With the fall of communism and the discrediting of socialism few
intellectuals still seriously defend detailed social planning by the
state. However, fallacious collectivist ideas keep cropping up in the
Church. We all know they are economically illiterate, but have
they a theological basis? In this masterly essay Professor Woods shows
clearly that the underlying theology is muddled too. It is
reprinted, with permission, from LewRockwell.com
Catholic
Social Teaching and Economic Law:
An Unresolved Tension
by
Thomas E. Woods, Jr.
Author's
Preface: What follows is a discussion of Catholic social thought and the
question of the just wage. I have nothing but the most profound respect for the
nineteenth- and twentieth-century popes, who led the Church with courage and
principle. As for the concept of the just wage, however, the time has come to
acknowledge, with the late Scholastics, that the just wage is the market wage.
As Fr. James Sadowsky of Fordham University has argued, if a business can
"afford" to pay a just wage, market competition for labor will yield
one. If it cannot, then it won't. In advocating socially desirable outcomes, it
is essential to study how best they can be brought about.
One
of the characteristic features of Catholic thought over the centuries has been
its emphasis on reason. Man’s mind, according to this tradition, is capable of
apprehending a world of order that exists outside itself. Man is able to
abstract "universals" from the myriad objects and sense data that
appear to him and thus bring order to the chaos of mere data above which mere
brutes can never ascend.
Throughout
the Bible and the Church Fathers, the regularity of natural phenomena is
described as a reflection of God’s goodness, beauty, and order. For if the
Lord "has imposed an order on the magnificent works of his wisdom,"
that is only because "He is from everlasting to everlasting" (Sir.
42:21). "The world," writes Stanley Jaki, summing up the testimony of
the Old Testament, "being the handiwork of a supremely reasonable Person,
is endowed with lawfulness and purpose." This lawfulness is evident all
around us. "The regular return of seasons, the unfailing course of starts,
the music of the spheres, the movement of the forces of nature according to
fixed ordinances, are all the results of the One who alone can be trusted
unconditionally." The same holds for Jeremiah’s citation of the faithful
recurrence of harvests as a demonstration of God’s goodness, or the parallel
he draws "between Yahweh’s unfailing love and the eternal ordinances by
which Yahweh set the course of stars and the tides of the sea."1
The
Market and the Finger of God
Likewise,
God and the Bible are teleological: things have purposes. It is not for man to
define the purposes of marriage and sexuality according to his arbitrary will,
for instance; God punishes men who substitute their whims for the order and
purpose he has built into his creation. Catholics were in general not
nominalists: they did not consider God’s will to be absolutely unfathomable or
his moral laws ultimately arbitrary. Actions were not good simply because God
had said so; God had said so because they were good. Thus from the physical
world to the world of moral precept, God was nothing if not rational and
orderly.
During
the Enlightenment, thinkers impressed by the elegant regularity of phenomena and
the beautiful order that Isaac Newton had described in the physical world looked
in the social world for similar law-like relationships. Although the rise of
what might be called economic thought had long preceded the Enlightenment, the
attempt to systematize observations of economic activity into a coherent
discipline reflected the intellectual life of the eighteenth and nineteenth
centuries at its best. What they found was that prosperity was maximized when
the free interaction of individuals was hampered as little as possible, and that
ill-considered efforts to improve the economic well-being of certain groups were
bound to have deleterious consequences, often exactly contrary to the stated
wishes of their proponents. As Ludwig von Mises points out, many of these
thinkers found the hand of divine providence in the beautiful order and harmony
created by the free market and the division of labor – a supplement, I might
add, to the order in the physical realm that St. Paul and Catholic theology as a
whole had always pointed to as evidence of God’s existence and goodness.
Enlightenment thinkers viewed the regularity of natural phenomena as "an
emanation of the decrees of Providence," and when these same thinkers
discovered a like regularity in human action and the economic sphere, they
"were prepared to interpret it likewise as evidence of the paternal care of
the Creator of the universe." "Observe the functioning of the market
system," some classical liberals put it, "and you will discover in it
the finger of God."2
The
nineteenth-century classical liberal (and Catholic) economist and writer
Frederic Bastiat described the consequences of this insight in his posthumously
published Economic
Harmonies:
For
if there are general laws that act independently of written laws, and whose
action needs merely to be regularized by the latter, we must study these general
laws; they can be the object of scientific investigation, and therefore
there is such a thing as the science of political economy. If, on the contrary,
society is a human invention, if men are only inert matter to which a great
genius, as Rousseau says, must impart feeling and will, movement and life, then
there is no such science as political economy: there is only an indefinite
number of possible and contingent arrangements, and the fate of nations depends
on the founding father to whom chance has entrusted their destiny.3
The
Problem of Catholic Social Thought
The
primary difficulty with much of what has fallen under the heading of Catholic
social teaching since Pope Leo XIII’s Rerum Novarum (1891) is that it
assumes without argument that the force of human will suffices to resolve
economic questions, and that reason and the conclusions of economic law can be
safely neglected, even scorned.4
In fact, as with the German Historical School that Ludwig von Mises opposed,
proponents of Catholic social teaching effectively deny the very existence of
economic law. Their position therefore neglects altogether the role that reason
must play in assessing the consequences of seemingly "progressive"
economic policies, as well as in apprehending the order and harmony that can
exist within complex (in this case market) phenomena. This attitude runs
directly counter to the entire Catholic intellectual tradition, according to
which man is to conform his actions to reality, rather than embarking on the
hopeless and foolish task of forcing the world to conform to him and to his
desires. This corpus of thought wishes to force reality into outcomes that
cannot be realized by will alone.
Thus,
for example, that every man should earn a "family wage" that allows
his family to live in reasonable comfort is a desirable social goal. The
suggestion that such an outcome can be brought into existence by decree,
however, that man’s will can establish such a state of affairs by his ipse
dixit alone, and that no recourse to any so-called economic law can be of
any help in ascertaining the probable outcome of such measures, is no more
intellectually defensible than the suggestion that man’s desire to fly renders
superfluous any need to take into account the law of gravity.
In
sum, much of the economic counsel set forth as Catholic social teaching over the
past century suffers from logical flaws and is factually mistaken in a number of
its assertions. Such a position, whether or not its proponents realize it,
represents the triumph of will over intellect, of the substitution of arbitrary
will and desire for a rational assessment of laws of social interaction and the
inevitable consequences of violent interference in that interaction. Such a
posture, in addition to the damage it does to the existing stock of wealth and
to social comity itself, is thoroughly uncharacteristic of the Catholic Church,
an institution that has always emphasized the mind’s ability to perceive
(and to rejoice in) the orderliness of God’s creation and to conform itself
to it. Truth, say Catholic catechisms, consists of the conformity of mind to
reality. Catholic "social teaching," on the other hand, too
frequently demands that man allow mere desire and sentiment to form his judgment
in economic matters, rather than assessing the consequences of economic measures
with the aid of economic law, and rather than looking in the economic realm for
the order and regularity to which the Church points in so many other areas as
reflections of the orderliness of God himself.
The
Scholastics Had It Right
One
of the most frustrating aspects of Catholic social thought since Rerum
Novarum is that there was nothing inevitable about the direction it
ultimately took. Among the great advances in the study of the history of
economic thought that took place in the twentieth century was the rediscovery of
the fairly voluminous economic insights of the late Scholastic theologians,
particularly in Spain. Several scholars deserve special mention in this regard,
including Raymond de Roover, Joseph Schumpeter, Marjorie Grice-Hutchinson,
Alejandro Chafuen, and Murray N. Rothbard.5
Much of what these sixteenth-century Catholic thinkers taught in the economic
realm revealed a considerable understanding of and appreciation for the
functioning of the market, including the role of entrepreneurship, the nature of
exchange, and the justice of prices and wages determined by the free interplay
of supply and demand. Well before Adam Smith, therefore, a whole host of
thinkers not only anticipated many of his insights regarding the free market but
even avoided some of the errors (the labor theory of value chief among them)
that would arise in Smith’s work.
