is as simple as it is politically incorrect: get the government out of the healthcare financing business, privatize Medicare and let the free market rationally allocate capital, labor and other resources based on consumer preferences.
Theoretical problems with HillaryCare II from an economic perspective:
The problem of the imputation of value
The problem of calculation
The problem of dissemination of knowledge Hayek
The problem of entrepreneurship P 698 Human Action
The problem of disruptive technology p. 706-707
The problem of the allocation of capital . p 704
The problem of allocation of the factors of production without prices
The problem the computation of profit and loss without prices in P 701
The problem of changes in consumer tastes p. 706
Note 1: Key carrots (+) and sticks (-) of HillaryCareII are:
For Individuals:
+Individuals can keep their current health plan.
+The congressional private health plan menu is expanded to the general population
+Medicare expanded to the general population as an additional choice.
-Limit tax free employer provided insurance to the average government menu, tax the excess benefits.
+Expand Medicaid to all low income individuals
+Expand health plan menu to fill the gap for early retirees before qualifying for Medicare
-Repeal Bush tax cuts and redirect revenue to fund program.
+Limit premium payments to a % of income yet maintain consumer price consciousness in choosing plan
For Insurance Companies:
-Medicare overpayments to HMO’s phased out.
-Guaranteed issue, automatic renewal
-No rating based on age, gender, occupation…
-No excessive profits or marketing costs
-Cannot deny coverage or renewal, unfair prices, excessive premiums
-Cover preventive care
-Cover chronic illness care management
-Promote prevention
For pharmaceutical companies:
-Pharmaceutical companies regulated to control their relationship with providers, cut prescription drug ads, prohibit direct to consumer ads.
-Medicare is allowed to negotiate directly with pharmaceutical companies to cut prescription drug costs
For providers:
-Disproportionate Share payments phased out.
+Apply technology and clinical best practices to improve quality, reduce errors, eliminate waste via technology, care coordination, best practices
-Align Medicare payment with performance, reduce geographic variation in care, information to consumers,
-Expand pay for performance based on outcomes
For employers:
+Tax credits for small businesses
+Employers expected to provide health insurance to their employees
-Limit tax free employer provided insurance to the average government menu, tax the excess benefits.
For more details on HillaryCareII go to http://www.hillaryclinton.com/feature/healthcareplan/
Saturday, September 29, 2007
Wednesday, September 19, 2007
Federal Reserve Kool-Aid
The Federal Reserve could not resist the heat of the subprime mortgage market correction and is passing out more of the same Greenspan Kool-Aid: lower interest rates. This is the same drink that caused the housing bubble to burst in the first place! Every time the Fed lowers interest rates it signals entrepreneurs to mal-invest in long term projects that would otherwise be deemed unprofitable and unwise. When these expanding businesses bid up the price of labor, land, supplies, etc., we all feel the sugar high of the Kool-Aid in the form of increasing wages. Eventually, however, our economy cannot handle this boom and we have the inevitable sugar low of a market correction.
The true signal for businesses to invest more or less is not the Fed, but the natural relationship that exists between the proportion of income we want to dedicate for consuming today and the proportion of income we want to save for the future. This consumer time preference determines the free market interest rate. The more we want to consume today, the higher the interest rate. The less we want to consume today, the lower the interest rate. Think about it, if we expected the world to end next year, we would all want to consume as much of our income as possible before the end and we would save little or nothing. In this case, the interest rates would be very high as nobody would want to lend any money unless the return was extremely high. Conversely, if we were all made immortal, there would be no need to consume our income rapidly. On the contrary, we would want to save as much as possible for the future. In this case, the interest rate would be very low as everybody would be willing to lend money at extremely low rates.
Because of Fed-manipulated low interest rates, businesses believe that our time preference has changed, that we want to consume less now and save more for the future, so they go ahead and mal-invest in long term capital projects, thinking that we have the savings to back-up those investments. In reality, nothing has changed, our time preference has remained the same, we want to continue consuming today the same proportion of our income that we always have consumed. When the higher incomes resulting from the boom hit our pockets, we start demanding more consumer goods today. But the capital structure of the economy is not equipped to supply those goods today because instead, businesses invested in projects to produce goods for the future, not for today. The end result is that the entrepreneurs who mal-invested go out of business, incomes drop, workers lose their jobs, etc. This inter-temporal distortion in our capital structure of production caused by the Fed is the root cause of bubbles and bursts for the past 100 years, including the Great Depression, the stagflation of the 70’s, the high-tech bubble of the 90’s and the current housing bubble.
If we had an actual change in the time preference and consumers indeed consumed less today and saved more for the future, then interest rates would drop and entrepreneurs would get the signal to invest in long term projects. As these projects bid up our wages and the extra income hits our pockets, we would save a higher proportion of our new income and would not cause an increase in the demand of consumer goods for today. Eventually, as the new capital projects start producing consumer goods, the prices of consumer goods fall and our standard of living increases, all without a bust and without inflation, indeed, with a drop in prices or deflation.
The way out of boom and bust cycles is simple: get the government out of the money business and eliminate the Federal Reserve.
The true signal for businesses to invest more or less is not the Fed, but the natural relationship that exists between the proportion of income we want to dedicate for consuming today and the proportion of income we want to save for the future. This consumer time preference determines the free market interest rate. The more we want to consume today, the higher the interest rate. The less we want to consume today, the lower the interest rate. Think about it, if we expected the world to end next year, we would all want to consume as much of our income as possible before the end and we would save little or nothing. In this case, the interest rates would be very high as nobody would want to lend any money unless the return was extremely high. Conversely, if we were all made immortal, there would be no need to consume our income rapidly. On the contrary, we would want to save as much as possible for the future. In this case, the interest rate would be very low as everybody would be willing to lend money at extremely low rates.
Because of Fed-manipulated low interest rates, businesses believe that our time preference has changed, that we want to consume less now and save more for the future, so they go ahead and mal-invest in long term capital projects, thinking that we have the savings to back-up those investments. In reality, nothing has changed, our time preference has remained the same, we want to continue consuming today the same proportion of our income that we always have consumed. When the higher incomes resulting from the boom hit our pockets, we start demanding more consumer goods today. But the capital structure of the economy is not equipped to supply those goods today because instead, businesses invested in projects to produce goods for the future, not for today. The end result is that the entrepreneurs who mal-invested go out of business, incomes drop, workers lose their jobs, etc. This inter-temporal distortion in our capital structure of production caused by the Fed is the root cause of bubbles and bursts for the past 100 years, including the Great Depression, the stagflation of the 70’s, the high-tech bubble of the 90’s and the current housing bubble.
If we had an actual change in the time preference and consumers indeed consumed less today and saved more for the future, then interest rates would drop and entrepreneurs would get the signal to invest in long term projects. As these projects bid up our wages and the extra income hits our pockets, we would save a higher proportion of our new income and would not cause an increase in the demand of consumer goods for today. Eventually, as the new capital projects start producing consumer goods, the prices of consumer goods fall and our standard of living increases, all without a bust and without inflation, indeed, with a drop in prices or deflation.
The way out of boom and bust cycles is simple: get the government out of the money business and eliminate the Federal Reserve.
Thursday, September 6, 2007
Medicare Rx
The fundamental flaw with Medicare’s system of paying for healthcare services is that it attempts to find out what it costs to produce medical services. These costs are then used to set provider fees using complicated cost-plus-profit methodologies (RVU, DRG, RUG, etc.). Medicare collects these provider costs through various vehicles that include requiring providers to submit cost reports (See http://www.cms.hhs.gov/CostReports/ for a summary of these reporting regulations).
The basic assumption of Medicare's complex approach is this: that the price of a healthcare service is based on the costs of producing that service. But Medicare administrators and their supporters in academia have the cause and effect relationship between prices and costs exactly backwards! This is the same mistake that Karl Marx and his predecessor Classical economists David Ricardo and Adam Smith made in their unsuccessful attempt to explain how prices are supposed to be a reflection of labor costs and other factors of production costs like land, supplies, capital, etc. Costs do not cause price! The price of a product is set by the subjective judgments and valuations of individual suppliers and consumers exchanging goods in a free market. And it is this price that then determines costs of production! This takes place through a process of "value imputation" that flows from the consumer back to the factors of production. This "value imputation" happens when entrepreneurs and managers bid up the prices of factors of production in response to expected future profits.
Let us first illustrate the complexity of Medicare's attempt to collect cost information and then set prices. Medicare uses the following formula to determine the fees paid to physicians:
Work RVU x Budget Neutrality Work Adjustor x Work (GPCI)+Practice Expense (PE) RVU x PE GPCI+Malpractice (PLI) RVU x PLI GPCI= Total RVUxCY 2007 Conversion Factor of $37.8975= Medicare Payment
The three Relative Value Units or RVU's in the formula represent the value assigned by Medicare to the various resources needed to provide each physician service. The RVU's are supposed to reflect the work effort, skill, time, intensity and risk required of the physician depending on his specialty, his expenses in providing each service adjusted by a geographic practice cost index (GPCI), liability insurance costs (PLI), a "budget neutrality" cap on total Medicare payments to physicians mandated by Congress and the "conversion factor" which translates each RVU into a dollar amount.
RVU's were developed by the good folks at the Harvard School of Public Health in the mid 1980's when Medicare administrators awarded them a contract with the intent of establishing a rational, equitable and distortion-free approach to physician fees. Additional help was provided by KPMG Consulting who was charged with the development of the liability insurance cost factors. For a more detailed account of how those liability factors are determined go to http://www.ama-assn.org/ama/upload/mm/363/pliwhitepaper.pdf. And later still, more help was provided by experts in econometrics at the Urban Institute who developed the geographic practice cost index. Go to http://www.urban.org/publications/900540.html for fascinating account from one of its developers.
To coordinate the whole process, Medicare also enlists the help of the American Medical Association, the American Osteopathic Association and the major national medical specialty societies, all of whom participate in an advisory group ( RVS Update Committee http://www.ama-assn.org/ama/pub/category/16401.html) responsible for compiling data obtained from physician surveys to determine the time spent in performing the medical service and ranking the service relative to existing services.
There are over 10,000 values for each of the above three RVU categories, hundreds of GPCI's and PLI's adjusting each of those 30,000 RVU's resulting billions of potential combinations for physician fees. In the near future, Medicare will adjust this formula to reflect each physician's clinical outcomes or quality, which will result in another exponential increase in the number of potential combinations for fees. And this is only for the professional component of physician reimbursement. Physicians also receive Medicare payment for the facility components of certain procedures performed in their offices.
If one adds to this already mind-boggling array of physican fees calculations more layers of complexity represented by fees to hospitals, home health agencies, hospices, Medicare HMO's, ambulances, nursing homes and pharmacies, each with their own assigned methodologies for Medicare reimbursement, and one adds the mechanism by which the AMA and the government manipulate the supply of medical education (http://www.cogme.gov/) and hospitals and some state governments influence the supply of hospital beds through certificate of need regulations, one can only begin to appreciate the mammoth size and the power of the bureaucracies needed to attempt to centrally manage our healthcare system.
I wrote earlier that unlike what Medicare administrators assume, prices determine the cost of production. Let us illustrate the correct causal relationship between prices and costs with an example. Diamonds are expensive not because they cost a lot to produce, but because high demand and low supply forces prices to be high, which then allows producers to engage in the very expensive process of discovery, extraction and commercialization of diamonds. When diamond entrepreneurs are wrong in anticipating the price at which they will sell diamonds and their production costs are higher than the market price, their companies go out of business. When they are right and their costs are lower than the price at which they sell, they make a profit and prosper.
The higher their profits, the more other diamond entrepreneurs will enter the market, which bids up the prices paid to the factors of production or increases the quantity produced until, in the long run, the market for diamonds and the market for the factors of production of diamonds may approach equilibrium. It is only then that price of diamonds equal the costs of producing them. And it is then that casual observers are deceived into thinking that the price of diamonds is caused by their cost of production. This is because we tend to experience only the resulting price and costs of those companies that survive the competitive process. When we erroneously conclude that the value of a product is inherent in the costs of the inputs of the production process, we ignore the more vital and essential role played by the short run process of adjustments.
Theoretical work by the Austrian School of Economics since the 1870's has clearly refuted the incorrect theory of value that we inherited from the Classical school and Karl Marx and that economists and policy makers, including Medicare administrators, continue to use to this day. For an account of the Austrian approach and the theory of value imputation, see Ludwig von Mises' "Human Action" Chapter XVI, pp. 328-347 http://www.mises.org/humanaction/chap16sec2.asp:
"Attempts to establish cost accounts on an "impartial" basis are doomed to failure. Calculating costs is a mental tool of action, the purposive design to make the best of the available means for an improvement of future conditions. It is necessarily volitional, not factual. In the hands of an indifferent umpire it changes its character entirely. The umpire does not look forward to the future. He looks backward to the dead past and to rigid rules which are useless for real life and action. He does not anticipate changes... Profits do not fit into his scheme. He has a confused idea about a "fair" rate of profit or a "fair" return on capital invested. However, there are no such things... In a changing economy profits are not determined with reference to any set of rules by which they could be classified as fair or unfair. Profits are never normal..." pp. 346-347
The key insight of the Austrian approach is that not only are prices of consumer goods subjective, but that production costs are also subjective and determined through voluntary exchanges in a free market through a proces of value imputation that flows from consumers to producers to owners of factors of production. The collapse of the Soviet Union's economy has shown us that a centrally planned socialist approach based on an erroneous theory of value does not work in practice. This collapse has vindicated the work of many Austrian School economists who have shown since the 1920's that economic calculation under a centrally planned economy is theoretically impossible (for a devastating attack on central planning, see Ludwig von Mises' 1922 "Socialism" http://www.mises.org/books/socialism/contents.aspx).
Attempts by a central bureaucracy to use costs to set prices are not just difficult or "thorny" practical issues to resolve. Bluntly put, it is theoretically impossible for a PhD economist or a Medicare bureaucrat to figure out healthcare costs and therefore impossible for him to figure out the correct reimbursement rates for any healthcare service anywhere at any time. Only an unregulated free market where patients and physicians and other providers of healthcare services can voluntarily make exchanges can correctly solve the puzzle. The market for healthcare is not an exception to this inexorable and axiomatic economic law.
With the government sector accounting for more than 40% of healthcare spending (http://aspe.hhs.gov/health/costgrowth/) and with insurance and managed care companies and individual patients following Medicare's methodologies, the overwhelming majority of players in the healthcare market in the US are following a centrally planned socialist approach. The process and the results are disastrous and inevitable. First, Medicare compiles observed production cost data to calculate reimbursement rates or prices. Then healthcare providers take this price and it's implied expected future profit to bid up the price of the factors of production. The following year, these factors of production are then fed back to Medicare as costs to be used to determine the new reimbursement rates, and so on and so forth, into an ever ending negative feedback loop.
Is it any wonder that we have a collapsing healthcare system with ever increasing costs, misallocation of capital, meaningless prices, shortages, cues, rationing, cherry picking and fraud? Is it any wonder that a significant and ever increasing portion of patients are being priced out of the market and turning up in our emergency rooms as uninsured? Is it any wonder that patients, physicians, insurance companies and hospitals are pitted against one another with missaligned incentives in a battle to maximize Medicare dollars? Is it any wonder that Medicare taxes and deficit spending are causing an unprecedented inter-generational transfer of income from younger working poorer uninsured Americans to older, retired, insured and wealthier Americans?
CMS administrators should recognize that they are using a mistaken socialist economic theory to set their fees that will inevitably continue to bring the healthcare system to its knees. Physicians and hospitals should recognize that with this approach in which their own professional societies have actively participated, they have have lost complete control of their practices and hospitals and have simply become instruments of the state. And patients should recognize that their beloved Medicare has eroded the patient-physician relationship beyond recognition, one in which physicians can no longer respond to patient needs but to a bureaucracy in Washington.
The basic assumption of Medicare's complex approach is this: that the price of a healthcare service is based on the costs of producing that service. But Medicare administrators and their supporters in academia have the cause and effect relationship between prices and costs exactly backwards! This is the same mistake that Karl Marx and his predecessor Classical economists David Ricardo and Adam Smith made in their unsuccessful attempt to explain how prices are supposed to be a reflection of labor costs and other factors of production costs like land, supplies, capital, etc. Costs do not cause price! The price of a product is set by the subjective judgments and valuations of individual suppliers and consumers exchanging goods in a free market. And it is this price that then determines costs of production! This takes place through a process of "value imputation" that flows from the consumer back to the factors of production. This "value imputation" happens when entrepreneurs and managers bid up the prices of factors of production in response to expected future profits.
