Wednesday, August 29, 2007

Science, Normative and Positive

by John Médaille

Donald Goodman, in yesterday's post, points out that economics is not a science in the same way that physics and mathematics are sciences. And yet, economics is nevertheless a real science. The argument is often placed as a contest between "positive" sciences (like chemistry or physics) and "normative" sciences (which involve some normative judgments, like psychology). This, I believe, is a false dichotomy for any science. I just happened to be writing an article on the proper place of science and natural law, and I hope this excerpt will clarify the issue:

Some wag somewhere has remarked that economists suffer from “physics envy.” One could certainly make that charge against W. S. Jevons (1835-1882), one of the founders of marginal economics, when he wrote that a “perfect system of statistics … is the only … obstacle in the way of making economics an exact science”; once the statistics have been gathered, the generalization of laws from them “will render economics a science as exact as many of the physical sciences.”[1] More than a century has passed since Jevons wrote these words, and in that time there has been a growth of vast bureaucracies, both public and private, devoted to establishing this “perfect system” of statistics. Yet today economics seems no closer to being an exact science than it was in Jevons’ day. Despite this failure, economic orthodoxy clings to the notion of itself as a positive science. As Milton Friedman puts it:

"Positive economics is in principle independent of any particular ethical position or normative judgments. As [J. N.] Keynes says, it deals with “what is,” not with “what ought to be.” Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances. Its performance is to be judged by the precision, scope, and conformity with experience of the predictions it yields. In short, positive economics is, or can be, an “objective” science, in precisely the same sense as any of the physical sciences."[2]

Friedman makes predictive success the criteria for judging a positive economics, yet such success is doubtful, despite the fact that we have access not only to vast amounts of statistics, but to computing power unimaginable in Jevons’ day. Yet the models, worked out in great precision and computed on engines of vast power, seem to lack any predictive reliability whatsoever.[3] Nevertheless, economists are (as Lev Landau said of cosmologists) “frequently in error but never in doubt.”[4]

In light of these failures, can we ask if economics really is a positive science? Let me suggest that the question is meaningless. Every science, insofar as it really is a science, is both positive and normative. Every science, insofar as it is a science, must be “normalized” to some criteria of truth. These truths will arise from two sources: an internal and an external source. The internal criteria involve a science’s proper subject matter and methodology. But these criteria are insufficient to found any science as a science. In addition, there must be external criteria of truth, and these truths can only come from one or more higher sciences. In the absence of such an external check, the science will merely be circular, dependent on nothing but itself and unconnected with the hierarchy of truth. Thus, for example, biology is responsible to chemistry, chemistry to physics, physics to mathematics. No biologist can violate the laws of chemistry, and no chemist can reach a conclusion contrary to physics. Thus every science is responsible to its own methodology (and therefore “positive”) and to the higher sciences (and therefore “normative”). Every science has, therefore, both its own proper autonomy, based on its subject matter and methodology and its own proper connection to the near sciences, based on the hierarchy of truth. In speaking of the autonomy of a science, we should note that it is only a relative autonomy, not an absolute one. A scientist’s obligation to be faithful to his proper method does not relieve him of the obligation to higher truths.

No science can provide its own criteria entirely without being merely circular. When a science attempts to do so, one of two things happens. The first possibility is that the science breaks up into mutually warring camps whose disputes can never be resolved because there are no accepted criteria of truth by which to resolve them. The second possibility is that the science becomes merely dogmatic, and no rational examination of its premises is permitted. In economics, both things have happened; the science is divided into warring factions with no arbiter of truth among them; the principles of the various factions have become dogmatic statements with little connection to reality.

Thus any science, to be a science, must be properly located within the hierarchy of truth that is science. Our first task is to determine what the “higher sciences” are for economics. Now, the physical sciences terminate in physics and mathematics, but the humane sciences terminate in some view of anthropology derived ultimately from philosophy and theology. Therefore, some theology must be the ultimate source of truth for economics with, perhaps, some intermediate stops at psychology and sociology. It would seem to be self-evident that a complete view of man would involve theology, philosophy, sociology, and psychology, yet this view is not at all universally (or even generally) accepted by economists. How is it possible that a humane science can cut itself off from these indispensable sources of knowledge about humans? The answer lies in the fact that it doesn’t. It can’t. It is not possible to theorize about human actions without some theory of humans. What actually happens is that neoclassical economists accept as a purely economic truth that which is, in fact, a purely philosophic stance, namely that of Jeremy Bentham’s utilitarianism, and its various descendants. What actually happens is that a philosophic assertion becomes a pseudo-scientific dogmatism, placed beyond all question and critique. What happens is that the science becomes less scientific and more dogmatic.

Natural Law and Naturalism

Part and parcel of the error about science is an error about the natural law itself. Modern economics was forged in the fires of Enlightenment rationalism, which may be defined as the effort to bypass the authorities of religion and custom and look directly at nature for answers to the most perplexing problems. The success of this approach was proved beyond any doubt by the success of Isaac Newton, whose simple mechanics solved problems which had vexed both scientists and theologians for 300 years. The enthusiasm for Newton is indicated by Alexander Pope’s famous couplet, “Nature and nature’s law lay hid in night/God said “Let Newton be,” and all was light.” The enthusiasm was not merely for the answer, but for the method; “nature” by herself, and without the help of religion, really did enlighten the mind, and complex problems could be reduced to the operation of a few simple laws. How much better this was than the absurdities of the theologians, the persecution of Galileo, or the religious wars of the 17th century. And as Newton tamed the complex movements of the stars with the inverse-square law, economists hoped to tame the movements of the markets with a similarly simple law. Economics thus became a search for some “social” Newtonian principles. Adam Smith believed he had found them in the Labor Theory of Value and the Invisible Hand of self-interest. And when J. B. Clark refers to marginal productivity as the “deep-acting natural law” that fairly allocates all rewards, he is offering it as a social Newtonian, an economic “inverse-square” law.

However, such naturalism is a misunderstanding of the natural law. Natural law deals with how objects are moved to their ends. When we are dealing with objects such as rocks and stars, atoms and planets, such naturalism suffices, because their movements are determined by rigorous laws, and a study of their movements exhausts a study of their ends. Such objects can neither choose their ends nor deviate in their movements. But with objects like “men” and “women” it is otherwise. These “objects” must discover their ends and choose their means. In these cases, the natural law is the process of practical reason that helps us discover our true ends, the ends most in accord with our natures. For the operation of the practical reason, we must select a goal and judge our “movements” in relation to that goal. Therefore, natural law starts with teleology, the end or purpose of a thing. The determination of a various ends will give various “laws,” each of which seems “natural” to those who hold those ends. For example, if the end of man is to acquire all he can, one set of rules will make perfect sense; if his end is to live in peaceful community with his fellow-man, another set of rules will be reasonable. And if our journey through life is a preparation for another kind of life, then a third set of rules will be “natural.” In other words, natural law is not known by a mere inspection of nature, rather it involves a discernment and a judgment about the proper end and purpose of a thing, and especially of the "thing" called "man."

In applying the natural law to economic science, we must first determine what is the purpose or end of economics. Self-evidently, economics is the study of “the process of providing for the material well-being of society.”[5] Once we have determined an end, we have a rule by which we can judge the success or failure of a thing. In this case, we can judge how well or poorly the economic system provides for the material well-being of society. Such a rule is precisely what the practical reason needs to operate at all. Without such practical rules, there can be no practical science. But the rule cannot be determined from within the science itself. Some other discipline will have to instruct economists on the nature of man and the nature of his society. Those are questions beyond the competence of economics per se. The whole point of neoclassical economics was to avoid such messy teleological questions. In attempting to avoid the discussions of the purpose of things in order to become “scientific,” economics avoids the one thing that can make it a true science.



[1] Quoted in James E. Alvey, "A Short History of Economics as a Moral Science," Journal of Markets and Morality 2, no. 1 (Spring, 1999): 62.

[2] Milton Friedman, Essays in Positive Economics (Chicago: University of Chicago Press, 1953), 4.

[3] Paul Ormerod, The Death of Economics (New York: John Wiley & Sons, Inc., 1994), 120-7.

[4] Ibid., 93.

[5] Robert L. Heilbroner, and William Milberg, The Making of Economic Society, Eleventh ed. (New Jersey: Prentice Hall, 2002), 1.

Tuesday, August 28, 2007

Distributism: A Catholic System of Economics

by Donald Goodman III





The Scientific Status of Economics


Many, particularly those who hold opinions contrary to those expressed in the papal encyclicals, hold that the Church has no authority in economic matters. Economics, they claim, is advanced and practiced as a science, on the model of physics and mathematics. The Church cannot make authoritative pronouncements about science; she cannot, for example, decree that the freezing temperature of water will be anything other than 32. Similarly, the Church cannot declare that when supply rises demand will also rise. Such things are simply true or not, and it is beyond the Church's competency to speak on them. This view, however, must be rejected on careful consideration. In the first place, it is a matter of open debate whether economics is truly a science in the same sense as physics and chemistry. This debate largely centers around the unpredictability of human action and the predictive power of science. Success in the empirical sciences is generally gauged by how well that science can predict the actions of its objects. Physicists, for example, formulate theories to predict the actions of light waves, and the truth of those theories (that is, the degree to which those theories accurately describe light waves) is proportional to the accuracy of those predictions. Economists can do no such thing; it seems unlikely, then, that it is truly a science in the sense described above.

