A Review of Ethics and the National Economy

Catholics! Forget Milton Friedman and supply-side economics. Shelve your ECO I textbook and leave the road to serfdom. Now is the time to put Fr. Pesch in the place of Ludwig von Mises. As you always suspected, morality really must govern economic life and Fr. Pesch's Ethics and the National Economy will tell you why.

Solidarism proposes to leave the private ownership in the means of production. But it places above the owner an authority-indifferent whether Law or its creator, the State, or conscience and its counselor, the Church—which is to see that the owner uses his property correctly.... Thus State and Church, law or conscience, become the decisive factor in society. Property... ceases to be the basic and ultimate element in the social order... Ownership is abolished, since the owner, in administering his property, must follow principles other than those imposed on him by his property interests.... [It] wants to put other norms above them. These other norms thus become society's fundamental law.... Solidarism replaces ownership by a "Higher Law"; in other words, it abolishes it.[note]Ludwig von Mises, Socialism, II, III, 16, 1, 5.[/note]

In Ludwig von Mises's negative characterization of Heinrich Pesch's Solidarism, we find the deeper significance of Pesch's title Ethics and the National Economy. In stark contrast to the neo-Liberal von Mises's apparent dismissal of both a socially binding "ethics" and the very concept of a "national economy," we find a priest, philosopher, and economist asserting the real existence of both. Indeed, if we can assert anything concerning the thought of Heinrich Pesch, SJ. (1854-1926), it is that it attempts to demonstrate the necessary grounding of all economic science in the more encompassing sciences of ethics and philosophical anthropology.This ethical and philosophical consideration is not at all meant to be a merely academic exercise. Rather it is meant to be, and indeed became, the first serious attempt to ground an economic system in the fundamental truths of Aristotelian-Thomistic philosophy. In his five-volume, 3,832-page text (it was the most exhaustive economics textbook ever written) Lehrbuch der Nationalokonomie, Pesch articulates just such a system. He meant it to be a model for future economic development and organization. It is a concrete, scientific alternative to the amoral and anti-social theories of the libertarian von Mises.Ethik und Volkswirtschaft (Ethics and the National Economy), published in 1918, was intended to be a concise summary, not of the Lehrbuch, but rather, of his social and economic system, Solidarism. This work was one of several books published by noted scholars under the auspices of the Commission for Christian International Law established in Germany in 1917. It serves as a brilliant summation and application of the political and social thought produced by a whole ensemble of Catholic and Corporatist German authors and intellectuals, such as Bishop von Ketteler, Baron von Vogelsang, and Franz Hitze. Its importance to Catholic social teaching is that it served as a bridge between Pope Leo XIII's Rerum Novarum and Pius XI's Quadragesima Anno, the first draft of which was written by Oswald von Nell-Bruening and Gustav Gundlach, both disciples of Heinrich Pesch.The most important fact to remember when considering Pesch's text and, indeed, his entire system of Solidarism, is the specific challenge which it poses to those who would "separate" ethics from a scientific account of economic systems. Those who do separate ethics from economics—we think here of von Mises and his modern-day devotees—argue that to consider the ethical aspects of economic questions is to impose, arbitrarily, extrinsic considerations which would only obfuscate the necessary and universal economic "laws," the understanding of which is requisite for a vibrant and well-functioning economy. Economics has its own laws, argue the neo-Liberals, and these must not be transgressed by the dislocating imposition of "heteronomous" (a Kantian term meant to express any kind of extrinsic influence) considerations.The basic purpose of Pesch's writing and apologetic was to indicate how ethics does not come into play in the field of economics in a purely extrinsic way, it is not merely "a personal ethical evaluation" of necessary and ineradicable natural laws of economic interactions between men. It is not even a sacrificing of economic prosperity to the exigencies of divinely revealed Church doctrine. Instead, Pesch's system, as articulated in his Ethics, attempts to provide the reasons for his insistence that ethics is a science prior to, and more ultimate than, economics. Man is only an "economic animal" because he is first a free animal; a being with physical needs who is required to work and to make free decisions in order to fulfill those needs. Pesch, as economist and philosopher, rightly insists that, rather than being of ancillary import, ethics, or the science of how man ought to act in order to