This book aims to help fill a big gap. Ever since Leo XIII’s encyclical Rerum Novarum of 1891, and indeed since before that, the Catholic Church has built up an extensive body of teachings aimed specifically at the problems of the modern industrial-capitalist world. Yet these teachings are still not well known. In any Catholic library or bookshop, you will find an abundance of books on just about every aspect of Catholicism; but if you ask for a book on Catholic economic teachings, you might well be faced with a puzzled librarian or salesperson. And if you ask a priest about the subject, you might not get much information from him either.
Here is a brief outline of some of the Catholic doctrines on economics that are explored in much more detail in my recent book, Catholic Economics: Alternatives to the Jungle.
A serious retrogression
We have gone a fair way backwards since the earlier decades of the last century, when Catholic authors such as G.K. Chesterton and Msgr. John Ryan were widely read, and when many governments pursued economic strategies that owed much to Catholic (and also Jewish) economic teachings. Indeed, Msgr. Ryan was known as the Very Reverend New Dealer because of his links with Franklin Roosevelt. But more recently, from the 1970s onwards, we have reverted to the laissez-faire philosophy that was dominant in the nineteenth century. In those days, certain practical consequences of that philosophy were so nasty that they inspired the development of socialism and communism. Today, however, ‘conservatives’ who loathe those ideas seem determined to restore the conditions that gave them birth.
The Catholic challenge to orthodox economics
Catholic teaching challenges current economic orthodoxy on many levels. The most basic disagreements concern profound philosophical issues: our understanding of freedom, the requirements of economic justice, the relationship between the individual and society.
I use the portmanteau term economic orthodoxy to cover a cluster of related schools of economic thought. Among these are the ‘classical’ theories of Adam Smith and his contemporaries in the late eighteenth and early nineteenth centuries; the modern ‘neoclassicism’ of Milton Friedman’s ‘Chicago School’; and the ideas of the ‘Austrian School’, which began with Carl Menger in late nineteenth-century Vienna, and was further developed by his successors Ludwig von Mises and Friedrich von Hayek in the twentieth century. All these variants are based on the primacy of free markets.
The free-marketeers’ disrespect for labor
Adam Smith argued that consumers would be better off if craftsmen’s guilds were abolished: the consequent “increase in competition would reduce the profits of the masters [master craftsmen] as well as the wages of the workmen … the public would be a gainer, the work of all artificers coming in this way much cheaper to market.”1 That has been the orthodox economists’ view ever since. Squeeze the workers, so as to pander to the consumers; and, nowadays, to the business corporations. Here we have the basis of our present-day hostility to labour unions, our prevalence of precarious jobs with mean levels of pay and working conditions. It seems not to occur to the economists that “we consumers” are also “we workers”.
John Paul II reminded us how, in the nineteenth century, “work was understood and treated as a kind of ‘merchandise’ that the worker … sells to the employer.”2 By the early twentieth century, more enlightened attitudes were making their appearance. Indeed, the Clayton Anti-Trust Act of 1914 (sect. 17) states that “the labour of a human being is not a commodity or an article of commerce.” But more recently we have slipped back; in 1990, Harvard law professor Paul C. Weiler wrote, disapprovingly, that “from the neoclassical economic point of view, labour is a commodity.”3
Catholic teaching strongly emphasizes the dignity of labour and the necessity of work, not merely as a means of production but because, as we read in the Catechism,4 “human work proceeds directly from persons created in the image of God and called to prolong the work of creation … hence work is a duty … work honours the Creator’s gifts.” Or, as John Paul II wrote “work is a good thing for man,”5 and as Pope Francis said recently, it is hard to have dignity without work.”6
Moreover, the Church has long taught that working people have a natural right to associate in unions7 and that they should “become sharers in ownership and management”8 Benedict XVI calls for “work that expresses the essential dignity of every man and woman … that permits workers to organize themselves freely and to make their voices heard.”9
Growth versus finite resources
Orthodox economics insists that competition should be free and unconstrained. The reason, as Adam Smith explained, is that competing businesses strive continually to gain market share by trimming their costs and prices; and lower prices mean that we can afford to consume more of everything. The downside is that cost-cutting, by means of mechanization and automation, means fewer jobs for the same level of output. However, so long as output keeps on growing, full or nearly-full employment can be maintained.