Let us first illustrate the complexity of Medicare's attempt to collect cost information and then set prices. Medicare uses the following formula to determine the fees paid to physicians:
Work RVU x Budget Neutrality Work Adjustor x Work (GPCI)+Practice Expense (PE) RVU x PE GPCI+Malpractice (PLI) RVU x PLI GPCI= Total RVUxCY 2007 Conversion Factor of $37.8975= Medicare Payment
The three Relative Value Units or RVU's in the formula represent the value assigned by Medicare to the various resources needed to provide each physician service. The RVU's are supposed to reflect the work effort, skill, time, intensity and risk required of the physician depending on his specialty, his expenses in providing each service adjusted by a geographic practice cost index (GPCI), liability insurance costs (PLI), a "budget neutrality" cap on total Medicare payments to physicians mandated by Congress and the "conversion factor" which translates each RVU into a dollar amount.
RVU's were developed by the good folks at the Harvard School of Public Health in the mid 1980's when Medicare administrators awarded them a contract with the intent of establishing a rational, equitable and distortion-free approach to physician fees. Additional help was provided by KPMG Consulting who was charged with the development of the liability insurance cost factors. For a more detailed account of how those liability factors are determined go to http://www.ama-assn.org/ama/upload/mm/363/pliwhitepaper.pdf. And later still, more help was provided by experts in econometrics at the Urban Institute who developed the geographic practice cost index. Go to http://www.urban.org/publications/900540.html for fascinating account from one of its developers.
To coordinate the whole process, Medicare also enlists the help of the American Medical Association, the American Osteopathic Association and the major national medical specialty societies, all of whom participate in an advisory group ( RVS Update Committee http://www.ama-assn.org/ama/pub/category/16401.html) responsible for compiling data obtained from physician surveys to determine the time spent in performing the medical service and ranking the service relative to existing services.
There are over 10,000 values for each of the above three RVU categories, hundreds of GPCI's and PLI's adjusting each of those 30,000 RVU's resulting billions of potential combinations for physician fees. In the near future, Medicare will adjust this formula to reflect each physician's clinical outcomes or quality, which will result in another exponential increase in the number of potential combinations for fees. And this is only for the professional component of physician reimbursement. Physicians also receive Medicare payment for the facility components of certain procedures performed in their offices.
If one adds to this already mind-boggling array of physican fees calculations more layers of complexity represented by fees to hospitals, home health agencies, hospices, Medicare HMO's, ambulances, nursing homes and pharmacies, each with their own assigned methodologies for Medicare reimbursement, and one adds the mechanism by which the AMA and the government manipulate the supply of medical education (http://www.cogme.gov/) and hospitals and some state governments influence the supply of hospital beds through certificate of need regulations, one can only begin to appreciate the mammoth size and the power of the bureaucracies needed to attempt to centrally manage our healthcare system.
I wrote earlier that unlike what Medicare administrators assume, prices determine the cost of production. Let us illustrate the correct causal relationship between prices and costs with an example. Diamonds are expensive not because they cost a lot to produce, but because high demand and low supply forces prices to be high, which then allows producers to engage in the very expensive process of discovery, extraction and commercialization of diamonds. When diamond entrepreneurs are wrong in anticipating the price at which they will sell diamonds and their production costs are higher than the market price, their companies go out of business. When they are right and their costs are lower than the price at which they sell, they make a profit and prosper.
The higher their profits, the more other diamond entrepreneurs will enter the market, which bids up the prices paid to the factors of production or increases the quantity produced until, in the long run, the market for diamonds and the market for the factors of production of diamonds may approach equilibrium. It is only then that price of diamonds equal the costs of producing them. And it is then that casual observers are deceived into thinking that the price of diamonds is caused by their cost of production. This is because we tend to experience only the resulting price and costs of those companies that survive the competitive process. When we erroneously conclude that the value of a product is inherent in the costs of the inputs of the production process, we ignore the more vital and essential role played by the short run process of adjustments.
Theoretical work by the Austrian School of Economics since the 1870's has clearly refuted the incorrect theory of value that we inherited from the Classical school and Karl Marx and that economists and policy makers, including Medicare administrators, continue to use to this day. For an account of the Austrian approach and the theory of value imputation, see Ludwig von Mises' "Human Action" Chapter XVI, pp. 328-347 http://www.mises.org/humanaction/chap16sec2.asp:
"Attempts to establish cost accounts on an "impartial" basis are doomed to failure. Calculating costs is a mental tool of action, the purposive design to make the best of the available means for an improvement of future conditions. It is necessarily volitional, not factual. In the hands of an indifferent umpire it changes its character entirely. The umpire does not look forward to the future. He looks backward to the dead past and to rigid rules which are useless for real life and action. He does not anticipate changes... Profits do not fit into his scheme. He has a confused idea about a "fair" rate of profit or a "fair" return on capital invested. However, there are no such things... In a changing economy profits are not determined with reference to any set of rules by which they could be classified as fair or unfair. Profits are never normal..." pp. 346-347
The key insight of the Austrian approach is that not only are prices of consumer goods subjective, but that production costs are also subjective and determined through voluntary exchanges in a free market through a proces of value imputation that flows from consumers to producers to owners of factors of production. The collapse of the Soviet Union's economy has shown us that a centrally planned socialist approach based on an erroneous theory of value does not work in practice. This collapse has vindicated the work of many Austrian School economists who have shown since the 1920's that economic calculation under a centrally planned economy is theoretically impossible (for a devastating attack on central planning, see Ludwig von Mises' 1922 "Socialism" http://www.mises.org/books/socialism/contents.aspx).
Attempts by a central bureaucracy to use costs to set prices are not just difficult or "thorny" practical issues to resolve. Bluntly put, it is theoretically impossible for a PhD economist or a Medicare bureaucrat to figure out healthcare costs and therefore impossible for him to figure out the correct reimbursement rates for any healthcare service anywhere at any time. Only an unregulated free market where patients and physicians and other providers of healthcare services can voluntarily make exchanges can correctly solve the puzzle. The market for healthcare is not an exception to this inexorable and axiomatic economic law.
With the government sector accounting for more than 40% of healthcare spending (http://aspe.hhs.gov/health/costgrowth/) and with insurance and managed care companies and individual patients following Medicare's methodologies, the overwhelming majority of players in the healthcare market in the US are following a centrally planned socialist approach. The process and the results are disastrous and inevitable. First, Medicare compiles observed production cost data to calculate reimbursement rates or prices. Then healthcare providers take this price and it's implied expected future profit to bid up the price of the factors of production. The following year, these factors of production are then fed back to Medicare as costs to be used to determine the new reimbursement rates, and so on and so forth, into an ever ending negative feedback loop.
Is it any wonder that we have a collapsing healthcare system with ever increasing costs, misallocation of capital, meaningless prices, shortages, cues, rationing, cherry picking and fraud? Is it any wonder that a significant and ever increasing portion of patients are being priced out of the market and turning up in our emergency rooms as uninsured? Is it any wonder that patients, physicians, insurance companies and hospitals are pitted against one another with missaligned incentives in a battle to maximize Medicare dollars? Is it any wonder that Medicare taxes and deficit spending are causing an unprecedented inter-generational transfer of income from younger working poorer uninsured Americans to older, retired, insured and wealthier Americans?
CMS administrators should recognize that they are using a mistaken socialist economic theory to set their fees that will inevitably continue to bring the healthcare system to its knees. Physicians and hospitals should recognize that with this approach in which their own professional societies have actively participated, they have have lost complete control of their practices and hospitals and have simply become instruments of the state. And patients should recognize that their beloved Medicare has eroded the patient-physician relationship beyond recognition, one in which physicians can no longer respond to patient needs but to a bureaucracy in Washington.
Wednesday, September 5, 2007
Hay conflicto entre el hombre y el capital?
Para Marx y todos los que aceptan directa o indirectamente su visión de la explotación, el capitalista supuestamente se queda con la diferencia entre el salario pagado al trabajador y el precio de venta de lo que el trabajador produce, lo que él llama la plusvalía. Eso es implícitamente lo que también acepta y enseña, lamentablemente, la Iglesia Católica.
Marx comete dos errores, uno, que el salario es determinado por el costo de subsistencia del trabajador y dos, que el precio de venta de un producto es determinado por la equivalencia entre la cantidad de trabajo contenidos en dos productos que se intercambian. Marx jamás pudo reconciliar los precios que él observaba en el mercado con la cantidad de trabajo que supuestamente los trabajadores invertían en los productos. Por eso interrumpe la escritura de su su obra maestra, "El Capital". Desde el punto de vista metodológico, él asume la explotación existe, que el capitalista se roba parte de lo que le corresponde al trabajador, y de allí trató de elaborar su teoría del capitalismo. Es el mismo cuento con la Doctrina Social de la Iglesia. Por eso Juan Pablo II habla del conflicto entre el capital y el trabajo, sin saber el error que comete en Laborens Exercems.
Los salarios no existieran si no existiera el capital!
Sin el capitalista, que es quien acumula capital, quien decide posponer su consumo en el presente, ahorrar, e invertir para luego consumir más en el futuro, todos nos veríamos forzados a producir algo directamente y consumirlo o venderlo. En ese mundo, ninguno de nosotros tendría salario sino ganacias. Todos tendríamos que poseer tierras, materiales y herramientas (capital). Muy pocas personas podríamos sobrevivir de esta manera. Lo que el capitalista hace es darnos la oportunidad para especializarnos y vender nuestro trabajo solamente, en vez de tener que vender el producto de nuestro trabajo. Si tuviéramos que vender directamente el producto de nuestro trabajo, pocos podríamos producir productos que llevan años en producir. Sería una economía muy rudimentaria, incapaz de darle de comer a más de unos cuantos.
Por otro lado, tenemos que preguntarnos por qué el trabajador prefiere venderle su trabajo al capitalista en vez de producir directamente. Es porque el salario representa para trabajador bienes en el presente mientras que su trabajo representa para el capitalista bienes en el futuro. El trabajador vende su trabajo porque prefiere los bienes en el presente a los bienes en el futuro. Los empleados de un empresario reciben un salario en el presente financiados por él, quien asume el riesgo de alquilar una oficina, comprar equipos y muebles, establecer relaciones con futuros clientes y esperar a vender, comenzar y terminar un proyecto para obtener un pago, muchas veces incierto, en el futuro. Para eso él tiene que invertir capital en su empresa y hacer un intercambio voluntario con sus empleados. Su capital no es sino el dejar de consumir en el presente para consumir más en el futuro.
La clave es que el empresario asume el riesgo de financiar le diferencia entre el presente y el futuro. A su capital invertido le corresponden ciertas ganancias que por lo menos teóricamente, si la empresa tenía éxito, le corresponden.
El capital que el empresario arriesga le permite al empleado obtener su salario ahora en vez de en el futuro. Otro ejemplo. Un carro. Si un trabajador quisiera hacer un carro por su cuenta y luego venderlo, se tardaría, digamos, tres años. Tendría que diseñarlo, comprar equipos, comprar materiales, construirlo, y luego venderlo. Durante todo ese tiempo está gastando dinero y además tiene que ver de qué vive, cómo compra comida, etc. El capitalista básicamente hace todo ese financiamiento de tres años para el trabajador. Y eso hay que pagarlo porque si no, por qué haría el capitalista esa inversión? Recuerdemos que él decide no consumir en el presente para consumir más en el futuro. Lo mismo que hacemos todos nosotros. Estimado lector, usted qué prefiere, que yo le diera $100 hoy o $100 en 3 años? Si prefiere $100 ahora, quiere decir que está descontando el dinero del futuro. Pero si le digo, $100 ahora o $1,000 en 3 años? Probablemente, dependiendo de su preferencia de tiempo, escogería los $1,000. Eso mismo es lo que hace el capitalista. El podría no invertir y consumir todo su capital en el presente. Pero no, él prefiere los $1,000 en el futuro, por eso invierte $100 en el presente. Bueno, eso es lo que han hecho por cientos de años millones y millones de empresarios, creando un capital enorme que es lo que nos permite generar riquezas. Es verdaderamente un milagro y un regalo de Dios.
En este sistema de producción mediante el capital, no veo ningún tipo de conflicto sino más bien ayuda, cooperación, desarrollo. El análisis marxista de la explotación no toma en cuenta ese financiamiento en el tiempo, ese puente económico entre el presente y el futuro tan esencial para la civilización como la conocemos. Lamentablemente la Iglesia Católica ha cometido un error garrafal en adoptar a Marx.
Marx comete dos errores, uno, que el salario es determinado por el costo de subsistencia del trabajador y dos, que el precio de venta de un producto es determinado por la equivalencia entre la cantidad de trabajo contenidos en dos productos que se intercambian. Marx jamás pudo reconciliar los precios que él observaba en el mercado con la cantidad de trabajo que supuestamente los trabajadores invertían en los productos. Por eso interrumpe la escritura de su su obra maestra, "El Capital". Desde el punto de vista metodológico, él asume la explotación existe, que el capitalista se roba parte de lo que le corresponde al trabajador, y de allí trató de elaborar su teoría del capitalismo. Es el mismo cuento con la Doctrina Social de la Iglesia. Por eso Juan Pablo II habla del conflicto entre el capital y el trabajo, sin saber el error que comete en Laborens Exercems.
Los salarios no existieran si no existiera el capital!
Sin el capitalista, que es quien acumula capital, quien decide posponer su consumo en el presente, ahorrar, e invertir para luego consumir más en el futuro, todos nos veríamos forzados a producir algo directamente y consumirlo o venderlo. En ese mundo, ninguno de nosotros tendría salario sino ganacias. Todos tendríamos que poseer tierras, materiales y herramientas (capital). Muy pocas personas podríamos sobrevivir de esta manera. Lo que el capitalista hace es darnos la oportunidad para especializarnos y vender nuestro trabajo solamente, en vez de tener que vender el producto de nuestro trabajo. Si tuviéramos que vender directamente el producto de nuestro trabajo, pocos podríamos producir productos que llevan años en producir. Sería una economía muy rudimentaria, incapaz de darle de comer a más de unos cuantos.
Por otro lado, tenemos que preguntarnos por qué el trabajador prefiere venderle su trabajo al capitalista en vez de producir directamente. Es porque el salario representa para trabajador bienes en el presente mientras que su trabajo representa para el capitalista bienes en el futuro. El trabajador vende su trabajo porque prefiere los bienes en el presente a los bienes en el futuro. Los empleados de un empresario reciben un salario en el presente financiados por él, quien asume el riesgo de alquilar una oficina, comprar equipos y muebles, establecer relaciones con futuros clientes y esperar a vender, comenzar y terminar un proyecto para obtener un pago, muchas veces incierto, en el futuro. Para eso él tiene que invertir capital en su empresa y hacer un intercambio voluntario con sus empleados. Su capital no es sino el dejar de consumir en el presente para consumir más en el futuro.
La clave es que el empresario asume el riesgo de financiar le diferencia entre el presente y el futuro. A su capital invertido le corresponden ciertas ganancias que por lo menos teóricamente, si la empresa tenía éxito, le corresponden.
El capital que el empresario arriesga le permite al empleado obtener su salario ahora en vez de en el futuro. Otro ejemplo. Un carro. Si un trabajador quisiera hacer un carro por su cuenta y luego venderlo, se tardaría, digamos, tres años. Tendría que diseñarlo, comprar equipos, comprar materiales, construirlo, y luego venderlo. Durante todo ese tiempo está gastando dinero y además tiene que ver de qué vive, cómo compra comida, etc. El capitalista básicamente hace todo ese financiamiento de tres años para el trabajador. Y eso hay que pagarlo porque si no, por qué haría el capitalista esa inversión? Recuerdemos que él decide no consumir en el presente para consumir más en el futuro. Lo mismo que hacemos todos nosotros. Estimado lector, usted qué prefiere, que yo le diera $100 hoy o $100 en 3 años? Si prefiere $100 ahora, quiere decir que está descontando el dinero del futuro. Pero si le digo, $100 ahora o $1,000 en 3 años? Probablemente, dependiendo de su preferencia de tiempo, escogería los $1,000. Eso mismo es lo que hace el capitalista. El podría no invertir y consumir todo su capital en el presente. Pero no, él prefiere los $1,000 en el futuro, por eso invierte $100 en el presente. Bueno, eso es lo que han hecho por cientos de años millones y millones de empresarios, creando un capital enorme que es lo que nos permite generar riquezas. Es verdaderamente un milagro y un regalo de Dios.
