More Than Three Ways for the Economy

People sometimes read the papal encyclicals on economics like the stereotypical economist. (You've heard the joke about the mute, one-handed economist: He couldn't say anything because he couldn't consider what was “on the other hand.”)

On the one hand, the papacy criticizes socialism. On the other, the popes criticize capitalism. So, the two economic systems are equally bad, and we need to find a “Third way” between capitalism and socialism.

A careful reading of the Catholic social encyclicals will show that the popes do not consider the two systems morally equivalent.

These documents roundly condemn socialism as being inconsistent with human nature and at war with human society. By contrast, the papacy endorses the core institutions of a free market, such as private property, the right of free association, risk-taking, profit-seeking and entrepreneur-ship. The popes’ criticisms of free markets and capitalism are not attacks on these key institutions, but on the excesses which sometimes flow from them. These excesses, in turn, are the result of fallen human nature, which every social system must face.

The modern tradition of Catholic social teaching begins in 1891 with Pope Leo XIII's magisterial Rerum Novarum (Of New Things). This encyclical attacks socialism in no uncertain terms: “Socialists, exciting the envy of the poor toward the rich, contend that it is necessary to do away with private possession of goods. … But their program is so unsuited for terminating the conflict [between employers and employees] that it actually injures the workers themselves.” Pope Leo goes on to endorse the right of private property as consistent with natural law and the good of society.

Pope Leo also condemns one of the cardinal teachings of socialism, namely that economic inequality is prima facia unjust and that it can and should be eliminated. “Let it be laid down in the first place that a condition of human existence must be borne with, namely that in civil society the lowers cannot be made equal with the highest. … If any promise the poor in their misery a life free from all sorrow and vexation and filled with repose and perpetual pleasures, … they perpetuate a fraud which will ultimately lead to evils greater than the present.” If only people had heeded these prescient words, what nightmares born of utopian dreams we might have avoided!

In 1991, Pope John Paul II celebrated Pope Leo's seminal work with the encyclical Centisimus Annus (On the Hundredth Anniversary of Rerum Novarum) which reaffirmed the right of private individuals to own property. The Holy Father went even further than his predecessor, acknowledging “the legitimate role of profit as an indication that a business is functioning well.” His endorsement is qualified, however: “Profit is a regulator of the life of a business, but it is not the only one; other human and moral factors must also be considered, which, in the long term, are at least equally important for the life of a business.” Centisimus Annus also explains the importance of human creativity and entrepreneurship in the modern business economy.

These endorsements of key aspects of the market economy do not prevent the popes from leveling serious criticisms against modern economic life. They criticize the First World from excluding the countries of the Third World from fully participating in the international system of trade and exchange. They criticize employers who take advantage of their position of strength against their subordinates. They criticize workers and consumers who become immersed in the consumerist mentality, and come to value having above being.

As an economist, I would summarize the papal criticisms as falling into two categories. One type of complaint is against varieties of monopoly power. If a person can find no alternative sources of employment, or a country can find no alternative market for its exports, extreme vulnerability results. Every economist since Adam Smith has understood the vulnerability created by monopoly power. The papacy stands on solid moral ground when it encourages countries to work to eliminate these kinds of situations, and to challenge those countries and businesses in more powerful positions to use their power with restraint.

The second category of complaint is against some of the choices people make within the market. People can become consumed by consuming. People sometimes view possessions as more important than relationships. In this observation, too, the popes are wise in raising this issue. The free market is a consumer-oriented economic system. It is very efficient at giving consumers what they want. When our wants are twisted or selfish or just plain immoral, the market will satisfy them just the same.

The papacy is doing its job when it points out the particular ways in which we abuse our freedom by choosing products that are harmful, or by our attitude toward commodities in general. The pope is supposed to provide us with moral guidance in helping us to shape our wants and desires. The Church helps us to see where the deepest longings of the human heart really lie, and that material goods and physical comfort are not the ultimate ends of human existence.

The “first way” — capitalism without any restrictions — is not an option for Catholics. The “second way” — socialism — is irredeemable. We need private property, of which profit-seeking, reasonably restrained by law, is a natural outgrowth.

Human creativity and entrepreneurship can flourish in the business economy and deserve to be celebrated. The core institutions of the free market are indispensable, even though some of their applications are indefensible.

It is up to particular communities to adapt these institutions to their situation. That is how there can be not only a “third way,” but also a “fourth way” and a “fifth way” — and as many different communities as there are. Each community needs to use its own legal system and political culture to shape the market economy to its own needs, to encourage the full participation of everyone and to help ensure the dignity of every human person.

Jennifer Roback Morse, a research fellow at the Hoover Institution, welcomes e-mail at [email protected]