The Church and the Market

By Dr. Jeff Mirus ( bio - articles - email ) | Sep 07, 2012 | In Reviews

With some frequency in recent years, both Phil Lawler and I have insisted that Catholics are not bound to accept, approve and follow the prudential judgments of their bishops, or even of the pope, in matters of public policy. This is because, as the Church herself has repeatedly insisted, the special competence of the Magisterium applies only to matters of faith and morals. The Church and her prelates do not have any special claim to figuring out which particular solutions will work best in the real world. They can articulate moral norms with authority; they cannot do the same for effective policy.

In our own day, two common problems emerge from a misunderstanding of this reality. First, we find badly formed or insincere Catholics claiming to have seized the moral high ground because they agree with this or that policy prescription of, say, the USCCB, even when they flatly disagree with the certain moral teachings of the Church. In reality, the only one of these things it is possible to disagree with as a Catholic is the policy prescription. Second, we find a pattern of bishops frequently pronouncing on matters of prudential policy, with two profoundly negative results. On the one hand, this confuses both the faithful and outside observers with respect to the difference between doctrine and opinion. On the other, it politicizes the Church, leading those who disagree with various policies—often with excellent reasons—to disrespect Catholic teaching as a whole.

Not long ago, Notre Dame Professor Gerard Bradley addressed the need for truly effective Catholic social teaching by recommending a few key rules for bishops, including popes, when addressing matters of prudential public policy. In the meantime, however, many bishops have offered practical advice based on faulty factual premises, and this has on rare occasions been true even in papal encyclicals. Events over time have proven that some recommendations have actually made the desired goals harder to achieve. Pope Paul VI’s insistence in Populorum progressio (1967) on government-to-government foreign aid from rich to poor nations (see #33) would seem to be a valid case in point. The moral principle that the rich should assist the poor was, of course, right on target. The policy recommendation on the role of government has ranged from ineffective to disastrous.

Perhaps nowhere in all of public policy is the disconnect between understanding and advice more problematic than in economics. There are many different economic schools of thought, and inevitably the policies one thinks will work best to foster prosperity depend on the accuracy of one’s perception of how economics actually works. Neither popes nor bishops have any special understanding of economics. Therefore, they are wise to emphasize moral principles while prescinding from offering specific solutions to economic problems. And when they do suggest specific solutions, the Catholic laity are free to evaluate the prudential credibility of their ecclesiastical leaders, deciding for themselves—within the Catholic moral framework—what will work best.

One of the most able spokesmen for this understanding of Catholic social teaching is Thomas E. Woods, Jr., who wrote an important book on this very subject, The Church and the Market: A Catholic Defense of the Free Economy. As the subtitle suggests, Woods seeks to defend advocates of the Austrian free market school of economics against the charge that, because its adherents disagree with certain policy prescriptions of both popes and bishops, they are therefore “dissenters” from Catholic doctrine. As I have indicated above, this is simply not the case.

What is special about Woods’ treatment of the subject, however, is not that he makes the right distinctions about how to read Catholic social teaching (again, Phil Lawler, Gerard Bradley, I myself and many other Catholic thinkers have done the same), but that he combines these distinctions with a clear presentation of the principles of the Austrian school in order to demonstrate that certain recommendations made by clerics have been wrong because they are based on a false understanding of how the economy works.

This is akin to recommending specific policies to improve the climate without understanding the relationships among climatic variables which determine how climate works. If the science is wrong, the policy recommendations will also be wrong. So too with economic policy. If the economics is wrong, the proposed policies will not work. Very likely, in fact, they will make things worse.

I doubt any school of economic thought has everything right, but it seems to me that the Austrian school of free market economics has achieved a considerable understanding of market forces, prices, wages, the value of money, labor efficiency, standard of living, fractional reserve banking, and the like—a sufficient understanding, in fact, that it is foolhardy to make policies without at least giving careful consideration to the economic principles enunciated by these economists. This school of thought has articulated an inherently logical set of economic principles which can often be further validated by case studies. The Austrian school depends neither on numbers crunching nor on pre-conceived notions of the ideal society, but on a careful study of how human economic systems actually must and do function.