En este sistema de producción mediante el capital, no veo ningún tipo de conflicto sino más bien ayuda, cooperación, desarrollo. El análisis marxista de la explotación no toma en cuenta ese financiamiento en el tiempo, ese puente económico entre el presente y el futuro tan esencial para la civilización como la conocemos. Lamentablemente la Iglesia Católica ha cometido un error garrafal en adoptar a Marx.
Tuesday, September 4, 2007
Errores de Economía de Dos Teólogos Católicos
El problema con Chesterton y Belloc (y la gran mayoría de los intelectuales católicos de su época y de la nuestra actual) es que a pesar de que eran buenos teólogos, no sabían ni leyeron nada sobre economía. Ellos están en la misma línea de los Papas y la doctrina social de la iglesia que erróneamente sostiene que hay que oponerse al libre mercado porque hay que oponerse al liberalismo y al iluminismo.
La primicia del distributismo de Chesterton y Belloc es que la propiedad productiva tiene que estar dispersa en vez de concentrada. Desde el punto de vista económico, eso sería fatal. Veamos la industria de la computación personal…Qué sería de esa industria si el capital no estuviese concentrado en Microsoft e Intel y otros pocas compañías? Estaríamos pagando precios altísimos y probablemente la tecnología no se habría desarrollado. Ahora practicamente cualquier persona puede tener computadora. Si el capital estuviese distribuido equitativamente en vez de concentrado, esto sería más desastroso que el socialismo mismo.
La primicia del distributismo de Chesterton y Belloc es que la propiedad productiva tiene que estar dispersa en vez de concentrada. Desde el punto de vista económico, eso sería fatal. Veamos la industria de la computación personal…Qué sería de esa industria si el capital no estuviese concentrado en Microsoft e Intel y otros pocas compañías? Estaríamos pagando precios altísimos y probablemente la tecnología no se habría desarrollado. Ahora practicamente cualquier persona puede tener computadora. Si el capital estuviese distribuido equitativamente en vez de concentrado, esto sería más desastroso que el socialismo mismo.
Monday, September 3, 2007
Part 3 Benedict’s 2nd Encyclical: Bigger Government?
As indicated in my prior posts, Pope Benedict XVI is set to publish his second encyclical on the subject of economics. Among its themes, it is reported that the new encyclical will urge more regulation of world trade and economic systems and condemn tax evasion as “socially unjust.”
I argued earlier that if the above report is true, this future encyclical may represent a departure from the last social encyclical of Pope John Paul II, which seemed to open the way to a reconciliation between a market economy and Catholicism, and that it may represent a return to traditional Catholic Social Doctrine with its reliance on socialist economics, philosophy and propaganda. In this last part 3 of this series, I will argue that there may be an affinity between Pope Benedict’s writings on Christianity as a philosophy of freedom and the tradition of Liberalism as expressed by certain variants of the Enlightenment, specifically a connection to Saint Thomas and the late scholastic Spanish Dominicans and Jesuits of the School of Salamanca (Soto, Mercado, Molina, Mariana, etc.).
Several economists have already pointed out the strong philosophical connection between the development of the economic theory of free markets and Catholicism. To my knowledge, this was first explicitly developed by Murray Rothbard in the 1950’s.
In a memo written in 1957 titled "Catholicism, Protestantism and Capitalism," http://www.mises.org/rothbard/RothbardOnKauder3.pdf Rothbard is recommending to a publisher the work of Emil Kauder and his research into the Aristotelian-Thomistic background of marginal utility and Austrian economic theory:
This line of thought was fully developed by Murray Rothbard in his “Economic Thought Before Adam Smith” Volume 1.
A similar approach was explored by F.A. Hayek in his "Law, Legislation and Liberty, Volume 2: The Mirage of Social Justice" University of Chicago Press 1978, note #15 to Chapter 9, p. 178-179. Here, Hayek states that the origin of capitalism is not to be found in Calvinism but in Jesuit Spanish scholastics and that these Jesuit scholars in the 16th century were the first to recognize that prices determined by just conduct of the parties in the market (no violence, fraud, etc.) is all that justice requires. Any particular application of "social justice" in the real world, including Catholic Social Doctrine, can only be accomplished via socialism.
Others who have explored the historical, philosophical and theological connection between Catholicism and Liberalism.
1) Bruno Leoni in ”Freedom and the Law”
2) Alejandro A. Chafuen in “Faith and Liberty, The Economic Thought of the Late Scholastics”
3) Jesús Huerta de Soto in “Juan de Mariana and the Spanish Scholastics” http://www.jesushuertadesoto.com/madre2.htm
4) Thomas E. Woods Jr. in “The Church and The Market”
All of these authors convincingly argue that the late scholastics had discovered and developed not only most of the basic tenets of the Liberal Anglo-Saxon movement, but also the principles of the free market economy, all from a Thomistic perspective.
If Kauder, Rothbard, and Hayek are correct, then Catholic economists, theologians and philosophers need to go back to the Catholic roots of Liberalism and extricate both Liberalism and Catholic Social Doctrine of the errors of Protestantism, Rationalism and the Enlightenment. And while Kauder, Rothbard, Hayek, Leoni, Chafuen and de Soto explore the historic and the philosophical connections between the two, to my knowledge, few have explored the deep theological connections between Catholicism and Liberalism. It is precisely here where Benedict XVI comes in, not only because he explicitly states, as I argue below, that this is needed, but because his own emphasis on the theology of freedom, he provides a possible bridge between a Catholic theology of freedom and free market economics.
1) My first area of exploration for possible affinities between Pope Benedict’s theology and Liberalism, is derived from a reading of his first encyclical “God is Love” http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20051225_deus-caritas-est_en.html
This passage, at least implicitly, recognizes that it is precisely in a system of Liberalism which does not purport to have the state solve everyone’s problems. Liberalism leaves space open for voluntary associations as one of the mechanisms complementing the free market through which
Christians can actively participate and institutionalize love for one’s neighbors.
2) My second area of exploration comes from my reading of “Introduction to Christianity,” where Pope Benedict XVI, then Cardinal Ratzinger, fully develops the connection between creation and freedom. He starts by asserting that the Christian belief in God is not identical with either the materialistic conception of being (that everything we encounter is matter) nor with the idealistic conception of being (that what we encounter is ultimately the product of thought, where mind is the original reality) p. 156-157, 1990 edition, Ignatius Press:
This goes beyond idealism. For the idealist, everything that “is” is explained as being-thought by single consciousness. For the Christian, everything that is being-thought is sustained by a creative freedom that imbues what is with the freedom of its own being. (P.157). Therefore, creation itself must be understood as creative freedom.
Pope Benedict then, after identifying the very structure of the world with freedom, goes on to state that Christians believe in the personal nature of the freedom that thinks. God is not an anonymous neutral consciousness but rather a person, therefore, (p. 158).
Pope Benedict further argues from this that a person is not just an individual, a reproduction of the world of ideas into matter, a secondary reality, like the Greeks thought, but, precisely, a person: a unique, irreproducible, particular, free created being who has supremacy over the universal. (P. 160).
The moral logic behind the right to private property, including ownership of our own bodies, arises from Christian tradition’s concept of the dignity of every single human being. Theologically, the concept of the dignity of the human being is partially derived from God’s creation, in which we are called to be inalienably responsible to God for our own use of liberty, but it is derived and confirmed in its entirety by the mystery of the Incarnation. God gives us the right to private property simply by restoring the fullness of the dignity we received when God created us. When God becomes man and gives himself back to the Father in an act of pure love, God redeems creation by giving us the opportunity to use our liberty to give ourselves to others.
The Pope traces the birth of freedom in his "Theology and the Church’s Political Stance" to Jesus Christ himself: “to Caesar what is Caesar’s and to God what is God’s”.
a) Creation is the being-thought of a creative consciousness that is free
b) Creation is imbued by the freedom of its own being
c) Freedom is the structural form of all being
d) Christian God is personal
f) Human beings are not individuals but persons who are unique, irreproducible, particular, free, supreme over universals
g) Human dignity is partially derived from God’s creation, in which we are called to be inalienably responsible to God for our own use of liberty
h) Freedom in the West is a product of the dualism of State vs Church established by Christ's dictum "Give to Caesar what is Caesar’s, and to God what is God’s"
To my knowledge, however, Pope Benedict does not write anything related to what the above steps would mean for the world of politics and economics, the free market and freedom from state aggression and intervention. One can easily imbue these arguments with of Rothbard’s “Ethics of Liberty” http://www.mises.org/resources/b66a8bf2-9db3-428e-84d0-44ac1514873c to present a Catholic reading.
3) The third possible area of affinity between Pope Benedict XVI’s theology and Liberalism comes from his writings on the development of the concept of freedom since the Enlightenment.
In his essay “Truth-Tolerance-Freedom” he links the concept of freedom in the Enlightenment with Reason alone. He recognizes that this trend is varied and at times contradictory. He distinguishes two trends. One is the Anglo-Saxon trend which is based on natural law, rejects positive of man-made law, and recognizes that man has rights because he was created free. This approach is revolutionary because it stands against the absolutism of the state and because it is not merely a political claim but a metaphysical claim. “Inherent in being itself there is an ethical and legal claim.” (p. 238 of Truth and Tolerance, Ignatius Press, 2004). Being is not just material, it bears within it dignity and an ethical dimension that has a legal claim of nature against the existing institutions of government. These claims take the form of rights of individuals over and against the state and its institutions (p.239). And two is the more radical continental trends exemplified by Rousseau, the French Revolution, Marx and dictatorships they generated, which promised a freedom unregulated by anything. He concludes by stating that:
Most modern Popes confused the Liberalism of the French Enlightenment (that was rationalistic, Cartesian, Rousseauian, Hegelian, Marxist, materialistic, contractual, utilitarian, anti-Semitic, atheistic, democratic and that led to the French Revolution, the Reign of Terror, democratic dictatorships of all sorts, communism, fascism, socialism and nazism) with the British tradition of common law (that was almost its exact opposite: anti-systematic, anti-utopian, empirical and Protestant).
To my knowledge, Pope Benedict is the first Pope to make this distinction between both movements explicit. Now, he does link through a cause and effect relationship both movements, with Anglo-Saxon Liberalism degenerating into French Liberalism, but the fact that he at least makes the distinction between them is critical, because from there, one can explore how Protestant philosophers who were well versed in the scholastics (Grotious and Pufendorf, for example) influenced the likes of Adam Smith. Unfortunately with the passage of time, the existence of this connection between Saint Thomas, the late Spanish scholastics and British common law was lost. This lost link contributed, I think, to the anti-liberal thinking of most modern Popes, who threw out the proverbial baby of Thomistic Liberalism with the bath water of Enlightenment Liberalism.
Both Enlightenment Liberalisms were dead ends that had and continue to have a very wide influence. The Liberalism articulated by Adam Smith, for example, gave us the mistaken labor theory of value that resulted in the development of the economics of Karl Marx, Keynes and Catholic Social Doctrine. As pointed out by Rothbard and Hayek, the late scholastics had discovered and developed not only most of the basic tenets of the Liberal Anglo-Saxon trends described by the Pope, but also the principles of the free market economy from a Thomistic perspective which can shield us from these mistakes. For example, they asserted that the value of a commodity is not based on its labor content, like Smith and Marx thought, but in the subjective valuations of buyers and sellers in a free market. Economists like Menger, Mises, Rothbard and Hayek took up these principles and fully developed into what is now called the Austrian School of Economics.
So this third area of affinity between Pope Benedict XVI’s theology and Liberalism is based on his explicit acknowledgement of a dichotomy between Natural Law Liberalism as expressed in the Anglo-Saxon tradition of Common Law and the French Enlightenment Liberalism. What is lacking in his perspective is a more elaborate connection to Saint Thomas and the Liberal Spanish Dominicans and Jesuits of the School of Salamanca. While one can take a leap and make the connection without, I believe, any major theological or philosophical problems, I am not sure if Benedict himself took that step.
4) A fourth area of affinity, however, is derived from his call to re-attach to the Enlightenment its Christian roots. By making this call, he does come close to making the connection between Liberalism and Saint Thomas. In "Christianity and the Crisis of Cultures" Ignatius Press 2006, he criticizes the banishment of Christianity from the European Constitution resulting from a “laicist Enlightenment” philosophy cut from its Christian roots.
Rothbard presents us with a very similar argument when he labors to find a philosophical and ethical foundation for the Austrian School of Economics on the Spanish Scholastics, Saint Thomas and Aristotle, in stark distinction to Mises utilitarian and value free approach. Here is Rothbard:
In that fashion, one can reconnect the Enlightenment to its lost Christian roots, rebuilding and reinforcing the framework within which Western civilization developed.
Let me conclude by stating that Catholic economists and theologians must build a stronger connection between Catholicism and Capitalism, a connection that will prove more fruitful than the one between Protestantism and Capitalism that has given us, particularly through its Calvinist streak the type of socialism exemplified by the current US welfare state. F.A. Hayek, it is reported, influenced the development of John Paul II’s views of capitalism in Centesimus Annus.
So perhaps the same dialogue will eventually take place between Pope Benedict and a Catholic economist or philosopher knowledgeable of both the Pope’s writings and the Thomistic roots of the Liberalism and make that final connection explicit.
I argued earlier that if the above report is true, this future encyclical may represent a departure from the last social encyclical of Pope John Paul II, which seemed to open the way to a reconciliation between a market economy and Catholicism, and that it may represent a return to traditional Catholic Social Doctrine with its reliance on socialist economics, philosophy and propaganda. In this last part 3 of this series, I will argue that there may be an affinity between Pope Benedict’s writings on Christianity as a philosophy of freedom and the tradition of Liberalism as expressed by certain variants of the Enlightenment, specifically a connection to Saint Thomas and the late scholastic Spanish Dominicans and Jesuits of the School of Salamanca (Soto, Mercado, Molina, Mariana, etc.).
Several economists have already pointed out the strong philosophical connection between the development of the economic theory of free markets and Catholicism. To my knowledge, this was first explicitly developed by Murray Rothbard in the 1950’s.
In a memo written in 1957 titled "Catholicism, Protestantism and Capitalism," http://www.mises.org/rothbard/RothbardOnKauder3.pdf Rothbard is recommending to a publisher the work of Emil Kauder and his research into the Aristotelian-Thomistic background of marginal utility and Austrian economic theory:
Kauder, in fact, turns the Weber thesis on its own followers by attacking Smith and Ricardo for being influenced by [Protestantism] to develop the “labor theory of value.” Schumpeter also leaned in this direction. The brunt of this important new thesis is this: rather than saying that Hume and Smith developed economic theory almost de novo, economics had actually been developed, slowly but surely, over the centuries by the Scholastics and by Italian and French Catholics influenced by the Scholastics; that their economics was generally individualist methodologically, and stressed utility theory, consumers’ sovereignty and market pricing, and that Smith really set back economic thought by injecting the purely British doctrine of the labor theory of value, thus throwing economics off the sound track for a hundred years. Here I might add that the labor theory of value has had many bad consequences. It, of course, paved the way, quite logically, for Marx. Secondly, its emphasis on “costs determining prices” has encouraged the view that businessmen push up prices or that unions push up prices, rather than governmental inflation of the money supply. Third, its emphasis on “objective, inherent value” in goods led to “scientistic” attempts to measure values, to stabilize them by government manipulation, etc. Now, Kauder’s interesting thesis is in two parts: one, that the above was the historical course of events in economic thought; and two, that the reason for this forgetting of utility theory and replacement by a labor-cost theory was influence by the Protestant, as opposed to the Catholic spirit...
...We may sum up the Case for Catholicism as follows: (1) Smith’s laissez-faire and natural law views descended from the late Scholastics, and from the Catholic Physiocrats; (2) the Catholics had developed marginal utility, subjective value economics, and the idea that the just price was the market price, while the British Protestants grafted on a dangerous and ultimately highly statist labor theory of value, influenced by Calvinism; (3) some of the most “dogmatic” laissez-faire theorists have been Catholics: from the Physiocrats to Bastiat; (4) capitalism began in the Catholic Italian cities of the 14th century; (5) Natural rights and other rationalist views descended from the Scholastics.
This line of thought was fully developed by Murray Rothbard in his “Economic Thought Before Adam Smith” Volume 1.
