MORALS, MONEY AND MARKETS
Jerry Harkins
In several of his early homilies, Pope Francis has denounced
what he refers to as “savage capitalism.”
It is not clear whether he means that all capitalism is savage or that only
a particular version is. Nor is it
perfectly clear that “capitalism” is not a Vatican code word for
“Americanism.” Finally, it is not
even clear that the Pope knows what capitalism is beyond the money changers
Jesus drove out of the temple. No
matter. Since the 1880’s, the Holy
See has routinely denounced both capitalism and socialism, leaving feudalism as
the only alternative economic system.
Given the Vatican’s longstanding opposition to modernism in all its
forms, it may be that, like most of his recent predecessors, Francis would indeed
welcome a return to medieval social organization in which the Pope sat at the
apex of the power structure.
It is, of course, perfectly appropriate to criticize
the shortcomings of capitalism which are many and varied. But the critic should at least propose
realistic alternatives which is a lot more difficult than might first
appear. For the Catholic Church,
it is close to impossible because the church conflates economics with its own dogmatic
morality and capitalism is only an economic system. As such, it works fairly well to deliver the “greatest good
to the greatest number” as long as “good” refers to material well being. More importantly, no other system has ever come close to doing so without at least some element of private enterprise.[i]
The evils the popes often ascribe to capitalism—poverty
and its concomitants—are not essentially economic problems but rather poorly
understood social pathologies that interact with one another in complex but
poorly understood ways. We refer
to a “cycle of poverty” in two senses.
First, there seems to be a chain of elements whose links include
economic, social, educational, political, employment and health
disadvantages. Second, the cycle seems to be self-perpetuating, repeating itself from generation to generation. In the 1960’s, the United States waged a “War on Poverty”
the purpose of which was to interrupt this cycle at the links which were most
determinant in maintaining it.
Then and now, it was believed that early childhood education is the most promising target. But it turned out that the links are closely interrelated. If education is to be successful, the students need to be fed and clothed properly, given good medical care, protected from lead poisoning and supported at home by parents fully engaged in the process. It is a difficult and very expensive proposition. It is one thing to decry poverty and quite another to end it.
Capitalism works as well as it does because it gives
people an incentive to try for the brass ring by placing capital at risk. Some few catch it thereby creating jobs
for others, wealth for the community and motivation for others.
True, it results in an uneven distribution of wealth and it does not
solve the problem of poverty. No
one thinks it is a perfect or even a particularly well-oiled system. Periodically we experience the fruits
of unbridled greed and stupidity in the form of anti-social individuals and
companies. Think of Enron, Bernie
Madoff and the bankers who, in pursuit of obscene profits, tried to turn the pigs
ears of subprime mortgages into silk purses of investment grade
securities. It is not only
malefactors and sociopaths who bring about disaster. In many cases it is merely the fact that human societies
seem to be attracted to the foolishness caught in the title of Charles Mackay’s
1841 classic Extraordinary Popular
Delusions and the Madness of Crowds. Think of the tulip mania of 1637 or the railroad panic of
1873. The fact is that in a
capitalist system occasionally people get hurt. Still, capitalism
has been a lot more moral, a lot more productive of human happiness and a lot
less hypocritical than the Christian Churches. Capitalists from Rockefeller and Carnegie to Gates, Buffett
and Bloomberg have been extraordinarily generous and their philanthropy has
made the world a better place.
The Pope, however, casts his anathema into the very
definition of capitalism which he says is, “…the logic of profit at all cost, of giving to
get, of exploitation without looking at the persons.” If we delete all the bias words and substitute terms preferred
in Economics 101, this translates into the ideas that profit and the profit
motive are essential to the general welfare, that one must invest assets to produce
profit and that labor is an essential ingredient of production. In attacking these fundamentals, I
believe the Pope is displaying a fundamental ignorance of both economics and
morality. Stephen Schneck agrees
with him and, in the process, sheds light on the nature of his error. He writes, “In America, a very scary
error confuses Adam Smith's invisible hands with God's plan. Pope Francis powerfully rejects that
error. An autonomous market can never be moral in itself. Free market forces are faceless, are
without conscience, are unrestrained by anything other than their own
competitive materialist dynamics, and thus are incapable of bearing moral
responsibility. Without regulation or guidance, market forces can easily work
against the common good.”[iii] He does not elucidate God’s plan for the
economy. He surely does not
propose that unfree markets might be capable of bearing moral responsibility. There is a fair amount of such careless
logic in Schneck’s straw man rhetoric and an apparent ignorance of what Adam
Smith meant by the invisible hand (singular). Indeed, some nineteenth century laissez faire apologists did
see the invisible hand as the hand of God. But Adam Smith was not among them.
