Seattle Catholic is not affiliated with the Archdiocese of Seattle

A Journal of Catholic News and Views

27 Sep 2002

I would like to thank Mr. Sharpe for his rebuttal to my recent article in The Latin Mass Magazine. I would also like to take this opportunity to say that I appreciate all of the many reviews that my article has received. It is refreshing to know that so many Catholics have such an interest in economics.

Seeing an attack on capitalism appear on the Internet is like hearing a sermon on the evils of flying from the cockpit at 40,000 feet. Using capitalist tools to spread anti-capitalist thought is a strange irony.

Though time will not reasonably allow an extensive point by point rebuttal of Mr. Sharpe's recent piece, I feel compelled to simply make several observations in general.

I. The Greatest Minds of the Church

Mr. Sharpe begins his article with a very bold statement:

"his (Clark's) praise of capitalism is by no means consistent with the Church's attitude, or that of Her greatest thinkers on economic questions."

Sharpe's entire essay revolves around one essential thesis: neither the Church herself, nor her greatest thinkers on economic questions have been supportive of capitalism. If his thesis itself breaks down, his subsequent conclusions must be seriously questioned, since distributism is, in essence, a form of anti-capitalism.

I will address this claim first.

I argue that the Catholic Church has been supportive of capitalism from its origin, both in theory and in practice.

Practice. As a matter of historical fact, capitalism almost literally began in the backyard of the Vatican. As Raymond De Roover explains in The Rise and Decline of the Medici Bank: 1397-1494: "Modern capitalism based on private ownership has its roots in Italy during the Middle Ages and the Renaissance."

Even the premiere economic historian Joseph Schumpeter admits that:

"by the end of the fifteenth century most of the phenomena that we are in the habit of with that vague word Capitalism had put in their appearance, including big business, stock and commodity speculation and 'high finance'..."

Simply put, the Bellocian thesis that capitalism has Protestant origins must be summarily rejected. It is significant that modern capitalism found its origin in Catholic countries at the height of the glory of Christendom, when faith still mattered. It is also significant that the Medici Bank, which existed as both the figurative and literal center of the capitalist world, had one customer that did business with it more than any other: the offices of the Catholic Church. Though there are other examples, this is probably the best one to show that the Catholic Church actually endorsed the structures of capitalism in practice for hundreds of years (and, not insignificantly, has continued to support capitalistic enterprises without ceasing ever since). With this in mind, it would be difficult to argue that the Church did not support something that it was financially involved with for at least six hundred years.

Theory. Mr. Sharpe claims that my view of capitalism is inconsistent with the greatest minds of the Church. After Mr. Sharpe claimed to grasp the thought of the Church on economic questions better than myself, his reader might logically expect to see Sharpe quote some of them. After all, there are quite a number of extremely influential Catholic economists from whom he could have chosen. If the reader would please forgive the length of the following, I would suggest that the greatest Catholic thinkers on economic questions would include the following:

St. Bonaventure (the thirteenth century doctor of the Church who laid out an extensive moral application of property rights).

St. Albert the Great (who developed a moral defense of the lawfulness of business as well as establishing the "need theory of value").

Pope Alexander III (who provided an ethical foundation for the formula of a "just price").

Alexander of Hales (thirteenth century Franciscan chairman in theology at the University of Paris who, according to Odd Langholm, produced the "first clear definition and denunciation of monopoly in medieval theological literature").

Henry of Ghent (the thirteenth century master of arts at Paris who provided the moral defense of personal financial investments for future needs).

St. Bernardino of Siena (fifteenth century scholastic whose treatise De Contractibus et Usuris is considered by economists as perhaps the first general survey of the field of economics).

Richard of Middleton (thirteenth century regent master of arts at the University of Paris whose theories on international trade are considered by economists as breakthroughs).

Blessed John Duns Scotus (fourteenth century Franciscan whose commentaries on usury provided a pivotal understanding about the nature of money itself).

Roland of Cremona (thirteenth century regent master of arts at Balogna, who wrote a 1400 page confessional manual addressing questions of wealth and property).

St. Antoninus (archbishop of Florence until 1459, whom Schumpeter describes as "the first man to whom it is possible to ascribe a comprehensive vision of the economic process in all its major aspects").

