In the popular way of thinking and talking there are only two basic ways of organizing an economy, capitalism and socialism.[note]This article incorporates some passages about Distributism from earlier articles of mine.[/note]Despite the fact that few could offer a good definition of either of these systems, most people are convinced that they are the only two possible systems. My purpose here will be to discuss these two well-known systems, to try to define them, to point out their various defects, and to show what the judgment of the Church on each of them is and why. Frequently there is confusion about this last point of the Church's moral evaluation of both capitalism and socialism. The Church's condemnation of socialism is well-known, but much less well-known are the reasons for this condemnation and what the popes mean when they condemn socialism. And what of capitalism? Is that too condemned? And if not, does that mean that we ought to regard it as the best or only way of organizing an economy?So first, what is capitalism? It might surprise many that there is no consensus among economists or economic historians on this. One or two quotations will make this clearer. The economic historian, Robert Heilbroner wrote, "What is capitalism? That is the profound and perplexing problem to which this book is addressed." And he continues,

But the question of what capitalism "is" presents challenges of another kind. Now the difficulty is not so much to cope with masses of material as to decide on a few quintessential elements. This is a much more recalcitrant question. The variables that affect the capitalist process overwhelm us in their complexity, but it is at least imaginable that they might be coherently ordered. No such conceptual clarity is available when it comes to determining the irreducible elements of the system. No formal procedures, even at the most abstract level, tell us how to specify the essence of a thing.[note] The Nature and Logic of Capitalism (New York : W.W. Norton, c. 1985) 14.[/note]

The famous Catholic economic historian, Amintore Fanfare, in his Catholicism, Protestantism and Capitalism,[note]New York : Sheed & Ward, 1939.[/note] begins his attempt to define capitalism with the statement, "Many attempts have been made to reduce this historical phenomenon to certain of its characteristic features. Each student of the question has taken one particular conception, with the result that widely different conclusions have been reached."[note]Ibid., 5.[/note] He then proceeds for six pages to discuss attempts at a definition and possible meanings. In view of this, we can perhaps pardon the difficulty that most people would experience were they forced to attempt a definition.But despite this disagreement, I think that an entirely adequate definition is not only possible but has already been made. This is the definition contained in the encyclical of Pope Pius XI, Quadragesimo Anno (1931). Pius characterized it as "that economic system in which were provided by different people the capital and labor jointly needed for production."[note]QA, no. 100. Paulist translation, as published in Seven Great Encyclicals and elsewhere. The original Latin speaks of the economic system "qua generatim ad commune rei oeconomicae exercitium ab aliis res, ab aliis opera praestaretur." Acta Apostolicae Sedis, Vol. 23, no. 6 (June 1931), 209-210.[/note]In other words, capitalism is the economic system in which, for the most part, some people provide the capital for financing an enterprise and others provide the labor, that is, they work for wages on enterprises owned by the owners of capital.[note]A few economists have given a similar definition. E.g, "Here, then, is the essential dividing line: under capitalism the worker does not work on his own; he works for his employer, the capitalist. The worker is propertyless and has to offer his labour for sale in the market. The capitalist, by virtue of his owning capital, is in a position to buy labour." A.K. Dasgupta, Phases of Capitalism and Economic Theory (Delhi : Oxford University Press, 1983) 125.[/note] This does not mean that all workers under capitalism have no share in the ownership of the means of production, simply that for the most part this is true, and thus a capitalist economy is characterized by a division of owners and workers. Now is there anything wrong with this? Or is it just the abuses of capitalism that render it unsatisfactory?One of the most concise critiques of capitalism was that offered by Hilaire Belloc in the following words.

But wealth obtained indirectly as profit out of other men's work, or by process of exchange, becomes a thing abstracted from the process of production. As the interest of a man in things diminishes, his interest in abstract wealth—money—increases. The man who makes a table or grows a crop makes the success of the crop or the table a test of excellence.

