Morality and the Economy

THERE HAS BEEN A MODERN TENDENCY to put a rift between economics and morality. This was not always the case, as moral sentiments had traditionally been seen as a foundational part of the economic science and an increase in the wealth of nations. Economics was viewed as a moral science.

Beginning with the 19th century, starting with such thinkers as David Ricardo (1772-1823) and John Stuart Mill (1806-1873) and in earnest in William Stanley Jevons (1835-1882)and Alfred Marshall (1842-1924), however, the science of economics was progressively divided from morality and came to be viewed as a stand-alone natural or physical science that was empirically based, so as to be something akin to physics or chemistry with their natural laws which have no regard for morality. There is no right or wrong in the laws of thermodynamics. Nor was there right or wrong in the laws of economics. The market was governed by rational self-interest, and not morals. Political economy became economics. Some have called this process the "scientification" of economics.*

In her social doctrine, the Church insists that this separation of economics and morals is wrong and unwise. She insists on the classical and traditional link between morals and economics not be forgotten. "The Church's social doctrine insists on the moral connotations of the economy." (Compendium, No. 330). While the Church recognizes that economics has "its own principles in its own sphere" which is separate from moral science, she also insists that it is "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." (Compendium, No. 330) (quoting Pius XI, Quadragesimo Anno, 23). "The necessary distinction between morality and the economy does not entail the separation of these two spheres, but, on the contrary, an important reciprocity." (Compendium, No. 331)

As the Compendium puts it: "Just as in the area of morality one must take the reasons and requirements of economy into account, so too in the area of the economy one must be open to the demands of morality." (Compendium, No. 331) Economics must obtain values elsewhere than from economics. "[T]he purpose of the economy is not found in the economy itself, but rather in its being destined to humanity and society" since "man is the source, the center, and the purpose of all economic and social life." (Compendium, No. 331) (quoting Vatican II, Gaudium et spes, 63)

The Church insists that there is something greater than economics. A "meta-economic order" exists. Man does not live by bread alone. (Matt. 4:4, Luke 4:4) This seems to be just plain common sense. It is remarkable how this common sense eludes so many modernly.

"The relation between morality an economics is necessary, indeed intrinsic," continues the Compendium of the Social Doctrine of the Church, "economic activity and moral behavior are intimately joined one to the other." (Compendium, No. 331)

The fact that morality and the economy are intertwined does not mean that economic efficiency is not important. "The moral dimension of the economy shows that economy efficiency and the promotion of human development in solidarity are not two separate or alternative aims but one indivisible goal." (Compendium, No. 332). The term "economic efficiency" means a situation where it is impossible to increase general welfare from the available resources. In other words, any effort to make others better off will make others worse-off to the extent that the gains of one are offset by the losses of the other.

In fact, the Church recognizes that there is a moral duty to assuring "economic efficiency," as the "production of goods is a duty to be undertaken in an efficient manner, otherwise resources are wasted." The words "economic efficiency" quite clearly are a reference to the market economy or free economy. And yet "economic efficiency" has its limits. Economic efficiency cannot be sought in an immoral manner, "at the expense of human beings, entire populations or social groups, condemning them to indigence." (Compendium, No. 332) There is a moral limit to the cost/benefit analysis beyond which efficiency must not go.

So the Church gives its guarded approval of a market economy or free economy and even "capitalism" properly understood. Capitalism is a vague term, and so before approving of "capitalism," the Church defines what it understands as "capitalism."** "In the perspective of an integral and solidary development, it is possible to arrive at a proper appreciation of the moral evaluation that the Church's social doctrine offers in regard to the market economy or, more simply, of the free economy." "If by 'capitalism' is meant an economic system which recognizes the fundamental and positive role of business, the market, private property, and the resulting responsibility for the means of production, as well as free human creativity in the economic sector," then Church approves of capitalism. This form of capitalism the Church calls a "business economy," a "market economy," or simply a "free economy." (Compendium, No. 335)

While the Church does not begrudge self-interest insofar as it promotes the common good and is undertaken with justice and solidarity in mind, it does seek to distinguish that act from selfishness which seeks private benefit unjustly or in disregard of others. "The growth of wealth, seen in the availability of goods and services, and the moral demands of an equitable distribution of these must inspire man and society as a whole to practice the essential virtue of solidarity, in order to combat, in a spirit of justice and charity, those 'structures of sin' wherever they may be found and which generate and perpetuate poverty, underdevelopment, and degradation." (Compendium, No. 333) Simply put, we may not get rich at another person's expense.

"The economy has as its object the development of wealth and its progressive increase," and so the Church is not adverse--rather she encourages--economic activity. However, she rightly points out that wealth and its increase is something that is measured "not only in quantity, but also in quality." Wealth and progress are not reducible to "a mere process of accumulating goods and services." To be rich and vicious is not qualitatively wealthier or more conducive to happiness than to be poor and virtuous. There is wealth measurable in the specie of virtue.