To
be sure, the Spanish Scholastics did not possess a self-conscious or explicitly
elaborated conception of the market as an intrinsically harmonious and
self-regulating system analogous to the self-regulating physical universe of
Isaac Newton, and it would be anachronistic to expect such a conception.6
They were, moreover, interested more in the moral dimension of economics than in
a descriptive elaboration of how various economic mechanisms functioned. Still,
a recognition of the binding nature of economic law is obviously taken for
granted in a great many of their contentions. The Scholastics derived certain
economic relationships, such as the quantity theory of money, in the process of
reaching moral conclusions, and thereby demonstrated their fundamental if at
times inchoate recognition that the economy functioned in certain definite ways
and that it would be foolish for human whim to attempt to defy them. Thus
consider this summary of the Scholastic critique of price regulation:
Regulation
of prices by the authorities or by guilds sooner or later produces incorrect
prices and a distorted market. Because the prices of goods are internally
related, it serves no purpose to regulate the prices of the end-products only.
This thesis is illustrated by means of an example. If the authorities wish to
regulate the prices of bread and shoes, the prices of wheat and leather must
also be kept under control. If not, then distorted growth takes place in the
production line or between this and the distribution line.7
Likewise,
Juan de Mariana (1536-1624) warned of the consequences of state interference
with market phenomena:
Only
a fool would try to separate these values in such a way that the legal price
should differ from the natural. Foolish, nay, wicked the ruler who orders that a
thing the common people value, let us say, at five should be sold for ten. Men
are guided in this matter by common estimation founded on considerations of the
quality of things, and their abundance or scarcity. It would be vain for a
Prince to seek to undermine these principles of commerce. ’Tis best to leave
them intact instead of assailing them by force to the public detriment.8
In
addition to the rediscovery of the importance of the late Scholastics in
general, another important recent accomplishment in the history of economic
thought was Raymond de Roover’s crucial revision of our understanding of what
the Scholastics meant by the "just price." For a long time, it was
assumed that the so-called just price was a price distinct from the price
reached on the free market, and reflected either the cost of production or the
good’s alleged intrinsic value. In fact, the just price was the market price,
the price established by the "common estimation" of buyers and
sellers.9 In 1554,
Luís Saravia de la Calle Veroñese summarized this position by noting that the
just price "arises from the abundance or scarcity of goods, merchants, and
money, as has been said, and not from costs, labor and risk. If we had to
consider labor and risk in order to assess the just price, no merchant would
ever suffer loss, nor would abundance or scarcity of goods and money enter into
the question."10
Saints
Who Understood Prices
A
proper understanding of the Scholastic theory of the just price is essential in
order to appreciate the Scholastic theory of wages, which was "perfectly
consistent with their price theory."11
That is, the just wage was that which was reached by means of the common
estimation of the market. Luis de Molina taught that the owner was "only
obliged to pay [the laborer] the just wage for his services considering all the
attendant circumstances, not what is sufficient for his sustenance and much less
for the maintenance of his children and family."12
Domingo de Soto stated the matter even more concisely, concluding that "if
they freely accepted this salary for their job, it must be just." He held
that "no injury is done to those who gave their consent," and
suggested to laborers: "[I]f you do not want to serve for that salary,
leave!"13 The
same view of wage determination was also held by two earlier figures, whom
Raymond de Roover describes as the two great economic thinkers of the Middle
Ages: San Bernardino of Siena and Sant’Antonio of Florence.14
Chafuen points out that while this teaching is easily misunderstood as a case of
callous disregard for the well being of workers, it was no such thing:
Their
condemnation of monopolies, frauds, force and high taxes are all directed toward
the protection and benefit of the working people. Nonetheless, they never
proposed the determination of a minimum wage sufficient to maintain the laborer
and his family. In the belief that fixing a wage above the common estimation
level would only cause unemployment, they recommended other means.
Reason
allows us to distinguish between goals and means. One of the goals of the
Schoolmen’s economic policy recommendations, as of any other school of
thought, is the betterment of the worker’s condition. Nonetheless, they
understood that tampering with the market would be inconsistent with their
goals. These reasons, and not a lack of charity, were the basis of their
proposals. Those who criticize Late Scholastic wage theory for a so-called
"lack of compassion" demonstrate their lack of understanding of the
market.15
This
defense of the fundamental justice of the free market, although not altogether
abandoned (the popes certainly do not advocate socialism), was nevertheless
eclipsed to a significant degree in modern papal pronouncements, beginning most
obviously with Rerum Novarum (1891), clearly the seminal Church document
on the question of capital and labor. In the face of labor agitation and unrest
throughout the West, Pope Leo XIII decided to issue a pronouncement on what was
then referred to as the social question. The encyclical discusses at some length
the justice and necessity of private property, and for that reason utterly
rejects socialism as a legitimate economic system. The Pope was not especially
sympathetic to the use of the strike, and advocated that government intervene in
order to settle such disputes between employer and employed in order that the
"grave inconvenience" of such work stoppages be vitiated.
Is
Anti-Marxism Enough?
To
be sure, the popes have consistently rejected the Marxist position whereby labor
and capital are by necessity locked in unavoidable conflict and struggle. They
contend that no such inherent conflict exists in society, and that the
capital-labor relationship need not be an antagonistic one, and ought naturally
to be mutually agreeable and harmonious.16
But having said that, they go on in their various critiques of the market to
suggest, even if usually only implicitly, that all is disorder and chaos, and
that intervention by public authority is indispensable for obtaining justice in
the economic realm. Recall the consensus among the late Scholastics that just
wages were established in the same way as just prices, namely by the common
estimation of the market and the free consent of individuals. Rerum Novarum,
on the other hand, flatly declares it a falsehood to conceive of wages as
"regulated by free consent, and [that] therefore the employer, when he pays
what was agreed upon, has done his part and seemingly is not called upon to do
anything beyond."17
To
be sure, workers and employers may enter into agreements pertaining to wages,
but 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.18
Leo
XIII later speaks of the importance of wages "sufficient to enable [the
laborer] comfortably to support himself, his wife, and his children."19
Leo
XIII himself cautioned that Rerum Novarum not be considered an
endorsement of this or that particular program; he thought Catholics ought to be
free, taking Catholic principles for granted, to discuss the best way to bring
Church teaching to bear on current problems. "If I were to pronounce on any
single matter of a prevailing economic problem," the Pope later wrote,
"I should be interfering with the freedom of men to work out their own
affairs. Certain cases must be solved in the domain of facts, case by case as
they occur…. [M]en must realize in deeds those things, the principles of which
have been placed beyond dispute…. [T]hese things one must leave to the
solution of time and experience."20
Among
the principal themes that Leo XIII introduces into Catholic discourse with Rerum
Novarum is the idea of a "third way" between socialism and pure laissez-faire.
The operation of the market, Leo suggests, had in some cases led to intolerable
outcomes that public authority ought to rectify. Moreover, Rerum Novarum
enshrines the critical and fateful idea that the wage rates established by
market processes could be held up to moral critique by outside observers on the
basis of their adequacy in meeting workers’ needs. As will become
characteristic of the documents that comprise Catholic social thought, the
question of the productivity of labor as an unavoidable determinant of wage
rates is not raised.