Pedro Fernandez Navarrete (seventeenth century scholastic canonist who outlined the financial and moral perils of high taxation, whose theories pre-dated "The Laffer Curve" by almost four hundred years).

Cardinal Cajetan (sixteenth century general of the Dominican Order whose theories on the morality of exchange and pricing in De Cambiis provided a major ethical support for free market economic principles).

St. Alphonsus Liguori (eighteenth century doctor of the Church whose theories on the nature of capital would shape economic ethical theory henceforth).

Martin de Azpilcueta Navarrus (sixteenth century Dominican canon lawyer at Salamanca who developed the purchasing power parity theory of exchange rates).

Covarrubias y Leiva (sixteenth century bishop of Segovia who promoted the utility theory of value).

Francisco Suarez (sixteenth century chair of theology at the Jesuit College in Rome, who promoted the natural rights view of private property).

Leonard Lessius (seventeenth century student of Suarez who defended the capitalist principle of the entrepreneur being paid much more highly than other workers).

Laurentius de Ridolfis (fifteenth century canon lawyer who produced the first detailed discussion of foreign exchange).

These are many, but certainly not all, of the names that constitute the Church's greatest thinkers on economic questions. In fact, there was so much economic thought penned by these men that even secular economists are now forced to admit that many economic laws and theories previously attributed to others should rightly be attributed to these Catholics. I want to emphasize that point because it is so often missed. It is historically accurate to say that not only did the Catholic Church produce some of the greatest economic theories of all time, but economics as a science is forever indebted to these Catholic thinkers.

Though I am familiar with the writings of the above, I was only afforded three thousand words for my Latin Mass Magazine article, and within that word limit, I was able to cite fifteen references to pre-medieval and medieval Catholic economists. Mr. Sharpe, on the other hand, with over 6,000 words at his disposal, quotes exactly one Catholic prior to Rerum Novarum.

Therefore, though Mr. Sharpe draws the conclusion that my thesis was inconsistent with the greatest Catholic minds in the field of economics, he cites virtually none of them in the effort to prove his case, or to disprove mine.

The conclusion that the reader draws from reading Mr. Sharpe's piece is that Catholics only started writing about economics about a hundred years ago. That is an unfortunate (and presumably unintended) attack on the greatness of the Church thinkers. Instead, Sharpe relies almost exclusively on Hilaire Belloc, Chesterton, and some of the papal encyclicals.

Incidentally, Chesterton and Belloc could only be referred to as economists in a non-scientific sense. To my knowledge, neither of them had any formal training in economics; neither has any economic law attributed to them; and both of them are admitted former socialists. That is not to say that they did not have anything to offer philosophically—it is simply to underscore this fact: to present Chesterton and Belloc as the "greatest minds of the Church in economic matters" to the exclusion of medieval theologians who have countless economic laws attributed to them is unscholarly and extremely misleading.

One further point on this matter. Mr. Sharpe feels free to tell his reader what the Spanish scholastics thought, without ever citing them, as in the following quote:

The citations produced by Mr. Clark which allegedly prove that Belloc's scheme would have been repudiated by the Spanish Scholastics actually do nothing of the sort: they merely imply that, all things being equal, a sovereign cannot licitly tax one citizen more than others. The context obviously assumes a case in which a king might try to eliminate his political enemies by taxing them out of existence.

As a matter of fact, that is absolutely not what they were referring to in any way. They were formulating a moral philosophy of taxation, and merely attempting to save the Spanish monarchy from losing its most gifted citizens to emigration. Navarrete's thought might be summed in one sentence from his writings: "He who imposes high taxes receives from very few." Though he says that the Spanish scholastics "obviously" meant something other than what I described, it would have been nice if Mr. Sharpe had provided a specific quote, rather than simply guessing what they meant without ever having read the text.

II. Papal Statements

Catholic anti-capitalists, as von Mises has termed them, consistently point out that capitalism has been summarily condemned by the modern social encyclicals. While Pope Leo XIII was admittedly concerned about the economic environment of his time which followed industrialization, he certainly was no anti-capitalist. On the contrary, he simply condemned the abuses of capitalism, not capitalism itself. That is a rather large distinction. Condemning the abuses of a thing is not the same as condemning the thing. One year prior to Rerum Novarem, Pope Leo XIII, in Sapientiae Christianae, condemned the abuses of the education of children; he did not say that the education of children is an abuse.