A similar approach was explored by F.A. Hayek in his "Law, Legislation and Liberty, Volume 2: The Mirage of Social Justice" University of Chicago Press 1978, note #15 to Chapter 9, p. 178-179. Here, Hayek states that the origin of capitalism is not to be found in Calvinism but in Jesuit Spanish scholastics and that these Jesuit scholars in the 16th century were the first to recognize that prices determined by just conduct of the parties in the market (no violence, fraud, etc.) is all that justice requires. Any particular application of "social justice" in the real world, including Catholic Social Doctrine, can only be accomplished via socialism.
Others who have explored the historical, philosophical and theological connection between Catholicism and Liberalism.
1) Bruno Leoni in ”Freedom and the Law”
2) Alejandro A. Chafuen in “Faith and Liberty, The Economic Thought of the Late Scholastics”
3) Jesús Huerta de Soto in “Juan de Mariana and the Spanish Scholastics” http://www.jesushuertadesoto.com/madre2.htm
4) Thomas E. Woods Jr. in “The Church and The Market”
All of these authors convincingly argue that the late scholastics had discovered and developed not only most of the basic tenets of the Liberal Anglo-Saxon movement, but also the principles of the free market economy, all from a Thomistic perspective.
If Kauder, Rothbard, and Hayek are correct, then Catholic economists, theologians and philosophers need to go back to the Catholic roots of Liberalism and extricate both Liberalism and Catholic Social Doctrine of the errors of Protestantism, Rationalism and the Enlightenment. And while Kauder, Rothbard, Hayek, Leoni, Chafuen and de Soto explore the historic and the philosophical connections between the two, to my knowledge, few have explored the deep theological connections between Catholicism and Liberalism. It is precisely here where Benedict XVI comes in, not only because he explicitly states, as I argue below, that this is needed, but because his own emphasis on the theology of freedom, he provides a possible bridge between a Catholic theology of freedom and free market economics.
1) My first area of exploration for possible affinities between Pope Benedict’s theology and Liberalism, is derived from a reading of his first encyclical “God is Love” http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20051225_deus-caritas-est_en.html
b) Love—caritas—will always prove necessary, even in the most just society. There is no ordering of the State so just that it can eliminate the need for a
service of love. Whoever wants to eliminate love is preparing to eliminate man
as such. There will always be suffering which cries out for consolation and help. There will always be loneliness. There will always be situations of material need where help in the form of concrete love of neighbor is indispensable. The State which would provide everything, absorbing everything into itself, would ultimately become a mere bureaucracy incapable of guaranteeing the very thing which the suffering person—every person—needs: namely, loving personal concern. We do not need a State which regulates and controls everything, but a State which, in accordance with the principle of subsidiarity, generously acknowledges and supports initiatives arising from the different social forces and combines spontaneity with closeness to those in need....In the end, the claim that just social
structures would make works of charity superfluous masks a materialist
conception of man...
This passage, at least implicitly, recognizes that it is precisely in a system of Liberalism which does not purport to have the state solve everyone’s problems. Liberalism leaves space open for voluntary associations as one of the mechanisms complementing the free market through which
Christians can actively participate and institutionalize love for one’s neighbors.
2) My second area of exploration comes from my reading of “Introduction to Christianity,” where Pope Benedict XVI, then Cardinal Ratzinger, fully develops the connection between creation and freedom. He starts by asserting that the Christian belief in God is not identical with either the materialistic conception of being (that everything we encounter is matter) nor with the idealistic conception of being (that what we encounter is ultimately the product of thought, where mind is the original reality) p. 156-157, 1990 edition, Ignatius Press:
Christian belief in God means that things are the being-thought of a creative consciousness, of a creative freedom, and that the creative consciousness that bears up all things has release what has been thought into the freedom of its own, independent existence.
This goes beyond idealism. For the idealist, everything that “is” is explained as being-thought by single consciousness. For the Christian, everything that is being-thought is sustained by a creative freedom that imbues what is with the freedom of its own being. (P.157). Therefore, creation itself must be understood as creative freedom.
The idea of freedom is the characteristic mark of the Christian believe in God as opposed to any kind of monism. At the beginning of all being it puts not just some kind of consciousness but a creative freedom that creates further freedoms…Christianity is a philosophy of freedom. For Christianity, the explanation of reality as a whole is not an all-embracing consciousness or a single materiality; on the contrary, at the summit stands a freedom that thinks and, but thinking, creates freedoms, thus making freedom the structural form of all being. (P. 157-158)
Pope Benedict then, after identifying the very structure of the world with freedom, goes on to state that Christians believe in the personal nature of the freedom that thinks. God is not an anonymous neutral consciousness but rather a person, therefore, (p. 158).
The highest is not the most universal but, precisely, the particular, and the Christian faith is thus above all also the option for man as the irreducible, infinity-oriented being. (p.158)
Pope Benedict further argues from this that a person is not just an individual, a reproduction of the world of ideas into matter, a secondary reality, like the Greeks thought, but, precisely, a person: a unique, irreproducible, particular, free created being who has supremacy over the universal. (P. 160).
The moral logic behind the right to private property, including ownership of our own bodies, arises from Christian tradition’s concept of the dignity of every single human being. Theologically, the concept of the dignity of the human being is partially derived from God’s creation, in which we are called to be inalienably responsible to God for our own use of liberty, but it is derived and confirmed in its entirety by the mystery of the Incarnation. God gives us the right to private property simply by restoring the fullness of the dignity we received when God created us. When God becomes man and gives himself back to the Father in an act of pure love, God redeems creation by giving us the opportunity to use our liberty to give ourselves to others.
The Pope traces the birth of freedom in his "Theology and the Church’s Political Stance" to Jesus Christ himself: “to Caesar what is Caesar’s and to God what is God’s”.
The modern idea of freedom is thus a legitimate product of the Christian environment; it could not have developed anywhere else. Indeed, one must add that it cannot be separated from this Christian environment and transplanted into any other system, as is shown very clearly today in the renaissance of Islam; the attempt to graft on to Islamic societies what are termed western standards cut loose from their Christian foundations misunderstands the internal logic of Islam as well as the historical logic to which these western standards belong, and hence this attempt was condemned to fail in this form. The construction of society in Islam is theocratic, and therefore monist and not dualist; dualism, which is the recondition for freedom, presupposes for its part the logic of the Christian thing. In practice this means that it is only where the duality of Church and state, of the sacral and the political authority, remains maintained in some form or another that the fundamental pre-condition exists for freedom. http://www.lewrockwell.com/orig6/ratzinger2.htmlSo the following logical steps from citations above can be used to secure the concept of freedom of Liberalism on more solid theological grounds.
a) Creation is the being-thought of a creative consciousness that is free
b) Creation is imbued by the freedom of its own being
c) Freedom is the structural form of all being
d) Christian God is personal
f) Human beings are not individuals but persons who are unique, irreproducible, particular, free, supreme over universals
g) Human dignity is partially derived from God’s creation, in which we are called to be inalienably responsible to God for our own use of liberty
h) Freedom in the West is a product of the dualism of State vs Church established by Christ's dictum "Give to Caesar what is Caesar’s, and to God what is God’s"
To my knowledge, however, Pope Benedict does not write anything related to what the above steps would mean for the world of politics and economics, the free market and freedom from state aggression and intervention. One can easily imbue these arguments with of Rothbard’s “Ethics of Liberty” http://www.mises.org/resources/b66a8bf2-9db3-428e-84d0-44ac1514873c to present a Catholic reading.
3) The third possible area of affinity between Pope Benedict XVI’s theology and Liberalism comes from his writings on the development of the concept of freedom since the Enlightenment.
In his essay “Truth-Tolerance-Freedom” he links the concept of freedom in the Enlightenment with Reason alone. He recognizes that this trend is varied and at times contradictory. He distinguishes two trends. One is the Anglo-Saxon trend which is based on natural law, rejects positive of man-made law, and recognizes that man has rights because he was created free. This approach is revolutionary because it stands against the absolutism of the state and because it is not merely a political claim but a metaphysical claim. “Inherent in being itself there is an ethical and legal claim.” (p. 238 of Truth and Tolerance, Ignatius Press, 2004). Being is not just material, it bears within it dignity and an ethical dimension that has a legal claim of nature against the existing institutions of government. These claims take the form of rights of individuals over and against the state and its institutions (p.239). And two is the more radical continental trends exemplified by Rousseau, the French Revolution, Marx and dictatorships they generated, which promised a freedom unregulated by anything. He concludes by stating that:
Since man is a being who exists in being-from, being-with and being-for, human freedom can only exist in an ordered coexistence of freedoms. Law is, therefore, not the opposite of freedom, but its necessary condition; it is indeed constitutive of freedom. (P.256)
Most modern Popes confused the Liberalism of the French Enlightenment (that was rationalistic, Cartesian, Rousseauian, Hegelian, Marxist, materialistic, contractual, utilitarian, anti-Semitic, atheistic, democratic and that led to the French Revolution, the Reign of Terror, democratic dictatorships of all sorts, communism, fascism, socialism and nazism) with the British tradition of common law (that was almost its exact opposite: anti-systematic, anti-utopian, empirical and Protestant).
To my knowledge, Pope Benedict is the first Pope to make this distinction between both movements explicit. Now, he does link through a cause and effect relationship both movements, with Anglo-Saxon Liberalism degenerating into French Liberalism, but the fact that he at least makes the distinction between them is critical, because from there, one can explore how Protestant philosophers who were well versed in the scholastics (Grotious and Pufendorf, for example) influenced the likes of Adam Smith. Unfortunately with the passage of time, the existence of this connection between Saint Thomas, the late Spanish scholastics and British common law was lost. This lost link contributed, I think, to the anti-liberal thinking of most modern Popes, who threw out the proverbial baby of Thomistic Liberalism with the bath water of Enlightenment Liberalism.
Both Enlightenment Liberalisms were dead ends that had and continue to have a very wide influence. The Liberalism articulated by Adam Smith, for example, gave us the mistaken labor theory of value that resulted in the development of the economics of Karl Marx, Keynes and Catholic Social Doctrine. As pointed out by Rothbard and Hayek, the late scholastics had discovered and developed not only most of the basic tenets of the Liberal Anglo-Saxon trends described by the Pope, but also the principles of the free market economy from a Thomistic perspective which can shield us from these mistakes. For example, they asserted that the value of a commodity is not based on its labor content, like Smith and Marx thought, but in the subjective valuations of buyers and sellers in a free market. Economists like Menger, Mises, Rothbard and Hayek took up these principles and fully developed into what is now called the Austrian School of Economics.
So this third area of affinity between Pope Benedict XVI’s theology and Liberalism is based on his explicit acknowledgement of a dichotomy between Natural Law Liberalism as expressed in the Anglo-Saxon tradition of Common Law and the French Enlightenment Liberalism. What is lacking in his perspective is a more elaborate connection to Saint Thomas and the Liberal Spanish Dominicans and Jesuits of the School of Salamanca. While one can take a leap and make the connection without, I believe, any major theological or philosophical problems, I am not sure if Benedict himself took that step.
4) A fourth area of affinity, however, is derived from his call to re-attach to the Enlightenment its Christian roots. By making this call, he does come close to making the connection between Liberalism and Saint Thomas. In "Christianity and the Crisis of Cultures" Ignatius Press 2006, he criticizes the banishment of Christianity from the European Constitution resulting from a “laicist Enlightenment” philosophy cut from its Christian roots.
…Enlightenment culture is substantially defined by the rights to liberty. Its starting point is that liberty is a fundamental value and the criterion of everything else…At the same time, it is equally obvious that the concept of liberty on which this culture is based inevitably leads to contradictions since it is either badly defined or not defined at all… p. 34-35-36
Above all, however, we must affirm that this Enlightenment philosophy, with its related culture, is incomplete. It consciously cuts off its own historical roots, depriving itself of the powerful sources from which it sprang. It detaches itself from what we might call the basic memory of mankind, without which reason loses its orientation… p 41
A tree without roots dries up…In affirming this, we are not denying all the positive and important contributions of this philosophy. Rather, we are stating that it needs to be completed, since it is profoundly incomplete…p. 43
Rothbard presents us with a very similar argument when he labors to find a philosophical and ethical foundation for the Austrian School of Economics on the Spanish Scholastics, Saint Thomas and Aristotle, in stark distinction to Mises utilitarian and value free approach. Here is Rothbard:
Pope Benedict’s argues that since the Enlightenment is Christian in origin, and that since it was only born in places where Christianity had taken hold (p.48), even if we cannot find the path of accepting the existence of God, we should at a minimum heed to Pascal’s advice and direct our lives as if God existed.
Thus, while praxeological economic theory is extremely useful for providing data
and knowledge for framing economic policy, it cannot be sufficient by itself to enable the economist to make any value pronouncements or to advocate any
public policy whatsoever. More specifically, Ludwig von Mises to the contrary notwithstanding, neither praxeological economics nor Mises’s utilitarian liberalism is sufficient to make the case for laissez faire and the free-market economy. To make such a case, one must go beyond economics and utilitarianism to establish an objective ethics which affirms the overriding value of liberty, and morally condemns all forms of statism... http://www.mises.org/resources/765d4a0d-02c8-4098-9862-823b7021d3b1
Even the one who does not succeed in finding the path to accepting the existence of God ought nevertheless to try to live and to direct his live as if God did indeed exist…This does not impose limitations on anyone’s freedom; it gives support to all our human affairs and supplies a criterion of which human life stands sorely in need. p. 51
In that fashion, one can reconnect the Enlightenment to its lost Christian roots, rebuilding and reinforcing the framework within which Western civilization developed.
Let me conclude by stating that Catholic economists and theologians must build a stronger connection between Catholicism and Capitalism, a connection that will prove more fruitful than the one between Protestantism and Capitalism that has given us, particularly through its Calvinist streak the type of socialism exemplified by the current US welfare state. F.A. Hayek, it is reported, influenced the development of John Paul II’s views of capitalism in Centesimus Annus.
11."During the last months of his life, Hayek had the opportunity for a long conversation with Pope John Paul II. There are signs of Hayek’s influence in certain portions of the pope’s encyclical Centesimus Annus. In paragraphs 31 and
32, in particular, Centesimus Annus employs unmistakably Hayekian insights."
Michael Novak, "Two Moral Ideas for Business," Economic Affairs
(September-October 1993): 7. (See Jesús Huerta de Soto, “The Ethics of
Capitalism” http://www.acton.org/publicat/m_and_m/1999_fall/desoto.html).
So perhaps the same dialogue will eventually take place between Pope Benedict and a Catholic economist or philosopher knowledgeable of both the Pope’s writings and the Thomistic roots of the Liberalism and make that final connection explicit.
Sunday, September 2, 2007
Part 2 Benedict’s 2nd Encyclical: Bigger Government?
As indicated below in Part 1, Pope Benedict XVI is set to publish his second encyclical on the subject of economics. Among its themes, it is reported that the new encyclical will urge more regulation of world trade and economic systems and condemn tax evasion as “socially unjust.”
I argued earlier that if the above report is true, this future encyclical may represent a departure from the last social encyclical of Pope John Paul II, which seemed to open the way to a reconciliation between a market economy and Catholicism. Here I will argue that this future encyclical may represent a return to traditional Catholic Social Doctrine (CSD) and its reliance on socialist economics, philosophy and propaganda.
It is my contention that the Popes not only attack certain aspects of capitalism that in their minds need to be confronted, but attack the very philosophical basis of capitalism, such as competition, individualism and the free market, and that in doing so, they helped pave the way for some of the worst experiments of economic interventionism of the 20th Century. All of this, at best, not knowing about the connection between Aristotle, Christianity, Saint Thomas, the late scholastics and capitalism, and at worst, ignoring it.
Let me start with a personal anecdote that perhaps some readers, maybe those coming from Latin America, may get. I went to a Jesuit high school in Venezuela during the late 70’s and early 80’s. The Jesuit priests took such an extreme view against capitalism that I recall attending retreats and “work camps” around the themes of “social reality” and poverty in which there was no attempt at a balanced critique both socialism and capitalism. Indeed they were so critical of individual competition that tennis was banned from the school as a “bourgeois” sport (they repainted the tennis courts we had and converted them into courts for “team” sports like volley-ball). Unfortunately, with that approach also went any recognition of individual intellectual achievements and grades. I never really questioned their approach until much later, but now I understand where these Jesuit priests came from. All you need is a detail reading of these Papal social encyclicals and letters. Sadly, by condemning capitalism with a greater force than socialism, Jesuits contributed to the handing over of Venezuela to a socialist dictator.