Pope
Pius XI’s Quadragesimo Anno (1931) is another critical document within
the corpus of Catholic social thought. An encyclical commemorating the fortieth
anniversary of Rerum Novarum, Quadragesimo was written during the
Great Depression, a fact that may account for the more polemical and hostile
tone it adopts towards businessmen and the market. Toward the beginning of the
document, Pius laments the allegedly appalling conditions that afflicted the
vast majority of workers. He goes on to praise the passage of laws on behalf of
worker safety and well being in the wake of Leo’s encyclical. "These
laws," Pius observes, "undertake the protection of life, health,
strength, family, homes, workshops, wages and labor hazards, in fine, everything
which pertains to the condition of wage workers." Having helped to inspire
such measures, Pius concludes, it was Rerum Novarum "to which great
credit must be given for whatever improvement has been achieved in the
workers’ condition."21
A
Hidden Assumption
To
the casual observer this statement is innocuous enough. But there is a hidden
assumption here, which is central to the rest of the document as well as to
nearly all of the late nineteenth and twentieth-century papal criticism of the
market order, and upon which practically the entire edifice of recent Catholic
social thought has been built. Thus if this assumption, which is rarely stated
explicitly and never to this writer’s knowledge given any logical proof in an
official Church document, should turn out to be erroneous, the entire structure
on which it rests must be systematically reconsidered.
That
assumption is that the wage rates and the working conditions that come into
existence through the unhampered market process do not necessarily reflect
fundamental economic realities and may be objectively unjust. These wages and
conditions, the assumption continues, may be improved upon through wise state
intervention. Closely related to this fundamental assumption is the implicit
claim that such intervention can be purely benign, and Pareto optimal from the
workers’ point of view – that is, the process of making some better off will
make no one worse off. We must assume that the architects of Catholic social
teaching consider the ill effects of such intervention to be either minimal or
nonexistent, since that teaching nowhere makes moral provision for workers who
will be priced out of the market by the implementation of state-imposed wage
increases and improvements in working conditions.22
This
assumption regarding wage rate determination may seem so obvious to Leo XIII and
Pius XI as not to require proof, but if the Church is going to presume to
establish moral principles on the basis of the consequences that follow from
this assumption, then some demonstration of its truth must be attempted.
For if this assumption is wrong, then the counsel that the popes presume to
offer in economic matters may in fact have the opposite outcome from that
intended, and the accusations of injustice and immorality that they have leveled
against certain employers and the economic system as a whole may turn out to be
unjustified.
The
Notion of a Living Wage
Consider
Quadragesimo Anno’s renewal of Rerum Novarum’s call for a
"living wage": "In the first place, the worker must be paid a
wage sufficient to support him and his family." This demand is followed
later in the same paragraph by a qualifying statement: "But if this cannot
always be done under existing circumstances, social justice demands that changes
be introduced as soon as possible whereby such a wage will be assured to every
adult workingman."23
Thus Pius XI concedes that paying a worker a so-called family wage "cannot
always be done under existing circumstances," although he does not
elaborate on this point. Why might it not be able to be done? Because, perhaps,
worker productivity is not sufficiently great in all fields to command such high
wages? No answer is provided. He then demands that "changes be introduced
as soon as possible" to make such wages feasible, but he again provides no
indication of what kinds of changes he has in mind.
"In
determining the amount of the wage," the Pope goes on, "the condition
of a business and of the one carrying it on must also be taken into account; for
it would be unjust to demand excessive wages which a business cannot stand
without its ruin and consequent calamity to the workers." Pius XI does
recognize, then, that wage rates are obviously subject to some upper bound
beyond which they cannot go. He concludes: "Hence it is contrary to social
justice when, for the sake of personal gain and without regard for the common
good, wages and salaries are excessively lowered or raised; and this same social
justice demands that wages and salaries be so managed, through agreement of
plans and wills, in so far as can be done, as to offer to the greatest possible
number the opportunity of getting work and obtaining suitable means of
livelihood." Such statements help to underscore why the late Scholastics
favored leaving wage determination to the "common estimation" of the
market, since any other method is inherently arbitrary and leads to hopeless
complications. Thus Pius realizes that there is a limit to the wage level the
market can bear, but he is able to offer nothing better than a vague appeal to
"agreement of plans and wills" in order to determine what that limit
was. He rejects out of hand the fundamental posture of liberal economics
according to which the market left to itself "would have a principle of
self direction which governs it much more perfectly than would the intervention
of any created intellect."24
He thus assumes (without any demonstration or proof) that the unhampered market
is not the way to provide employment "to the greatest possible
number," but provides us with no serious alternative method for doing so.
In
more recent years the popes have begun to demand, in addition to a "living
wage," various additional benefits for workers. Thus Pope John Paul II
declares in Laborem Exercens: "The expenses involved in health care,
especially in the case of accidents at work, demand that medical assistance
should be easily available for workers, and that as far as possible it should be
cheap or even free of charge. Another sector regarding benefits is the sector
associated with the right to rest. In the first place this involves a
regular weekly rest comprising at least Sunday, and also a longer period of
rest, namely the holiday or vacation taken once a year or possibly in several
shorter periods during the year. A third sector concerns the right to a pension
and to insurance for old age and in case of accidents at work."25
We
shall leave aside the philosophical question of whether it makes sense to speak
of a pension as a human right fundamental to man’s nature when its
enjoyment is not possible at all times and in all places (how would two men on a
desert island enforce their "right to a pension" upon one another?).26
Nowhere in this analysis is there any acknowledgment that making medical
assistance "cheap or even free of charge" only makes it more costly to
hire workers in the first place, and thus guarantees higher unemployment. It is
not even that Laborem Exercens presents us with a trade-off between
"free" health care on the one hand and increased unemployment and
impoverishment on the other. No such difficulty is raised or even
acknowledged. Employee compensation is simply assumed to be so arbitrary
that we can actually make certain compensation packages morally obligatory
without even taking into account any need to make provision for inevitable
drawbacks. Apparently, there are none with which moral analysis need concern
itself.
The
Will of the Legislator Will Not Suffice
The
clear implication of all of this is that will, desire, and good intention
suffice to bring about high wages, vacation time, free health care, and the
like. Indeed much of Catholic social thought suggests that the problem of
economics and wealth is to a significant degree a matter of human manipulation
and contrivance rather than a rational and sober reckoning with the constraints
and scarcities with which man is naturally confronted. Occasionally a qualifying
statement appears, as in Pope John XXIII’s 1963 encyclical Pacem
in Terris, which declares: "The amount a worker receives must be
sufficient, in proportion to available funds, to allow him and his family
a standard of living consistent with human dignity."27
No guidance or elaboration is provided with regard to what constitutes
"available funds." The very term "available funds" again
suggests a misplaced emphasis on employer discretion rather than the
productivity of labor as the limiting factor on wages. In one of the most
startling twentieth-century papal statements on economics, Pope Pius XII even
goes so far as to declare, in his 1941 Pentecost message, "Nature imposes
work upon man as a duty, and man has the corresponding natural right to
demand that the work he does shall provide him with the means of livelihood for
himself and his children."28
But
the Catholic especially must appreciate that the condition of superabundance
that characterized the Garden of Eden no longer exists. Ours is a world of
scarcity in which the goods of human existence are acquired through toil. The
fact of scarcity cannot be blithely wished away through legislative action or
moral polemic. "In the sweat of thy face shalt thou eat bread" (Gen.
3:19).
The
possibility that the determination of wage rates could involve something more
than mere employer whim is scarcely even raised, let alone cogently addressed,
within the corpus of Catholic social thought, and the concept of economic law,
when it is mentioned at all, is generally ridiculed and dismissed as a
rationalization of greed.29
This impression only increases when one considers the position of Msgr. John A.