The intermediary who buys and sells the crop or the table is not concerned with the goodness of table or crop, but with the profit he makes between their purchase and sale. In a productive society the superiority of the things produced is the measure of success: in a Commercial society the amount of wealth accumulated by the dealer is the measure of success.[note]An Essay on the Nature of Contemporary England (New York : Sheed & Ward, 1937) 67.[/note]

Let us look carefully at Belloc's words in order to understand his critique of capitalism. "But wealth obtained indirectly as profit out of other men's work, or by process of exchange, becomes a thing abstracted from the process of production. As the interest of a man in things diminishes, his interest in abstract wealth—money—increases." When someone makes his living by creating a product in which he takes pride, whether as an individual craftsman or as part of a team, he is interested in selling his product, yes, and making a sufficient return for his labor. But most often he also takes pride in his work and identifies himself with his trade or profession. He is not simply a seller of some product or other, a product which, if he could, he would exchange for some other if he thought the latter would sell better. He takes pride in the production of a well-made product, apart from what he might sell it for. Nor is this attitude true only of the pre-industrial craftsman. Computer "geeks," for example, very often take pride in their work and have a certain disdain for those in the computer industry who seem to them more interested in profits than in making a quality product.When the greater part of the work relationships in a society are of the capitalist sort, then the notes of capitalism that Belloc lists begin to give a certain tone to that society. "In a productive society the superiority of the things produced is the measure of success: in a Commercial society the amount of wealth accumulated by the dealer is the measure of success." A capitalist society will almost inevitably turn into a commercial society, a society in which mere accumulation of wealth is sought, in which almost any legal method of acquiring wealth is looked upon with approval, and, most banefully, in which striving for wealth is seen as the primary occupation of mankind. The "love of money" which St. Paul excoriates now replaces love of God, love of family and friends, love of learning as society's chief pursuit. We will see below that John Paul II sees the ideology of capitalism, as that historically developed, as rooted in the same philosophical errors as the ideology of socialism.It is true that in a capitalist society not all individuals consider mere accumulation of money or things as the purpose of life. But a capitalist society tends to disregard other motives as unworthy of mention. Education, for example, is justified in terms of how much it will increase one's salary, and the institutionalized pressure for ever greater sales, ever improving performance over the previous quarter, pushes many into making mere gain their goal. Capitalism hardly acknowledges the existence of any other motive or reason for being except accumulation of wealth.Does the Catholic Church condemn capitalism? If we are speaking of the mere economic arrangements by which one man employs another man to work for him, then the answer is no, provided of course that a just wage is paid. Pius XI, immediately after he offers his definition, proceeds to say, "Leo XIII's whole endeavor was to adjust this economic system to the norms of right order. It is clear then that the system as such is not to be condemned."[note]Ibid., no. 101.[/note] But the point to note here is that Leo XIII sought "to adjust this economic system to the norms of right order." Capitalism is not automatically a just system. Indeed, the popes have been explicit about rejecting what John Paul II in Laborem Excercens called "rigid" capitalism,[note]LE, no. 14.[/note] and earlier Pius XI had taught that "the proper ordering of economic affairs cannot be left to the free play of rugged competition",[note]Quadragesimo Anno, no. 88[/note] that is, to mere capitalist market forces. Equally important, they have rejected the philosophy that fostered capitalism and usually accompanies it, classical liberalism. For example, Paul VI, in his 1971 apostolic letter Octogesima Adveniens, wrote that "we are witnessing a renewal of the liberal ideology [which] 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." But, continues the Pope, "at the very root of philosophical liberalism is an erroneous affirmation of the autonomy of the individual..." Likewise in Solicitude Rei Socialis John Paul II notes that "the Church's social doctrine adopts a critical attitude towards both liberal capitalism and Marxist collectivism".[note]SRS, no. 21.[/note]The Church does not condemn capitalism as such (though neither does she endorse or recommend it), but her social doctrine does condemn the capitalistic liberal ideology and any kind of capitalism which refuses to permit "the market [to] be appropriately controlled by the forces of society and by the State, so as to guarantee that the basic needs of the whole of society are satisfied".[note]Centesimus Annus, no. 35.[/note] So if we keep in mind exactly what capitalism is, then we can affirm that the Church has never disapproved of it, though the Church has continually spoken against the actual operations of the capitalist system.Therefore if a Catholic wants to support capitalism he is free to do so. But he is not free to favor the kind of capitalism which operates with few or no external restraints. Space prevents a detailed discussion here, but the corpus of papal social teaching gives a sufficient notion of the types of legal and other restraints which a capitalist economy must have in order that it be adjusted "to the norms of right order."What of socialism then? We will see that due to the historical fact that the economic proposals made by socialists have been continually changing since at least the time of Leo XIII it is not possible to define socialism with the same precision that one can define capitalism. Socialism in fact is less an economic system than a philosophical approach to life, as we will see below. What does the Church say about socialism, then, and why? In the same encyclical in which he gave a qualified acceptance of capitalism, Pius XI was unequivocal in condeming socialism. "No one can be at the same time a sincere Catholic and a true socialist".[note]QA, no. 120.[/note] That might seem clear enough, but unless the explanation which the pope adds is also read and understood the meaning will not be clear. Pope Pius explained here that by the time of Quadragesimo Anno socialism had "for the most part split into two opposing and hostile camps."[note]Ibid., no. 111.[/note] One of these camps was the communists, who had taken power in Russia only about ten years before Pope Pius wrote. They taught "merciless class warfare and the complete abolition of private ownership" and pursued their aims using "methods ... even the most violent." They were hostile to "Holy Church and even God Himself." Obviously no Catholic could approve such a program or join such a movement. But what of the other kind of socialists?