I have already argued against some advocates of the free market that free market theory leaves plenty of room for moral judgment (see Practical Economics: How Things Work, Why There is Room for Morality, Where to Go from Here). Fortunately, Woods does not need this correction, but his book does not adequately treat the “edge issues” where the government’s duty both to protect freedom and to combat injustice tend to blur, opening legitimate debate about potential governmental intervention in economic matters. Common rights to water would be one of many such issues, and the pros and cons of government intrusion are not always easy to sort out. Woods also misses an opportunity to explain important distinctions concerning private property, failing to make it clear that even if property is a natural right, this does not make it an absolute right.

Woods also fails to grasp that a market wage is not the same thing as a just wage, which is a confusion about the nature of commutative justice. Pope Leo XIII taught in Rerum Novarum that employers are morally bound to pay a living wage—enough for the worker to provide for himself and his family, a statement Woods regards as lacking normative moral force. But Leo distinguished this from his personal recommendation that employers pay a little more than a living wage so workers will have something to put by for the gradual improvement of their situations. It goes without saying that we are speaking of full-time employees here; prorating can be applied to part-time work; and certainly many factors enter into the equation of what constitutes a living wage. It is also true that no one is morally obliged to do what circumstances legitimately render impossible.

Nonetheless, the employer must place the payment of a just (that is, living) wage at the heart of his business plan (along with other moral requirements, such as a genuinely good business purpose). He must seriously strive to get as close as possible to this goal, perhaps even with the intention of making up later for initial sacrifices. What employers may not do is pretend that the market itself determines what is just; or that there is no moral obligation to plan a form of business which can be fair to its employees; or that a correct understanding of economics means that everything is deterministic, with no room for the establishment of moral priorities to be achieved through the application of human intelligence, effort, and what we can only call “business genius”. Happily, such deficiencies are exceedinly rare in Woods’ writing, and are not central to the overall understanding his book provides.

Indeed, in his chapters “In Defense of Economics”, “Prices, Wages, and Labor”, “Money and Banking”, “The Economics and Morality of Foreign Aid”, “The Welfare State, the Family and Civil Society” and “Answering the Distributist Critique”, Woods does yeoman work in articulating clear economic principles along with the results of applying or ignoring them. He provides the kind of basic understanding of both economics and the nature of the market which make it possible to evaluate policy recommendations and, in some cases, legitimately disagree with what it has been popular, at least in the West, for many churchmen to recommend—when they unfortunately exceed their special spiritual and moral competence.

For a Catholic, one of the most interesting points made by Woods (himself a serious Catholic, as are many in his camp) is that the theories of the Austrian school are actually a continuation of insights, observations and principles first enunciated by the Catholic scholastic theologians and moralists of the late medieval and early modern period. These ideas, therefore, actually have a venerable history in Catholic thought. They are not new, post-Enlightenment, secular ideas. Moreover, as Woods also points out in assessing the consequences of incorrect economic prescriptions in the modern world, Pope John Paul II had already begun by 1991 to articulate serious concerns about the extremely deleterious effects on the social order of the policies of what he called the “the social assistance state” (see especially Centesimus Annus, #48).

Nonetheless, though I highly recommend The Church and the Market, it is not because I believe its economics arguments are beyond discussion. A thorough study obviously requires attention to conflicting schools of thought. Moreover, as the book was published in 2005, I am perhaps a little late to the party. Rather, what makes this book so valuable is that I cannot think of a better place for a sincere Catholic in the contemporary West to start. Thomas Woods is absolutely correct about how to read Catholic social teaching. His ideas about this and economics itself will teach readers a good deal. And the whole package will serve as a potent inoculation against a great many prejudices concerning the interplay of morality and economics which lead to serious mistakes in our own time, including many policy mistakes by Catholic bishops.