Rerum Novarum: One Hundred Twenty-Five Years Later

One hundred twenty-five years ago, Pope Leo XIII published Rerum Novarum,[note]Leo XIII, Rerum Novarum (1891).[/note] his encyclical on the rights and duties of capital and labor, and it has been annoying people ever since. It annoys equally the purveyors of state socialism, opponents of labor unions, and those who cling to the superstition that wages should be determined by market forces alone.Certainly, those who feel no compunction about disagreeing with a pope, or who deny him any authority, will experience some irritation at this intrusion of religion into political and economic affairs. But, alas, there are Catholics who find themselves confronted by the encyclical with mandates not in keeping with their economic theories, or their political parties, and respond by either inventing narrow definitions of what constitutes the Ordinary Magisterium or resorting to the scandalous practice of special pleading.[note]Father Robert A. Sirico, "Catholic Teaching's Pro-Union Bias," Milwaukee-Wisconsin Journal Sentinel (February 28, 2011)..[/note]Yet Rerum Novarum remains, like the Church on which its authority rests, notwithstanding opposition to it, both without and within. Such a foundational document it has remained that subsequent popes have commemorated its publication. In 1931, Pope Pius XI did just that forty years after Rerum Novarum’s publication in the very title of his encyclical Quadragesimo anno, which is Latin for “in the fortieth year.” Pope John Paul II did the same in 1991, one hundred years after Rerum Novarum, with his encyclical Centesimus annus, which is Latin for “hundredth year.”But, perhaps, because of the din of the culture with which we are surrounded, it does not seem to be widely appreciated how radical, in the true sense of that word, Rerum Novarum actually is. A good example of this radicalism can be found in what Pope Leo XIII had to say about the just wage.

Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice....

If a workman’s wages be sufficient to enable him comfortably to support himself, his wife, and his children, he will find it easy, if he be a sensible man, to practice thrift, and he will not fail, by cutting down expenses, to put by some little savings and thus secure a modest source of income. Nature itself would urge him to this.