Pope Leo XIII’s Rerum Novarum
Let us read from Pope Leo XIII’s Rerum Novarum, written in 1891, the first of a series of social encyclicals and letters written by modern Popes. (http://www.vatican.va/holy_father/leo_xiii/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum_en.html)
3. In any case we clearly see, and on this there is general agreement, that some opportune remedy must be found quickly for the misery and wretchedness pressing so unjustly on the majority of the working class: for the ancient workingmen's guilds were abolished in the last century, and no other protective organization took their place. Public institutions and the laws set aside the ancient religion. Hence, by degrees it has come to pass that working men have been surrendered, isolated and helpless, to the hardheartedness of employers and the greed of unchecked competition. The mischief has been increased by rapacious usury, which, although more than once condemned by the Church, is nevertheless, under a different guise, but with like injustice, still practiced by covetous and grasping men. To this must be added that the hiring of labor and the conduct of trade are concentrated in the hands of comparatively few; so that a small number of very rich men have been able to lay upon the teeming masses of the laboring poor a yoke little better than that of slavery itself.
Leo XIII uses a stereotypical socialist language to criticize businessmen (hardheartedness, greedy, covetous, grasping, mischievous, rapacious, unjust, rich, slave-masters, monopolists, etc.) and to criticize competition (greed of unchecked competition). Marx and Engels couldn’t have written the encyclical any better! If in the first social encyclical the Catholic Church attacks capitalism with this ferocity, without understanding the role that competition and entrepreneurship play, without understanding how prices and markets work, without understanding the relationship between freedom and free markets, without understanding why the guild system and Mercantilism had to give way to a more productive economic system capable of feeding the masses, the Church writes-off Liberalism in the same pen stroke with which it writes-off socialism. (It is interesting to note that the Spanish and French translations of this encyclical use the term “proletariat” rather than “laboring poor.” How this Marxist term was introduced in those two translations is unknown to me since I was unable to figure out the original language in which Leo XIII wrote.)
Pope Pius XI’s Quadragesimo Anno
Pope Pius XI continues 40 years later in 1931 with this same line of argument in Quadragesimo Anno, equally attacking individualism and collectivism:
46. Accordingly, twin rocks of shipwreck must be carefully avoided. For, as one is wrecked upon, or comes close to, what is known as "individualism" by denying or minimizing the social and public character of the right of property, so by rejecting or minimizing the private and individual character of this same right, one inevitably runs into "collectivism" or at least closely approaches its tenets.
88. Attention must be given also to another matter that is closely connected with the foregoing. Just as the unity of human society cannot be founded on an opposition of classes, so also the right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching. Destroying through forgetfulness or ignorance the social and moral character of economic life, it held that economic life must be considered and treated as altogether free from and independent of public authority, because in the market, i.e., in the free struggle of competitors, it would have a principle of self direction which governs it much more perfectly than would the intervention of any created intellect. But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life - a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated. Therefore, it is most necessary that economic life be again subjected to and governed by a true and effective directing principle. This function is one that the economic dictatorship which has recently displaced free competition can still less perform, since it is a headstrong power and a violent energy that, to benefit people, needs to be strongly curbed and wisely ruled. But it cannot curb and rule itself. Loftier and nobler principles - social justice and social charity - must, therefore, be sought whereby this dictatorship may be governed firmly and fully. Hence, the institutions themselves of peoples and, particularly those of all social life, ought to be penetrated with this justice, and it is most necessary that it be truly effective, that is, establish a juridical and social order which will, as it were, give form and shape to all economic life. Social charity, moreover, ought to be as the soul of this order, an order which public authority ought to be ever ready effectively to protect and defend. It will be able to do this the more easily as it rids itself of those burdens which, as We have stated above, are not properly its own.
Such an approach was tried by the Christian Democracy movements in Latin America, which were tried and failed miserably: to establish and economic order based on charity and social justice, guided by the state. But why does the Pope insist in denying the fact that competition CAN direct economic life? This is just like denying the fact that competition in the natural world CAN direct evolution, without the need for a guiding hand! If the Church has finally rectified its mistake regarding Galileo and now recognizes that gravity, along with electromagnetic weak, strong and other natural forces, can give order the universe and if it clearly accepts evolution as a plausible theory that can order the natural world as long as it does not deny God, why deny that competition can direct economic life. Free markets, gravity and evolution don’t necessarily deny the existence of God nor God’s active participation in the world. Perhaps this is a point that needs to be explored in more detail, since I sense that this is the key Papal misunderstanding regarding Liberalism, more than the issue of Freedom as a supreme value that you pointed out earlier. Creationism is to Evolution what Catholic Social Doctrine is to Free Markets.
In the following section, the Pope Pius XI attacks “capital:”
54. Property, that is, "capital," has undoubtedly long been able to appropriate too much to itself. Whatever was produced, whatever returns accrued, capital claimed for itself, hardly leaving to the worker enough to restore and renew his strength. For the doctrine was preached that all accumulation of capital falls by an absolutely insuperable economic law to the rich, and that by the same law the workers are given over and bound to perpetual want, to the scantiest of livelihoods. It is true, indeed, that things have not always and everywhere corresponded with this sort of teaching of the so-called Manchesterian Liberals; yet it cannot be denied that economic social institutions have moved steadily in that direction. That these false ideas, these erroneous suppositions, have been vigorously assailed, and not by those alone who through them were being deprived of their innate right to obtain better conditions, will surprise no one.
But how does Pius XI conclude that capital does not leave enough to the workers? Clearly he has borrowed from Karl Marx who wrote Das Kapital to unsuccessfully attempt to prove the same. I don’t think the Pope truly understood the essential function of capital and capital markets in a free economy. First off, this contraposition between capital and labor is artificial and a result, once again, of Marx and his labor theory of value. There is no way that the Pope could have invented that dichotomy between capital and labor without explicitly appropriating it from Marx. The notion that somehow the capitalist extracts the “added value” of labor (surplus value in Marxian terminology) from the workers and pockets it to unjustly enrich himself is mistaken and caused great damage to the hundreds of million of people who endured under all types of socialism during the 20th century and to the 100 million who perished as a result. By borrowing it, even unconsciously, Pius XI contributed to that tragedy.
If any of the readers are businessmen, you can attest that from a practical everyday perspective, very few if any businessmen operate with that dichotomy in mind. Both capital and labor must work hand in hand. Without labor, capital is useless. As a hospital administrator, I work hard to retain, train, and satisfy my employees. I am evaluated and compensated based on the level of satisfaction and the turnover rate of my employees. I spend 80% of my time dealing with labor issues. If I didn’t, I could not retain good employees and all the capital in the world would mean nothing. Second, who owns the capital markets? Pension and mutual funds. Who owns these funds in capitalist countries? The great majority owned by workers. Who owns these funds in countries that have followed socialism? The state. Third, the capacity of human intelligence to take something like capital that is pure potency waiting to be unlocked and then to transform it into products and services for everyone is, in my opinion, a beautiful gift from God. Regarding the function of the stock, options, futures and bond markets, I will not go into detail, other than to say that they are essential to the diversification of risk and the promotion of sound economic growth.
The Pope does recognize that the situation of the working poor has improved:
59. The redemption of the non-owning workers - this is the goal that Our Predecessor declared must necessarily be sought. …And these commands have not lost their force and wisdom for our time because that "pauperism" which Leo XIII beheld in all its horror is less widespread. Certainly the condition of the workers has been improved and made more equitable especially in the more civilized and wealthy countries where the workers can no longer be considered universally overwhelmed with misery and lacking the necessities of life. But since manufacturing and industry have so rapidly pervaded and occupied countless regions, not only in the countries called new, but also in the realms of the Far East that have been civilized from antiquity, the number of the non-owning working poor has increased enormously and their groans cry to God from the earth. Added to them is the huge army of rural wage workers, pushed to the lowest level of existence and deprived of all hope of ever acquiring "some property in land,"and, therefore, permanently bound to the status of non-owning worker unless suitable and effective remedies are applied.
But Pius XI never bothers to asks himself how and why the situation of the working class in the wealthier countries improved!!! Could it be because of free markets?
This is the same perplexity that Catholic French philosopher Jacques Maritain expresses in “Reflections on America.” http://www2.nd.edu/Departments/Maritain/etext/reflect0.html. This is a great little book, a sort of follow up to de Tocqueville. Maritain was responsible for the revival of Aquinas in the 20th Century. He taught at Notre Dame in the 50’s.
Here’s the quote from Maritain:
I would like to submit an especially significant example of the need for an explicit philosophy, an example drawn from the achievements and discoveries of this country in the social field. I am thinking of a phenomenon of great historical importance -- the striking success of the "unsystematic American system": namely, the transformation of the economic system which has come about in this country during the last half century. The industrial regime inherited from Europe has now become unrecognizable in this country. It has been superseded by new economic structures which are still in the making, and in a state of fluidity, but which render both capitalism and socialism things of the past. Free enterprise and private ownership function now in a social context and a general mood entirely different from those of the nineteenth century. Two developments of outstanding significance must be mentioned in this connection: first, the growth of organized labor; second, the evolution of industry and management.
Maritain here recognizes that there is something different and unique about American free markets. What he calls the “unsystematic American System” is simply Liberalism at its best. That is because continental Europe never really experienced true Liberalism and by the time Maritain and others could have studied England, that country was already in the midst of socialist policies and institutions, just like the rest of Europe. I think Pope John Paul adopted the perspective of distinguishing between 19th Century capitalism and modern capitalism.
Reading other sections of Pope Pius XI’s Quadragesimo Anno sent chills down my spine. I am referring to the open and enthusiastic embrace of fascism, ambivalence about socialism and appropriation of Lenin’s account of imperialism.
I bolded the key phrases, but all the sections are worth reading. All are cut and pasted directly from the official documents posted on the Vatican website. Can someone please tell me that the Vatican website was hacked by fascists and socialists?
FASCISM and Pope Pius XI:
82. The social policy of the State, therefore, must devote itself to the re-establishment of the Industries and Professions. In actual fact, human society now, for the reason that it is founded on classes with divergent aims and hence opposed to one another and therefore inclined to enmity and strife, continues to be in a violent condition and is unstable and uncertain.
83. Labor, as Our Predecessor explained well in his Encyclical is not a mere commodity. On the contrary, the worker's human dignity in it must be recognized. It therefore cannot be bought and sold like a commodity. Nevertheless, as the situation now stands, hiring and offering for hire in the so-called labor market separate men into two divisions, as into battle lines, and the contest between these divisions turns the labor market itself almost into a battlefield where, face to face, the opposing lines struggle bitterly. Everyone understands that this grave evil which is plunging all human society to destruction must be remedied as soon as possible. But complete cure will not come until this opposition has been abolished and well-ordered members of the social body - Industries and Professions - are constituted in which men may have their place, not according to the position each has in the labor market but according to the respective social functions which each performs. For under nature's guidance it comes to pass that just as those who are joined together by nearness of habitation establish towns, so those who follow the same industry or profession - whether in the economic or other field - form guilds or associations, so that many are wont to consider these self-governing organizations, if not essential, at least natural to civil society.
84. Because order, as St. Thomas well explains, is unity arising from the harmonious arrangement of many objects, a true, genuine social order demands that the various members of a society be united together by some strong bond. This unifying force is present not only in the producing of goods or the rendering of services - in which the employers and employees of an identical Industry or Profession collaborate jointly - but also in that common good, to achieve which all Industries and Professions together ought, each to the best of its ability, to cooperate amicably. And this unity will be the stronger and more effective, the more faithfully individuals and the Industries and Professions themselves strive to do their work and excel in it.
85. It is easily deduced from what has been said that the interests common to the whole Industry or Profession should hold first place in these guilds. The most important among these interests is to promote the cooperation in the highest degree of each industry and profession for the sake of the common good of the country. Concerning matters, however, in which particular points, involving advantage or detriment to employers or workers, may require special care and protection, the two parties, when these cases arise, can deliberate separately or as the situation requires reach a decision separately.
91. Recently, as all know, there has been inaugurated a special system of syndicates and corporations of the various callings which in view of the theme of this Encyclical it would seem necessary to describe here briefly and comment upon appropriately.
92. The civil authority itself constitutes the syndicate as a juridical personality in such a manner as to confer on it simultaneously a certain monopoly-privilege, since only such a syndicate, when thus approved, can maintain the rights (according to the type of syndicate) of workers or employers, and since it alone can arrange for the placement of labor and conclude so-termed labor agreements. Anyone is free to join a syndicate or not, and only within these limits can this kind of syndicate be called free; for syndical dues and special assessments are exacted of absolutely all members of every specified calling or profession, whether they are workers or employers; likewise all are bound by the labor agreements made by the legally recognized syndicate. Nevertheless, it has been officially stated that this legally recognized syndicate does not prevent the existence, without legal status, however, of other associations made up of persons following the same calling.
93. The associations, or corporations, are composed of delegates from the two syndicates (that is, of workers and employers) respectively of the same industry or profession and, as true and proper organs and institutions of the State, they direct the syndicates and coordinate their activities in matters of common interest toward one and the same end.
94. Strikes and lock-outs are forbidden; if the parties cannot settle their dispute, public authority intervenes.
95. Anyone who gives even slight attention to the matter will easily see what are the obvious advantages in the system We have thus summarily described: The various classes work together peacefully, socialist organizations and their activities are repressed, and a special magistracy exercises a governing authority. Yet lest We neglect anything in a matter of such great importance and that all points treated may be properly connected with the more general principles which We mentioned above and with those which We intend shortly to add, We are compelled to say that to Our certain knowledge there are not wanting some who fear that the State, instead of confining itself as it ought to the furnishing of necessary and adequate assistance, is substituting itself for free activity; that the new syndical and corporative order savors too much of an involved and political system of administration; and that (in spite of those more general advantages mentioned above, which are of course fully admitted) it rather serves particular political ends than leads to the reconstruction and promotion of a better social order.
133. Strict and watchful moral restraint enforced vigorously by governmental authority could have banished these enormous evils and even forestalled them; this restraint, however, has too often been sadly lacking. For since the seeds of a new form of economy were bursting forth just when the principles of rationalism had been implanted and rooted in many minds, there quickly developed a body of economic teaching far removed from the true moral law, and, as a result, completely free rein was given to human passions.
LENINISM and Pope Pius XI:
108. This accumulation of might and of power generates in turn three kinds of conflict. First, there is the struggle for economic supremacy itself; then there is the bitter fight to gain supremacy over the State in order to use in economic struggles its resources and authority; finally there is conflict between States themselves, not only because countries employ their power and shape their policies to promote every economic advantage of their citizens, but also because they seek to decide political controversies that arise among nations through the use of their economic supremacy and strength
.
109. The ultimate consequences of the individualist spirit in economic life are those which you yourselves, Venerable Brethren and Beloved Children, see and deplore: Free competition has destroyed itself; economic dictatorship has supplanted the free market; unbridled ambition for power has likewise succeeded greed for gain; all economic life has become tragically hard, inexorable, and cruel. To these are to be added the grave evils that have resulted from an intermingling and shameful confusion of the functions and duties of public authority with those of the economic sphere - such as, one of the worst, the virtual degradation of the majesty of the State, which although it ought to sit on high like a queen and supreme arbitress, free from all partiality and intent upon the one common good and justice, is become a slave, surrendered and delivered to the passions and greed of men. And as to international relations, two different streams have issued from the one fountain-head: On the one hand, economic nationalism or even economic imperialism; on the other, a no less deadly and accursed internationalism of finance or international imperialism whose country is where profit is.
SOCIALISM and Pope Pius XI:
113. The other section, which has kept the name Socialism, is surely more moderate. It not only professes the rejection of violence but modifies and tempers to some degree, if it does not reject entirely, the class struggle and the abolition of private ownership. One might say that, terrified by its own principles and by the conclusions drawn there from by Communism, Socialism inclines toward and in a certain measure approaches the truths which Christian tradition has always held sacred; for it cannot be denied that its demands at times come very near those that Christian reformers of society justly insist upon.
114. For if the class struggle abstains from enmities and mutual hatred, it gradually changes into an honest discussion of differences founded on a desire for justice, and if this is not that blessed social peace which we all seek, it can and ought to be the point of departure from which to move forward to the mutual cooperation of the Industries and Professions. So also the war declared on private ownership, more and more abated, is being so restricted that now, finally, not the possession itself of the means of production is attacked but rather a kind of sovereignty over society which ownership has, contrary to all right, seized and usurped. For such sovereignty belongs in reality not to owners but to the public authority. If the foregoing happens, it can come even to the point that imperceptibly these ideas of the more moderate socialism will no longer differ from the desires and demands of those who are striving to remold human society on the basis of Christian principles. For certain kinds of property, it is rightly contended, ought to be reserved to the State since they carry with them a dominating power so great that cannot without danger to the general welfare be entrusted to private individuals.