Economists' definition of their purported science further prove that economics cannot be considered the same way as physics or chemistry. According to Christian economist Ronald Nash,7 economics is the study of "the choices human beings make with regard to scarce resources. "

As Aristotle teaches, the definition of a thing is its genus specified by its specific difference; that is, the type of thing that it is specified by whatever of its features makes it different from the other things of its type.9 In this case, the genus of "economics" is the "choice human beings make" and the specific difference is with regard to scarce resources. We know, then, that economics is a study of human choices, like ethics or politics, but that it studies those choices specifically as regards scarce resources, which makes it something other than the other sciences which study human choices. Nash has given us a very compact and specific definition, one which he believes describes a very scientific type of inquiry.

However, this definition does not describe a science because the study of human choices is never an exact science. The human will is, as good philosophy and revealed faith teach us, free, and therefore not subject to the operations of economic laws. The economist, then, cannot make accurate predictions about the choices that human beings will make with regard to scarce resources. He can certainly make generalizations: if you glut the wheat market, the price of wheat will go downand that is certainly a very useful and valuable ability; it is not, however, truly an empirical science, in the sense of physics or chemistry.

Other, more learned arguments have been made against the status of economics as a science, particularly by MacIntyre10; the end result is that economics, if it is to be regarded as a science in the sense of physics and chemistry, must be regarded as a singularly bad one. But within its own sphere, that of predictive generalizations, it is, of course, useful and honorable, and my argument should not be construed as advocating its abandonment.

Even if these cogent arguments against the status of economics as a science are rejected, however, one still cannot claim the immunity of economics from the moral authority of the Church. First, of course, conomics is the study of human choices, and human choices are always moral and therefore subject to the decrees of Holy Mother Church. But second, and more significantly, what we call economics, as a study of human action, is simply a branch of political knowledge, and as such is a subset of ethical science, the authority of the Church over which no Catholic can deny.

The Profit Motive

It is axiomatic among capitalists that riches are not sinful. This is, of course, true; riches are not per se sinful. However, it is indisputable that riches are proximate causes of sin. Wealth is a dangerous thing, which Our Lord and His Church have been teaching throughout the ages. But still many of the rich insist that their possession of wealth represents no hindrance to their virtue or the obtaining of eternal happiness. Our Lord, however, thought otherwise, and not infrequently took the opportunity to say so. For Christ tells us that "[i]t is easier for a camel to pass through the eye of a needle, than for a rich man to enter into the kingdom of heaven."61 The wealthy, however, often seem to think that the camel can navigate the eye of the needle without difficulty, thus putting the words of Our Lord to naught. Again, the rich young man approached Our Lord and asked what he must do to gain the kingdom of heaven. As happens so often, Our Lord responded, "Go, sell what thou hast, and give to the poor, and thou shalt have treasure in heaven."62 The young man's wealth was a hindrance to his salvation; Our Lord therefore, in His infinite goodness, instructed him to give it up, for "if thy right eye scandalize thee, pluck it out and cast it from thee. For it is expedient for thee that one of thy members should perish, rather than that thy whole body be cast into hell."63 Can we, in the face of Our Lord's clear words, claim that riches are neutral in our pursuit of eternal salvation?

The Church, indeed, supports the teaching of the Gospel. Even in Rerum Novarum, concerned principally with the poor and not the rich, we and a warning about the dangers of wealth.

Therefore, the well-to-do are admonished that wealth does not give surcease of sorrow, and that wealth is of no avail unto the happiness of eternal life but is rather a hindrance; that the threats pronounced by Jesus Christ, so unusual coming from Him, ought to cause the rich to fear; and that on one day the strictest account for the use of wealth must be rendered to God as Judge.64

The Church is not condemning the rich to Hell, any more than Christ Himself is; she merely, following her divine Founder, seeks to warn those of her children with wealth of the dangers they are facing. It is maternal care, not socialistic vindictiveness, which motivates her cautions.

This is certainly not to say that riches render virtue impossible. Indeed, riches can be the source of great virtue; witness King St. Louis, for example, or any other of many wealthy saints. But their sanctity was due to their resposible use of their wealth for the benefit of others; had they used it for their own benefit, they could never have become the saints they did. As Leo XIII says, "No one, certainly, is obliged to assist others out of what is required for his own necessary use or for that of his family, or even to give to others what he himself needs to maintain his station in life becomingly and decently."65 Indeed, thepontiff even quotes St. Thomas Aquinas to this effect. However, he does not hesitate to insist that "when the demands of necessity and propriety have been su-ciently met, it is a duty to give to the poor out of that which remains."66 In so saying Leo is echoing the words of Our Lord, Who teaches that with "that which remaineth, give alms; and behold, all things are clean unto you."67 The holy pontiff teaches unequivocally that:

[t]he substance of all this is the following: whoever has received from the bounty of God a greater share of goods, whether corporeal and external, or of the soul, has received them for this purpose, namely, that he employ them for his own perfection and, likewise, as a servant of Divine Providence, for the benefit of others.68

So we see that riches are not unalloyed good; they impart grave responsibility on their holders, and we must always recall that great axiom of the moral life: "from those to whom much is given, much is expected."

(For the full text go to Goretti Publications)

Saturday, August 25, 2007

Capitalism and Economic Liberty, and the aims of Distributism

I could do a great many things before I came to definitely anti-social action like robbing a bank or, worse still, working in a bank.
-G.K. Chesterton

One of our opponents, is still confused by a modern myth, the idea that wages (which are not within his control) and renting (something which is owned by others and consequently not within his control) are more "stable" and provide more "freedom" (over things he has no control over) than owning one's own means of production (which he does have control over) and owning his own property (which surprise! he also has control over). If that is the case, then by all means, let us call unstable "stable" and restriction "freedom". For that matter, let us also call the spend crazy "frugal", and that which is poisonous "healthy", or, that which is cheap "good quality". In fact, industrial capitalism does all that too!

In attempting to make various terms clear in the debate between Distributism and Capitalism, he says (note: all emphasis mine)
The capitalist tends to define an economic system by what the legal apparatus does and does not allow. This point of view defines capitalism as the system in which economic freedom maximized, i.e. where goods and services are bought and sold freely without government interference. (source)
This is entirely false. If Capitalism maximizes economic freedom, it does so for only one group: the wealthy owner. This is because one type of freedom is maximized within the capitalist system: the freedom to buy. It turns the traditional understanding of freedom into a materialist, like an angel dressing up as a devil. The traditional understanding of freedom is the ability to choose to do the good. For the capitalist, it is to buy, and only one group in society benefits from this, that is the owner. The owner decides what is made and consequently what men will buy. Men then basically have the freedom to do what the owner wishes them to. Perhaps we are not so far from Belloc's servile state as we may think.

The reality is, the standard by which freedom is judged is entirely false, which is why everything else in the Capitalist system is false. Furthermore there is no other area of society in which freedom is judged by this standard. To be true to reality, this view in fact represents a minority of the thought within Capitalist economics to begin with, which makes the idea that it could be a science more laughable. There are numerous different schools of capitalism, some favoring tarrifs and trade protection, some favoring high taxes and government made social services (which are not tantamount to socialism per se), and some, those of the economic liberals, which favor no government action of all in the realm of economics, that somehow, a hidden hand will make markets smooth and all men rich.

Of course when we come back to reality not many men are rich. In fact, not many men are well off. Some are better off than others. Now some have nice trinkets and goods, nice computers, nice televisions (which they don't really own, some bank owns them through funds it lent them via a credit card). Most struggle to get by and require their spouse to work in order to pay the bills. They are not free to start a business venture, because a bank will not give them a loan, or if one does, it is on such unfavorable terms as to make the venture impossible or so risky as to be foolish. A company which is already millions of dollars in debt with a proven track record for inefficiency and poor customer service on the other hand has no problem getting large loans, much more money than what is proposed to be given to those who start a small business. Why is this state of affairs? Because without any interference in the economy, there is only one motive: greed. The larger businesses, indebted as they are with debts bigger than the economies of 3rd world nations, have the illusion of permanence, and thus the bank invests in the large businesses, because the interest on large loans (that will never be paid off) will yield more money than the small business will ever see. It may be that the small businessmen will never have economic freedom, will work until they are dead, and be forced to buy from the big shops where the bank invests, but that scarcely bothers the businessman, or the banker. It is quite simple, human beings, when left to themselves, operate according to a wounded human nature. This human nature so wounded, places an immediate good in place of a final good. As such, the immediate good of enrichment is far more desirable to most men than the overall good of a healthy society, or helping the poor not with a handout but with a share in ownership, which Pope Leo XIII described as the only way to cure the social evils addressed in Rerum Novarum.

Capitalism in all of its forms necessitates toward the same end, what Belloc and Chesterton called the "Capitalist paradox". What this means is that the laborer will become so poor that he is unable to buy the goods he produces, and the owner will be unable to find a market for the goods. Is that any surprise since wages are now lower than they were in the previous generation? Mortgage loans are defaulting at a staggering level, which had caused a free-fall in the stock market until recently when the government borrowed money from other countries to put money in the banking industry. As men have less money at their disposal, they are unable to meet usurious rates of loans, which are now necessary to own property in this country. Then of course no one will have economic freedom. Given the high cost of the basic means for getting to a job, gas and a car, can we seriously maintain there is a high level of economic freedom simply because the wealthy can market their products to us without the government keeping open a window for us to enter the playing field?

