Faith in the Free Market? Part 1

Should we have faith in the free market to deliver our common good?

This is perhaps the greatest economic debate of the past few centuries, and one of the more interesting things to talk about as an economist with non-economists, usually because they aren’t that interested in the nitty-gritty of economic discourse and instead prefer to dialogue about politics.

It is also interesting to me because there are Catholics on both sides of the fence: those who vehemently support the free market and those who vehemently attack it. I’ve already noted how CST approaches the battle between liberalism or capitalism and socialism or collectivism in this multipart series. The case they present both against and for the free market is compelling and good, but there are other ways to prove or disprove its effectiveness in achieving the good for society. This is my purpose for this multi-part series. I wish to explore the arguments used to justify or rebuke the free market and point then toward the conclusions I take from this exploration of which we can engage in a friendly debate.

Two great mistakes in this debate must be noted at the outset. The first is that many treat this as a black and white problem. Those who advocate for the free market tend to argue that any measure against it puts us on the road to serfdom, or on the road to soviet communism which clearly had disastrous consequences for humanity. Those who attack the free market are usually less black and white, but are also guilty of putting the blame on the free market as a whole. There is no gray area, there is no middle option, there are no alternatives to communism or capitalism. Pope Pius XI called these the twin rocks of shipwreck—extreme individualism and extreme collectivism. The great mistake here is failing to see alternatives to these twin wreckers of ships. Rejection of “the free market” does not necessarily mean support for total communism and vice versa. We must be able to envision degrees of free market-ness or collectivism and we must direct them always to our common good.

The other great mistake is (logically) prior to the first mistake. It is failing to recognize that there is no such thing as a truly free market. That is, no market system is completely free from government intervention. Free markets fundamentally require private property and enforceable contracts, which require an enforcer. Absent of government, ‘free’ markets are closer to black markets where the market actors provide their own governance, which is why, for example, illegal drug markets are particularly violent. Absent of government protection of property and contracts, they must enforce it themselves with power, weapons, and violence. So a truly free market system is closer to anarchy, and most free market proponents are well aware of this (some seem to forget it though). However, since the government is involved in protecting property and enforcing contracts they are necessarily involved with defining property and legality of contracts and so their ‘intervention’ into markets is more of a degree than of a kind. They DO intervene, the question is, how much? This lends itself well to the lesson learned from the first mistake—free market-ness is a degree, not a black and white situation.

The danger or trap that is so easy to fall into, is putting your faith in the free market, this institution that is supposed to bring about our overall good out of the self-interested actions of individuals. We put our faith and our trust in a direction-less institution that does not see persons and does not consider their good. If we are to rely on a higher degree of free market-ness to provide the common good, then we should do so with good reasoning, but we should not expect our selfish actions to result collectively in the common good. To me, nothing could be more anti-Christian. Christ’s teaching is all about the two commandments upon which all the rest sit: Love your God, who is love itself, and love your neighbor as you love yourself. Love is an authentic gift of self, not a devotion entirely to one’s self-interests.

(There are those who argue self-interest does not necessarily equal selfishness. This of itself requires a long response, but quickly, my reply is: why risk confusing the two? Those who do not properly understand the distinction will think it’s valid to act selfishly when you argue for self-interested action. And why put the emphasis on negative freedom? Authentic freedom does involve freedom from coercion, but must always be directed toward the good which might mean a restriction of complete negative freedom, or complete self-interested action. Christian defense of the free market should make no reference to self-interested action, but rather to Christian self-giving actions. In this case, it is quite reasonable for a Christian to argue that greater free market-ness will allow self-giving actions to collectively bring about the common good).

So the task set to us then, is to decide the appropriate degree of free market-ness for a good society, or from the Catholic Social Teaching perspective, for the common good, which necessarily includes justice, truth, and charity.

How much should the government intervene? In which situations should the government intervene more rather than less and less rather than more?

Economists of all persuasions have researched the impacts of policy on the economy and economic relationships and worked to develop models to support their case on these very questions. Some have started with the data to support their conclusions. Some have started with their conclusions and worked to find data to support them. Others have largely ignored data and have instead constructed great mathematical models based on certain assumptions about human behavior to support certain conclusions.

This last group has been the dominant group in Economics for over a century now and so most of this post addresses their arguments, but I will also present data to support certain conclusions as well. The importance of this is that many politicians and the public in general take the advice of economists on matters of ‘free market-ness’. So if you’re going to listen to us, then you should know exactly what we are saying, the strengths and weaknesses of our arguments and models, and what conclusions we can then draw from them.

Part 2 will take a closer look at the model most often used to defend the free market which also happens to be the model everyone learns in principles of economics courses.