Ryan, perhaps the best-known American Catholic writer on economic issues in the
early twentieth century. Ryan, a professor of political science and moral
theology who taught at Minnesota’s St. Paul’s Seminary and the Catholic
University of America, founded and edited the Catholic Charities Review
and directed the Department of Social Action of the National Catholic Welfare
Conference. In his famous book A
Living Wage (1906), Ryan points out that according to the logic of the
classical economists, wages freely bargained for would ipso facto be just
wages. Wondering whence they derived such a theory, he goes on to discuss the
teaching of Adam Smith, failing to make any mention of the late Scholastics, who
of course held precisely the view that Ryan holds up to ridicule and contempt.30
Not
surprisingly, Ryan rejects the idea that a wage decided upon through free
bargaining between laborer and employer is inherently just (a position that he
was probably unaware had been held by so many venerable sixteenth-century
Catholic thinkers) and argues instead that it is morally obligatory upon
employers to pay wages that would allow workers and their families to live in
reasonable comfort. Ryan, too, inserts an occasional qualifying clause that he
does nothing to explain or clarify. "When the employer cannot pay a Living
Wage," he concedes, "he is for the time being freed from actual
obligation, as no one is morally bound to do the impossible."31
Thus Ryan himself admits the existence of limitations on what employers can be
expected to pay, but having already dismissed the suggestion that on the market
wages tend to approximate the worker’s discounted marginal value product (DMVP)
– that is, the market value of the goods whose production the employment of a
particular laborer makes possible, discounted by the going rate of interest –
he provides no rational or objective substitute in its place for wage
determination other than an "ability to pay" principle that he himself
admits is vague and unhelpful.32
Adding to the confusion is Ryan’s later admission: "If, however, it be
maintained that there is no obligation to pay the laborer more than the
value of his product because there is no possibility of doing so, no objection
can be offered."33
But if this is true, then how can state authorities be sure, when imposing
"living wage" legislation, that they are not forcing men out of work
by decreeing a wage beyond what their product is worth?
Ryan
rejects the idea that wage determination has anything to do with worker
productivity, which he argues is impossible to measure: "Do the skilled
workers in an automobile factory produce more than the common laborers who pave
streets? There is no third term by which the two products can as such be
compared."34
But of course there is a third term: money. The institutions of money and
private property are what make economic calculation possible.35
It is because we can reckon all goods and services in the economy in terms of a
common unit that entrepreneurs can calculate profit and loss, and in the first
place can decide among the limitless production possibilities (that is, what
kinds of technology to use, how capital- or labor-intensive to be, where to
locate one’s physical plant, what combination of factors to employ, and so on)
which is the most efficient and least wasteful in terms of foregone
opportunities to which the inputs he uses might have been put. Ryan seems
completely unaware of this aspect of money prices and wages.
Moreover,
what the entrepreneur is interested in is not so much physical productivity per
se as the DMVP of the labor he employs. An entrepreneur must take into account
the value of the increased product he expects to accrue to his firm from any
factor of production, and must make his decisions to purchase or to abstain
from purchasing capital equipment, an expanded plant, and the like, based on the
extent of this expected gain. But even if it were true that productivity could
not be measured, it is nevertheless a non sequitur to suggest that the
just wage must therefore reflect the needs of the worker and his family. A
contemporary reviewer of A Living Wage attempted to make this point to
Ryan: "As an individual or as head of a family, the laborer produces the
same amount of work; how then could the employer as such be obliged in strict
justice to take into account a condition which is of no advantage to him?"36
Rejecting
Economic Law
It
can come as little surprise that Ryan dismisses the idea that economic law acts
as a constraint on the "lasting modification in the rates of wages by human
action."37
"A strong Labor Union," Ryan declares, "might meet the objection
of the employer, that efforts to get more pay must prove futile, since wages are
fixed by economic law, with the declaration: ‘Yes, but we will help to make
the law.’"38
More
hostile still to the idea of economic law is Heinrich Pesch, S.J. (1854-1926),
the founder of Solidarism, a kind of corporatism on which Quadragesimo Anno
is said to have modeled its own approach.39
(While Pesch died five years before the publication of Quadragesimo, his
intellectual circle was frequently consulted during its drafting.)40
According to Pesch, advocates of the idea of economic law assume that man always
acts with purely economic motives in mind. This was a common Catholic criticism,
and one that persists: John Paul II, in Laborem Exercens, criticizes
"economism" as a mode of thought that "directly or indirectly
includes a conviction of the primacy and superiority of the material, and
directly or indirectly places the spiritual and the personal (man’s activity,
moral values and such matters) in a position of subordination to material
reality."41
Pesch suggests that economic law would hold only if this assumption of man’s
exclusively "economic" behavior and outlook were true. Since this
assumption is demonstrably false, Pesch believes he has thereby refuted the case
for economic law. Pesch even purports to provide an example of how it can
actually be a virtue to flout so-called economic law: "If in bad times many
‘hands’ present themselves for employment, so that the ‘exchange value of
their labor power’ falls below their reproduction value – the subsistence
costs of the workers – then the owner of the factory is still empowered to pay
a higher wage than the actual exchange value and ‘the market price of labor
power’ indicates. He is not mocking the ‘natural law’ of liberal economism,
and perhaps many will deem his conduct as very rational and noble."42
In
fact, Pesch’s example is not especially enlightening. The question is not
whether some employer for some limited time might possess the means to exercise
charity. The question is whether wages as a whole can be permanently increased
through mere good will, voluntary or otherwise, rather than through the advances
in productivity made possible by increased capital investment. During the Great
Depression, Herbert Hoover repeatedly urged employers to keep wages high
(despite falling prices), and the pressure he brought to bear had its influence.
Wages remained high throughout the Great Depression. But this disproved no
economic law – to the contrary, it demonstrated the resilience of economic
law. Some workers benefited by these higher wages, but surely there is room
somewhere in our moral calculus for those who were thereby not able to find a
job at all. The unemployment rate averaged a whopping eighteen percent from 1933
to 1940. There were doubtless many who deemed Hoover’s conduct "very
rational and noble," but there is no record indicating the degree of
consolation this afforded workers who were priced out of the market by the
federal government’s wage policy.43
Pesch
ridicules the pretensions of economists to scientific exactitude and
mathematical precision, and he is correct to do so, but for some reason he
concludes from this that any kind of universal, unchangeable economic law per se
cannot exist.44
The Austrian school of economics, on the other hand, maintains that laws of
economics, of a qualitative rather than a quantitative nature, can be derived
deductively through praxeology, the general theory of human action. Why it
should be impossible for human reason to establish such qualitative economic
laws, even if the mathematical exactitude of quantitative laws must elude the
social sciences, Pesch leaves unexplained. Indeed Pesch makes no serious attempt
to reckon with the methodological work of such economists as J.B. Say, John
Cairnes, and Nassau Senior (the latter two of whom Murray Rothbard described as
"proto-praxeologists"),45
confining himself to triumphantly unmasking the "economic man" canard.
Say insisted that the method of economics was one of deduction from first
principles, and not analogous to the hard sciences with either their empirical
testing or their mathematical precision. Senior built upon this conception,
making provision for immaterial satisfactions and thereby expressly avoiding any
assumption about man’s behavior being driven by exclusively material concerns.46
Thus Pesch’s criticisms do not apply to these thinkers, with whom he ought to
have been familiar.