Thus, the definition given by Belloc, that capitalism is the concentration of wealth and the means of production in the hands of the few, is entirely correct for this reason: In every capitalist society this is the net result of so-called "economic freedom". Arguing this point is almost like arguing with Communists about the evils of Communism. They often deny that Communism is intrinsically bad, they will just say it got corrupted by Stalin (ignoring Lenin's murderous rampage). The fact is that wherever Communism has been tried it requires a murderous rain of terror to concentrate property in the hands of the state. Likewise in Capitalism, wherever it is tried it concentrates society's wealth into an elite: a small class of owners and a group of bankers whose interests are international. If you doubt that consider World War II. International banking and oil interests bankrolled both the Nazis and the Allies throughout the war. J.D. Rockefeller helped produce tank engines for Roosevelt and sold fuel additives from U.S. standard oil to Hitler through a partner, I.G. Farben which allowed Hitler to bomb Britain. Union Banking Corps, based in New York City, gave millions to Hitler, funded his rise to power, and at last after the war was discovered with tons of Nazi money in their vaults. American business and banking interests supported both sides, because in war, governments borrow from banks, and enrich banks, they buy from big business, and enrich them, which is why big business necessitates toward war. That is why we had a World War twice, and have been involved in umpteen billion wars since. What of the economic freedom of the men putting their lives on the line for these business interests? In war, no wealth is produced, though it is often destroyed. Governments borrow money, and money produces more money, for the elite, which they hold from the community and invest in the interests which they alone wish to invest. It is not the common man who is economically free.

Moreover, it is in a desperate attempt to cling to this false reality, that our opponent must mischaracterize our solution, unless we have been so vague as to cause him to not yet grasp it:
The capitalist defines distributism as the system in which the government prejudices the legal apparatus against the large business, in favor of the small venture (source).
This is also incorrect. Distributism, unlike Capitalism, favors local government. The term "government" is used of course in the pejorative, as if it is a bad thing to have government! With the exception of economic liberals such as our opponent, Capitalism supports big government since the big government necessarily must borrow money from banks, and the interest guarantees a continued indebtedness to the banks and a slave status for government. Our opponent is an unwitting ally of this concept by supporting big business, even though it is against his ideology.

Distributism does not favor big government. It favors strong local government, and mediating economic bodies such as a guild, to set pricing, restrict (though not eliminate) competition,
and protect small business from ruination by the direct actions of larger entities. By applying this controls and checks on the economy, Economic freedom is thus preserved for the family, at the expense of the greedy. No grandiose promises of wealth and fortune are made, they are certainly possible, but something far better is offered within this framework, security for the family.
Distributism is then defined as the economic system in which the vast majority of people have personal ownership of productive capital, ie are running small businesses. The historical exemplar of this is an agrarian farming community with the occasional non-farming specialty tradesman, but distributists stress that they are not advocating that everybody turn to farming or reject technology (source).
This should be expanded and clarified. The agrarian question is a thorny issue. What percentage of society will have to be agrarian in order for the society to have enough food. Donald Goodman, in his e-Book "Distributism, a Catholic system of economics" suggests that it would need to be as much as 50%. This is possible, but perhaps it is lower, maybe 35%. To interject with my subjective experience, the number of people who I have known who wanted to farm but could not meet the financial burden placed by the twin evils of big government and big business suggests to me that it is a sufficient number in society to meet that percentage. Furthermore, most economic liberals (though I believe our opponent is an exception in this) have advocated in recent years opening the borders, getting in as many illegal immigrants as possible to do farm work. Why? Because major bloated farms need lots of workers, but they can't pay a lot of money to attract commuters because Agribusiness is overproducing food, and in the absence of an agent to set prices to a just level, they follow simple supply and demand and drop. When the prices drop, privately owned farms suffer. Because these farms operate on a Capitalist rather than Distributist model, they are big and bloated and removed from habitation, so there are no young children to hire for a few hours of work, no teachers on summer vacation, no townspeople in general to assist, and no local market for the food which drives up the costs to begin with. So abusing Mexicans and paying them low wages seems like the answer to most free market economists! By having farms near markets, that meet the demands of local markets, most of these evils are eliminated or severely reduced.
The historical exemplar is not an agrarian economy per se, because the Roman Empire used such an economy, but it was a slave economy. Distributism's exemplar was the economic model that the Catholic Church built during the middle ages, which transformed the Roman Slave into the serf who inherited rights and protection, and from that into the medieval peasant who was free and who could will his land to his descendants, and no one could take it from him, until society itself broke down, as it did with the Reformation.
Now modern society provides all forms of private enterprise that can be understood as Distributive. The concept of a co-operative for example, where all the employees are owners, would not qualify as a big business, because all the employees were owners. This follows the concept of subsidiary, namely if smaller units can do the work they ought. There are irreducibly complex goods like computers, like cars (although one man could build a car, that would scarcely be possible economically), power equipment and industrial goods. Distributism does not propose thousands of technicians in shops producing these goods night and day to meet demand. Instead we propose co-ownership as the means of "gaining the share in the land". Then workers will receive a living wage verses a minimum wage, and profits according to the goods they produce.
The distributist defines his terms differently, although both competing definitions seem to referencing the same state of affairs in most cases. (Source)
The difficulty here is there are two different applications. There is the society we want to get to, namely a society that can be called Distributist, where the mark of that society is of widespread ownership, and there is the present society, where wealth is concentrated in the hands of a few, which we want to see made into a Distributist society. That means transformation. The principles inherent to a process of transformation do not apply after the transformation is complete. When you have turned flour, oil, butter, salt and yeast into a loaf of bread by applying heat of 400 degrees Fahrenheit in an oven, you do not continue applying that temperature after the transformation! This is true in transforming the character of society, except with Communism, where the murder used in establishing the government seems to continue after it is established. Thus, where Belloc talks about using taxation against large businesses and subsidizing small business for a time, he does not intend that to mark Distributive society, but to establish one. When he talks about taxing heavily the purchase of property by the wealthy from the small man, but lightly taxing if taxing at all the purchase of property by the small man from the wealthy, it is only for an intermediary period. Thus these are the two applications of ideas in establishing a Distributist society. However, unlike Capitalism and Communism, which as far as we are concerned is generally the same thing, one where an elite owns capital, and another where the state owns it, Distributism can not be established from above by a minority on the majority. There must be desire for it in society. You can not entrust property to someone who has no desire for it, the stroke will go rather astray. Thus the first mission of Distributism, is to increase a desire for economic liberty that comes with property amongst the populace, and then, only then, can some reform be enacted.

Thursday, August 23, 2007

Vintage Distributism

The Significance of Distributism
An excerpt by George Maxwell


Human labour has two purposes. One essential and permanent, the other incidental and transient. The essential end is to develop and perfect himself as a person. The transient end to enable him to earn his living.

When free men meet together for the purpose of producing shoes or anything else, they do not shed their dignity as "persons" or as responsible social beings ruled by justice and charity. The specific objective of their work is the making of shoes or whatnot, but the principle objective is the perfection of the person in union with other persons. Under industrialism it is the reverse. Is this one of those things of which Mr. Chesterton said: "You may look at it 999 times and not see it. If you look at it the 100Th time you are in grave danger of seeing it for the first time."

The second factor in Distributist policy is the restoration of property. By property I mean the effective ownership and control of the means to exercise liberty. The essential means for responsibility. A homely illustration will, I think, suffice to show its necessity. You will have heard it said that, "No kitchen was ever built big enough to hold two women." Its a generalisation and the idea underlying the saying is, I believe, true - and trust that it will remain so. Here is the commonest though noblest of all craftsmen - the maker of the home. She takes for granted that her workshop, her workbench, her tools, her policy and the tempo of her work shall be in her sole control to order as she wishes. Her responsibility. Any attempt to interfere with this control by whomsoever it may be, is met at once by opposition. Her defences are called into play and are usually effective and sometimes subtle, such as would put the T.U.C. to shame. Nevertheless when the need arises she understands the need for charity and in these days she is not wanting. This theme could be developed more but it should not be necessary.

Had men insisted on keeping the ownership and control of their tools as she has, insisted on responsibility in their work to anything like the same extent, the position to-day would be different. But a fifth column is active against the home in all sorts of ways. The philosophy of Distributism is the only one I know which can counteract this. The only one I know which embraces the personal and social life of the whole man. Its chief significance lies in that everyone, in no matter what circumstances can move towards its goal. It may be very shortly and with halting steps, but so long as one is moving in the right direction then a path is being made to make it easier for others whose steps may be still more faltering, but willing to move to restore the lost culture of Christianity to men and to England.

As things are at present, to some there may be a temptation to rewrite in the mind the Gospel of St. John, to read "In the beginning were the circumstances, and the circumstances are with us, and the circumstances are omnipotent." This is despair and by definition this is mortal sin. Take consolation from that, because if it is mortal sin, it can't be necessary. The service of truth will bring Freedom, and Truth is not a concept of the mind, but a 'person.'