Pope John Paul II is really the first modern Pontiff to delve into capitalism proper, and analyze it on its own merits.

In Laborem Exercens, Pope John Paul II writes:

...it should be recognized that the error of early capitalism can be repeated wherever man is in a way treated on the same level as the whole complex of the material means of production, as an instrument and not in accordance with the true dignity of his work — that is to say, where he is not treated as subject and maker, and for this very reason as the true purpose of the whole process of production.

This paragraph is full of meaning and presents the Church longstanding attitude toward capitalism. When the Holy Father says "early capitalism," he is not talking about capitalism per se, he is referring to a specific historical period following the industrial revolution, in which abuses did certainly take place. More importantly, and somehow this message gets lost when many people read the social encyclicals, the main point of the social encyclicals was not to outline a specific economic system, but simply to state that employers should treat their employees as beings created by God. No economic system has ever been endorsed in an encyclical, although some have been condemned (socialism and communism), just as no political system has ever been endorsed. The Church has recognized that the duty to teach, sanctify, and rule within the realm of economics pertains to helping create a foundation of Catholic morality in that society, whatever its economic policy.

As close as a pope has ever come to fully endorsing a specific economic system occurred in Centissimus Annus. Speaking of capitalism, Pope John Paul II writes:

Certainly the mechanisms of the market offer secure advantages: they help to utilize resources better; they promote the exchange of products; above all they give central place to the person's desires and preferences, which, in a contract, meet the desires and preferences of another person. Nevertheless, these mechanisms carry the risk of an "idolatry" of the market, an idolatry which ignores the existence of goods which by their nature are not and cannot be mere commodities...

Returning now to the initial question: can it perhaps be said that, after the failure of Communism, capitalism is the victorious social system, and that capitalism should be the goal of the countries now making efforts to rebuild their economy and society? Is this the model which ought to be proposed to the countries of the Third World which are searching for the path to true economic and civil progress?

The answer is obviously complex. If by "capitalism" is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative...

The Holy Father is simply echoing what had been said time and time again by the other pontiffs: capitalism is an efficient economic system financially empowering its participants and serving the common good, however, it is not without peril if one begins to look at money as his god. In a later passage, the Holy Father does warn that capitalism, or more accurately, libertarianism, will be eschatologically unsuccessful in a society that is not shaped by morality. Of course, the same could be said of any economic system.

There is a substantial body of evidence available that the Catholic Church and her thinkers have supported capitalism both philosophically and practically for hundreds of years.

One further note on the papal capitalist versus distributist debate. I must admit that I find it tiring to hear the shopworn mantra from so many Catholics that distributism is the "more Catholic" economic system. Time and time again we hear that distributism has been endorsed by the recent pontiffs, yet the word "distributism" has never appeared in a single papal encyclical! If the modern popes were such proponents of distributism, as some would suggest, wouldn't they have at least used the word?

III. Belloc a Socialist?

I have been attacked in number of journals for saying that Belloc was a socialist. Of course, I never said that Belloc was a socialist. Here is exactly what I said: "Belloc called for the most radical redistribution of wealth in history, philosophically rivaled only by Karl Marx and Leon Trotsky." It apparently wasn't a real popular thing to say.

However, a comparison is not only possible between Marx and Belloc, it is almost impossible not to make one. Consider the following quotes:

No sooner is the exploitation of the laborer by the manufacturer, so far at an end, that he receives his wages in cash ...But does wage labor create any property for the laborer? Not a bit. It creates capital, i.e., that kind of property which exploits wage labor, and which cannot increase except upon conditions of begetting a new supply of wage labor for fresh exploitation. —Karl Marx, The Communist Manifesto

For the first time in history, the whole idea of wages was attacked by an influential writer. Remember that the Church emphasizes that wages be "just" and "living." Marx, however, contended that the mere concept of wages constituted an injustice. He wouldn't be the last to make this claim: Belloc would follow.

Furthermore, although Marx was pretty hard on capitalism, Belloc was an even greater foe.

