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.”

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[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.