115. Such just demands and desire have nothing in them now which is inconsistent with Christian truth, and much less are they special to Socialism. Those who work solely toward such ends have, therefore, no reason to become socialists.
Pius XI does state that ultimately Christian Socialism is impossible (apparently Christian fascism was OK), but one can see how Christian Democrats and other Catholics in the West read Quadragesimo Anno and concluded that they could use all the socialist and fascist economic analysis and techniques and feel that they were following Catholic Orthodoxy.
Pope Paul VI’s Octogesima Adveniens
Let us go back now to the development of Catholic Social Doctrine. The attacks against the basis of capitalism continue 40 years later in 1971with the apostolic letter Octogesima Adveniens, 80 years after Rerum Novarum (http://www.vatican.va/holy_father/paul_vi/apost_letters/documents/hf_p-vi_apl_19710514_octogesima-adveniens_en.html).
Here Pope Paul VI condemns Liberalism because it has an individualistic basis:
35. On another side, we are witnessing a renewal of the liberal ideology. This current asserts itself both in the name of economic efficiency, and for the defense of the individual against the increasingly overwhelming hold of organizations, and as a reaction against the totalitarian tendencies of political powers. Certainly, personal initiative must be maintained and developed. But do not Christians who take this path tend to idealize liberalism in their turn, making it a proclamation in favor of freedom? They would like a new model, more adapted to present-day conditions, while easily forgetting that at the very root of philosophical liberalism is an erroneous affirmation of the autonomy of the individual in his activity, his motivation and the exercise of his liberty…
Pope Paul VI is wrong in assuming that Liberalism is based on the autonomy of an individual’s activity, motivation and liberty. That is NOT what Maritain saw in America. And it is NOT what I see, live and practice as a businessman. This is the tragedy: by attacking Socialism and Liberalism and advocating a “third way,” Catholicism misses the opportunity to understand the science of economics (and its relationship to freedom and faith), and ends up accepting, recommending and advocating economic policies and management practices that are a carbon copy of Marxism and Socialism. If Catholicism has little positive to say about the free market, competition, individualism, discipline, work-ethic, etc, all necessary to create wealth, one is left with the Utopia of a “new man” preached by Marxists and Liberation Theology alike. Indeed that is what happened for a period of time in the 60’s, 70’s and 80’s when Catholics erroneously promoted variations of Liberation Theology. The Latin American Bishop’s documents of Medellín and Puebla are full of Liberation Theology. So are other documents from American Bishops that address economics and international trade. It is what I was taught by Jesuits in the 70’s when I went to high school, and it is what I was taught at Notre Dame’s Economics and Theology Departments in the 80’s (Wilbur, Jameson, Goulet, McBrian, and most visiting faculty brought by the Kellogg Institute from Latin America, with very few notable exceptions).
Clearly, the Popes do not understand economic theory. Let us take the example of a “just wage.” When the Popes say that a just wage should allow a family to live comfortably, how do they think that this can be enforced from the top and without taking the reality of scarcity into consideration? Why assume that the state's intervention legislating wages is purely benign? Why assume that this enforcement will not hurt others who will be priced out of the market and go unemployed? Why are the moral implications of supporting policies that cause unemployment never addressed? The Popes just assume that wages are set by arbitrary decisions that employers make. Where does the underlying criticisms that the market is unfair and arbitrary come from? Surely, every now and then an employer can give an extra bonus or be generous with a pay increase beyond what the dynamics of the market call for, but do the Popes really think that all employers can permanently pay people at whatever level some third party determines is "reasonable"? You cannot suspend the laws of economics. If the Popes believe that the concepts of marginal cost, marginal productivity and marginal utility are wrong, then they should appeal to reason to disprove them. If not, they should remain cautions about pronouncements in economic matters, with the same caution as they have traditionally taken with respects to science ever since the conflict with Galileo.
John Paul II, as I mentioned in Part 1, changed all of this and in the process of writing his last social encyclical, opened a door that theologians, economists and philosophers must explore: can Catholicism and the free market co-exists and are there historical and theological cause and effect links between the evolution of free markets, Catholicism and the Church. As a fervent Catholic, it is my hope and prayer to Mary that Pope Benedict XVI will follow the example of John Paul II.
In Part 3 of this series, I will attempt to show that one can find certain affinities between Pope Benedict’s theological writings on Christianity as a philosophy of freedom and a free market economy based on private property, freedom of exchange and minimal or no state intervention.
For a more in depth studies of Catholic Social Doctrine and the free market see:
1) Thomas E. Woods Jr, "The Church and the Market". For a review of the book, go to: http://www.mises.org/journals/qjae/pdf/qjae8_4_8.pdf
2) Michael Novak, "The Spirit of Democratic Capitalism"
I argued earlier that if the above report is true, this future encyclical may represent a departure from the last social encyclical of Pope John Paul II, which seemed to open the way to a reconciliation between a market economy and Catholicism. Here I will argue that this future encyclical may represent a return to traditional Catholic Social Doctrine (CSD) and its reliance on socialist economics, philosophy and propaganda.
It is my contention that the Popes not only attack certain aspects of capitalism that in their minds need to be confronted, but attack the very philosophical basis of capitalism, such as competition, individualism and the free market, and that in doing so, they helped pave the way for some of the worst experiments of economic interventionism of the 20th Century. All of this, at best, not knowing about the connection between Aristotle, Christianity, Saint Thomas, the late scholastics and capitalism, and at worst, ignoring it.
Let me start with a personal anecdote that perhaps some readers, maybe those coming from Latin America, may get. I went to a Jesuit high school in Venezuela during the late 70’s and early 80’s. The Jesuit priests took such an extreme view against capitalism that I recall attending retreats and “work camps” around the themes of “social reality” and poverty in which there was no attempt at a balanced critique both socialism and capitalism. Indeed they were so critical of individual competition that tennis was banned from the school as a “bourgeois” sport (they repainted the tennis courts we had and converted them into courts for “team” sports like volley-ball). Unfortunately, with that approach also went any recognition of individual intellectual achievements and grades. I never really questioned their approach until much later, but now I understand where these Jesuit priests came from. All you need is a detail reading of these Papal social encyclicals and letters. Sadly, by condemning capitalism with a greater force than socialism, Jesuits contributed to the handing over of Venezuela to a socialist dictator.
Pope Leo XIII’s Rerum Novarum
Let us read from Pope Leo XIII’s Rerum Novarum, written in 1891, the first of a series of social encyclicals and letters written by modern Popes. (http://www.vatican.va/holy_father/leo_xiii/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum_en.html)
3. In any case we clearly see, and on this there is general agreement, that some opportune remedy must be found quickly for the misery and wretchedness pressing so unjustly on the majority of the working class: for the ancient workingmen's guilds were abolished in the last century, and no other protective organization took their place. Public institutions and the laws set aside the ancient religion. Hence, by degrees it has come to pass that working men have been surrendered, isolated and helpless, to the hardheartedness of employers and the greed of unchecked competition. The mischief has been increased by rapacious usury, which, although more than once condemned by the Church, is nevertheless, under a different guise, but with like injustice, still practiced by covetous and grasping men. To this must be added that the hiring of labor and the conduct of trade are concentrated in the hands of comparatively few; so that a small number of very rich men have been able to lay upon the teeming masses of the laboring poor a yoke little better than that of slavery itself.
Leo XIII uses a stereotypical socialist language to criticize businessmen (hardheartedness, greedy, covetous, grasping, mischievous, rapacious, unjust, rich, slave-masters, monopolists, etc.) and to criticize competition (greed of unchecked competition). Marx and Engels couldn’t have written the encyclical any better! If in the first social encyclical the Catholic Church attacks capitalism with this ferocity, without understanding the role that competition and entrepreneurship play, without understanding how prices and markets work, without understanding the relationship between freedom and free markets, without understanding why the guild system and Mercantilism had to give way to a more productive economic system capable of feeding the masses, the Church writes-off Liberalism in the same pen stroke with which it writes-off socialism. (It is interesting to note that the Spanish and French translations of this encyclical use the term “proletariat” rather than “laboring poor.” How this Marxist term was introduced in those two translations is unknown to me since I was unable to figure out the original language in which Leo XIII wrote.)
Pope Pius XI’s Quadragesimo Anno
Pope Pius XI continues 40 years later in 1931 with this same line of argument in Quadragesimo Anno, equally attacking individualism and collectivism:
46. Accordingly, twin rocks of shipwreck must be carefully avoided. For, as one is wrecked upon, or comes close to, what is known as "individualism" by denying or minimizing the social and public character of the right of property, so by rejecting or minimizing the private and individual character of this same right, one inevitably runs into "collectivism" or at least closely approaches its tenets.
88. Attention must be given also to another matter that is closely connected with the foregoing. Just as the unity of human society cannot be founded on an opposition of classes, so also the right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching. Destroying through forgetfulness or ignorance the social and moral character of economic life, it held that economic life must be considered and treated as altogether free from and independent of public authority, because in the market, i.e., in the free struggle of competitors, it would have a principle of self direction which governs it much more perfectly than would the intervention of any created intellect. But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life - a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated. Therefore, it is most necessary that economic life be again subjected to and governed by a true and effective directing principle. This function is one that the economic dictatorship which has recently displaced free competition can still less perform, since it is a headstrong power and a violent energy that, to benefit people, needs to be strongly curbed and wisely ruled. But it cannot curb and rule itself. Loftier and nobler principles - social justice and social charity - must, therefore, be sought whereby this dictatorship may be governed firmly and fully. Hence, the institutions themselves of peoples and, particularly those of all social life, ought to be penetrated with this justice, and it is most necessary that it be truly effective, that is, establish a juridical and social order which will, as it were, give form and shape to all economic life. Social charity, moreover, ought to be as the soul of this order, an order which public authority ought to be ever ready effectively to protect and defend. It will be able to do this the more easily as it rids itself of those burdens which, as We have stated above, are not properly its own.
Such an approach was tried by the Christian Democracy movements in Latin America, which were tried and failed miserably: to establish and economic order based on charity and social justice, guided by the state. But why does the Pope insist in denying the fact that competition CAN direct economic life? This is just like denying the fact that competition in the natural world CAN direct evolution, without the need for a guiding hand! If the Church has finally rectified its mistake regarding Galileo and now recognizes that gravity, along with electromagnetic weak, strong and other natural forces, can give order the universe and if it clearly accepts evolution as a plausible theory that can order the natural world as long as it does not deny God, why deny that competition can direct economic life. Free markets, gravity and evolution don’t necessarily deny the existence of God nor God’s active participation in the world. Perhaps this is a point that needs to be explored in more detail, since I sense that this is the key Papal misunderstanding regarding Liberalism, more than the issue of Freedom as a supreme value that you pointed out earlier. Creationism is to Evolution what Catholic Social Doctrine is to Free Markets.
In the following section, the Pope Pius XI attacks “capital:”
54. Property, that is, "capital," has undoubtedly long been able to appropriate too much to itself. Whatever was produced, whatever returns accrued, capital claimed for itself, hardly leaving to the worker enough to restore and renew his strength. For the doctrine was preached that all accumulation of capital falls by an absolutely insuperable economic law to the rich, and that by the same law the workers are given over and bound to perpetual want, to the scantiest of livelihoods. It is true, indeed, that things have not always and everywhere corresponded with this sort of teaching of the so-called Manchesterian Liberals; yet it cannot be denied that economic social institutions have moved steadily in that direction. That these false ideas, these erroneous suppositions, have been vigorously assailed, and not by those alone who through them were being deprived of their innate right to obtain better conditions, will surprise no one.
But how does Pius XI conclude that capital does not leave enough to the workers? Clearly he has borrowed from Karl Marx who wrote Das Kapital to unsuccessfully attempt to prove the same. I don’t think the Pope truly understood the essential function of capital and capital markets in a free economy. First off, this contraposition between capital and labor is artificial and a result, once again, of Marx and his labor theory of value. There is no way that the Pope could have invented that dichotomy between capital and labor without explicitly appropriating it from Marx. The notion that somehow the capitalist extracts the “added value” of labor (surplus value in Marxian terminology) from the workers and pockets it to unjustly enrich himself is mistaken and caused great damage to the hundreds of million of people who endured under all types of socialism during the 20th century and to the 100 million who perished as a result. By borrowing it, even unconsciously, Pius XI contributed to that tragedy.
If any of the readers are businessmen, you can attest that from a practical everyday perspective, very few if any businessmen operate with that dichotomy in mind. Both capital and labor must work hand in hand. Without labor, capital is useless. As a hospital administrator, I work hard to retain, train, and satisfy my employees. I am evaluated and compensated based on the level of satisfaction and the turnover rate of my employees. I spend 80% of my time dealing with labor issues. If I didn’t, I could not retain good employees and all the capital in the world would mean nothing. Second, who owns the capital markets? Pension and mutual funds. Who owns these funds in capitalist countries? The great majority owned by workers. Who owns these funds in countries that have followed socialism? The state. Third, the capacity of human intelligence to take something like capital that is pure potency waiting to be unlocked and then to transform it into products and services for everyone is, in my opinion, a beautiful gift from God. Regarding the function of the stock, options, futures and bond markets, I will not go into detail, other than to say that they are essential to the diversification of risk and the promotion of sound economic growth.
The Pope does recognize that the situation of the working poor has improved:
59. The redemption of the non-owning workers - this is the goal that Our Predecessor declared must necessarily be sought. …And these commands have not lost their force and wisdom for our time because that "pauperism" which Leo XIII beheld in all its horror is less widespread. Certainly the condition of the workers has been improved and made more equitable especially in the more civilized and wealthy countries where the workers can no longer be considered universally overwhelmed with misery and lacking the necessities of life. But since manufacturing and industry have so rapidly pervaded and occupied countless regions, not only in the countries called new, but also in the realms of the Far East that have been civilized from antiquity, the number of the non-owning working poor has increased enormously and their groans cry to God from the earth. Added to them is the huge army of rural wage workers, pushed to the lowest level of existence and deprived of all hope of ever acquiring "some property in land,"and, therefore, permanently bound to the status of non-owning worker unless suitable and effective remedies are applied.
But Pius XI never bothers to asks himself how and why the situation of the working class in the wealthier countries improved!!! Could it be because of free markets?
This is the same perplexity that Catholic French philosopher Jacques Maritain expresses in “Reflections on America.” http://www2.nd.edu/Departments/Maritain/etext/reflect0.html. This is a great little book, a sort of follow up to de Tocqueville. Maritain was responsible for the revival of Aquinas in the 20th Century. He taught at Notre Dame in the 50’s.
Here’s the quote from Maritain:
I would like to submit an especially significant example of the need for an explicit philosophy, an example drawn from the achievements and discoveries of this country in the social field. I am thinking of a phenomenon of great historical importance -- the striking success of the "unsystematic American system": namely, the transformation of the economic system which has come about in this country during the last half century. The industrial regime inherited from Europe has now become unrecognizable in this country. It has been superseded by new economic structures which are still in the making, and in a state of fluidity, but which render both capitalism and socialism things of the past. Free enterprise and private ownership function now in a social context and a general mood entirely different from those of the nineteenth century. Two developments of outstanding significance must be mentioned in this connection: first, the growth of organized labor; second, the evolution of industry and management.
Maritain here recognizes that there is something different and unique about American free markets. What he calls the “unsystematic American System” is simply Liberalism at its best. That is because continental Europe never really experienced true Liberalism and by the time Maritain and others could have studied England, that country was already in the midst of socialist policies and institutions, just like the rest of Europe. I think Pope John Paul adopted the perspective of distinguishing between 19th Century capitalism and modern capitalism.
Reading other sections of Pope Pius XI’s Quadragesimo Anno sent chills down my spine. I am referring to the open and enthusiastic embrace of fascism, ambivalence about socialism and appropriation of Lenin’s account of imperialism.
I bolded the key phrases, but all the sections are worth reading. All are cut and pasted directly from the official documents posted on the Vatican website. Can someone please tell me that the Vatican website was hacked by fascists and socialists?
FASCISM and Pope Pius XI:
82. The social policy of the State, therefore, must devote itself to the re-establishment of the Industries and Professions. In actual fact, human society now, for the reason that it is founded on classes with divergent aims and hence opposed to one another and therefore inclined to enmity and strife, continues to be in a violent condition and is unstable and uncertain.