It
is certainly true that conservatives tend to view markets as impersonal,
mechanistic forces. In one sense they
are right: like a hammer, a market is a tool that can be used for good or evil.
But then they add that markets require
little if any government regulation. Such a conclusion is simplistic and self-serving. Laissez faire was tried in the decades after
the Civil War and very quickly resulted in massive social unrest and political
rebellion. In spite of the
rhetoric of the far right, it is unlikely that any developed country in the
world would opt to return to either the economics or the morality of David
Ricardo and his Iron Law of Wages.
Fortunately, all versions of capitalism tend to evolve quickly to
address new conditions and new understandings. Thus, governments eventually came to prohibit child labor,
insist on pure food and drugs, enforce transportation safety, prosecute insider
trading and prohibit a wide range of practices considered
anti-competitive. The degree of
oversight varies from time to time and place to place and the efficacy and
fairness of regulatory and deregulatory actions are vigorously debated. But, just as no athlete would want to
play a sport without a rulebook, no rational person thinks markets are or
should be “autonomous.”
Underlying
all the different expressions of capitalism and all the evolutionary changes
that occur in markets is the bedrock idea of Adam Smith that society grants businesses
valuable rights and concessions in turn for being the economic engine of
the community and an agent for social objectives.[iv]
Obviously, no one starts a
business solely to create jobs or pay taxes but just as obviously no business
can long survive unless society’s interests are served. As the empiricist philosopher Ralph B.
Perry wrote, “The fundamental idea of modern capitalism is not the right of the
individual to possess and enjoy what he has earned, but the thesis that the
exercise of this right redounds to the general good.” It is precisely this thesis that is rejected by the critics
from Karl Marx to Pope Francis. Both correctly observe that the system is not perfect and both
fail to distinguish between the baby and the bathwater.
Christian morality is directed principally at achieving
eternal happiness in heaven. “Therefore
I tell you, do not worry about your life, what you will eat or drink; or
about your body, what you will wear…But seek first his kingdom and his
righteousness, and all these things will be given to you as well. Therefore
do not worry about tomorrow, for tomorrow will worry about itself. Sufficient unto the day is the evil
thereof.”[v] Taken literally, this is terrible
advice even if it is, ironically, central to the strategies of many business
executives and all politicians who love to use the future as a dumping ground
for problems they would rather avoid today. The church uses heaven in a similar way.
There is a sense of guilt lurking even in the souls of the
heroes of capitalist labor who have done well but suspect that the system is a
zero sum game. A big part of the
problem is the persistence of poverty.
Jesus may have been right about the poor being always with us. In 2012, fully 16% of Americans lived
below the government’s poverty threshold, roughly the average figure over the
last fifty years. According to the
World Bank, 22% of the world’s population lives on $1.25 a day or less, the
level it defines as “extreme poverty.”[vi] Since capitalism in all of its various
forms is close to universal, it is not surprising that it attracts
criticism. Several years ago,
Barron’s, of all publications, thought it necessary to defend capitalism
against the charge that it is little more than legalized greed. [vii] It felt constrained to remind its
readers that unbridled self-interest would very quickly end in “…flames of
conflict, with losers seeking at all costs, to take the wealth of
winners.” Not that there are no
avaricious people in the executive suite and elsewhere. But excessive greed always ends as a
competitive disadvantage whether the rapacity comes from Enron or Adam Smith’s
butcher. Barron’s being Barron’s,
it took its argument several steps too far, arguing that, “…capitalism is ruled
not by greed but by the Golden Rule” which, of course, is nonsense.
The Catholic Church has historically been uncomfortable with
wealth but aloof from poverty.
When Pope Francis expresses his preference for a “poor church for the
poor,” he projects a morality that insists on “the preferential option for the
poor.” This holds that a society
is judged first by how well it addresses the needs of its most needy members. This gives rise to an element of
incongruity in its thinking about poverty. On the one hand, there is no doubt that Jesus himself
preached a preference for the poor.
On the other, with a few notable exceptions, the church has never felt
itself called to poverty and its history has been one of collaboration with and
service to the wealthiest classes.
In the Middle Ages, it burned heretics at the stake for criticizing the
opulent lifestyles of the hierarchs.