Neither
do they apply to Ludwig von Mises, whose methodological work appeared after
Pesch was writing. Scholars familiar with Mises’ life will recall his sharp
critique of the ideological and epistemological positions of the so-called
German Historical School. The German Historical School,47
which included Adolf Wagner, Karl Knies, Gustav Schmoller, and Werner Sombart,
in Mises’ view effectively denied the possibility of economics as such. Its
partisans rejected the idea of universally valid economic law that admitted no
exception across nations and epochs. They rejected even such standard
relationships as supply and demand.48
Thus the famous Methodenstreit, which has in one form or another
continued to the present day, began in the late nineteenth century when Carl
Menger, the founder of the Austrian School, argued to the contrary that economic
law was something universal and accessible to reason. It can hardly be a
surprise, therefore, to learn that Heinrich Pesch (as well as other architects
of Catholic social teaching) was himself sympathetic to the German Historical
School. Doubtless the proponents of such a position thought they were thereby
striking a blow for traditional Catholicism at the expense of liberalism and the
Enlightenment, but the result of this line of thought was a decidedly
un-Catholic denigration of the powers of reason.49
Economic
Law Exists, No Matter What
Mises
proved that it was quite possible to insist that economic laws did exist and did
place constraints on what was possible in the economic sphere without also
endorsing any nonsense about mathematical precision or purely
"economic" motives exhausting man’s reasons for acting. Mises
pointed out what should have been obvious: namely, that "this doctrine of
[emphasizing only] the ‘economic’ side of human action utterly misrepresents
the teachings of the classical economists."50
Economics, he wrote, deals with "the actions of real men. Its theorems
refer neither to ideal nor to perfect men, neither to the phantom of a fabulous
economic man (homo oeconomicus) nor to the statistical notion of an average man
(homme moyen). Man with all his weaknesses and limitations, every man as he
lives and acts, is the subject matter of catallactics. Every human action is a
theme of praxeology."51
At no point does praxeology assume that man always chooses with purely economic
self-interest in mind; nor does it have anything to say about what goals man
should choose. It is concerned simply with the logic of choice itself and the
implications that follow from it.
And
useful implications do follow from it. Mises proposed as his "action
axiom" the fact that man acts purposefully – a fact Mises considered
irrefutable, since the attempt to deny it would itself involve purposeful
action. It also happens to be a fact supported by Thomistic philosophy. St.
Thomas observed in his Summa Contra Gentiles that "in acting every
agent intends an end" and that "every agent acts for a good."
Indifference between alternatives, Aquinas held, does not give rise to action:
"Now, he who looks upon a manifold number of things with indifference no
more succeeds in doing one of them than another. Hence, from an agent
contingently indifferent to alternatives no effect follows, unless he be
determined to one effect by something. So, it would be impossible for him to
act."52
The
very act of choice implies the concept of opportunity cost, since in choosing to
do one thing man must forego some alternative. This in turn implies that acting
man possesses an ordinal ranking of ends, which is revealed in action. This
short series of obviously true statements actually amounts to a derivation of
the law of diminishing marginal utility – that each additional unit of a good
will be desired with less and less intensity. For in line with his ordinal
ranking, man will put the first unit of a good toward the satisfaction of his
most urgent need. The second unit, therefore, must be desired less insofar as it
satisfies a need felt not as urgently as that to which the first unit was
directed. Additional units, being used for still less urgent purposes, will be
valued correspondingly less.
This
information, in turn, implies the direction of the supply and demand curves used
in all standard economics. The law of marginal utility states that a person’s
demand for a particular good decreases with each additional unit; it follows,
therefore, that it is only at lower and lower prices that he will be willing to
acquire more units of the good. And indeed the more money he spends on the good,
the greater the marginal utility of the lesser cash reserves remaining to him, a
factor which also contributes to his decreasing desire for additional units of
the good. An individual’s demand curve for a particular good must, therefore,
be downward sloping to the right – that is, as the quantity of goods he
acquires increases, the price he is willing to pay declines. The curve depicting
total demand for this good, as the summation of the demand curves of all
individuals, must itself be downward sloping to the right. The vertical or
upward sloping supply curve is derived from similarly subjective considerations.
A seller of some good is faced with the option of consuming the good himself,
selling it at present, and selling it in the future. The more units he sells,
the greater the utility of the remaining units in uses other than current sale,
and therefore the higher the price he will demand in order to part with
additional units.53
Given this analysis (whose graphical depiction makes the following conclusion
simpler to visualize) it necessarily follows that a legally imposed increase in
wage rates independent of an increased demand for labor (which in turn is
related to the productivity of labor) must lead to unemployment, as an increased
number of workers present themselves for fewer available jobs. (None of the
above, it should be pointed out, assumes that human choice is based exclusively
on so-called "economic" considerations; everything thus far derived
follows logically from the implications of human action in general.)
That
is an extremely brief praxeological examination of the issue. Let us examine the
issue still further. The price of a given type of labor is determined by the
interplay of these forces of supply and demand, with the latter being determined
by worker productivity. As with any other factor of production, faced
with the reality of scarcity entrepreneurs must bid for labor, bearing in mind
both the marginal product they expect to accrue to them by the employment of
additional workers as well as the fact that the competitive bidding for labor on
the part of other businesses prevents them from arbitrarily deciding upon
whatever wage rate pleases them. Labor is indeed scarce relative to nature-given
factors; if this were not so, there would be no unused, submarginal land, for
example. If labor were superabundant, or at least abundant in relation to land,
all land would be brought into use. The fact that some land and some resources
remain untapped reflects the scarcity of labor – that is, labor is too dear to
be wasted on extracting resources or using land whose returns would be lower
than in some other area, in which scarce labor is more urgently needed.54
Through
a kind of arbitrage process, the price of any factor of production, labor
included, tends to approach its marginal value product – that is, it
approaches that amount that accrues to the entrepreneur by the employment of the
additional unit of the factor (or, in the case of labor, the additional worker).
An employer attempting to reap abnormal profits by offering bids below this
amount will find himself having difficulty attracting sufficient sellers at the
sum he has determined to pay. Sensing an opportunity for profit, other
entrepreneurs will have bid up the price for such factors, whether steel or
labor, until it more accurately reflected its marginal value product. Thus the
recalcitrant employer will have to bid up his own insufficient price in order to
attract the factors he needs away from the more generous offers made by
competing enterprises alert to the prospect of profit.
The
usual objection to this argument rests on the alleged "inability to
wait" on the part of workers: since workers need employment to survive, and
since they do not possess a substantial stock of goods on which to subsist while
they seek work, they are forced to accept work at wages that do not adequately
reflect their productivity. This argument, however, is long on assertion and
short on proof. It is especially implausible given the unprecedented mobility of
labor in the modern world, with affordable modes of transportation that past
centuries could scarcely have imagined. Employers, on the other hand, possessing
enormous investments in fixed plant and other capital, generally lack such
mobility, and therefore may themselves be said to possess a certain inability to
wait.55 Moreover,
nowhere in this argument is there any acknowledgment that employers must compete
for scarce labor, in the same way that they compete for any scarce resource, and
that workers are faced with a variety of employers, all of whom must compete for
their labor services. As George Reisman helpfully points out, it makes no
difference to the wage rate he actually receives that a worker may
theoretically be willing to work for a wage well below what his productivity
would justify. A man may be so frustrated with maintaining and finding parking
for an automobile in New York City, for instance, that he would theoretically be
willing to pay someone to take it off his hands, but this psychological fact has
absolutely no bearing on the selling price he is able to command for the car, a
price which is determined by supply and demand and not by what in a state of
existential despair he might be willing to accept.56
The
claim that wage rates are set by the arbitrary decision of the employer also
fails to explain why, under a regime of government-mandated wage and price
controls, employers begin offering fringe benefits in order to elude the wage
controls and attract workers with more generous overall compensation
packages than competing businesses are offering. During World War II, for
instance, health care benefits started to become a common feature of employment.