Taken from The Distributist

Vintage Distributism

On Usury
By Hilaire Belloc
taken from The Crisis of Civilization

Usury, to take that first, like the greed from which it proceeds, is as old as human society. Like the other evils proceeding from the Reformation it was not created by the movement. We shall find in the case of Usury, as in the case of unbridled Competition (the force which, coupled with Usury, achieved the creation and enslavement of the proletariat), as likewise we have already found in the case of Contract replacing Status, that the seeds of the change had been sown long before the actual disruption of Christendom took place. What happened after the Reformation was not that these new evils, including Usury, then appeared for the first time but, as I have said, that they turned from exceptions into admitted and general habits. They were accepted, they grew, and at last came to cover the whole field of Society.

Unlike the transformation of Status into Contract and the undue growth of Competition, Usury was an evil in itself.

It was not only evil because it got out of proportion, and swelled beyond due measure, as did the replacement of Status by Contract and the practice of Competition, but was of its own nature a thing to be condemned and extirpated, if possible, as a disease. It may be remarked that it had already permeated like a mortal poison the society of pagan antiquity at its close and was one of the main evils under which the society of Graeco-Roman civilization collapsed in the West, and before the Mohammedan invasion of the East.(1)

The morals of the Church, when the Church gradually overcame the world and molded a new Europe, forbade Usury as strongly though not with so much practical effect, as did later Mohammedanism. Every sane philosophy, every religion, had forbidden it. The Greek pagan philosophers with Aristotle at their head denounced it; so did the Oriental pagans; so did the Jewish law.

Now why was this? Why was Usury thus regarded universally as immoral, and why has it been found in practice to be a poison ultimately destroying Society?

In order to answer these questions we must first understand what Usury is, in the sense in which we here employ the term; for there is great ambiguity in the use of the word and therefore misunderstanding of the thing which the word connotes.

Usury in the sense of an economic evil does not mean the taking of interest on a loan. It does not mean the taking of interest higher than some permitted minimum. It means that taking of interest upon a loan of money alone (or still worse, upon a mere promise to lend money, an instrument of credit) whether that money be invested soundly or no, whether it represent productive energy or no. Usury is, properly speaking, the taking of increment upon a loan of money merely because it is money, or worse still the taking of such increment upon a credit-instrument.

The reasons for condemning interest upon money alone, as distinguished from profit, are twofold: First, it is asking a tribute from Society as the price of releasing currency hitherto withheld from its proper function of acting as the circulating medium of exchange; secondly, it is arranging a claim for payment of a share in profit which may, but also may not, exist.

As an example of the first evil, let us consider a market in which the supply of currency is in the hands of a small number of those present, buyers and sellers; or even in the extreme case (the case of a bank in a small market town), in the hands of one controller only.

No transactions in the market, save those of mere barter, can take place unless the monopolist holding the currency permit it to be used for its natural purpose.

The natural purpose of currency is this: the facilitation of the multiple exchange of goods. If I have a surplus of wheat, having produced more than I can consume of that article, while my neighbor has a surplus of hay, having produced more than his establishment can consume, we will, if we are in contact, naturally exchange the hay for the wheat; since it is to the mutual advantage of both of us that we should do so.

Now let us suppose a third party, who had produced more potatoes than he can consume, but has not sufficient hay for his purpose; a fourth who has livestock for food in excess of his needs and would exchange the surplus for wheat; a fifth who is a craftsman and has produced clothes and boots for the supply of others in exchange for goods which he needs. Then there arises a condition not of simple barter but of multiple exchange.

The man with the hay is not in contact with the man who produced boots, nor either of them with the man who has the surplus of potatoes. There must be present a common medium of exchange which shall circulate among them if the various surpluses are to be distributed according to the demands of the producers and purchasers.

That is the true function of money, and of instruments of credit based upon money: to make possible the action of multiple exchange.
Now insofar as the monopolists hold back this current medium from general circulation, demanding a price for its use, they are demanding increment for something which has no natural increment: which does not breed. They are asking for a surplus although that which they advance produces of itself no surplus. Although that which they advance produces of itself no surplus. They are holding up the community by refusing it its normal medium of exchange.

That is the first wrong attaching to taking interest upon money alone. The second and in complex times such as ours, much the more important-evil attaching to usury is the taking of increment from a non-productive loan.

This is manifestly immoral.

A man comes to me and says: "I have found upon my property a vein of ore, but it lies deep, so that I shall require a considerable capital-say $100,000-to extract the valuable metal. That metal, when it shall have been extracted, will be worth at least $200,000. But I cannot obtain this advantage until I purchase the instruments for developing the mine and have hired the labor required to work it. Lend me the $100,000 necessary for the operation. I answer him: "If I do so, you must give me a share in the profit, say half of the total." He agrees, that without my capital he could not develop the mine; without his ore my capital would not be used. The combination of the two is productive of wealth, and we share that wealth. That is a perfectly moral transaction, even if the profit be one of 100 percent or 1000 percent over the original investment; so that if, with my stipulated half profit, I make 50 percent or 500 percent on my original loan, I am in now way to blame. The increment is not properly speaking interest on a loan of money: it is a share of real wealth.

But if I lend the money, saying; "I care not what your profits may be, nor whether there be a profit or no, but I demand $10,000 a year for the use of my $100,000"- then in case the speculation fails the borrower will be bound to pay the $10,000 perpetually, without any production of wealth to correspond to it. He will then be paying interest on an unproductive loan, and it is manifestly immoral to ask for share of wealth which does not exist.

Now, any loan at interest which is a loan of mere money may partake of this character; and among a number of such loans many will partake of this unproductive character. Of the money bearing interest merely because it is money, some large proportion at any one time must be demanding interest from activities which create no wealth out of which to pay the interest.
For instance, nearly all of the War loans issued in the belligerent countries to pay for the Great War [WWI] were loans unproductive of wealth, yet bearing interest. The money was expended, not in developing productive capacity not in turning potential wealth into actual wealth, but in feeding men occupied in killing each other, in clothing them, in giving them their wages, and armament. When the effort was over, a vast indebtedness remained; a vast annual interest was claimed in perpetuity- and yet there has been no wealth produced out of which such increment could come.

But though Usury is in itself immoral, and justly condemned by every ethical code, its chief and worst defect in the particular case we are now examining, the growth of Capitalism and its increasing proletariat, is the centralization of irresponsible control over the lives of men: the putting of power over the proletariat into the hands of a few who can direct the loans of currency and credit without which the proletariat could not be fed and clothed and maintained in work.

1. It must be remarked that one of the principal factors of success in the Mohammedan over-running of half Christendom between the 7th and 8th centuries was its active penalizing of Usury. This leading tenet of Islam in its social morals gave immediate relief to myriads of debtors in North Africa, Syria and Mesopotamia. It is strictly enforced today. Nothing is more remarkable in the Mohammedan countries of North Africa today than to see how, under the rule of Europeans there, the Mohammedan still refuses to take interest from his fellow Mohammedan on a mere loan of money, and how the whole trade of Usury is confined to the European immigrants and the native Jews.

Workers Enjoy Fruits of Their Labour

Firms owned by staff have beaten the FTSE all-share. So why aren't there more?

Antoinette Odoi
Monday August 20, 2007
The Guardian



Imagine working for a company that provides heavily subsidised hotel accommodation in Dorset's Brownsea Castle and discounts of up to 50% on theatre tickets. But much better than that, it makes you a partner, entitling you to a share of the profits.

This is a reality for thousands of John Lewis partners, who received an 18% bonus this year, equivalent to nine weeks' full pay. This year profit before tax at the partnership was £319m, with £164m being reinvested. The rest, £155m, was shared between the partners.

John Lewis Partnership is probably the best known successful employee-owned company. Its 68,000 permanent staff own its 26 John Lewis department stores, 185 Waitrose supermarkets, online catalogue John Lewis Direct, three production units, a farm and Greenbee, a tickets, travel and insurance service. The whole group had a combined turnover of nearly £6bn last year.

Despite its success, employee-owned companies are only slowly emerging as a credible business model.

Data from Equity Incentives, a company providing a share plan service to private and quoted companies, reveals the monetary benefits. It set up an employee ownership index in 1992 to see if employee-owned companies could outperform the average quoted company. It shows £100 invested in the index would have been worth £349 by the end of June 2003; the same £100 invested in the FTSE all-share index would only have grown to £161.

The Employee Ownership Association carried out a survey in 2005 that revealed that 72% thought staff worked harder under a co-ownership structure, 81% said they took more responsibility, 49% thought competitiveness was enhanced and 44% confirmed profits were higher.

Despite this, co-owned companies make up only an estimated 2% of the economy, or £25bn in annual turnover. But Patrick Burns, executive director, sees a strong case for them.

Extra mile

"You get a remarkable level of employee involvement and people are prepared to go the extra mile. People feel their companies are more productive, and the companies are very sustainable," he says.

Director of personnel at the John Lewis Partnership, Tracey Killen, says: "The great strength of the partnership's model is that employees have a real stake in the business ... co-ownership allows the partnership to take a long-term view, because we do not have to answer to external shareholders who are usually seeking quick returns."

A John Lewis spokesman adds: "In the 1990s, performance was quite sluggish. If we were a listed company shareholders would have been asking questions. We invested a lot of money ... but we didn't see the consequences until four, five, six years down the line."

The investment seems to have worked. John Lewis has come first in the Which? survey of the nation's favourite retailers. It has now made a £500m investment in 11 new stores to be built within 10 years.