For Leo XIII, it was preferable that the exact amount of the just wage would be set through the activity of labor unions rather than a government mandate. Still, in the American context, it is useful and educational to consider what a just wage would likely amount to given the necessary expenses of people living in the United States.The Living Wage Calculator[note]Living Wage Calculator.[/note] was created in 2004 by MIT professor Amy Glassier.[note]http://livingwage.mit.edu/pages/about.[/note][note]Faculty information.[/note] Using “geographically specific expenditure data related to a family’s likely minimum” costs for “food, child care, health insurance, housing, transportation, and other basic necessities” such as clothing and personal care items, it calculates the wage necessary to support families of various compositions in different localities throughout the United States.In writing of the just wage, Pope Leo XIII specifically considered a wage paid to a man as the sole support of his wife and children. The average sized household in the U.S. consists of 2.58 people.[note]"Households and Families: 2010," 2010 Census Briefs.[/note] Since fractions of people have not been recognized in the U.S. since the Civil War Amendments, we’ll round that number up to 3. In honor of the well-known phrase, and the city’s historic use as a test-market,[note]Amy Groh, "The Phrase That Put Peoria on the Map," PeoriaMagazines.com (June 2009).[/note] we will use Peoria, Illinois in the ensuing example. We will thus apply the Living Wage Calculator to a family with two adults and one child, with one of the adults working, in Peoria County, Illinois.The Living Wage Calculator estimates the appropriate living wage for such a family at $19.88 per hour.[note]Living Wage Calculator for Peoria County, Illinois.[/note] This is striking, given that the minimum wage in Illinois is less than half that amount, at $8.25 per hour.[note]Ibid.[/note] The Bernie Sanders campaign, carrying with it a reputation for leftist populism, is demanding a nationwide increase in the minimum wage to $15.00 per hour. But that wouldn’t be enough for our sample family to even meet expenses in Peoria.There is another way to look at it. Our sample family will need at least a two-bedroom apartment in which to live. Throughout 2015, the average monthly rent for a two-bedroom apartment in Peoria was $750.83.[note]Peoria Rent Trends.[/note] The standard wisdom is that house payments should amount to no more than 28% of one’s income.[note]"How Much You Should Spend on a Home," The Wall Street Journal..[/note] But $750.83 is 28% of $2,681.54. Thus, the average two-bedroom apartment in Peoria requires an annual income of $32,178.48. Breaking that down to an hourly rate based on a 40-hour work week, 50 weeks a year, the result is $16.09 per hour. That’s less than the hourly rate suggested by the Living Wage Calculator, but $1.09 per hour more than the proposed $15.00 per hour that is considered so extravagant in some quarters. What’s more, it is nearly double the minimum wage of Illinois, and more than twice that of the federal minimum wage of $7.25 per hour.Peoria, of course, is only one place, and it appears to be a place where rents are lower than average. Currently, throughout the United States, the average rent for a two-bedroom apartment is $1,261.00 per month.[note]Rental data from "My Apartment".[/note] $1,261.00 is 28% of $4,503.57. So the average two-bedroom apartment in the United States requires an annual income of $54,042.84, or $27.02 per hour.Now in writing of the just wage in Rerum Novarum, Pope Leo XIII wasn’t referring to a wage that was just sufficient to get by with ordinary living expenses. He was calling for a wage that was sufficient for that, plus, with thrift, sufficient to set aside savings that could serve as a source of income for a working person. While a minimum wage set at any of the amounts mentioned might seem excessive to many, such wages would not be high enough to meet the standards of Rerum Novarum.But there is serious doubt that American capitalism, in its current form, could sustain a minimum wage at such rates. In 2014, the Congressional Budget Office (CBO) studied the effect that raising the minimum wage to only $10.10 per hour would have on employment, and concluded that it might result in the loss of as much as one million jobs.[note]"The Effects of a Minimum-Wage Increase on Employment and Family Income," The Congressional Budget Office (February 18, 2014).[/note] While no divine inspiration can be claimed for the CBO’s analysis, there is certainly no room for a blithe assumption that a significant increase in the minimum wage would have no adverse consequences on employment.It seems, then, that we are caught in a dilemma. Our economic system can run efficiently only if it is permissible to pay wages far below what is necessary to meet living expenses. But, since an economic system should work for the benefit of human beings rather than to their detriment, this is clearly an absurdity. What’s wrong?Interestingly, though he was addressing another issue, Leo XIII clued us in on what is wrong when he wrote in Rerum Novarum that as “effects follow their cause, so is it just and right that the results of labor should belong to those who have bestowed their labor.” For Leo XIII, labor was a property creating event, and when the matter is considered carefully this is a principle hard to deny. If the ownership of property is in accord with the law of nature, and Leo XIII holds that it is, then we must view the acquisition of property separately from its sanction by society. But apart from society, anything that is not the result of labor in some form is the property of no one. Labor, therefore, is the original basis of property ownership.But under capitalism in its current form labor is widely expended with no recognized property rights emerging. It is the capitalist, who has invested money in an enterprise, who takes ownership of the results of the labor of his employees. It is true that the capitalist pays his employees money for their work, but, if he is to make a profit, he cannot pay to his employees the full value of the product or service they have produced. He will sell what has been produced to others at the price of the full value, paying his employees less, realizing his profit in the difference. Labor is thus systemically rewarded in an amount less than the value it produces.The only way balance can be restored in the modern context, where a capitalist-style profit must be earned, is if employees have the excess value restored to them in the form of shares in the business enterprises for which they work, that is, if they become capitalists themselves. But this would be nothing other than distributism put into practice. Leo XIII would be in accord, for he wrote that the “law ... should favor ownership, and its policy should be to induce as many as possible of the people to become owners.”One hundred twenty-five years later we are still some distance from realizing the vision of Rerum Novarum. Its prescriptions are radical, and strike at the foundations of the modern capitalist system. We should not be surprised that the way forward turns out to be Distributism after all.