It is a necessary inference that there will be under capitalism a conscious, direct, and planned exploitation of majority (the free citizens who do not own) by the minority who are owners...If you left men completely free under a capitalist system, there would be so heavy a mortality from starvation as would dry up the sources of labor in a very short time. —Hilaire Belloc, The Servile State, Section 5

Though Karl Marx detested capitalism, Belloc does him one better. Belloc's position is that if they were left to their own devices, capitalists would just assume let men starve to death—quickly. Let me be clear: I am not saying that Hilaire Belloc was a socialist or a Marxist. I am simply saying that Belloc's terminology was eerily similar to that of Marx. One cannot simply reject Marxist critiques and simultaneously accept Belloc's analysis as completely accurate.

However, one person did call Belloc a socialist: Belloc's best friend, G. K. Chesterton. In G.K.'s Weekly, published on 28 November, 1935, G.K. Chesterton wrote: "It is my experience that the sort of man who does really become a Distributist is exactly the sort of man who has been a Socialist...Mr. Belloc himself had been a Socialist."

Why didn't anyone get mad at G. K. Chesterton for making such a "scandalous" comment?

IV. Moral Society

Distributists often make the claim that capitalism does not encourage virtue. Though I disagree with this analysis, mainly since things like dishonesty and fraud are poor business practices, it is unclear why distributists regard distributism as the sine qua non of a moral society. India was essentially a distributist state for at least fifty years and they worshiped cows.

Nevertheless, capitalism is often blamed for the moral ills of society's in which it operates. To this, I make but one observation. Imagine an economic system to be an automobile. Capitalism is a Ferrari with a full tank of gas and a world-class driver. The driver can use the car to commit a drive-by shooting, or it can be used to take a sick child to the hospital to save his life. Even Belloc, while at the same time lambasting capitalism, did admit that it is a more efficient economic system than distributism. But while capitalism is a Ferrari, distributism is admittedly a broken car with a blind driver. Belloc realized that distributism was inefficient—that's what he liked about it. Unfortunately, inefficient systems often fail to provide the essentials in life, like food, shelter, and medicine.

Ultimately, the question should be asked of distributists: isn't inefficiency immoral?

V. Government

Belloc does not essentially call for a Catholic state—he merely calls for a distributist state. He does not say, "Since the state is given more power under distributism, we must be careful that only moral regimes employ it." He just wants distributism. What he fails to grasp is that the government under in a distributist state will become enormous.

In the distributist state, mainly due to the almost unlimited powers of taxation, the government would become an all-powerful leviathan. The government becomes so involved in the day-to-day operations of communities that the people will soon realize the horror of living under a central planning government.

While the distributist state ensures that no private business will grow too large, paradoxically, one entity grows larger by the minute: the government. The entity we call "government" might seem large in the United States, but at least there are corporations so large in size that they can compete for power and influence. That is a good thing. In American, large corporations serve as a de facto check and balance on the cultural influence of government. In the distributist state, there is one power which vastly exceeds all others: the government. And if one power threatens, the state can simply move in and tax it to death. Government rarely reforms itself, or cuts back on its authority, and it rarely refuses to use all means at its disposal.

Not only would the size of the government increase in the distributist state, but under the distributist regime, the relative size of the government versus private business would be gargantuan. The government in a distributist state would constitute absolute power, and we know what that does.

In the distributist state, would-be capitalists are taxed to the hilt. This tax money doesn't just disappear—it goes to the government, giving it more power.

Of course, with so much power, the members of government would attempt to do as much as they could to enrich themselves.

Furthermore, many men would seek to enter government, recognizing governmental participation as the best way to enrich themselves, and under this regime, they would be correct.

The inescapable fact about distributism is that the distributist state would create an atmosphere in which business would be curbed at a certain level, but government would never be curbed. It would simply keep growing more and more powerful. Even in the Catholic state, the amount of power the government would possess would be staggering.

VI. Emigration

Though the inherent problems with distributism are many, there are two main economic problems which are so severe as to render the whole question of distributist a dead letter: emigration and trade. Though I am by no means a fan of Ayn Rand or Atlas Shrugged, some of her conclusions are inescapable. The first of which is simply this: if you tax entrepreneurs to death, they will simply find some place else to do their business. In the distributist state, the state would progressively tax the ablest entrepreneurs to the point where they can no longer increase their profits and wealth. Does Belloc actually think these talented people would remain in a country in which they cannot get any richer?