Loch Fyne Oysters is another example. The company (separate from the Loch Fyne restaurant chain, which was sold to Greene King for £68m last week) turns over £10m a year. It was bought by more than 100 staff in 2003 after they borrowed £2m from the Baxi Partnership, an organisation which helps business become employee-owned through a trust structure, and about £1m from the Royal Bank of Scotland.

Virginia Sumsion, marketing manager at Loch Fyne Oysters, says co-ownership "gives employees a sense of security" but the system requires participation which has not always been easy.

"[Co-ownership] ... means [middle management] has to get employees more involved. In the early stages it's quite difficult to know what to ask." But after the teething problems, she says, "now the culture of the company has become more open".

Fig leaf

Mark Constantine, chief executive of Lush, the natural cosmetics shop, is considering co-ownership. While he stresses the idea is still in the embryonic stage, he wants the 5,500 employees who have contributed to Lush, which has a turnover of £145m a year, to get something back.

He says one reason would be to prevent a buyout from a company that doesn't share Lush's ethics, including its stance against animal testing, but merely wants it as an "ethical fig leaf". "If a business goes public it has to consider its shareholders above all else. I realise the people you [can] trust most are your own staff."

Shared ownership has its critics. Some doubt the ability to make the right decisions and make them quickly, and the level of risk that can be taken with so many people dependent.

But Mr Burns counters: "It's true that some companies do find it difficult to make decisions, but it's a misconception that everybody has to be consulted to make every single decision."

Mr Constantine also dismisses the worries: "Decision-making can become slow at any time. It's about the quality of the management."

But if the benefits are so clear, why is co-ownership not more widespread?

Jonathan Bland, chief executive of the Social Enterprise Coalition, says Britain has a very "thin" model of business. The reality, he says, is that there are "a range of fantastic business models but a real ignorance about the fact we can use them and be successful".

Mr Burns lays some of the blame on business advisers. "Owners looking to sell their business will hardly ever be advised to sell to their own employees. Very few are aware this option is there."

When Gordon Brown scrapped tax relief on company contributions to employee benefit trusts in 2003 it made it more difficult for companies to be trust-owned, he says.

"It was really aimed at tax-avoiders, and [the government] threw out the baby with the bathwater."

John Alexander, managing director of the Baxi Partnership, agrees. Having been in operation for seven years and helped eight companies with 700 staff become employee-owned, he feels employee-ownership could be given a boost if the government brought in "capital gains tax relaxation for anyone who sells into a co-owned structure".

"If there were a nil-rate band for businesses transferred into a co-owned structure, " he says, "it would be brought to the attention of every single accountant and lawyer in the country."

Case studies

Wilkin & Sons

Jam-maker Wilkin & Sons shows that adopting an employee-ownership structure does not mean sacrificing good organisation and profit. Businesses that have adopted ownership schemes involving their employees benefit from staff loyalty and improved work ethic.

Twenty-five years ago, the business behind Tiptree conserves changed its structure and now its 240 employees hold just under 50% of the 122-year-old company via an employee benefit trust. The rest is owned by the founding family members and some minority shareholders.

The company distributes shares annually according to length of service to everyone from the director to the assistants on the shopfloor. When workers retire, Wilkin buys their shares back and redistributes them among the rest of the employees.

Tim Came, Wilkin's sales and marketing manager, says: "We didn't want a predator to approach the business, asset-strip, close the factory and take it elsewhere without regard for the family's work here for generations."

Peter Wilkin, great grandson of the founder Arthur Charles Wilkin, is maintaining the family's interest in the business as chairman and joint managing director. The firm last year had a turnover of £16.5m.

It has also diversified and responded to market demands, introducing its organic Christmas pudding in 1999 and organic chilli mustard in 2003.

Sunderland Home Care Associates

Sunderland Home Care Associates began in 1994 when Margaret Elliot decided to set up a group in the Sunderland area that would provide personal care services to people in their own homes.

"I saw an ad in the local paper for expressions of interest to provide home care and applied," she says. Social services gave the company an initial £50,000 but the company has operated independently since then, and now the Sunderland branch has an annual turnover of £1.8m. The company, which bids for contracts from local social services organisations, has 200 staff in Sunderland and has expanded with operations in North Tyneside, Newcastle and Manchester.

The original Sunderland operation became employee-owned in 2002 because Mrs Elliott felt that giving employees a financial stake would ensure the highest standard of care.

Shares are issued annually to be held for a minimum of five years, but no employee can own more than 2% of the business.

Other co-ownership firms:

Arup Group (100% owned in trust): a global design and business consulting firm. The group has 19 UK offices with 2,500-3,000 staff in Britain, in addition to 9,000 staff working in more than 37 countries. It became employee-owned in 1979.

Compton Fundraising Consultants (wholly owned): group of fundraising consultancies catering for not-for-profit organisations. It was founded more than 40 years ago and has always been employee-owned but to varying degrees.

St Luke's (wholly owned): advertising and communications company bought by its employees in 1995. It has about 60 employees.

School Trends (100% owned in trust): focusing on the supply of school uniforms, it was set up in 1988 and moved to employee ownership status in 2004. It has approximately 150 employees.

Wednesday, August 22, 2007

Pope Pius XI's Quadragesimo Anno

Table of Contents

  • The Church and Her Right to Spread the Eternal Law

  • Private Property

  • Communism

  • The Many Masks of Socialism

  • Capitalism

  • The Two Fold Character: Neither Capitlalism nor Socialism

  • Economics as Subject to Ethics, Faith and Morals

  • Work and the Family

  • The Employer/Employee Covenant

  • Against Unjust Competition

  • The Guilds

  • The Imperative of the State

  • Subsidarity

  • The Catholic Duty and Call For the Third Way


  • THE CHURCH AND HER RIGHT TO SPREAD THE ETERNAL LAW

    The (Pope Leo XIII's) Encyclical On the Condition of Workers, without question, has become a memorable document and rightly to it may be applied the words of Isaias: "He shall set up a standard to the nations"

    Yet before proceeding to explain these matters, that principle which Leo XIII so clearly established must be laid down at the outset here, namely, that there resides in Us the right and duty to pronounce with supreme authority upon social and economic matters. Certainly the Church was not given the commission to guide men to an only fleeting and perishable happiness but to that which is eternal. Indeed" the Church holds that it is unlawful for her to mix without cause in these temporal concerns"; however, she can in no wise renounce the duty God entrusted to her to interpose her authority, not of course in matters of technique for which she is neither suitably equipped nor endowed by office, but in all things that are connected with the moral law. For as to these, the deposit of truth that God committed to Us and the grave duty of disseminating and interpreting the whole moral law, and of urging it in season and out of season, bring under and subject to Our supreme jurisdiction not only social order but economic activities themselves

    Nor is the benefit that has poured forth from Leo's Encyclical confined within these bounds; for the teaching which On the Condition of Workers contains has gradually and imperceptibly worked its way into the minds of those outside Catholic unity who do not recognize the authority of the Church. Catholic principles on the social question have as a result, passed little by little into the patrimony of all human society, and We rejoice that the eternal truths which Our Predecessor of glorious memory proclaimed so impressively have been frequently invoked and defended not only in non-Catholic books and journals but in legislative halls also courts of justice


    PRIVATE PROPERTY

    We shall begin with ownership or the right of property. Venerable Brethren and Beloved Children, you know that Our Predecessor of happy memory strongly defended the right of property against the tenets of the Socialists of his time by showing that its abolition would result, not to the advantage of the working class, but to their extreme harm

    For they have always unanimously maintained that nature, rather the Creator Himself, has given man the right of private ownership not only that individuals may be able to provide for themselves and their families but also that the goods which the Creator destined for the entire family of mankind may through this institution truly serve this purpose

    The right of property is distinct from its use.[30] That justice called commutative commands sacred respect for the division of possessions and forbids invasion of others' rights through the exceeding of the limits of one's own property; but the duty of owners to use their property only in a right way does not come under this type of justice, but under other virtues, obligations of which "cannot be enforced by legal action."[31] Therefore, they are in error who assert that ownership and its right use are limited by the same boundaries; and it is much farther still from the truth to hold that a right to property is destroyed or lost by reason of abuse or non-use

    Those, therefore, are doing a work that is truly salutary and worthy of all praise who, while preserving harmony among themselves and the integrity of the traditional teaching of the Church, seek to define the inner nature of these duties and their limits whereby either the right of property itself or its use, that is, the exercise of ownership, is circumscribed by the necessities of social living. On the other hand, those who seek to restrict the individual character of ownership to such a degree that in fact they destroy it are mistaken and in error


    COMMUNISM

    Communism teaches and seeks two objectives: Unrelenting class warfare and absolute extermination of private ownership. Not secretly or by hidden methods does it do this, but publicly, openly, and by employing every and all means, even the most violent. To achieve these objectives there is nothing which it does not dare, nothing for which it has respect or reverence; and when it has come to power, it is incredible and portentlike in its cruelty and inhumanity. The horrible slaughter and destruction through which it has laid waste vast regions of eastern Europe and Asia are the evidence; how much an enemy and how openly hostile it is to Holy Church and to God Himself is, alas, too well proved by facts and fully known to all. Although We, therefore, deem it superfluous to warn upright and faithful children of the Church regarding the impious and iniquitous character of Communism, yet We cannot without deep sorrow contemplate the heedlessness of those who apparently make light of these impending dangers, and with sluggish inertia allow the widespread propagation of doctrine which seeks by violence and slaughter to destroy society altogether. All the more gravely to be condemned is the folly of those who neglect to remove or change the conditions that inflame the minds of peoples, and pave the way for the overthrow and destruction of society