Is this not a clear case of employers bidding workers away from competitors
through offers of greater compensation? In addition, the arbitrariness theory
would be at a loss to explain why, at a time when unionism was numerically
negligible and federal regulation all but nonexistent, real wages in
manufacturing climbed an incredible 50 percent in the United States from
1860-1890, and another 37 percent from 1890-1914, or why American workers were
so much better off than their much more heavily unionized counterparts in
Europe.57
A
Disappointing Papal Omission
It
is, therefore, both disappointing and rather surprising that facts such as
these, which contradict the suggestion that employers can arbitrarily depress
wage rates, appear to have attracted no prolonged attention in papal documents,
or even a curiosity about how market mechanisms may have made this kind of
progress possible. Instead, the central if sometimes unstated contention of all
the major twentieth-century papal statements of the Church’s so-called
"social teaching" has consistently remained that at least in some
areas the market is arbitrary and unfair, and that human intervention can
rectify these alleged injustices. More specifically, Rerum Novarum, Quadragesimo
Anno, and other papal documents simply take for granted that wage rates
correspond not to marginal productivity but to the more or less arbitrary fiat
of employers, and may therefore be subject to moral scrutiny. Leo XIII speaks of
the workingmen of his age as having been "surrendered, isolated and
helpless, to the hardheartedness of employers and the greed of unchecked
competition." The result, he claims, was 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."58
Pius XI sets forth this thesis in Quadragesimo Anno: "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."59
Likewise, in Laborem Exercens Pope John Paul II suggests that wage rate
determination is more or less arbitrary when he remarks that during the early
days of industrialization, entrepreneurs, following "the principle of
maximum profit," attempted "to establish the lowest possible wages for
the work done by the employees."60
But
this is a statement of fact that is nowhere given any kind of economic or
rational defense in any papal document. Little or no acknowledgment is made of
the enormous increase in living standards that became evident among the great
mass of the population from the Industrial Revolution to the present, or the
substantial increase in wage rates that occurred throughout the nineteenth
century, the century of laissez-faire. This is surely one of the most
outstanding features of modern European economic history, yet it features not at
all in the social encyclicals. To the contrary, the social encyclicals routinely
speak as if the workers’ condition had actually stagnated or even
deteriorated. Likewise, no appeal to reason is made to explain why those who
believe in a marginal productivity theory of wages are in fact mistaken, or why
it is factually incorrect to insist that artificially imposed wage increases
will lead to unemployment, or why the benefits accruing to those select workers
who may enjoy the higher wages must morally outweigh the damage done to other
workers who are thereby forced to find work in lower paying fields or who find
no work at all. This latter question certainly does contain moral implications:
is it morally acceptable to favor policies that logically guarantee unemployment
for some workers? But since the possibility that interventionist wage policies
might create unemployment is essentially not raised, this moral question is
never addressed – a fairly serious shortcoming in documents that purport to
instruct the faithful on the moral dimension of economic policy.
What
Catholic Social Teaching Refuses to Face
And
this, ultimately, is what Catholic social teaching simply refuses to face.
Suppose that the logical and rational description of wage rate determination
sketched earlier is in fact correct (and indeed nothing in the corpus of the
Church’s social teaching approaches a refutation of it, or so much as
acknowledges the possibility that it might be true). In that case, coercive
attempts to enforce a wage rate higher than that reached on the free market must
lead to unemployment, as employers substitute capital for artificially
overpriced labor. There is no reason to doubt the sincerity of the popes who
thought they were defending the integrity of the family, the very cell of human
society, when they advocated the payment of wages sufficient to provide for a
man and his family in reasonable comfort. But if material comfort is the desired
outcome, and decent wages the means of achieving it, the question of how
wages can be increased across the board inevitably arises – a question whose
answer requires that we have recourse to the sober reflection of human reason.
Simply assuming that because higher wages are desirable they can be brought into
effect by legislative decree, and then rendering a moral judgment on employers
who do not meet these requirements, does no good to those workers now priced out
of the market by the enforced payment of higher wages. The popes are obviously
not incorrect to identify the well being of the family as an important and
desirable end, but what are we to say about policies whose inevitable outcome is
the unemployment of many heads of households, with countless more relegated to
less remunerative or desirable fields than those from which artificial wage
increases have shut them out of the market? The moral dimension of all this
would be much different if the constraints and scarcities with which the human
race must always contend could be eliminated with the wave of a magic wand –
or, what is the same thing, a legislative decree. But if the world does not and
indeed cannot function in this way, and indeed if economic law precludes such
thinking altogether, then what are we to make of purportedly moral teaching that
speaks in such terms? Can good intentions really be enough in working toward the
goal of increased wages, or are not the findings of reason and economic science
indispensable to achieving this aim? These questions are not raised, let alone
answered, in the literature of Catholic social thought, and yet they touch the
heart of the whole problem of the improvement of the standard of living of the
average laborer.
Obviously,
the only certain method for raising wage rates permanently and across the board
is to increase the productivity of the workers who earn those wages. No one will
ever earn more than the value product of his labor is worth. Other things
being equal, a man whose labor services are worth, say, eight dollars per hour
to a prospective employer will never earn twelve dollars an hour from that
employer. All the moralizing and labor organization in the world cannot change
this fundamental fact.
In
the absence of any attempt to address these issues, it is difficult to see how
the economic claims of the social encyclicals can actually constitute
authoritative Catholic doctrine binding upon the consciences of all the
faithful. As this paper has shown, Catholic social teaching is based at its root
on a series of unproven assumptions regarding the operation of the market and
the determination of wage rates. The Church indeed claims infallibility in
matters of faith and morals – and the present writer, in fact, believes
strongly in that claim – but not in secular disciplines. The moral injunctions
that comprise Catholic social teaching are based, at root, on economic
misconceptions and factual error. Polemical assertion is not proof, and it
should be obvious that no binding moral obligation can derive from unproven and
indeed manifestly faulty premises.
The
Magisterium Has No Competence Here
By
any definition, it lay well beyond the competence of the Magisterium to presume
to describe the workings of economic relationships. Catholics who make this
point are routinely accused of denying the Church’s right to make moral
statements pertaining to economic activity. This criticism is completely
baseless, and only serves to distract attention from the substantive issues at
stake. Of course the Magisterium may instruct Catholics on the moral demands of
the marketplace, since how one ought to conduct oneself in the market involves
the application of moral principle – an area, unlike economics per se, in
which the Church can indeed claim expertise. Thus the Church has properly
emphasized the justice and indispensability of the institution of private
property; she has likewise condemned fraud, dishonesty, and theft, all of which
derogate from the moral order upon which the market economy is based. This is
all to the good, and well within the province of magisterial pronouncement. But
the attempt to elevate such principles as the "just wage" to the level
of binding doctrine is something altogether different, and indeed is fraught
with error. To maintain that private property is just, or that people ought to
be upright and honest in their economic activities, requires nothing more than
simple reflection on the teaching of Christ, the Fathers, and natural law
itself. The same cannot be said for exhortations to employers that they pay a
"just wage," for embedded within such counsel is a set of unproven
assumptions about how economic relationships work, and the belief that all that
stands between the world today and the great society of tomorrow is wise
legislation, rather than the capital investment which is alone capable of
increasing the overall stock of wealth. One hesitates to describe Catholic
social teaching as an abuse of papal and ecclesiastical power, but surely the
attempt to impose, as moral doctrine binding the entire Catholic world,
principles that derive from the popes’ intrinsically fallible reasoning within
a secular discipline like economics, seems dubious. At the very least, it
appears to constitute an indefensible extension of the prerogatives of the
Church’s legitimate teaching office into areas in which it possesses no
inherent competence or divine protection from error.
A
Welcome Corrective From John Paul II
Some
of Pope John Paul II’s Centesimus Annus (1991) constitutes a welcome
correction to this unfortunate trajectory of twentieth-century Catholic thought,
although this document, too, is very far from perfect. A great deal more still
needs to be done to continue the tentative steps taken during the present
pontificate and to build upon the legacy of those late scholastic theologians
who appreciated the harmony, order, and justice that characterize market
exchange.
In
a contribution to a recent roundtable on Centesimus Annus, Gregory
Gronbacher pointed to "a central problem with many schools of Catholic
social thought, namely, the inability to integrate both the logic of the market
and the logic of morality." If the Church is to be taken seriously in these
matters, he cautioned, then "it must understand basic economic theory.