That was all very well in Smith’s day, when world population was little more than a tenth of today’s. In his thinly-peopled world, there was little pressure on natural resources. But today, the human race as a whole is consuming many resources at unsustainable rates, while many people are still very poor and therefore consume little. We cannot persist with endless overall growth in production and consumption.
But if we have little or no growth, and ever-rising labour productivity, we are condemned to ever-rising unemployment. It follows that the orthodox economic model of unrestrained competition-driven growth is running into the buffers of finite resources.
Both historically and recently, orthodox economic policies have permitted, or even encouraged, disastrous abuses in the markets. The banking system, with its ability to create credit, is a formidable promoter of economic dynamism and growth. But experience shows that, unless the system is strictly regulated and restrained, it can run amok, gravely damaging itself and the entire economy and society. It did so in the early 1930s, after which tight controls were imposed, keeping the banks on the rails for several decades.
But with the revival of orthodox economics from the 1970s onwards, these controls were seen as hampering economic ‘freedom’; so governments lifted them, giving in to the demands of ambitious and greedy bankers. We are all painfully familiar with the results. John Paul II very rightly stated that a good society “demands that the market be appropriately controlled.”10
The free-marketeers’ conception of freedom is grossly oversimplified. For freedom, far from being a simple matter, is a jewel with many facets: freedom of action, freedom of conscience, freedom of religion, political freedom, and many others. By contrast, freedom as it is understood in orthodox economics is narrow; it means little more than “negative freedom, or absence of restraint and constraint,” as Hayek put it.11 Negative, because we are not prohibited from doing things, and not obliged to do things. Laissez-faire rules.
Moreover, this negative freedom is generally divorced from morality. Thus, Friedman claimed that “freedom has nothing to say about what an individual does with his freedom,”12 while Hayek was even more explicit: “philosophers have sometimes defined freedom as action in conformity with moral rules … this is a denial of that freedom with which we are concerned.”13
Quite logically, economics based on an amoral, negative concept of freedom is an amoral, non-ethical economics. The Indian economist Amartya Sen complains that “the nature of modern economics has been substantially impoverished by the distance that has grown between economics and ethics,14 while English writers Michael Griffiths and John Lucas regret that many economists deny that justice has any bearing on economic transactions.”15
The Catholic positive notion of freedom
The Catholic concept of freedom is essentially positive. There is no true freedom except in the service of what is good and just, as we read in the Catechism.16 This agrees with the New Testament equation of sin with slavery. So, freedom is incompatible with sin. “The possibility of sinning is not freedom, but slavery” as Leo XIII wrote.17 This is also consistent with traditional Jewish thinking on freedom. Rabbi Joshua ben Levi, in the third century AD, argued (Mishna, Avoth 6:2) that no man is free unless he studies Torah, i.e. learns God’s laws and strives to abide by them; in recent times, Rabbi Abraham Heschel wrote that “to choose evil is to fail to be free.”18
It follows that the notion of ‘economic freedom’ that encourages individuals to do whatever seems to serve their own economic interests, regardless of whether they do ‘right’ or ‘wrong’, is a basic error. Economists, however, have contrived to get round this logical obstacle by arguing for the ‘virtue of selfishness’, to quote Ayn Rand’s pernicious formula. The famous theory of Adam Smith, that if everyone pursues one’s own selfish interests, the outcome may be good for us all, has been taken to provide a moral underpinning for laissez-faire. Market magic is alleged to transmute private vice into public virtue.
However, Smith himself never claimed that his ‘invisible hand’ theory always works in practice. He only claimed that it ‘frequently’ works, and that ‘not always’ does it fail.19 Followers of Smith seem to have overlooked certain small but vital details in his text.