achieve the properly human good, is the very soil from which any truly scientific consideration of economic activity ought to emerge. Unless we understand the way in which the inner life of the human soul is ordered, both in relation to its own self and in its relationship to others, we will never understand the basic economic dynamic, which is a human dynamic.It is quite ironic to read so many Libertarians accusing Pesch of "illegitimately" imposing Church-sanctioned moral norms upon the economic freedom of individuals. According to this evaluation, it was the Austrian School of Economics, prefigured by the British Whig Adam Smith, which recognized that only by individuals "freely" seeking after their own economic self-interest would there be general economic prosperity and socio-psychological well-being. What is ironic here is that in order to assert the inviolability of human economic freedom, the Whigs and the neo-Whigs needed to reject the personal volitional indeterminacy of man. Paradoxically, man cannot be free if his free interactions necessarily lead to the best possible result. This fact strikes at the very heart of the entire Liberal/Libertarian conception of human life and civilization. Freedom would negate its own self if, in its performance, it served as part of a system whose ultimate status would be determined prior to the free actions themselves. Here, we are not considering the free action of Divine Providence, which, on the basis of God's free will, draws good out of evil so that the greatest good may be obtained. The Libertarians clearly do not wish to include a consideration of "heteronomous" Providence when seeking to ground an economic system. Besides, there is no way in which any one could substantiate a claim that God's Providence requires, of necessity, a drawing out, by God, from the sum of all free actions, the greatest possible economic good.In upholding economic necessity, the Whigs, of the past or of our own time, circumvent and negate the very object of ethical thought, human freedom. What Heinrich Pesch does, in his anti-Liberal treatise, is to uphold the freedom that expresses itself in the moral life of man. Free choice is the subject matter of all ethical discussion; it contributes, essentially, to the determination of the destiny of each individual and of human civilization as a whole, and such choices can be good or evil, in accord with the right order of things or in opposition to the right order of things. What Pesch is saying, in Ethics and the National Economy, is that truly free activity—again, his assertion is that man is truly free—can tend towards the good or towards evil. Since men can tend towards good or evil in their personal lives, they can tend towards what is in accord with the common good of the community or act in an egotistical way that contravenes the common good of the civil community.The anti-liberal character of Pesch's entire system becomes clear, when we take note of his assertion of the Aristotelian understanding of the origin of human society and his subsequent rejection of the liberal and revolutionary Social Contract theory concerning the origin of civil society. According to Pesch and the perennial philosophical tradition, it is man's social nature, requiring the actualization of his capacities and the satisfaction of his genuine human needs, which directs man to move beyond the life of the family and, instead, toward that more powerful and comprehensive human association, the State. It is through the existence of the State, along with the social and economic conditions which the State creates, that man can achieve all of those temporal human objectives that would be unattainable without it. In Pesch's Ethics, he remarks that, "the state is supposed to do for its members what they, by their own personal capabilities and by the capacities of lower-ranking societies within the state, cannot accomplish."[note]Heinrich Pesch, Ethics and the National Economy, trans. Rupert Ederer (Norfolk, VA : I.H.S. Press, 2003), 50.[/note] In contradistinction to the Libertarian-Liberal instinctive treatment of the State as an evil, even if a "necessary" one (in Catholic moral theology, no evil is ever "necessary"), Pesch writes that, "The purpose of the state consists in providing, safe-guarding, and complementing the sum of those social conditions, institutions, and structures which alone provide and preserve for all members of the state the fuller capacity to secure and maintain their temporal welfare on their own and by using their own abilities."[note]Ibid., 50-51.