To suggest that the measure of wealth is quantitative only, and not qualitative also, is an error, in fact is a "treachery" that can enslave us. It leads to a "civilization of consumption" or a "civilization of consumerism." We thus become "slaves of possession" and "slaves of immediate gratification." (Compendium, No. 334) (quoting John Paul II, Sollicitudo rei socialis, 28) This is a life of vice, not virtue. It is a life of fools, as we should remember that possessions and gratification of the world's goods does not protect us from the fact that there will be one night where our soul shall be required of us. (Cf. Luke 12:20)

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*A short synopsis may be found in James E. Alvey, "A Short History of Economics as a Moral Science," Journal of Markets & Morality 2, no. 1 (Spring 1999), 53-73.
**The Church does not approve of capitalism if it is understood to be "a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious." (Compendium, No. 335)

The Relationship Between Labor and Capital: Priority and Complementarity

BETWEEN A MAN AND A MACHINE or between a man and a wad of money which is to be given preeminence? Looked in that manner, it seems incontestable that man is more important that either a machine or money. Neither machine nor money has the dignity of the human person, and neither machine nor money enters the kingdom of God. The question then presents itself. What is superior, man's work, which is an integral part of him and shares in the life of his spirit, or a machine, a stock certificate, or dollar bill, which is dumb, deaf, and mute matter?

To all but the most hardened materialist or hardened ideologue, the answer is obvious. Since human work has a subjective or personal character, it is intimately tied to the human person. For this reason, the Church's social doctrine insists that work is "superior to every other factor connected with productivity." Labor--that is to say human work--has therefore an "intrinsic priority over capital." (Compendium, No. 276, 277)

While there is a priority of labor over capital, that does not mean that these two are enemies and that capital is an evil. Quite the contrary, capital is a great good, for without it work cannot be done. Capital and labor complement each other, and in fact need each other. They are not in opposition to each other, as the Marxist might want to paint them. Though it is true that they are often in an antagonistic relationship, this need not be the case, and is the result of imbalance or reversal of means and ends.

As Pope Leo XIII stated: "Capital cannot stand without labor, nor labor without capital." (Rerum novarum, 11) Or, as Pope Pius XI stated forty years later in the encyclical Quadragesimo Anno: "It is altogether false to ascribe either to capital alone or to labor alone what is achieved by the joint work of both; and it is utterly unjust that one should arrogate unto itself what is being done, denying the effectiveness of the other." (Cf. Compendium, No. 277)

"United we stand. Divided we fall."

It is this blending of the principles of the priority of human work over capital and the principle of the complementarity of labor and capital which is the heart of the recipe of the social doctrine of the Church as it pertains to the relationship between labor and capital.

Put succinctly, work is an end; capital is a means. It is a general moral principle that as long as the means are licit, the end takes precedence over the means. Are the brush and paint more important than the painter's painting? Are the quill and ink more important that the poet's writing of poetry? Is G. M. Hopkins' pen superior to G. M. Hopkins? Clearly, not.

Looked at another way, from an Aristotelian causal analysis typical of Thomistic philosophy, labor or work is the "primary efficient cause," of production and of wealth, and capital is "a mere instrument or instrumental cause." (Compendium, No. 277) This gives an evident priority to human work, just like the painter takes priority over the paintbrush, and the poet takes priority over the pen. Cézanne's painting takes priority over Cézanne's paintbrush.

When the means (capital) is regarded more important than the end (the working human), or when the instrumental cause (capital) is held in more regard than the efficient cause (the working human), we have what is called the "alienation of labor."* (Compendium, No. 280) The alienation of labor comes about when the relative priority of labor and capital becomes reversed. It is at this point--when capital is prioritized over labor--that we start entering into the possibility of slavery. After all, slavery is nothing else than the complete absorption of human labor into capital.

Such subordination of labor to capital is obviously manifested in numerous social ills: child labor, concealed work, non-work,** underpaid work, exploitation of workers. But it is also manifested more insidiously and less noticeably, perhaps even sometimes self-imposed because of social pressure, in other ways: over-working, work-as-a-career that takes an overweening importance to other human aspects, excessive demands upon work that render family life difficult or impossible, and so forth. (Compendium, No. 280) Therefore alienation of labor occurs both quantitatively and qualitatively. And sometimes the alienation of labor can be very subtle.

Capital is a vague, amorphous term. But essentially, as used by the Church in its social doctrine, it includes the "whole collection of means of production" other than labor. Capital therefore includes the material means of production (physical assets) and the financial resources available for investment in such assets, but it also includes such matters as land, technology, science, or even institutions such as markets. It is everything that is not man working.

While labor enjoys a certain priority, the Church also recognizes that capital and labor are complementary: that one cannot exist without the other. (Compendium, No. 277) Unfortunately, experience has shown that there is a certain antagonism between the two, particularly during times of economic, social, or technological change.

Perhaps the most well-known antagonism between labor and capital is the classical, historical one, one where "the workers put their powers at the disposal of the entrepreneurs, and these, following the principal of maximum profit [and treating the employees as means, not ends, which is to say instruments or things], tried to establish the lowest possible wages for the work done by the employees," using ways that were not respectful of the dignity of the worker. Often, of the two sides of the equation, one was skewed with the bias of unequal bargaining power, and the contract was dangerously close to being one of adhesion. The relationship was dangerously close to a de facto slavery.