There are foundational market realities that cannot be ignored for any reason,
including moral concerns, because, in so doing, further harm may result to both
market mechanisms and morality." This critical point can no longer be
overlooked. As Etienne Gilson put it, "Piety is no substitute for
technique."61
NOTES
1.
Stanley L. Jaki, Science
and Creation: From Eternal Cycles to an Oscillating Universe (Edinburgh:
Scottish Academic Press, 1986), p. 150. "The coupling of the reasonability
of the Creator and the constancy of nature is worth noting because it is there
that lie the beginnings of the idea of the autonomy of nature and of its
laws." Ibid. Cf. Ps. 8:4, 19:3-7, 104:9, 19, 148:3, 6; Jer. 5:24, 31:35.
2.
Ludwig von Mises, Human
Action: A Treatise on Economics (New Haven: Yale University Press,
1949), p. 240.
3.
Frederic Bastiat, Economic
Harmonies, ed. George B. de Huszar (Irvington-on-Hudson, NY: Foundation
for Economic Education, 1997). Emphasis in original. I owe this reference to
Jeffrey Herbener.
4.
This is not to suggest that the Church is adopting a positively irrationalist
position. It is logically possible to hold that reason ought to be employed
wherever possible but that in economics scientific analysis is simply not
applicable. I owe this point to David Gordon.
5.
Raymond de Roover, "The Concept of the Just Price: Theory and
Economic Policy," Journal of Economic History 18 (1958): 418-34; Business,
Banking, and Economic Thought in Late Medieval and Early Modern Europe: Selected
Studies of Raymond de Roover, ed. Julius Kirshner (Chicago: University
of Chicago Press, 1974), esp. pp. 306-45; Alejandro A. Chafuen, Christians
for Freedom: Late Scholastic Economics (San Francisco: Ignatius Press,
1986); Marjorie Grice-Hutchinson, The School of Salamanca: Readings in
Spanish Monetary Theory, 1544-1605 (Oxford: Clarendon Press, 1952); idem, Early
Economic Thought in Spain, 1177-1740 (London: George Allen & Unwin,
1978); Joseph Schumpeter, History of Economic Analysis (New York: Oxford
University Press, 1954). Rothbard’s most in-depth treatment of the late
Scholastics appears in Murray N. Rothbard, An
Austrian Perspective on the History of Economic Thought,
vol. 1, Economics Before Adam Smith (Hants, England: Edward Elgar,
1995), pp. 99-133.
6.
I do not mean to suggest that Newton’s mechanical model of the universe
is completely analogous to the order that we observe in the marketplace. Indeed
a Newtonian conception of the market would resemble not so much the economy as
it really exists but rather the fictional "evenly rotating economy"
that Mises used as a heuristic device, and which assumes entrepreneurship away.
The Newtonian model might also suggest that the economy actually reaches an
equilibrium state, rather than simply possessing a tendency toward an
equilibrium that it approaches but never achieves. Nevertheless, a great many
Enlightenment social scientists, explicitly or otherwise, drew comparisons
between their work in studying society and Newton’s work on the physical
universe, noting that in both cases human investigation was uncovering fixed
laws that human caprice could not contravene. Moreover, both cases involve
self-regulating systems that operate without the need for exogenous direction.
This is why I make the comparison.
7.
Louis Baeck, "Spanish Economic Thought: The School of Salamanca and
the Arbitristas," History of Political Economy 20 (Autumn
1988): 385. Baeck concludes: "By emphasizing the economic mechanisms that
influence the determination of value and the formation of prices, the schoolmen
of Salamanca finally put the Franciscan nominalism of the late Middle Ages to
rest." Such statements constitute a welcome corrective to the perhaps
exaggerated claim of de Roover that "[t]o compare the economic system to a
clockwork or to the human body and to study how it functions or operates is an
idea which did not occur to the medieval Schoolmen and which was entirely alien
to their way of thinking…. The question asked was never: how does it work or
why does it change? The scholastics were preoccupied with another set of
problems: what is just or unjust, licit or illicit?" Raymond de Roover, San
Bernardino of Siena and Sant’Antonio of Florence: The Two Great Economic
Thinkers of the Middle Ages (Boston: Baker Library, 1967), pp. 7-8. Again,
in the process of determining where justice lay, the Scholastics certainly did,
if only incidentally, describe the mechanics of economic relationships.
8.
Quoted in Rothbard, Economics Before Adam Smith, p. 120.
9.
The one proviso in this position was that "in cases of collusion or
emergency, the public authorities retained the right to interfere and to impose
a fair price." De Roover, "The Concept of the Just Price: Theory and
Economic Policy," p. 421.
10.
Quoted in Rothbard, Economics Before Adam Smith, p. 110.
11.
Chafuen, Christians for Freedom, p. 124.
12.
Ibid., p. 125.
13.
Ibid., pp. 126, 127.
14.
De Roover, San Bernardino of Siena and Sant’Antonio of Florence,
pp. 23-27.
15.
Chafuen, Christians for Freedom, pp. 130-31.
16.
"The great mistake made in regard to the matter now under
consideration is to take up with the notion that class is naturally hostile to
class, and that the wealthy and the working men are intended by nature to live
in mutual conflict. So irrational and so false is this view that the direct
contrary is the truth. Just as the symmetry of the human frame is the result of
the suitable arrangement of the different parts of the body, so in a State is it
ordained by nature that these two classes should dwell in harmony and agreement,
so as to maintain the balance of the body politic. Each needs the other: capital
cannot do without labor, nor labor without capital. Mutual agreement results in
the beauty of good order, while perpetual conflict necessarily produces
confusion and savage barbarity." Leo XIII, Rerum Novarum 19. The
paragraph numbers of the papal encyclicals referred to in this paper correspond
to the ones used at the Vatican website, http://www.vatican.va.
17.
Leo XIII, Rerum Novarum 43.
18.
Leo XIII, Rerum Novarum 45.
19.
Leo XIII, Rerum Novarum 46. At the same time, the Pope, defending
the right to private property and the benefits that derive from private
ownership, warns that these benefits "can be reckoned on only provided that
a man’s means be not drained and exhausted by excessive taxation," and
that the state "be unjust and cruel if under the name of taxation it were
to deprive the private owner of more than is fair." Rerum Novarum
67. See also Rerum Novarum 14, in which the Pope lays down still further
limits on the authority of the state.
20.
Quoted in Katherine Burton, Leo the Thirteenth: The First Modern Pope
(New York: David McKay Co., 1962), p. 171.
21.
Pius XI, Quadragesimo Anno 28.
22.
Inasmuch as regulation of working conditions has the same economic effect
as a forced wage increase in that it makes hiring labor (rather than
substituting inanimate capital) relatively more costly, for the duration of the
paper the question of working conditions will be subsumed under the general
question of wages.
23.
Pius XI, Quadragesimo Anno 71.
24.
Pius XI, Quadragesimo Anno 88.
25.
John Paul II, Laborem Exercens 19.6.
26.
Cf. Frank van Dun, "Human Dignity: Reason or Desire? Natural Rights
versus Human Rights," Journal
of Libertarian Studies 15 (Fall 2001): 10.
27.
John XXIII, Pacem in Terris 20. Emphasis added.
28.
Pius XII, Pentecost broadcast message, June 1, 1941, AAS 33 (1941) 201;
cited in John XXIII, Pacem in Terris 20. Emphasis added.
29.
Cf. Pius XI, Quadragesimo Anno 4 and 54.
30.
John A. Ryan, A
Living Wage: Its Ethical and Economic Aspects (New York: Macmillan,
1906), pp. 13-15.
31.
Ibid., p. 249.
32.
Ibid., p. 250.
33.
Ibid., p. 244. Emphasis in original.
34.
Ibid., p. 245; see also pp. 244-46, 261.
35.