The other section, which has retained the name of 'socialism,' is much less radical in its views. Not only does it condemn recourse to physical force: it even mitigates and moderates to some extent class warfare and the abolition of private property.[note] Ibid., no. 113.[/note]

Could therefore a Catholic adhere to this kind of socialism? Pius' ultimate answer is no, but in getting to that answer he states several important qualifications. First, he notes that the purely economic program of the moderate socialists was moving in the right direction. Not in the direction of free-market capitalism, however, but in the direction of Catholic social teaching. Thus Pius XI wrote, "it cannot be denied that its [i.e. moderate socialism's] programs often strikingly approach the just demands of Christian social reformers".[note]Ibid., no. 113.[/note] Then he goes on to say that if the moderate socialists continue to lessen their class antagonism and their opposition to all private ownership of the means of production

it may well come about that gradually the tenets of mitigated socialism will no longer be different from the program of those who seek to reform human society according to Christian principles.

For it is rightly contended that certain forms of property must be reserved to the State, since they carry with them an opportunity of domination too great to be left to private individuals without injury to the community at large.

Just demands and desires of this kind contain nothing opposed to Christian truth, nor are they in any sense peculiar to socialism. Those therefore who look for nothing else, have no reason for becoming socialists.[note]Ibid., no. 114.[/note]

In other words, it is not primarily because of any opposition to the moderate socialist economic agenda that the pope made his famous declaration that no Catholic could be a true socialist. It was for reasons that might be termed philosophical: "the reason being that it conceives human society in a way utterly alien to Christian truth."In fact it is because according to socialism society itself must be organized only

with a view to the production of wealth. Indeed, the possession of the greatest possible amount of temporal goods is esteemed so highly that man's higher goods, not excepting liberty, must, they claim, be subordinated and even sacrificed to the exigencies of efficient production.[note] Ibid., no. 119.[/note]