[/note] This delineation of the proper status and powers of the State is part of Solidarism's complete rejection of any type of Statism or Totalitarianism. Rather than exalting the State as the object of all human hopes and endeavors, Solidarism insists that the authority of the State does not exist for its own sake, but rather, for the sake of political society; it exists to safeguard the rights of the community against private interests. The State also has the right and, indeed, the obligation to promote this well being positively, without harming the personal initiative of its citizens. It and it alone can rally all the social energies to cooperate positively in establishing and fostering the public welfare.As Pesch explicitly states, the only ultimately efficacious check on the arbitrary and intrusive power of the State comes from absolute and unchanging moral norms. For Pesch, such norms are convertible with the Christian moral law. It is this moral law, along with the doctrinal understanding of the nature of man that underlies it, which is the only thing that can insure the status of the individual as having a destiny that transcends the confines of the social and political life created by the State. Only if we believe that nothing in the natural order can completely fulfill the desire and destiny of man, will we steel ourselves to a potential conflict with a State that overreaches its proper domain. Such a belief can only stem from a supernatural faith, more particularly, one that does not allow for compromise or doctrinal ambiguity.In Chapter IV of the Ethics, entitled "Work and the Worker," Pesch proclaims the truth that is at the foundation of all of economic life, "Man is the lord of the World!" The brutes do not have a right to have an economy. This dominion of man, however, is only achieved by work. Without work, the raw material present in the world, as the divinely provided common resource of all mankind, would not be transformed by mind so as to become amenable to the human condition. Here we can discern the relationship Pesch draws between the nature of economics and the nature of man. The very origin of economics is the need for man to "economize." To "economize," as here understood, is to act so as to transform materials, through continuous repeated labor, in order to take advantage of the bounty of nature and to replace by other things transformed resources which have been used up. As Pesch states, "without continuous and persistent work, mankind could not sustain itself, and the largesse of our national environment with its materials could not function in the service of man."[note]Ibid., 64-65.[/note]The economic centrality of labor is not a fact without theoretical importance for Solidarism. Work precedes ownership. That is because all ownership could only come into being by work. Even though Pesch does not identify work as the only title to ownership, we think of inheritance here, it is work rather than ownership of financial capital, which serves, for Solidarism, as the basis of all economic culture and society. Since a man who works, acquires the right to own, the institution of private property will be conditioned by its relationship to genuine human labor. Such a stipulation makes property something which, by its very nature, must be accessible to all those who work, regardless of whether or not they, prior to working, have available to them a significant amount of financial capital.Here is made a point that contradicts those who would make the rights of private property absolute. As Pesch, himself, states, "the institution of private property was established by virtue of the law of nations (jus gentium) as one of the natural rights and requisites of man, of families, and of political society in all nations which progressed to a higher level of culture. However, in the Christian view of things, there is no such thing as an unconditional, free, absolute right of private property that does not involve also obligations"[note]Ibid., 68.[/note] In the face of those, like Ludwig von Mises, who state that private property does not exist as an institution if it is regulated by considerations other than those of private interest, Pesch states that there is no such thing as a human right that would be independent of the moral order that operates in the world. Since the economic acts, including the use of property, are, more fundamentally, human acts, they fall within the domain of ethics and must, therefore, be regulated by the properly human good. It is to distort the true condition of man to insist upon the independence of the individual from the larger social and moral context of his action. Moreover, Pesch's Solidarism also provides us with a meaning for property, which Liberalism, in its capitalistic form, does not. To speak of an ultimate and objective purpose for private property would be to deny the rationality of the unlimited acquisitiveness that serves as the elan vital of Capitalism. For Pesch, and for the whole Catholic social teaching that he articulates, private ownership is not an end in itself. Rather, it is "a means to make possible in an orderly and fitting manner the well being of the individual, of the family, and of political society."