The seminal essay is, of course, Ludwig von Mises, Economic
Calculation in the Socialist Commonwealth (1920; Auburn, AL: Ludwig von
Mises Institute, 1990).
36.
George M. Sauvage, review of A Living Wage, by John A. Ryan, in Catholic
University Bulletin 13 (July 1907): 470-75; quotation on 474.
37.
Ryan, A Living Wage, p. 7.
38.
Ibid., p. 9.
39.
Mises himself discusses the work of Pesch and the Solidarists: "It
denies – without, however, arguing this more closely or bringing to light
ideas not put forward before by the socialists, especially the non-Marxists –
that merely acting for one’s own property-interests within a legal order
guaranteeing liberty and property ensures an interaction of the individual
economic actions corresponding to the ends of social cooperation." A
similarity with Catholic social teaching in general is apparent: Solidarism
denies that a liberal economic order brings about economic harmony –
"without, however, arguing this more closely." According to
Solidarism, various forms of pressure, whether legal or through the Christian
conscience, should be brought to bear in the form of "obligations on the
possessors in favour of the poorer people and in favour of the public
welfare." Thus Solidarism is "but a single step" from Socialism,
says Mises, for "it places above the owner an authority – indifferent
whether Law and its creator, the State, or conscience and its counsellor, the
Church – which is to see that the owner uses his property correctly."
Ludwig von Mises, Socialism:
An Economic and Sociological Analysis, trans. J. Kahane (Indianapolis,
IN: Liberty Fund, 1981), pp. 233-36. Thanks to David Gordon for this reference.
40.
Thomas C. Kohler, "Quadragesimo Anno," in A Century of
Catholic Social Thought: Essays on ‘Rerum Novarum’ and Nine Other Key
Documents, ed. George Weigel and Robert Royal (Washington, D.C.: Ethics and
Public Policy Center, 1991), p. 32.
41.
John Paul II, Laborem Exercens 13.
42.
Heinrich Pesch, Liberalism,
Socialism and Christian Social Order,
book 1: The Philosophical Roots of Economic Liberalism, trans. Rupert
J. Ederer (Lewiston, NY: Edwin Mellen Press, 2000), p. 131.
43.
Richard K. Vedder and Lowell E. Gallaway, Out
of Work: Unemployment and Government in Twentieth-Century America (New
York: Holmes & Meier, 1993), pp. 89ff.; Murray N. Rothbard, America’s
Great Depression, 4th ed. (New York: Richardson & Snyder, 1983), pp.
187ff.
44.
Pesch also makes a great deal of Carl Menger’s reference to
"exact" laws of economics, exploiting a term that Menger indeed used
perhaps too casually and without sufficient elaboration. Pesch, Philosophical
Roots, pp. 142, 259.
45.
Murray N. Rothbard, Individualism and the Philosophy of the Social
Sciences (Washington, D.C.: Cato, 1978), p. 49.
46.
Ibid., p. 50; on all this, see pp. 45-56.
47.
Ludwig von Mises, The Historical Setting of the Austrian School of
Economics (1969; repr., Auburn, AL: Ludwig von Mises Institute, 1984); see
also David Gordon, The
Philosophical Origins of Austrian Economics (Auburn, AL: Ludwig von
Mises Institute, 1993).
48.
Gordon, Philosophical Origins, p. 8.
49.
William R. Luckey, "The Intellectual Origins of Modern Catholic
Social Teaching on Economics: An Extension of a Theme of Jesús Huerta de Soto,"
paper presented at the Austrian Scholars Conference, Auburn University, March
23-25, 2000; see also Pesch, Philosophical Roots, ch. 13, in which Pesch
reveals his sympathy toward the German Historical School. At the same time,
Pesch does acknowledge the extremism of the Historical School as well as the
contributions of the Austrians: "That the representatives of the Austrian
School by and large rendered some not insignificant services to economic
research, even those who do not share their scientific position will have to
acknowledge. The incisive investigation into value and interest theory, the
opposition to a one-sided empiricism and exclusive historicism, the introduction
of abstraction which no science can do without: those are the contributions of
the Austrian School and its representatives – Karl Menger, Eugen v. Böhm-Bawerk,
Emil Sax, among others, who must not be overlooked despite all other
shortcomings." Pesch, Philosophical Roots, pp. 260-61.
50.
Mises, Human Action, p. 63.
51.
Ibid., pp. 646-47. Elsewhere, Mises observes that the general theory of
choice and preference that informed his work and that of any complete and mature
economics involved "much more than merely a theory of the ‘economic
side’ of human endeavors and of man’s striving for commodities and an
improvement in his material well-being. It is the science of every kind of human
action…. In making his choice man chooses not only between various material
things and services. All human values are offered for option. All ends and all
means, both material and ideal issues, the sublime and the base, the noble and
the ignoble, are ranged in a single row and subjected to a decision which picks
out one thing and sets aside another. Nothing that men aim at or want to avoid
remains outside of this arrangement into a unique scale of gradation and
preference." Ibid., p. 3. Likewise, Rothbard explains that "the truths
of economic theory involve the formal relations between ends and means, and not
their specific contents. A man’s ends may be ‘egoistic’ or
‘altruistic,’ ‘refined’ or ‘vulgar.’ They may emphasize the
enjoyment of ‘material goods’ and comforts, or they may stress the ascetic
life. Economics is not concerned with their content, and its laws apply
regardless of the nature of these ends." Murray N. Rothbard, Man,
Economy and State: A Treatise on Economic Principles (1962; repr.,
Auburn, AL: Ludwig von Mises Institute, 1993), p. 63.
52.
St. Thomas Aquinas, Summa Contra Gentiles, Book 3, Part I, trans.
Vernon J. Bourke (Notre Dame: University of Notre Dame Press, 1975), pp. 34-40;
quotations on pp. 34, 37, 38. See also Gabriel J. Zanotti, "Misesian
Praxeology and Christian Philosophy," Journal of Markets and Morality
1 (March 1998).
53.
Thomas C. Taylor, An Introduction to Austrian Economics (Auburn,
AL: Ludwig von Mises Institute, 1980).
54.
Rothbard, Man, Economy and State, pp. 390-91; Mises, Human
Action, pp. 589-95.
55.
Cf. Hans F. Sennholz, The
Politics of Unemployment (Spring Mills, PA: Libertarian Press, 1987),
pp. 149-50.
56.
George Reisman, Capitalism
(Ottawa, IL: Jameson Books, 1996), pp. 614-15.
57.
George Brown Tindall and David Emory Shi, America:
A Narrative History, vol. II, brief 5th ed. (New York: W.W. Norton,
2000), p. 692.
58.
Leo XIII, Rerum Novarum 3.
59.
Pius XI, Quadragesimo Anno 54.
60.
John Paul II, Laborem Exercens 11. For an overview of John Paul
II’s thought on such matters, see Samuel Gregg, Challenging
the Modern World: Karol Wojtyla /John Paul II and the Development of Catholic
Social Teaching (Lanham, MD: Lexington Books, 1999), esp. ch. 5,
"Industrial Relations: Protecting the Person."
61.
Gregory M.A. Gronbacher, "Economic Personalism: A New Paradigm for a
Humane Economy," in Centesimus Annus: Assessment and Perspectives for
the Future of Catholic Social Doctrine, ed. John-Peter Pham (Vatican City:
Libreria Editrice Vaticana, 1998), pp. 67-68.
March
22, 2002
Copyright 2002 by Thomas E. Woods, Jr.
Thomas
E. Woods, Jr. [send him mail] holds
a bachelor’s degree from Harvard and a PhD in history from Columbia. He is
professor of history at Suffolk Community College on Long Island, and associate
editor of The
Latin Mass. Professor Woods delivered this paper at the 8th
Austrian Scholars Conference at the Ludwig
von Mises Institute in Auburn, Ala.