American corporations are often lambasted by liberals for moving their operations overseas. We are told that American companies move operations for "cheaper labor". Though this no doubt does happen in some instances, it is also true that many companies move operations because the taxes are lower. The quality of work in a foreign country is a big unknown for a company and may make them hesitant to leave America. However, when comparing tax rates, it's an "apples-to-apples" comparison. How much time does it take to decide whether you want to pay ten cents in taxes of every dollar earned, or thirty cents? People wonder why the Irish economy is booming. The reason is that they lowered the tax rate to 10%, attracting many new businesses which were sick of paying high taxes.

When a municipality issues a bond, they investigate whether the community will be able to pay the bond coupons out of their taxes. This is called a feasibility study. One of the main equations that goes into this formulation is the question of how many people will leave the community because of tax increases. On a major increase, the question isn't whether people will leave, but how many. This principle must also be applied to the economy as a whole.

If your principle is that capitalists are greedy men, who care about nothing except profits, why would they stay in a country that limits the amount of money they can make? The ablest entrepreneurs will move somewhere else, leaving those who have never run businesses with the job of running businesses.

Perhaps Navarette said it best:

The origin of poverty is high taxes. In continual fear of tax collectors, (farmers) prefer to abandon their land, so they can avoid their vexations. As King Teodorico said, the only agreeable country is one where no man is afraid of tax collectors.

VII. Trade

Perhaps the biggest problem with the distributist economy involves the issue of trade. Belloc did not address the problem, but the problem still exists. To clarify what I am suggesting, let's first look at what the scholastics have taught about international trade. The position of the greatest scholastic minds of the Church on the subject of trade is this: 1) international trade was ordained by God; 2) it is vital to the survival of the state; and 3) the effort to restrict trade may be a sin against charity.

In De Regno, St. Thomas says that entirely self-sufficient communities are impossible. Thomas writes:

One cannot easily find any place so overflowing with the necessaries as not to need some commodities from other parts. When there is an overabundance of some commodities in one place, these goods would serve no purpose if they could not be carried elsewhere by professional traders. Consequently, the perfect city will make a moderate use of merchants.

The perfect city is one that engages in trade. St. Bonaventure, the great Franciscan Doctor of the Church, argued that international trade must be moral because without trade, "many regions could not exist."

A late scholastic named Vitoria claimed that eternal law, natural law, and positive human law favored international trade. He wrote that to restrict the goods of an area from being supplied to another was not only economically unsound, but actually claimed that it was "iniquitous and against charity." Therefore, one can see that the Church has always been supportive of trade.

But how does international trade occur in the distributist state? In short, it doesn't.

Belloc admits that the small business cannot produce at a price that can compare to the large manufacturer. Therefore, as a small business owner, I must be protected against the large one. Therefore, international companies become my biggest adversary, because they can produce cheaper goods. If my small business produces and sells men's socks for three times the price of an import, I am finished if you allow the import. Therefore, in the distributist state, you cannot import goods, because if you were to do so, you would introduce a competitor to the small business, destroying his business.

Not only can you not import goods, you cannot realistically expect to export them either. Consumers are generally very disinterested in spending three times the amount of money on similar products. The distributist state just doesn't have much to offer in the way of goods to foreign lands. As economic history teaches, the quickest way to the poverty of a nation is to completely restrict trade. The people who are left in the distributist state will quickly discover what it means to be a third-world nation.

In the final analysis, the distributist state cannot engage in international trade, despite the fact that God ordained international trade, and despite the fact that poverty will ensue on a massive scale because of its absence.

Conclusion

As I mentioned in my Latin Mass article, capitalism and each of its component parts has been defended for centuries by the greatest minds of the Church. While capitalism continues to be attacked by the intelligentsia of the world, it has brought prosperity unknown prior to its arrival in countries across the world. Not even Belloc doubted its efficiency. Instead of attacking capitalism, perhaps Catholics should use the monetary tools at their disposal to produce Catholic businesses in an effort to glorify God.

May we all have the faith and courage to do so.