[note]Ibid. Neither is it the case that the right to private property trumps all other human rights. It is, by no means, to be regarded as the highest right overall that man enjoys as he makes his way in the world of material goods. As Pesch's philosophical and analytical approach is Scholastic, by considering the most basic ontological (i.e., having to do with the principles and functions, which make up a specific being) aspects of man, he can arrive at the conclusion that the right to life and the right to the necessary means of subsistence occupy a higher position than any derived right to material property. Sam Walton cannot own Wal-Mart unless Sam Walton first exists as a living being and can sustain his life with the basic "fungibles" (i.e., those goods that are either "consumed" or which perish due to their not being "consumed") that a man needs to survive. Before the State concerns itself with securing the inviolability of the Super Store, it must ensure that the two more basic and fundamental rights are upheld within its jurisdiction. No power but the State can do that to an adequate extent. The State's very raison d'etre is to do just that. Moreover, as Pesch emphasizes, in the event of extreme need, the right to own a material thing has to give way to the right of a person to survive. In this way, "all things are common"; all things, in the material creation, are destined and intended for the preservation of the human race.When considering this text, it is important not to forget the second part of the title. For Solidarism, and for Heinrich Pesch's entire endeavor in the area of Social Catholicism, it is necessary to remember that an economy should not exist that is not a "national economy." The State is a perfect society for the simple reason that it has the means of providing for the highest and most basic needs of its citizens. An economy that is not "national" is equivalent to global grand larceny. If an economy is global, if capital-rich seekers after minimal wages and maximal profits are allowed to roam unhindered by government across the economic expanse, property ceases to be a stabilizing factor in human affairs and, instead, serves to co-opt human work into the service of those who have the connections and the financial resources needed to translate genuine human labor into large quantities of digital dollars.A series of critical issues are raised in Chapter VI of Ethics and the National Economy, that of the Just Price, the most debated economic issue in the Middle Ages, and that of the Just Wage. These issues are, even amongst our contemporaries, much debated since many contemporary neo-Liberals are claiming that the "late Spanish scholastics" upheld the position that the "law of supply and demand" ought be the sole regulator of prices. Since all considerations of justice, and especially the idea of a "just price," seem to create alarm in the minds of the neo-Liberals of the von Mises type, due, no doubt, to a belief that such considerations are idealistic and subversive of the economic laws of "supply and demand," it is heartening to see Pesch carefully, and in a very realistic manner, insisting upon the fact that economic exchange is not "gift-giving," but rather, an exchange of economic values. No one intends to suffer a loss of some of his wealth in the process. This fact, however, is the only given in the economic process. Other than this, there is no "law" of exchange that can be derived from this state of affairs. This basic understanding is rejected by liberal economists who hold that prices are established directly by the interaction of supply and demand; this process then leads indirectly to the economically correct distribution of goods for satisfying the wants of all. Moreover, these same economic liberals argue that if such "free competition" is allowed, with regard to the pricing of goods, in the long run prices will fall to the lowest possible level. The entire operation, bringing about this economic "benefit" takes place automatically, mechanically, as if "by itself."[note]Ibid., 81-83.[/note]In refuting these liberal capitalist doctrines on pricing, Pesch expresses the primary thesis of his text:

Behind supply there are suppliers, and behind demand there are demanders, causes which operate freely, human deliberation, human ambitions, human passions, and human power relationships. Therefore what is needed is the intervention of regulating factors and protection against speculative falsification, against artificial manipulation of the fluctuation of prices which makes it possible to earn vast amounts of money in a short time.[note]Ibid., 84.[/note]

It is breathtaking to behold the neo-Liberals of our day, both of the militant and the instinctive variety, insisting on the benefits for freedom and prosperity brought to us by our present Capitalist System. What the Liberals-Libertarians choose to ignore is that there is no business success, in the present day Capitalist System, without the leave of the bankers. One is only "free" in this System if the bankers give you the loans and the credits which will "allow" you to be successful. As Chesterton once said, "Utopia for whom?" For those who dream of the day when the world and truly free men will not have to beg "leave" of the bankers, Pesch gives cause and counsel.