83. Labor, as Our Predecessor explained well in his Encyclical is not a mere commodity. On the contrary, the worker's human dignity in it must be recognized. It therefore cannot be bought and sold like a commodity. Nevertheless, as the situation now stands, hiring and offering for hire in the so-called labor market separate men into two divisions, as into battle lines, and the contest between these divisions turns the labor market itself almost into a battlefield where, face to face, the opposing lines struggle bitterly. Everyone understands that this grave evil which is plunging all human society to destruction must be remedied as soon as possible. But complete cure will not come until this opposition has been abolished and well-ordered members of the social body - Industries and Professions - are constituted in which men may have their place, not according to the position each has in the labor market but according to the respective social functions which each performs. For under nature's guidance it comes to pass that just as those who are joined together by nearness of habitation establish towns, so those who follow the same industry or profession - whether in the economic or other field - form guilds or associations, so that many are wont to consider these self-governing organizations, if not essential, at least natural to civil society.
84. Because order, as St. Thomas well explains, is unity arising from the harmonious arrangement of many objects, a true, genuine social order demands that the various members of a society be united together by some strong bond. This unifying force is present not only in the producing of goods or the rendering of services - in which the employers and employees of an identical Industry or Profession collaborate jointly - but also in that common good, to achieve which all Industries and Professions together ought, each to the best of its ability, to cooperate amicably. And this unity will be the stronger and more effective, the more faithfully individuals and the Industries and Professions themselves strive to do their work and excel in it.
85. It is easily deduced from what has been said that the interests common to the whole Industry or Profession should hold first place in these guilds. The most important among these interests is to promote the cooperation in the highest degree of each industry and profession for the sake of the common good of the country. Concerning matters, however, in which particular points, involving advantage or detriment to employers or workers, may require special care and protection, the two parties, when these cases arise, can deliberate separately or as the situation requires reach a decision separately.
91. Recently, as all know, there has been inaugurated a special system of syndicates and corporations of the various callings which in view of the theme of this Encyclical it would seem necessary to describe here briefly and comment upon appropriately.
92. The civil authority itself constitutes the syndicate as a juridical personality in such a manner as to confer on it simultaneously a certain monopoly-privilege, since only such a syndicate, when thus approved, can maintain the rights (according to the type of syndicate) of workers or employers, and since it alone can arrange for the placement of labor and conclude so-termed labor agreements. Anyone is free to join a syndicate or not, and only within these limits can this kind of syndicate be called free; for syndical dues and special assessments are exacted of absolutely all members of every specified calling or profession, whether they are workers or employers; likewise all are bound by the labor agreements made by the legally recognized syndicate. Nevertheless, it has been officially stated that this legally recognized syndicate does not prevent the existence, without legal status, however, of other associations made up of persons following the same calling.
93. The associations, or corporations, are composed of delegates from the two syndicates (that is, of workers and employers) respectively of the same industry or profession and, as true and proper organs and institutions of the State, they direct the syndicates and coordinate their activities in matters of common interest toward one and the same end.
94. Strikes and lock-outs are forbidden; if the parties cannot settle their dispute, public authority intervenes.
95. Anyone who gives even slight attention to the matter will easily see what are the obvious advantages in the system We have thus summarily described: The various classes work together peacefully, socialist organizations and their activities are repressed, and a special magistracy exercises a governing authority. Yet lest We neglect anything in a matter of such great importance and that all points treated may be properly connected with the more general principles which We mentioned above and with those which We intend shortly to add, We are compelled to say that to Our certain knowledge there are not wanting some who fear that the State, instead of confining itself as it ought to the furnishing of necessary and adequate assistance, is substituting itself for free activity; that the new syndical and corporative order savors too much of an involved and political system of administration; and that (in spite of those more general advantages mentioned above, which are of course fully admitted) it rather serves particular political ends than leads to the reconstruction and promotion of a better social order.
133. Strict and watchful moral restraint enforced vigorously by governmental authority could have banished these enormous evils and even forestalled them; this restraint, however, has too often been sadly lacking. For since the seeds of a new form of economy were bursting forth just when the principles of rationalism had been implanted and rooted in many minds, there quickly developed a body of economic teaching far removed from the true moral law, and, as a result, completely free rein was given to human passions.
LENINISM and Pope Pius XI:
108. This accumulation of might and of power generates in turn three kinds of conflict. First, there is the struggle for economic supremacy itself; then there is the bitter fight to gain supremacy over the State in order to use in economic struggles its resources and authority; finally there is conflict between States themselves, not only because countries employ their power and shape their policies to promote every economic advantage of their citizens, but also because they seek to decide political controversies that arise among nations through the use of their economic supremacy and strength
.
109. The ultimate consequences of the individualist spirit in economic life are those which you yourselves, Venerable Brethren and Beloved Children, see and deplore: Free competition has destroyed itself; economic dictatorship has supplanted the free market; unbridled ambition for power has likewise succeeded greed for gain; all economic life has become tragically hard, inexorable, and cruel. To these are to be added the grave evils that have resulted from an intermingling and shameful confusion of the functions and duties of public authority with those of the economic sphere - such as, one of the worst, the virtual degradation of the majesty of the State, which although it ought to sit on high like a queen and supreme arbitress, free from all partiality and intent upon the one common good and justice, is become a slave, surrendered and delivered to the passions and greed of men. And as to international relations, two different streams have issued from the one fountain-head: On the one hand, economic nationalism or even economic imperialism; on the other, a no less deadly and accursed internationalism of finance or international imperialism whose country is where profit is.
SOCIALISM and Pope Pius XI:
113. The other section, which has kept the name Socialism, is surely more moderate. It not only professes the rejection of violence but modifies and tempers to some degree, if it does not reject entirely, the class struggle and the abolition of private ownership. One might say that, terrified by its own principles and by the conclusions drawn there from by Communism, Socialism inclines toward and in a certain measure approaches the truths which Christian tradition has always held sacred; for it cannot be denied that its demands at times come very near those that Christian reformers of society justly insist upon.
114. For if the class struggle abstains from enmities and mutual hatred, it gradually changes into an honest discussion of differences founded on a desire for justice, and if this is not that blessed social peace which we all seek, it can and ought to be the point of departure from which to move forward to the mutual cooperation of the Industries and Professions. So also the war declared on private ownership, more and more abated, is being so restricted that now, finally, not the possession itself of the means of production is attacked but rather a kind of sovereignty over society which ownership has, contrary to all right, seized and usurped. For such sovereignty belongs in reality not to owners but to the public authority. If the foregoing happens, it can come even to the point that imperceptibly these ideas of the more moderate socialism will no longer differ from the desires and demands of those who are striving to remold human society on the basis of Christian principles. For certain kinds of property, it is rightly contended, ought to be reserved to the State since they carry with them a dominating power so great that cannot without danger to the general welfare be entrusted to private individuals.
115. Such just demands and desire have nothing in them now which is inconsistent with Christian truth, and much less are they special to Socialism. Those who work solely toward such ends have, therefore, no reason to become socialists.
Pius XI does state that ultimately Christian Socialism is impossible (apparently Christian fascism was OK), but one can see how Christian Democrats and other Catholics in the West read Quadragesimo Anno and concluded that they could use all the socialist and fascist economic analysis and techniques and feel that they were following Catholic Orthodoxy.
Pope Paul VI’s Octogesima Adveniens
Let us go back now to the development of Catholic Social Doctrine. The attacks against the basis of capitalism continue 40 years later in 1971with the apostolic letter Octogesima Adveniens, 80 years after Rerum Novarum (http://www.vatican.va/holy_father/paul_vi/apost_letters/documents/hf_p-vi_apl_19710514_octogesima-adveniens_en.html).
Here Pope Paul VI condemns Liberalism because it has an individualistic basis:
35. On another side, we are witnessing a renewal of the liberal ideology. This current asserts itself both in the name of economic efficiency, and for the defense of the individual against the increasingly overwhelming hold of organizations, and as a reaction against the totalitarian tendencies of political powers. Certainly, personal initiative must be maintained and developed. But do not Christians who take this path tend to idealize liberalism in their turn, making it a proclamation in favor of freedom? They would like a new model, more adapted to present-day conditions, while easily forgetting that at the very root of philosophical liberalism is an erroneous affirmation of the autonomy of the individual in his activity, his motivation and the exercise of his liberty…
Pope Paul VI is wrong in assuming that Liberalism is based on the autonomy of an individual’s activity, motivation and liberty. That is NOT what Maritain saw in America. And it is NOT what I see, live and practice as a businessman. This is the tragedy: by attacking Socialism and Liberalism and advocating a “third way,” Catholicism misses the opportunity to understand the science of economics (and its relationship to freedom and faith), and ends up accepting, recommending and advocating economic policies and management practices that are a carbon copy of Marxism and Socialism. If Catholicism has little positive to say about the free market, competition, individualism, discipline, work-ethic, etc, all necessary to create wealth, one is left with the Utopia of a “new man” preached by Marxists and Liberation Theology alike. Indeed that is what happened for a period of time in the 60’s, 70’s and 80’s when Catholics erroneously promoted variations of Liberation Theology. The Latin American Bishop’s documents of Medellín and Puebla are full of Liberation Theology. So are other documents from American Bishops that address economics and international trade. It is what I was taught by Jesuits in the 70’s when I went to high school, and it is what I was taught at Notre Dame’s Economics and Theology Departments in the 80’s (Wilbur, Jameson, Goulet, McBrian, and most visiting faculty brought by the Kellogg Institute from Latin America, with very few notable exceptions).
Clearly, the Popes do not understand economic theory. Let us take the example of a “just wage.” When the Popes say that a just wage should allow a family to live comfortably, how do they think that this can be enforced from the top and without taking the reality of scarcity into consideration? Why assume that the state's intervention legislating wages is purely benign? Why assume that this enforcement will not hurt others who will be priced out of the market and go unemployed? Why are the moral implications of supporting policies that cause unemployment never addressed? The Popes just assume that wages are set by arbitrary decisions that employers make. Where does the underlying criticisms that the market is unfair and arbitrary come from? Surely, every now and then an employer can give an extra bonus or be generous with a pay increase beyond what the dynamics of the market call for, but do the Popes really think that all employers can permanently pay people at whatever level some third party determines is "reasonable"? You cannot suspend the laws of economics. If the Popes believe that the concepts of marginal cost, marginal productivity and marginal utility are wrong, then they should appeal to reason to disprove them. If not, they should remain cautions about pronouncements in economic matters, with the same caution as they have traditionally taken with respects to science ever since the conflict with Galileo.
John Paul II, as I mentioned in Part 1, changed all of this and in the process of writing his last social encyclical, opened a door that theologians, economists and philosophers must explore: can Catholicism and the free market co-exists and are there historical and theological cause and effect links between the evolution of free markets, Catholicism and the Church. As a fervent Catholic, it is my hope and prayer to Mary that Pope Benedict XVI will follow the example of John Paul II.
In Part 3 of this series, I will attempt to show that one can find certain affinities between Pope Benedict’s theological writings on Christianity as a philosophy of freedom and a free market economy based on private property, freedom of exchange and minimal or no state intervention.
For a more in depth studies of Catholic Social Doctrine and the free market see:
1) Thomas E. Woods Jr, "The Church and the Market". For a review of the book, go to: http://www.mises.org/journals/qjae/pdf/qjae8_4_8.pdf
2) Michael Novak, "The Spirit of Democratic Capitalism"
Part 1 Benedict’s 2nd Encyclical: bigger government?
As reported on http://www.catholic.org/international/international_story.php?id=25018, Pope Benedict XVI is set to publish his second encyclical on the subject of economics. Among its themes, it is reported that the new encyclical will urge more regulation of world trade and economic systems and condemn tax evasion as “socially unjust.”
If the above report is true, it will be tragic. In these first few articles, I will argue that this future encyclical may represent:
1) A departure from the last social encyclical of Pope John Paul II, which seemed to open the way to a reconciliation between a market economy, Liberalism and Catholicism
2) A return to traditional Catholic Social Doctrine, which I contend is polluted with socialist economics, philosophy and propaganda.
3) A missed opportunity for Pope Benedict to synthesize the connection between his writings on Christianity as a philosophy of freedom and a free market economy based solely on private property, freedom of exchange and no state intervention.
Pope John Paul II, Free Market Economy and Liberalism
Writing in Centesimus Annus (http://www.vatican.va/edocs/ENG0214/_INDEX.HTM), John Paul II tackled the question of the role of capitalism after the failure of communism. Paragraph 42 reads as follows:
“Returning now to the initial question: can it perhaps be said that, after the failure of Communism, capitalism is the victorious social system, and that capitalism should be the goal of the countries now making efforts to rebuild their economy and society? Is this the model which ought to be proposed to the countries of the Third World which are searching for the path to true economic and civil progress? The answer is obviously complex. If by "capitalism" is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative…”
Obviously, in answering the question in the affirmative, John Paul II reflects on other critical principles that are clearly compatible with a market economy:
1) Establishes both "freedom" and "original sin" as essential in understanding of how human reality works. When we ignore this, we make matters worse.
"Man tends towards good, but he is also capable of evil. He can transcend his immediate interest and still remain bound to it. The social order will be all the more stable, the more it takes this fact into account and does not place in opposition personal interest and the interests of society as a whole, but rather seeks ways to bring them into fruitful harmony. In fact, where self-interest is violently suppressed, it is replaced by a burdensome system of bureaucratic control which dries up the wellsprings of initiative and creativity. When people think they possess the secret of a perfect social organization which makes evil impossible, they also think that they can use any means, including violence and deceit, in order to bring that organization into being. Politics then becomes a "secular religion" which operates under the illusion of creating paradise in this world."
2) Places the role of the state in its proper place of guaranteeing individual freedom and private property.
"48. These general observations also apply to the role of the State in the economic sector. Economic activity, especially the activity of a market economy, cannot be conducted in an institutional, juridical or political vacuum. On the contrary, it presupposes sure guarantees of individual freedom and private property, as well as a stable currency and efficient public services. Hence the principle task of the State is to guarantee this security, so that those who work and produce can enjoy the fruits of their labors and thus feel encouraged to work efficiently and honestly."
3) Places individuals, groups and associations (and not the state) in the primary role of overseeing human rights in the economy.
"Another task of the State is that of overseeing and directing the exercise of human rights in the economic sector. However, primary responsibility in this area belongs not to the State but to individuals and to the various groups and associations which make up society. The State could not directly ensure the right to work for all its citizens unless it controlled every aspect of economic life and restricted the free initiative of individuals."
4) Re-interprets the principle of subsidiarity, asserting that it limits the role of the state even when it has to intervene in cases of emergency or market failures.
"The State has the further right to intervene when particular monopolies create delays or obstacles to development. In addition to the tasks of harmonizing and guiding development, in exceptional circumstances the State can also exercise a substitute function, when social sectors or business systems are too weak or are just getting under way, and are not equal to the task at hand. Such supplementary interventions, which are justified by urgent reasons touching the common good, must be as brief as possible, so as to avoid removing permanently from society and business systems the functions which are properly theirs, and so as to avoid enlarging excessively the sphere of State intervention to the detriment of both economic and civil freedom."
5) Criticizes the role of the welfare state and places responsibility for welfare on the hands of "neighbors," individuals and associations.
"By intervening directly and depriving society of its responsibility, the Social Assistance State leads to a loss of human energies and an inordinate increase of public agencies, which are dominated more by bureaucratic ways of thinking than by concern for serving their clients, and which are accompanied by an enormous increase in spending. In fact, it would appear that needs are best understood and satisfied by people who are closest to them and who act as neighbors to those in need."
6) Recognizes the universal social dimension of labor markets, individual initiative and entrepreneurship.
"Mention has just been made of the fact that people work with each other, sharing in a "community of work" which embraces ever widening circles. A person who produces something other than for his own use generally does so in order that others may use it after they have paid a just price, mutually agreed upon through free bargaining. It is precisely the ability to foresee both the needs of others and the combinations of productive factors most adapted to satisfying those needs that constitutes another important source of wealth in modern society. Besides, many goods cannot be adequately produced through the work of an isolated individual; they require the cooperation of many people in working towards a common goal. Organizing such a productive effort, planning its duration in time, making sure that it corresponds in a positive way to the demands which it must satisfy, and taking the necessary risks — all this too is a source of wealth in today's society. In this way, the role of disciplined and creative human work and, as an essential part of that work, initiative and entrepreneurial ability becomes increasingly evident and decisive."
7) Recognizes the primacy of the free market as the most efficient and effective
"It would appear that, on the level of individual nations and of international relations, the free market is the most efficient instrument for utilizing resources and effectively responding to needs."