    THE MANY MASKS OF SOCIALISM

    Religious socialism, Christian socialism, are contradictory terms; no one can be at the same time a good Catholic and a true socialist

    It belongs to Our Pastoral Office to warn these persons of the grave and imminent evil: let all remember that Liberalism is the father of this Socialism that is pervading morality and culture and that Bolshevism will be its heir

    We have also summoned Communism and Socialism again to judgment and have found all their forms, even the most modified, to wander far from the precepts of the Gospel

    Whether considered as a doctrine, or an historical fact, or a movement, Socialism, if it remains truly Socialism, even after it has yielded to truth and justice on the points which we have mentioned, cannot be reconciled with the teachings of the Catholic Church because its concept of society itself is utterly foreign to Christian truth

    Because of the fact that goods are produced more efficiently by a suitable division of labor than by the scattered efforts of individuals, socialists infer that economic activity, only the material ends of which enter into their thinking, ought of necessity to be carried on socially. Because of this necessity, they hold that men are obliged, with respect to the producing of goods, to surrender and subject themselves entirely to society. Indeed, possession of the greatest possible supply of things that serve the advantages of this life is considered of such great importance that the higher goods of man, liberty not excepted, must take a secondary place and even be sacrificed to the demands of the most efficient production of goods. This damage to human dignity, undergone in the "socialized" process of production, will be easily offset, they say, by the abundance of socially produced goods which will pour out in profusion to individuals to be used freely at their pleasure for comforts and cultural development. Society, therefore, as Socialism conceives it, can on the one hand neither exist nor be thought of without an obviously excessive use of force; on the other hand, it fosters a liberty no less false, since there is no place in it for true social authority, which rests not on temporal and material advantages but descends from God alone, the Creator and last end of all things

    And therefore, to the harassed workers there have come "intellectuals," as they are called, setting up in opposition to a fictitious law the equally fictitious moral principle that all products and profits, save only enough to repair and renew capital, belong by very right to the workers. This error, much more specious than that of certain of the Socialists who hold that whatever serves to produce goods ought to be transferred to the State, or, as they say "socialized," is consequently all the more dangerous and the more apt to deceive the unwary

    Socialism, on the other hand, wholly ignoring and indifferent to this sublime end of both man and society, affirms that human association has been instituted for the sake of material advantage alone

    Such just demands and desire have nothing in them now which is inconsistent with Christian truth, and much less are they special to Socialism. Those who work solely toward such ends have, therefore, no reason to become socialists

    Yet let no one think that all the socialist groups or factions that are not communist have, without exception, recovered their senses to this extent either in fact or in name. For the most part they do not reject the class struggle or the abolition of ownership, but only in some degree modify them. Now if these false principles are modified and to some extent erased from the program, the question arises, or rather is raised without warrant by some, whether the principles of Christian truth cannot perhaps be also modified to some degree and be tempered so as to meet Socialism half-way and, as it were, by a middle course, come to agreement with it

    There are some allured by the foolish hope that socialists in this way will be drawn to us. A vain hope! Those who want to be apostles among socialists ought to profess Christian truth whole and entire, openly and sincerely, and not connive at error in any way. If they truly wish to be heralds of the Gospel, let them above all strive to show to socialists that socialist claims, so far as they are just, are far more strongly supported by the principles of Christian faith and much more effectively promoted through the power of Christian charity

    For they are greatly in error who do not hesitate to spread the principle that labor is worth and must be paid as much as its products are worth, and that consequently the one who hires out his labor has the right to demand all that is produced through his labor


    CAPITALISM

    But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life--a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated. Therefore, it is most necessary that economic life be again subjected to and governed by a true and effective directing principle...But it cannot curb and rule itself

    Free competition has destroyed itself; economic dictatorship has supplanted the free market; unbridled ambition for power has likewise succeeded greed for gain

    Yet while it is true that the status of non owning worker is to be carefully distinguished from pauperism, nevertheless the immense multitude of the non-owning workers on the one hand and the enormous riches of certain very wealthy men on the other establish an unanswerable argument that the riches which are so abundantly produced in our age of "industrialism," as it is called, are not rightly distributed and equitably made available to the various classes of the people

    But since manufacturing and industry have so rapidly pervaded and occupied countless regions, not only in the countries called new, but also in the realms of the Far East that have been civilized from antiquity, the number of the non-owning working poor has increased enormously and their groans cry to God from the earth. Added to them is the huge army of rural wage workers, pushed to the lowest level of existence and deprived of all hope of ever acquiring "some property in land," and, therefore, permanently bound to the status of non-owning worker unless suitable and effective remedies are applied

    For since the seeds of a new form of economy were bursting forth just when the principles of rationalism had been implanted and rooted in many minds, there quickly developed a body of economic teaching far removed from the true moral law, and, as a result, completely free rein was given to human passions

    The easy gains that a market unrestricted by any law opens to everybody attracts large numbers to buying and selling goods, and they, their one aim being to make quick profits with the least expenditure of work, raise or lower prices by their uncontrolled business dealings so rapidly according to their own caprice and greed that they nullify the wisest forecasts of producers

    Since the instability of economic life, and especially of its structure, exacts of those engaged in it most intense and unceasing effort, some have become so hardened to the stings of conscience as to hold that they are allowed, in any manner whatsoever, to increase their profits and use means, fair or foul, to protect their hard-won wealth against sudden changes of fortune

    The root and font of this defection in economic and social life from the Christian law, and of the consequent apostasy of great numbers of workers from the Catholic faith, are the disordered passions of the soul, the sad result of original sin which has so destroyed the wonderful harmony of man's faculties that, easily led astray by his evil desires, he is strongly incited to prefer the passing goods of this world to the lasting goods of Heaven

    This concentration of power and might, the characteristic mark, as it were, of contemporary economic life, is the fruit that the unlimited freedom of struggle among competitors has of its own nature produced, and which lets only the strongest survive; and this is often the same as saying, those who fight the most violently, those who give least heed to their conscience

    This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will

    but rather because men, hardened by too much love of self, refused to open the order to the increasing masses as they should have done, or because, deceived by allurements of a false freedom and other errors, they became impatient of every authority and sought to reject every form of control


    THE TWO FOLD CHARACTER:NEITHER SOCIALISM NOR CAPITALISM

    For toward the close of the nineteenth century, the new kind of economic life that had arisen and the new developments of industry had gone to the point in most countries that human society was clearly becoming divided more and more into two classes. One class, very small in number, was enjoying almost all the advantages which modern inventions so abundantly provided; the other, embracing the huge multitude of working people, oppressed by wretched poverty, was vainly seeking escape from the straits wherein it stood

    Quite agreeable, of course, was this state of things to those who thought it in their abundant riches the result of inevitable economic laws and accordingly, as if it were for charity to veil the violation of justice which lawmakers not only tolerated but at times sanctioned, wanted the whole care of supporting the poor committed to charity alone. The workers, on the other hand, crushed by their hard lot, were barely enduring it and were refusing longer to bend their necks beneath so galling a yoke; and some of them, carried away by the heat of evil counsel, were seeking the overturn of everything, while others, whom Christian training restrained from such evil designs, stood firm in the judgment that much in this had to be wholly and speedily changed

    He (the Holy Father) sought no help from either Liberalism or Socialism, for the one had proved that it was utterly unable to solve the social problem aright, and the other, proposing a remedy far worse than the evil itself, would have plunged human society into great dangers

    For, as one is wrecked upon, or comes close to, what is known as "individualism" by denying or minimizing the social and public character of the right of property, so by rejecting or minimizing the private and individual character of this same right, one inevitably runs into "collectivism" or at least closely approaches its tenets

    It follows from what We have termed the individual and at the same time social character of ownership, that men must consider in this matter not only their own advantage but also the common good

    Unquestionably, so as not to close against themselves the road to justice and peace through these false tenets, both parties ought to have been forewarned by the wise words of Our Predecessor: "However the earth may be apportioned among private owners, it does not cease to serve the common interests of all"

    By this law of social justice, one class is forbidden to exclude the other from sharing in the benefits. Hence the class of the wealthy violates this law no less, when, as if free from care on account of its wealth, it thinks it the right order of things for it to get everything and the worker nothing, than does the non-owning working class when, angered deeply at outraged justice and too ready to assert wrongly the one right it is conscious of, it demands for itself everything as if produced by its own hands, and attacks and seeks to abolish, therefore, all property and returns or incomes, of whatever kind they are or whatever the function they perform in human society, that have not been obtained by labor, and for no other reason save that they are of such a nature

    For We observe that consciences are little affected by this reduced obligation of accountability; that furthermore, by hiding under the shelter of a joint name, the worst of injustices and frauds are penetrated; and that, too, directors of business companies, forgetful of their trust, betray the rights of those whose savings they have undertaken to administer. Lastly, We must not omit to mention those crafty men who, wholly unconcerned about any honest usefulness of their work, do not scruple to stimulate the baser human desires and, when they are aroused, use them for their own profit