To some extent, the Church recognizes that this traditional antagonism has been ameliorated, though it certainly has not disappeared. It often raises its ugly head in sweatshops across the world. But she sees another antagonism arising, one that seems to focus not so much on wage, but on production. The "scientific and technological advances," which the Church recognizes as "a source of development and progress," often come with a price tag that is appended upon human workers. These scientific and technological advances "expose workers to the risk of being exploited by the mechanisms of the economy and the unrestrained quest for productivity."

Again, the danger is that man is viewed as a cog in a machine, as a thing.

That labor and capital need not be antagonistic adversaries is proved by those instances where workers themselves participate in the ownership, management, and profits of a business enterprise.*** And, of course, in small enterprises it is often the case that the owner provides both capital and labor. By structuring enterprises in appropriate ways, the worker is considered to be a part-owner of the business as a result of his work to the venture. We ought to consider business models other than those imposed upon us by historical fortuitousness as a result of their having been fashioned during the Industrial Revolution.

There is no social or economic necessity that requires that shareholders and owners, management, and labor be carved up into discrete uncommunicative categories. It would be healthy, the Church suggests, to think outside the box. We ought to consider other organizational structures which emphasize that labor, "because of its subjective character," might be remunerated by something other than just wage-for-work, but may be remunerated, at least in part, by "right to participate" in the venture itself in exchange for work. There are, of course, myriad ways in which this might be done, none of which are specifically mandated by the Church's social doctrine.

The priority of labor over capital must be understood within the Church's understanding of private property. As we have examined in other postings,† the right to private property is certain and assured in Catholic social doctrine. This, of course, would also include the means of production. These may be privately owned.

Yet the right to private property must be understood as being subject to a sort of "social mortgage," so that private property is subordinated to the principal of the universal destination of goods and to the common good. "Property, which is acquired in the first place through work, must be placed at the service of work." (Compendium, No. 282)

It would be an abuse of one's ownership of property to use it in a manner that would frustrate the work or development of others. For example, suppose you owned a strip of land which gave a farmer access to his crops. Wouldn't it be wrong to use your ownership to shut him out of access to his land and his crops? Or to use it in a manner that would exact from him an unjust toll?

This principle of the universal destination of goods is extended to include the means of production. For this reason, the "means of production 'cannot be possessed against labor, they cannot even be possessed for possession's sake.'" (Compendium, No. 282) (quoting John Paul II, Laborem exercens, 14)

There is something wrong to own the means of production and not to use it to the advantage of all or to use it in a manner that frustrates or impedes the work of others. It is particularly offensive when the means of production are not used or are used to impede the work of others "in an effort to gain a profit which is not the result of the overall expansion of work and the wealth of society, but rather is the result of curbing them or of illicit exploitation, speculation, or the breaking of solidarity among working people.'" (Compendium, No. 282) (quoting John Paul II, Centesimus annus, 43)

Private property, the means of production, public property, technology, knowledge, and "the various mechanisms of the economic system, must be oriented to an economy of service to mankind, so that they contribute to putting into effect the principle of the universal destination of goods." (Compendium, No. 283) This is a universal principle, and so these resources must not "remain concentrated in the wealthier countries or in the hands of a small number of powerful groups," impeding the development of developing or underdeveloped areas of the world.

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*It goes without saying that the Church, in using the phrase "alienation of labor," is not invoking any Marxist doctrine, but is using it to describe a phenomenon of estrangement or alienation between human labor and capital caused by the disordering or confusion of ends and means or of efficient and instrumental causality. Essentially, alienation occurs when material goods are held in greater esteem than man and his work which have spiritual, subjective realities. The Church understands the term "labor" quite broadly to encompass any form of human contribution to production. Therefore, she warns: "One must not fall into the error of thinking that the process of overcoming the dependence of work on material is capable of overcoming alienation in the workplace or alienation of labor. The reference here is not only to the many pockets of non-work, concealed work, child labor, underpaid work, exploitation of workers--all of which still persist today--but also to new, much more subtle forms of exploitation of new sources of work, to over-working, to work-as-a-career that often takes on more importance than other human an necessary aspects, to excessive demands of work that makes family life unstable and sometimes impossible, to a modular structure of work that entails the risk of serious repercussions on the unitary perception of one's existence and the stability of family relationships. (Compendium, No. 280) .
**Meaning chronic, systemic unemployment.
***There are a number of employee-owned businesses, where, for example, more than 50% of the stock ownership is held in an employee stock ownership plan (ESOP). For a list of the top 100 of such companies in the United States, see the National Center for Employee Ownership's article: The Employee Ownership 100: America's Largest Majority Employee-Owned Companies. Of course, this sort of set-up is not necessarily recommended by the Church. Indeed, the Church does not "necessarily" demand anything in this area, since here we are dealing with prudential, contingent matters, with the application of doctrine, not with the doctrine itself. She leaves the implementation to the ingenuity of individuals. In fact, one could see how the governing body of the ESOP could set itself up as a rival to the individual stock owner, so that the employee ownership becomes one of form and not substance.
†See Property is Yours, Mine, and Ours.