8) Acknowledges the proper role of profit and points out how critical human capital is to the firm.
"The Church acknowledges the legitimate role of profit as an indication that a business is functioning well. When a firm makes a profit, this means that productive factors have been properly employed and corresponding human needs have been duly satisfied. But profitability is not the only indicator of a firm's condition. It is possible for the financial accounts to be in order, and yet for the people — who make up the firm's most valuable asset — to be humiliated and their dignity offended. Besides being morally inadmissible, this will eventually have negative repercussions on the firm's economic efficiency. In fact, the purpose of a business firm is not simply to make a profit, but is to be found in its very existence as a community of persons who in various ways are endeavoring to satisfy their basic needs, and who form a particular group at the service of the whole of society. Profit is a regulator of the life of a business, but it is not the only one; other human and moral factors must also be considered which, in the long term, are at least equally important for the life of a business."
9) Recognizes the importance of religious values in capitalism and that one cannot have capitalism without freedom in other realms, not just economic (i.e., what the Chinese are trying to do...).
"If economic life is absolutized, if the production and consumption of goods become the center of social life and society's only value, not subject to any other value, the reason is to be found not so much in the economic system itself as in the fact that the entire socio-cultural system, by ignoring the ethical and religious dimension, has been weakened, and ends by limiting itself to the production of goods and services alone. All of this can be summed up by repeating once more that economic freedom is only one element of human freedom. When it becomes autonomous, when man is seen more as a producer or consumer of goods than as a subject who produces and consumes in order to live, then economic freedom loses its necessary relationship to the human person and ends up by alienating and oppressing him."
10) Derives private property rights from its labor theory, in a similar fashion as John Locke and other champions of liberalism do:
a. Here's JPII: "Man fulfils himself by using his intelligence and freedom. In so doing he utilizes the things of this world as objects and instruments and makes them his own. The foundation of the right to private initiative and ownership is to be found in this activity."
b. Here's Locke: "Sec. 27. Though the Earth, and all inferior Creatures be common to all Men, yet every Man has a Property in his own Person. This no Body had any Right to but himself. The Labor of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labor with, and joined to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, it hath by this labor something annexed to it, that excludes the common right of other Men. For this Labor being the unquestionable Property of the Laborer, no Man but he can have a right to what that is once joined to, at least where there is enough, and as good left in common for others."
11) Declares as illegitimate private property that is left idle, in a similar fashion as John Locke does:
a. Here's JPII: "It becomes illegitimate, however, when it is not utilized or when it serves to impede the work of others, in an effort to gain a profit which is not the result of the overall expansion of work and the wealth of society, but rather is the result of curbing them or of illicit exploitation, speculation or the breaking of solidarity among working people. Ownership of this kind has no justification, and represents an abuse in the sight of God and man."
b. Here's Locke: "...yet there are still great Tracts of Ground to be found, which (the Inhabitants thereof not having joyned with the rest of Mankind, in the consent of the Use of their common Money) lie waste, and are more than the People, who dwell on it, do, or can make use of, and so still lie in common."
12) Supports the universal destination of goods, just like John Locke does:
a. Here’s JPII: “In Rerum novarum, Leo XIII strongly affirmed the natural character of the right to private property, using various arguments against the socialism of his time. This right, which is fundamental for the autonomy and development of the person, has always been defended by the Church up to our own day. At the same time, the Church teaches that the possession of material goods is not an absolute right, and that its limits are inscribed in its very nature as a human right. While the Pope proclaimed the right to private ownership, he affirmed with equal clarity that the "use" of goods, while marked by freedom, is subordinated to their original common destination as created goods, as well as to the will of Jesus Christ as expressed in the Gospel. Pope Leo wrote: "those whom fortune favors are admonished ... that they should tremble at the warnings of Jesus Christ ... and that a most strict account must be given to the Supreme Judge for the use of all they possess"; and quoting Saint Thomas Aquinas, he added: "But if the question be asked, how must one's possessions be used? the Church replies without hesitation that man should not consider his material possessions as his own, but as common to all...", because "above the laws and judgments of men stands the law, the judgment of Christ
b. Here's Locke, admitting that God gave the world to all "men in common": "Sec. 39. And thus, without supposing any private Dominion, and property in Adam, over all the World, exclusive of other Men, which can no way be proved, nor any ones Property be made out from it; but supposing the World given as it was to the Children of Men in common, we see how labour could make Men distinct titles to several parcels of it, for their private uses; wherein there could be no doubt of Right, no room for quarrel.
c. Here's Locke saying that the same Natural Law that gives us the right to private property also bounds us to share what duly belongs to others when we own more than we need: "30. It will, perhaps, be objected to this, that if gathering the acorns or other fruits of the earth, etc., makes a right to them, then any one may engross as much as he will. To which I answer, Not so. The same law of Nature that does by this means give us property, does also bound that property too. "God has given us all things richly." Is the voice of reason confirmed by inspiration? But how far has He given it us- "to enjoy"? As much as any one can make use of to any advantage of life before it spoils, so much he may by his labor fix a property in. Whatever is beyond this is more than his share, and belongs to others."
d. And here's Locke saying that private property is also bound by the rights of others who are not left with enough: "For this "labor" being the unquestionable property of the laborer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good left in common for others."
Clearly, John Paul’s thinking evolved from his first social encyclical, Laborems Exercens, where he offered sound criticisms of socialism and communism, but biased against capitalism. All modern Popes before him offered the same approach. If Pope Benedict indeed is considering a return to traditional Catholic Social Doctrine of more state intervention in economics, it will be a huge step backwards and a blow to the many who are attempting not only to reconcile Catholicism to free markets, but indeed to prove and establish historical and theological cause and effect links between the evolution of free markets, Catholicism and the Church.
In Part 2 of this series, I will offer a critical review of key Papal social encyclicals to demonstrate how Catholic Social Doctrine is influenced by socialist economics, philosophy and propaganda.
If the above report is true, it will be tragic. In these first few articles, I will argue that this future encyclical may represent:
1) A departure from the last social encyclical of Pope John Paul II, which seemed to open the way to a reconciliation between a market economy, Liberalism and Catholicism
2) A return to traditional Catholic Social Doctrine, which I contend is polluted with socialist economics, philosophy and propaganda.
3) A missed opportunity for Pope Benedict to synthesize the connection between his writings on Christianity as a philosophy of freedom and a free market economy based solely on private property, freedom of exchange and no state intervention.
Pope John Paul II, Free Market Economy and Liberalism
Writing in Centesimus Annus (http://www.vatican.va/edocs/ENG0214/_INDEX.HTM), John Paul II tackled the question of the role of capitalism after the failure of communism. Paragraph 42 reads as follows:
“Returning now to the initial question: can it perhaps be said that, after the failure of Communism, capitalism is the victorious social system, and that capitalism should be the goal of the countries now making efforts to rebuild their economy and society? Is this the model which ought to be proposed to the countries of the Third World which are searching for the path to true economic and civil progress? The answer is obviously complex. If by "capitalism" is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative…”
Obviously, in answering the question in the affirmative, John Paul II reflects on other critical principles that are clearly compatible with a market economy:
1) Establishes both "freedom" and "original sin" as essential in understanding of how human reality works. When we ignore this, we make matters worse.
"Man tends towards good, but he is also capable of evil. He can transcend his immediate interest and still remain bound to it. The social order will be all the more stable, the more it takes this fact into account and does not place in opposition personal interest and the interests of society as a whole, but rather seeks ways to bring them into fruitful harmony. In fact, where self-interest is violently suppressed, it is replaced by a burdensome system of bureaucratic control which dries up the wellsprings of initiative and creativity. When people think they possess the secret of a perfect social organization which makes evil impossible, they also think that they can use any means, including violence and deceit, in order to bring that organization into being. Politics then becomes a "secular religion" which operates under the illusion of creating paradise in this world."
2) Places the role of the state in its proper place of guaranteeing individual freedom and private property.
"48. These general observations also apply to the role of the State in the economic sector. Economic activity, especially the activity of a market economy, cannot be conducted in an institutional, juridical or political vacuum. On the contrary, it presupposes sure guarantees of individual freedom and private property, as well as a stable currency and efficient public services. Hence the principle task of the State is to guarantee this security, so that those who work and produce can enjoy the fruits of their labors and thus feel encouraged to work efficiently and honestly."
3) Places individuals, groups and associations (and not the state) in the primary role of overseeing human rights in the economy.
"Another task of the State is that of overseeing and directing the exercise of human rights in the economic sector. However, primary responsibility in this area belongs not to the State but to individuals and to the various groups and associations which make up society. The State could not directly ensure the right to work for all its citizens unless it controlled every aspect of economic life and restricted the free initiative of individuals."
4) Re-interprets the principle of subsidiarity, asserting that it limits the role of the state even when it has to intervene in cases of emergency or market failures.
"The State has the further right to intervene when particular monopolies create delays or obstacles to development. In addition to the tasks of harmonizing and guiding development, in exceptional circumstances the State can also exercise a substitute function, when social sectors or business systems are too weak or are just getting under way, and are not equal to the task at hand. Such supplementary interventions, which are justified by urgent reasons touching the common good, must be as brief as possible, so as to avoid removing permanently from society and business systems the functions which are properly theirs, and so as to avoid enlarging excessively the sphere of State intervention to the detriment of both economic and civil freedom."
5) Criticizes the role of the welfare state and places responsibility for welfare on the hands of "neighbors," individuals and associations.
"By intervening directly and depriving society of its responsibility, the Social Assistance State leads to a loss of human energies and an inordinate increase of public agencies, which are dominated more by bureaucratic ways of thinking than by concern for serving their clients, and which are accompanied by an enormous increase in spending. In fact, it would appear that needs are best understood and satisfied by people who are closest to them and who act as neighbors to those in need."
6) Recognizes the universal social dimension of labor markets, individual initiative and entrepreneurship.
"Mention has just been made of the fact that people work with each other, sharing in a "community of work" which embraces ever widening circles. A person who produces something other than for his own use generally does so in order that others may use it after they have paid a just price, mutually agreed upon through free bargaining. It is precisely the ability to foresee both the needs of others and the combinations of productive factors most adapted to satisfying those needs that constitutes another important source of wealth in modern society. Besides, many goods cannot be adequately produced through the work of an isolated individual; they require the cooperation of many people in working towards a common goal. Organizing such a productive effort, planning its duration in time, making sure that it corresponds in a positive way to the demands which it must satisfy, and taking the necessary risks — all this too is a source of wealth in today's society. In this way, the role of disciplined and creative human work and, as an essential part of that work, initiative and entrepreneurial ability becomes increasingly evident and decisive."
7) Recognizes the primacy of the free market as the most efficient and effective
"It would appear that, on the level of individual nations and of international relations, the free market is the most efficient instrument for utilizing resources and effectively responding to needs."
8) Acknowledges the proper role of profit and points out how critical human capital is to the firm.
"The Church acknowledges the legitimate role of profit as an indication that a business is functioning well. When a firm makes a profit, this means that productive factors have been properly employed and corresponding human needs have been duly satisfied. But profitability is not the only indicator of a firm's condition. It is possible for the financial accounts to be in order, and yet for the people — who make up the firm's most valuable asset — to be humiliated and their dignity offended. Besides being morally inadmissible, this will eventually have negative repercussions on the firm's economic efficiency. In fact, the purpose of a business firm is not simply to make a profit, but is to be found in its very existence as a community of persons who in various ways are endeavoring to satisfy their basic needs, and who form a particular group at the service of the whole of society. Profit is a regulator of the life of a business, but it is not the only one; other human and moral factors must also be considered which, in the long term, are at least equally important for the life of a business."
9) Recognizes the importance of religious values in capitalism and that one cannot have capitalism without freedom in other realms, not just economic (i.e., what the Chinese are trying to do...).
"If economic life is absolutized, if the production and consumption of goods become the center of social life and society's only value, not subject to any other value, the reason is to be found not so much in the economic system itself as in the fact that the entire socio-cultural system, by ignoring the ethical and religious dimension, has been weakened, and ends by limiting itself to the production of goods and services alone. All of this can be summed up by repeating once more that economic freedom is only one element of human freedom. When it becomes autonomous, when man is seen more as a producer or consumer of goods than as a subject who produces and consumes in order to live, then economic freedom loses its necessary relationship to the human person and ends up by alienating and oppressing him."
10) Derives private property rights from its labor theory, in a similar fashion as John Locke and other champions of liberalism do:
a. Here's JPII: "Man fulfils himself by using his intelligence and freedom. In so doing he utilizes the things of this world as objects and instruments and makes them his own. The foundation of the right to private initiative and ownership is to be found in this activity."
b. Here's Locke: "Sec. 27. Though the Earth, and all inferior Creatures be common to all Men, yet every Man has a Property in his own Person. This no Body had any Right to but himself. The Labor of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labor with, and joined to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, it hath by this labor something annexed to it, that excludes the common right of other Men. For this Labor being the unquestionable Property of the Laborer, no Man but he can have a right to what that is once joined to, at least where there is enough, and as good left in common for others."
11) Declares as illegitimate private property that is left idle, in a similar fashion as John Locke does:
a. Here's JPII: "It becomes illegitimate, however, when it is not utilized or when it serves to impede the work of others, in an effort to gain a profit which is not the result of the overall expansion of work and the wealth of society, but rather is the result of curbing them or of illicit exploitation, speculation or the breaking of solidarity among working people. Ownership of this kind has no justification, and represents an abuse in the sight of God and man."
b. Here's Locke: "...yet there are still great Tracts of Ground to be found, which (the Inhabitants thereof not having joyned with the rest of Mankind, in the consent of the Use of their common Money) lie waste, and are more than the People, who dwell on it, do, or can make use of, and so still lie in common."
12) Supports the universal destination of goods, just like John Locke does:
a. Here’s JPII: “In Rerum novarum, Leo XIII strongly affirmed the natural character of the right to private property, using various arguments against the socialism of his time. This right, which is fundamental for the autonomy and development of the person, has always been defended by the Church up to our own day. At the same time, the Church teaches that the possession of material goods is not an absolute right, and that its limits are inscribed in its very nature as a human right. While the Pope proclaimed the right to private ownership, he affirmed with equal clarity that the "use" of goods, while marked by freedom, is subordinated to their original common destination as created goods, as well as to the will of Jesus Christ as expressed in the Gospel. Pope Leo wrote: "those whom fortune favors are admonished ... that they should tremble at the warnings of Jesus Christ ... and that a most strict account must be given to the Supreme Judge for the use of all they possess"; and quoting Saint Thomas Aquinas, he added: "But if the question be asked, how must one's possessions be used? the Church replies without hesitation that man should not consider his material possessions as his own, but as common to all...", because "above the laws and judgments of men stands the law, the judgment of Christ
b. Here's Locke, admitting that God gave the world to all "men in common": "Sec. 39. And thus, without supposing any private Dominion, and property in Adam, over all the World, exclusive of other Men, which can no way be proved, nor any ones Property be made out from it; but supposing the World given as it was to the Children of Men in common, we see how labour could make Men distinct titles to several parcels of it, for their private uses; wherein there could be no doubt of Right, no room for quarrel.
c. Here's Locke saying that the same Natural Law that gives us the right to private property also bounds us to share what duly belongs to others when we own more than we need: "30. It will, perhaps, be objected to this, that if gathering the acorns or other fruits of the earth, etc., makes a right to them, then any one may engross as much as he will. To which I answer, Not so. The same law of Nature that does by this means give us property, does also bound that property too. "God has given us all things richly." Is the voice of reason confirmed by inspiration? But how far has He given it us- "to enjoy"? As much as any one can make use of to any advantage of life before it spoils, so much he may by his labor fix a property in. Whatever is beyond this is more than his share, and belongs to others."
d. And here's Locke saying that private property is also bound by the rights of others who are not left with enough: "For this "labor" being the unquestionable property of the laborer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good left in common for others."
Clearly, John Paul’s thinking evolved from his first social encyclical, Laborems Exercens, where he offered sound criticisms of socialism and communism, but biased against capitalism. All modern Popes before him offered the same approach. If Pope Benedict indeed is considering a return to traditional Catholic Social Doctrine of more state intervention in economics, it will be a huge step backwards and a blow to the many who are attempting not only to reconcile Catholicism to free markets, but indeed to prove and establish historical and theological cause and effect links between the evolution of free markets, Catholicism and the Church.
In Part 2 of this series, I will offer a critical review of key Papal social encyclicals to demonstrate how Catholic Social Doctrine is influenced by socialist economics, philosophy and propaganda.
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