    First, so as to avoid the reefs of individualism and collectivism. the twofold character, that is individual and social, both of capital or ownership and of work or labor must be given due and rightful weight. Relations of one to the other must be made to conform to the laws of strictest justice--commutative justice, as it is called--with the support, however, of Christian charity. Free competition, kept within definite and due limits, and still more economic dictatorship, must be effectively brought under public authority in these matters which pertain to the latter's function. The public institutions themselves, of peoples, moreover, ought to make all human society conform to the needs of the common good; that is, to the norm of social justice. If this is done, that most important division of social life, namely, economic activity, cannot fail likewise to return to right and sound order

    The laws passed to promote corporate business, while dividing and limiting the risk of business, have given occasion to the most sordid license

    In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure

    It is certainly most lamentable, Venerable Brethren, that there have been, nay, that even now there are men who, although professing to be Catholics, are almost completely unmindful of that sublime law of justice and charity that binds us not only to render to everyone what is his but to succor brothers in need as Christ the Lord Himself, and--what is worse-- out of greed for gain do not scruple to exploit the workers. Even more, there are men who abuse religion itself, and under its name try to hide their unjust exactions in order to protect themselves from the manifestly just demands of the workers. The conduct of such We shall never cease to censure gravely. For they are the reason why the Church could, even though undeservedly, have the appearance of and be charged with taking the part of the rich and with being quite unmoved by the necessities and hardships of those who have been deprived, as it were, of their natural inheritance. The whole history of the Church plainly demonstrates that such appearances are unfounded and such charges unjust. The Encyclical itself, whose anniversary we are celebrating, is clearest proof that it is the height of injustice to hurl these calumnies and reproaches at the Church and her teaching

    There remains to Us, after again calling to judgment the economic system now in force and its most bitter accuser, Socialism, and passing explicit and just sentence upon them, to search out more thoroughly the root of these many evils and to point out that the first and most necessary remedy is a reform of morals

    Just as the unity of human society cannot be founded on an opposition of classes, so also the right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching. Destroying through forgetfulness or ignorance the social and moral character of economic life, it held that economic life must be considered and treated as altogether free from and independent of public authority, because in the market, i.e., in the free struggle of competitors, it would have a principle of self direction which governs it much more perfectly than would the intervention of any created intellect


    ECONOMICS AS SUBJECT TO ETHICS, FAITH AND MORALS

    Even though economics and moral science employs each its own principles in its own sphere, it is, nevertheless, an error to say that the economic and moral orders are so distinct from and alien to each other that the former depends in no way on the latter. Certainly the laws of economics, as they are termed, being based on the very nature of material things and on the capacities of the human body and mind, determine the limits of what productive human effort cannot, and of what it can attain in the economic field and by what means. Yet it is reason itself that clearly shows, on the basis of the individual and social nature of things and of men, the purpose which God ordained for all economic life.

    Those who are engaged in producing goods, therefore, are not forbidden to increase their fortune in a just and lawful manner; for it is only fair that he who renders service to the community and makes it richer should also, through the increased wealth of the community, be made richer himself according to his position, provided that all these things be sought with due respect for the laws of God and without impairing the rights of others and that they be employed in accordance with faith and right reason. If these principles are observed by everyone, everywhere, and always, not only the production and acquisition of goods but also the use of wealth, which now is seen to be so often contrary to right order, will be brought back soon within the bounds of equity and just distribution

    Yet it is not rash by any means to say that the whole scheme of social and economic life is now such as to put in the way of vast numbers of mankind most serious obstacles which prevent them from caring for the one thing necessary; namely, their eternal salvation .

    But this order, which We Ourselves ardently long for and with all Our efforts promote, will be wholly defective and incomplete unless all the activities of men harmoniously unite to imitate and attain, in so far as it lies within human strength, the marvelous unity of the Divine plan. We mean that perfect order which the Church with great force and power preaches and which right human reason itself demands, that all things be directed to God as the first and supreme end of all created activity, and that all created good under God be considered as mere instruments to be used only in so far as they conduce to the attainment of the supreme end

    No genuine cure can be furnished for this lamentable ruin of souls, which, so long as it continues, will frustrate all efforts to regenerate society, unless men return openly and sincerely to the teaching of the Gospel

    With the rulers of economic life abandoning the right road, it was easy for the rank and file of workers everywhere to rush headlong also into the same chasm; and all the more so, because very many managements treated their workers like mere tools, with no concern at all for their souls, without indeed even the least thought of spiritual things. Truly the mind shudders at the thought of the grave dangers to which the morals of workers (particularly younger workers) and the modesty of girls and women are exposed in modern factories; when we recall how often the present economic scheme, and particularly the shameful housing conditions, create obstacles to the family bond and normal family life; when we remember how many obstacles are put in the way of the proper observance of Sundays and Holy Days; and when we reflect upon the universal weakening of that truly Christian sense through which even rude and unlettered men were wont to value higher things, and upon its substitution by the single preoccupation of getting in any way whatsoever one's daily bread. And thus bodily labor, which Divine Providence decreed to be performed, even after original sin, for the good at once of man's body and soul, is being everywhere changed into an instrument of perversion; for dead matter comes forth from the factory ennobled, while men there are corrupted and degraded.

    Thus it came to pass that many, much more than ever before, were solely concerned with increasing their wealth by any means whatsoever, and that in seeking their own selfish interests before everything else they had no conscience about committing even the gravest of crimes against others. Those first entering upon this broad way that leads to destruction[66] easily found numerous imitators of their iniquity by the example of their manifest success, by their insolent display of wealth, by their ridiculing the conscience of others, who, as they said, were troubled by silly scruples, or lastly by crushing more conscientious competitors

    For, according to Christian teaching, man, endowed with a social nature, is placed on this earth so that by leading a life in society and under an authority ordained of God he may fully cultivate and develop all his faculties unto the praise and glory of his Creator; and that by faithfully fulfilling the duties of his craft or other calling he may obtain for himself temporal and at the same time eternal happiness


    WORK AND THE FAMILY

    In the first place, the worker must be paid a wage sufficient to support him and his family. That the rest of the family should also contribute to the common support, according to the capacity of each, is certainly right, as can be observed especially in the families of farmers, but also in the families of many craftsmen and small shopkeepers

    Mothers, concentrating on household duties, should work primarily in the home or in its immediate vicinity. It is an intolerable abuse, and to be abolished at all cost, for mothers on account of the father's low wage to be forced to engage in gainful occupations outside the home to the neglect of their proper cares and duties, especially the training of children. Every effort must therefore be made that fathers of families receive a wage large enough to meet ordinary family needs adequately


    THE EMPLOYER/EMPLOYEE COVENANT

    Hence it follows that unless a man is expending labor on his own property, the labor of one person and the property of another must be associated, for neither can produce anything without the other

    We consider it more advisable, however, in the present condition of human society that, so far as is possible, the work-contract be somewhat modified by a partnership-contract, as is already being done in various ways and with no small advantage to workers and owners. Workers and other employees thus become sharers in ownership or management or participate in some fashion in the profits received

    In determining the amount of the wage, the condition of a business and of the one carrying it on must also be taken into account; for it would be unjust to demand excessive wages which a business cannot stand without its ruin and consequent calamity to the workers. If, however, a business makes too little money, because of lack of energy or lack of initiative or because of indifference to technical and economic progress, that must not be regarded a just reason for reducing the compensation of the workers.

    ...a feeling of close relationship and a Christian concord of minds ought to prevail and function effectively among employers and workers.

    ...the worker's human dignity in it (work) must be recognized. It therefore cannot be bought and sold like a commodity

    This opportunity depends largely on the wage and salary rate, which can help as long as it is kept within proper limits, but which on the other hand can be an obstacle if it exceeds these limits. For everyone knows that an excessive lowering of wages, or their increase beyond due measure, causes unemployment

    Hence it is contrary to social justice when, for the sake of personal gain and without regard for the common good, wages and salaries are excessively lowered or raised

    But it does violate right order when capital hires workers, that is, the non-owning working class, with a view to and under such terms that it directs business and even the whole economic system according to its own will and advantage, scorning the human dignity of the workers, the social character of economic activity and social justice itself, and the common good

    For the doctrine was preached that all accumulation of capital falls by an absolutely insuperable economic law to the rich, and that by the same law the workers are given over and bound to perpetual want, to the scantiest of livelihoods...these false ideas, these erroneous suppositions, have been vigorously assailed, and not by those alone who through them were being deprived of their innate right to obtain better conditions, will surprise no one


    AGAINST UNJUST COMPETITION

    But if the business in question is not making enough money to pay the workers an equitable wage because it is being crushed by unjust burdens or forced to sell its product at less than a just price, those who are thus the cause of the injury are guilty of grave wrong, for they deprive workers of their just wage and force them under the pinch of necessity to accept a wage less than fair


    THE GUILDS

    But complete cure will not come until this opposition has been abolished and well-ordered members of the social body--Industries and Professions--are constituted in which men may have their place, not according to the position each has in the labor market but according to the respective social functions which each performs

    To the founding of these associations the clergy and many of the laity devoted themselves everywhere with truly praiseworthy zeal, eager to bring Leo's program to full realization. Thus associations of this kind have molded truly Christian workers who, in combining harmoniously the diligent practice of their occupation with the salutary precepts of religion, protect effectively and resolutely their own temporal interests and rights, keeping a due respect for justice and a genuine desire to work together with other classes of society for the Christian renewal of all social life