This, in a word, is why "No one can be at the same time a sincere Catholic and a true socialist." It is not because of the economic doctrines of the moderate socialists. It is because socialists have elevated the material side of man over the spiritual side and made the production of goods the organizing principle of society. Socialism is condemned because it never abandoned its roots in a materialistic philosophy, ultimately grounded in atheism. And as long as it remains really socialism it will always have that cast to its principles. Incidentally, this is why European socialist parties have so often jettisoned their distinctive economic programs, but do not abandon their hostility to the Church, to protection of unborn life, to Christian marriage, and so on. The atheism and anti-Chrisitian ideology that lies behind all true socialism remains, even when socialist politicians have embraced many of the exploitive economic practices of capitalism.John Paul II returns to this theme of the errors of socialism in his 1991 encyclical Centesimus Annus, and elaborates on the previous teaching of Pius XI. John Paul states that

the fundamental error of socialism is anthropological in nature. Socialism considers the individual person simply as an element, a molecule within the social organism, so that the good of the individual is completely subordinated to the functioning of the socio-economic mechanism.[note]CA, no. 13.[/note]

And what is at the root of these socialist errors? John Paul answers that "we must reply that its first cause is atheism." For our purposes here the important thing to note about the teaching of both Pius XI and John Paul II is that neither focuses on socialist economic practices. Indeed, Pius XI explicitly approves some of their practices, and both pontiffs identify an essentially philosophical error as the real reason why no Catholic can be a socialist. However, John Paul's analysis of this gets even more interesting. For he has this to say of the atheism that is characteristic of socialism.

The atheism of which we are speaking is also closely connected with the rationalism of the Enlightenment, which views human and social reality in a mechanistic way. Thus there is a denial of the supreme insight concerning man's true greatness, his transcendence in respect to earthly realities...and, above all, the need for salvation...[note] Ibid.[/note]

Who is being condemned here? It is hard to see how he could not have intended to include in his condemnation here the original formulators of modern economic science and capitalistic doctrine, such as the Physiocrats in France and Adam Smith in Scotland, in other words, the classical liberalism that has long been the ideology of capitalism.So it seems that John Paul is indirectly suggesting here that, just as no Catholic can be a socialist, no Catholic can be a capitalist, insofar as that means one who embraces the full logic of the capitalist system. It is ironic that this teaching is contained in an encyclical which so many have wrongly seen as constituting an endorsement of capitalism.Genuine socialism stands condemned by the Church, but as we saw, not for economic but for other reasons. Capitalism in the sense in which the popes use the term is not condemned, but is subject to so many strictures that any just capitalism would differ widely from capitalism as it operates nearly everywhere today. Moreover we should remember that John Paul II in section 35 of Centesimus Annus explicitly noted and sanctioned economic systems other than capitalism. He wrote, "We have seen that it is unacceptable to say that the defeat of so-called 'Real Socialism' leaves capitalism as the only model of economic organization." Distributism offers another way, an economic system which will place fewer obstacles for fallen humanity to put first things first, to put material goods in their own proper place and value other things more. Capitalism as it has always operated has produced a commercial society that distracts men from what is important and fosters the greed and love of money that St. Paul called the "root of all evils." Genuine socialism likewise turns men away from what is important toward this-worldly manner of existence that in the end is as materialistic as the commercial capitalism that it critiques. Distributism is the best and easiest method of avoiding the errors of each. Distributism by itself will not, of course, banish greed from the hearts of men, but it does not provide artificial incentives to greed and the amassing of goods beyond the reasonable needs of one's self and family. Distributism points fallen human nature toward its true good, and although individuals are always free to sin, a just social order will aid and support us in our struggle for virtue. Even a capitalism that operates justly creates barriers to virtue, for by separating ownership from work it tends to foster our desire to acquire wealth without limit rather than to obtain a reasonable living by producing long-lasting quality products. Capitalism institutionalizes the pursuit of riches apart from one's reasonable needs and divorces the production of goods from the needs of society. The criterion of a product becomes whether people can be persuaded to buy it, regardless of their needs, whereas under Distributism the criterion of a product is whether it serves the genuine needs of society. Anyone who looks at human life as more than a mad scramble for more and more things will naturally turn his attention to a system whose tendency is to place material goods at the true service of mankind. This Distributism does, and this capitalism, even when it is subjected to the requirements of justice, will do only with great difficulty.