In fact, capitalism is not a simple thing ruled by a single
vice or a single virtue. In all its manifestations, it relies on a
complex and delicate balance of competing forces: savings and consumption, cooperation and competition,
self-interest and what Adam Smith called “benevolence,” by which he meant a
social conscience. This complexity
is the only thing that makes it different from any other social contrivance
invented by human beings but the difference is significant. Economists, politicians and moralists
tend to see the system through the single lens of their special interest, very
much like the blind philosophers trying to describe an elephant to the Rajah. Thus, the Pope denounces “…the logic of
profit at all cost” without understanding the necessity or the role of profit
in the system or attempting to define criteria for distinguishing between
reasonable and extortionate profit
levels. “At all cost” is rhetoric,
not logic. Capitalism cannot exist
without profit, in part as an incentive but in greater part as a source of new
capital. From the beginning, it
has been profit that makes the world go around.
Consider Job.
He was not the first capitalist but the Bible tells us he owned 7,000
sheep, 3,000 camels, 500 yoke of oxen, 500 asses and a large number of
slaves. That’s a lot of mouths to
feed, and far more than even a wealthy patriarch needs for his own
enjoyment. What for example was
Job doing with 3,000 camels? In
all probability, he was raising them for wool, milk, hides, and meat, almost
all of which he was selling at a profit.
How do we know? For one
thing, had he not been selling most of what his animals produced, he would have
gone bankrupt feeding them long before Satan noticed him. Had he not been earning a profit, he
could not have built the fences and sheds he needed or purchased the equipment
to spin, card and weave the wool. But
the important point of the story is that Job, a slaveholder, was considered a
highly moral person. Even God
concedes, “There
is no one on earth like him; he is blameless and upright, a man who fears God
and shuns evil.” Not that it does
him much good; God allows Satan to
torment him anyway.
Not every capitalist measures up to the moral standards of
Job just as not every priest measures up to those of Francis. But complex issues such as poverty and
income inequality cannot be ameliorated by sound bites. Those who insist on treating them
simplistically would do better for humanity by sighing with Job in
resignation. “The Lord giveth and
the Lord taketh away. Blessed be
the name of the Lord.”
[i] In fact, there are only a few
alternatives. Socialism is a
system in which there is little or no private enterprise and the means of
production are “owned” by the people as represented by the state. Feudalism is a system in which private
enterprise and ownership are limited to the nobility which licensed rights to
selected craftsperson’s and other entrepreneurs. Various hybrid systems have been tried and some have been
successful for short periods of time, especially for communities rich in natural resources. But the essential elements of
successful hybrids were all taken from the capitalist playbook.
[ii] Probably not. McGlynn had run afoul of Archbishop
Michael Corrigan of New York who accused him of heresy. He was ultimately absolved and
re-admitted to the church and was buried in consecrated ground. However, the church refused to allow
his mostly Protestant admirers to erect a statue of him at Calvary Cemetery. Undaunted, they bought a plot at
non-denominational Woodlawn Cemetery and erected it there.
[iii] Quoted in Michael Sean
Winters, “Pope Francis spotlights social teaching with blunt calls for ethical
economy,” National Catholic Reporter,
June 1, 2013. Stephen Schneck,
Ph.D. is Director of the Institute for Policy Research in the Catholic University of America.
It seems clear that neither he nor the Pope has ever actually read the
works of Adam Smith but encountered only comic book versions promoted by
ignorant rightists. Smith was,
first and foremost, a moral philosopher, arguably the most important of the
modern era. The Schneck quote is
full of logical absurdities. The
idea that free markets are incapable of bearing moral responsibility is
especially vacuous unless the same thing is true of all institutions including
the church.
[iv] Among the rights granted by
the state are: legal personhood
(the corporate fiction);
perpetuity; the inviolability
of contracts and limited liability of shareholders. Without these protections, a corporation could not raise
capital and would have to be dissolved on the death of a principal shareholder.
[v] Matthew 6: 25-34. The idea that God will provide probably
does not mean that the birds of the air can or should ignore the need for food
or shelter. Aesop had the better
of it when he suggested that, “God helps those who help themselves.”
[vi] Among the developed
countries of the OECD, an average of about 11% of the people live below its
poverty level. As would be
expected, countries with stronger “safety nets” have less poverty and higher
tax rates. Historically, also,
they have tended to post lower unemployment rates although this now seems to be
changing under the impact of austerity programs. Cause and effect is hard to tease out of such data but most
politicians would rather borrow money than increase taxes.
[vii] Shlomo Maital, “More than
greed: goodness is at the heart of
successful capitalism,” Editorial Comment, Barron’s, July 26, 2004.