    ...They (Catholic clergy and laity) encouraged Christian workers to found mutual associations according to their various occupations, taught them how to do so, and resolutely confirmed in the path of duty a goodly number of those whom socialist organizations strongly attracted by claiming to be the sole defenders and champions of the lowly and oppressed

    There were even some Catholics who looked askance at the efforts of workers to form associations of this type as if they smacked of a socialistic or revolutionary spirit

    This second method has especially been adopted where either the laws of a country, or certain special economic institutions, or that deplorable dissension of minds and hearts so widespread in contemporary society and an urgent necessity of combating with united purpose and strength the massed ranks of revolutionarists, have prevented Catholics from founding purely Catholic labor unions. Under these conditions, Catholics seem almost forced to join secular labor unions. These unions, however, should always profess justice and equity and give Catholic members full freedom to care for their own conscience and obey the laws of the Church. It is clearly the office of bishops, when they know that these associations are on account of circumstances necessary and are not dangerous to religion, to approve of Catholic workers joining them, keeping before their eyes, however, the principles and precautions laid down by Our Predecessor, Pius X of holy memory. Among these precautions the first and chief is this: Side by side with these unions there should always be associations zealously engaged in imbuing and forming their members in the teaching of religion and morality so that they in turn may be able to permeate the unions with that good spirit which should direct them in all their activity. As a result, the religious associations will bear good fruit even beyond the circle of their own membership

    To the Encyclical of Leo, therefore, must be given this credit, that these associations of workers have so flourished everywhere that while, alas, still surpassed in numbers by socialist and communist organizations, they already embrace a vast multitude of workers and are able, within the confines of each nation as well as in wider assemblies, to maintain vigorously the rights and legitimate demands of Catholic workers and insist also on the salutary Christian principles of society.

    For under nature's guidance it comes to pass that just as those who are joined together by nearness of habitation establish towns, so those who follow the same industry or profession--whether in the economic or other field--form guilds or associations, so that many are wont to consider these self-governing organizations, if not essential, at least natural to civil society

    For justice alone can, if faithfully observed, remove the causes of social conflict but can never bring about union of minds and hearts. Indeed all the institutions for the establishment of peace and the promotion of mutual help among men, however perfect these may seem, have the principal foundation of their stability in the mutual bond of minds and hearts whereby the members are united with one another

    Strikes and lock-outs are forbidden; if the parties cannot settle their dispute, public authority intervenes

    It is easily deduced from what has been said that the interests common to the whole Industry or Profession should hold first place in these guilds. The most important among these interests is to promote the cooperation in the highest degree of each industry and profession for the sake of the common good of the country


    THE IMPERATIVE OF THE STATE

    Just freedom of action must, of course, be left both to individual citizens and to families, yet only on condition that the common good be preserved and wrong to any individual be abolished. The function of the rulers of the State, moreover, is to watch over the community and its parts; but in protecting private individuals in their rights, chief consideration ought to be given to the weak and the poor

    The same feeling those many Catholics, both priests and laymen, shared, whom a truly wonderful charity had long spurred on to relieve the unmerited poverty of the non-owning workers, and who could in no way convince themselves that so enormous and unjust an in equality in the distribution of this world's goods truly conforms to the designs of the all-wise Creator

    Therefore, public authority, under the guiding light always of the natural and divine law, can determine more accurately upon consideration of the true requirements of the common good, what is permitted and what is not permitted to owners in the use of their property

    That the State is not permitted to discharge its duty arbitrarily is, however, clear. The natural right itself both of owning goods privately and of passing them on by inheritance ought always to remain intact and inviolate

    Wherefore the wise Pontiff declared that it is grossly unjust for a State to exhaust private wealth through the weight of imposts and taxes. "For since the right of possessing goods privately has been conferred not by man's law, but by nature, public authority cannot abolish it, but can only control its exercise and bring it into conformity with the common weal."[36] Yet when the State brings private ownership into harmony with the needs of the common good, it does not commit a hostile act against private owners but rather does them a friendly service; for it thereby effectively prevents the private possession of goods, which the Author of nature in His most wise providence ordained for the support of human life, from causing intolerable evils and thus rushing to its own destruction; it does not destroy private possessions, but safeguards them; and it does not weaken private property rights, but strengthens them

    The social policy of the State, therefore, must devote itself to the re-establishment of the Industries and Professions


    SUBSIDARITY

    When we speak of the reform of institutions, the State comes chiefly to mind, not as if universal well-being were to be expected from its activity, but because things have come to such a pass through the evil of what we have termed "individualism" that, following upon the overthrow and near extinction of that rich social life which was once highly developed through associations of various kinds, there remain virtually only individuals and the State. This is to the great harm of the State itself; for, with a structure of social governance lost, and with the taking over of all the burdens which the wrecked associations once bore. the State has been overwhelmed and crushed by almost infinite tasks and duties

    Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do

    The supreme authority of the State ought, therefore, to let subordinate groups handle matters and concerns of lesser importance, which would otherwise dissipate its efforts greatly. Thereby the State will more freely, powerfully, and effectively do all those things that belong to it alone because it alone can do them: directing, watching, urging, restraining, as occasion requires and necessity demands. Therefore, those in power should be sure that the more perfectly a graduated order is kept among the various associations, in observance of the principle of "subsidiary function," the stronger social authority and effectiveness will be the happier and more prosperous the condition of the State


    THE CATHOLIC DUTY AND THE CALL FOR A THIRD WAY

    We have outlined rather than fully described, are so numerous and of such import as to show plainly that this immortal document does not exhibit a merely fanciful, even if beautiful, ideal of human society. Rather did our Predecessor draw from the Gospel and, therefore, from an ever-living and life-giving fountain, teachings capable of greatly mitigating, if not immediately terminating that deadly internal struggle which is rending the family of mankind. The rich fruits which the Church of Christ and the whole human race have, by God's favor, reaped therefrom unto salvation prove that some of this good seed, so lavishly sown forty years ago, fell on good ground. On the basis of the long period of experience, it cannot be rash to say that Leo's Encyclical has proved itself the Magna Charta upon which all Christian activity in the social field ought to be based, as on a foundation. And those who would seem to hold in little esteem this Papal Encyclical and its commemoration either blaspheme what they know not, or understand nothing of what they are only superficially acquainted with, or if they do understand convict themselves formally of injustice and ingratitude

    Therefore, with all our strength and effort we must strive that at least in the future the abundant fruits of production will accrue equitably to those who are rich and will be distributed in ample sufficiency among the workers--not that these may become remiss in work, for man is born to labor as the bird to fly-- but that they may increase their property by thrift, that they may bear, by wise management of this increase in property, the burdens of family life with greater ease and security, and that, emerging from the insecure lot in life in whose uncertainties non-owning workers are cast, they may be able not only to endure the vicissitudes of earthly existence but have also assurance that when their lives are ended they will provide in some measure for those they leave after them

    Therefore, let all men of good will stand united, all who under the Shepherds of the Church wish to fight this good and peaceful battle of Christ; and under the leadership and teaching guidance of the Church let all strive according to the talent, powers, and position of each to contribute something to the Christian reconstruction of human society which Leo Xlll inaugurated through his immortal Encyclical, On the Condition of Workers, seeking not themselves and their own interests, but those of Jesus Christ,[81] not trying to press at all costs their own counsels, but ready to sacrifice them, however excellent, if the greater common good should seem to require it, so that in all and above all Christ may reign, Christ may command to Whom be "honor and glory and dominion forever and ever

    Venerable Brethren and Beloved Sons, let us not permit the children of this world to appear wiser in their generation than we who by the Divine Goodness are the children of the light

    Since the present system of economy is founded chiefly upon ownership and labor, the principles of right reason, that is, of Christian social philosophy, must be kept in mind regarding ownership and labor and their association together, and must be put into actual practice

    ...of that Church which in this field also that We have described, as in every other field where moral questions are involved and discussed, can never forget or neglect through indifference its divinely imposed mandate to be vigilant and to teach

    And may these free organizations, now flourishing and rejoicing in their salutary fruits, set before themselves the task of preparing the way, in conformity with the mind of Christian social teaching, for those larger and more important guilds, Industries and Professions, which We mentioned before, and make every possible effort to bring them to realization

    Expending larger incomes so that opportunity for gainful work may be abundant, provided, however, that this work is applied to producing really useful goods, ought to be considered, as We deduce from the principles of the Angelic Doctor

    To each, therefore, must be given his own share of goods, and the distribution of created goods, which, as every discerning person knows, is laboring today under the gravest evils due to the huge disparity between the few exceedingly rich and the unnumbered propertyless, must be effectively called back to and brought into conformity with the norms of the common good, that is, social justice

    And these goods ought indeed to be enough both to meet the demands of necessity and decent comfort and to advance people to that happier and fuller condition of life which, when it is wisely cared for, is not only no hindrance to virtue but helps it greatly

    Even today this is not, it is true, the only economic system in force everywhere; for there is another system also, which still embraces a huge mass of humanity, significant in numbers and importance, as for example, agriculture wherein the greater portion of mankind honorably and honestly procures its livelihood

    Still, in order that what he so happily initiated may be solidly established, that what remains to be done may be accomplished, and that even more copious and richer benefits may accrue to the family of mankind, two things are especially necessary: reform of institutions and correction of morals