Individual and Society
Orthodox economics strongly favours the primacy of individual interests over those of society. This individualistic outlook strikes an especially strong chord in America, where Herbert Hoover’s rugged individualism is embedded in a long tradition. Thus Ralph Waldo Emerson wrote in 1841 that “society everywhere is in conspiracy against the manhood of every one of its members.”20 This attitude made its appearance in Europe too. The French Revolution led to an upsurge of individualism. Indeed, that word seems to have been first used by the French traditionalist Catholic writer Joseph de Maistre, who complained in 1820 of “this limitless fragmentation of all doctrines, political Protestantism carried to the most absolute individualism.”
By contrast, Catholicism strongly emphasizes the vital importance of the ‘common good’. Individual aspirations must be tempered by consideration for the needs of the community. This rhymes with the positive Catholic understanding of freedom; we find our freedom in the service of what is good and just; that is, in doing what is right for our sisters and brothers in society. Not simply in doing what satisfies ourselves as individuals. This idea can be found in Aristotle too; he argued that, rather than doing whatever one fancies, one should not think it slavery to live pros tén politéian, which may be translated as ‘according to the way of life of a good citizen’.21
Fundamental in Catholic economic teaching is the concept of distributive justice. This is defined in the Catechism as that kind of justice “which regulates what the community owes its citizens in proportion to their contributions and needs.”22 Alongside this stands the doctrine of the universal destination of goods, which means that God wishes everyone to have at least a basic sufficiency. Thus, in Gaudium et Spes, we read that “the right of having a share of earthly goods sufficient for oneself and one’s family belongs to everyone.”23
Here we find a radical clash between Catholic doctrine and orthodox economics, which holds that what one earns should be determined purely by the interplay of market forces. But the market, in itself, takes no account of justice; indeed, Hayek likened the market to a game in which “there is no sense in calling the result just or unjust.”24
His predecessor Carl Menger observed that market-determined wage levels could be less than enough to live on: “in Berlin, a seamstress working fifteen hours a day, cannot earn what she needs for her subsistence.”25 Yet Menger was not in sympathy with those who wanted to see such workers better paid; they, he argued were demanding “nothing less than paying labour above its value.” On his theory, the value of labour is not what the labourer needs to live on (as the classical economists had held), but whatever wage level the impersonal forces of the market dictate. No wonder Pius XI insisted that “the right ordering of economic life cannot be left to a free competition of forces.”26
We need to reacquaint ourselves with these precepts that the Church has long taught, though often, perhaps, without loud enough emphasis. Our present Pope is doing well to bring them more prominently to our attention.
- Adam Smith, The Wealth of Nations (1776)¸ book I, chap. 2.
- John Paul II, Laborem Exercens, no. 7.
- Paul C. Weiler, Governing the Workplace (1990), 121.
- Catechism of the Catholic Church, par. 2427.
- Laborem Exercens, no. 9.
- Pope Francis, Address to Workers in Cagliari, 22 September 2013.
- Leo XIII, Rerum Novarum , nos. 49-51
- Pius XI, Quadragesimo Anno, no. 68.
- Caritas in Veritate, no. 63.
- Centesimus Annus, no. 35.
- Friedrich von Hayek, The Constitution of Liberty (1960), chap. 1.
- Milton Friedman, Capitalism and Freedom (1962), 12.
- Hayek, Ibid.
- Amartya Sen, On Ethics and Economics (1987), 7.
- Michael R. Griffiths and John R. Lucas, Ethical Economics (1996), 26.
- CCC, par. 1733.
- Libertas Praestantissimum, no. 6.
- Abraham J. Heschel, The Insecurity of Freedom (1966), 15.
- Smith, The Wealth of Nations, book IV, chap. 2.
- Ralph Waldo Emerson, essay Self-Reliance (1841).
- Politics, 1310a.
- CCC, par. 2411.
- Gaudium et Spes, no. 69.
- Hayek, The Mirage of Social Justice (1976), 126.
- Carl Menger, Principles of Economics, trans. Dingwall & Hoselitz (1976), 171-74.
- Pius XI, Quadragesimo Anno, no. 88.