Examining Caritas in Veritate, Part 2

In Chapter 1 of Caritas in Veritate, Pope Benedict XVI recalls the main points of Populorum Progressio and their significance. He points out that PP was written immediately after Vatican II and set out to convey two important truths: The Church is engaged in promoting integral human development through all of her proclamation, celebration, works of charity, and educational activities which includes a public role as long as she is able to operate in a climate of freedom. The second truth is that "authentic human development concerns the whole of the person in every single dimension." Pope Benedict goes on to make what I think is an extremely important point regarding this development:

Without the perspective of eternal life, human progress in this world is denied breathing-space. Enclosed within history, it runs the risk of being reduced to the mere accumulation of wealth; humanity thus loses the courage to be at the service of higher goods, at the service of the great and disinterested initiatives called forth by universal charity. Man does not develop through his own powers, nor can development simply be handed to him.

In reality, institutions by themselves are not enough, because integral human development is primarily a vocation, and therefore it involves a free assumption of responsibility in solidarity on the part of everyone. Moreover, such development requires a transcendent vision of the person, it needs God: without him, development is either denied, or entrusted exclusively to man, who falls into the trap of thinking he can bring about his own salvation, and ends up promoting a dehumanized form of development. Only through an encounter with God are we able to see in the other something more than just another creature, to recognize the divine image in the other, thus truly coming to discover him or her and to mature in a love that “becomes concern and care for the other.”

Despite PP's connection with Vatican II, it did not constitute a break from the teachings that came before PP. The Pope reminds us that the Church's magisterium is "a single teaching, consistent and at the same time ever new."

PP also warned of two opposing utopian ideologies: too much reliance on technology for development, and a complete denial of technology for development:

Idealizing technical progress, or contemplating the utopia of a return to humanity's original natural state, are two contrasting ways of detaching progress from its moral evaluation and hence from our responsibility.

Pope Benedict XVI also noted the strong link between PP and Humanae Vitae, another of Pope Paul VI's encyclicals:

Humanae Vitae indicates the strong links between life ethics and social ethics...The Church forcefully maintains this link between life ethics and social ethics, fully aware that “a society lacks solid foundations when, on the one hand, it asserts values such as the dignity of the person, justice and peace, but then, on the other hand, radically acts to the contrary by allowing or tolerating a variety of ways in which human life is devalued and violated, especially where it is weak or marginalized.”

Later, Pope Bendict XVI teaches us that progess, is first a foremost a vocation:

To regard development as a vocation is to recognize, on the one hand, that it derives from a transcendent call, and on the other hand that it is incapable, on its own, of supplying its ultimate meaning.

Because it is a vocation it requires "a free and responsible answer. Integral human development presupposes the responsible freedom of the individual and of peoples: no structure can guarantee this development over and above human responsibility."

This responsiblity over our own development reminds us that we are "the principal agents of [our] own success or failure."

As development is a vocation, or a responsibility on our part, it requires not only freedom, but truth:

Only when it is free can development be integrally human; only in a climate of responsible freedom can it grow in a satisfactory manner. Besides requiring freedom, integral human development as a vocation also demands respect for its truth. The vocation to progress drives us to “do more, know more and have more in order to be more."

True development also involves every man and the whole man, both natural and supernatural, with the Gospel as fundamental to that development.

And lastly, Pope Benedict XVI recalled the central place of charity within development, especially in aiding the areas of underdevelopment:

Finally, the vision of development as a vocation brings with it the central place of charity within that development. Paul VI, in his Encyclical Letter Populorum Progressio, pointed out that the causes of underdevelopment are not primarily of the material order. He invited us to search for them in other dimensions of the human person: first of all, in the will, which often neglects the duties of solidarity; secondly in thinking, which does not always give proper direction to the will.

Underdevelopment has an even more important cause than lack of deep thought: it is “the lack of brotherhood among individuals and peoples.”

Chapter one thus ends with a reminder of the urgent need for reform "and in the face of great problems of injustice in the development of peoples, it calls for courageous action to be taken without delay."

Veterans Day

Today is Veterans Day, a day in which we honor and express our sincere gratitude for those who fought and those who continue to fight for our freedom and the freedom of others. We especially remember those who died in the field of battle.

The courage our Veterans displayed in battle serves as a great example for us who do not engage in combat, but who fight for the rights and freedom of those who have none in our own society. The unborn and elderly, the homeless and jobless members of our society who need us to fight for their right to life, liberty, and justice that for some reason or another are not being given to them. We must take the example of our Veterans and have the courage to vote for those who protect these rights, convert those who take them away, and always and everywhere promote their freedom through our example of faith, hope, and love. If we do not take care of the least of our own no one will be influenced to do the same.

Our battle should be one of pleading and defending, loving and serving, not attacking and dividing. Just as the defenseless need our love and protection, so too, do those who attack them need it.

We should do as Jesus taught us in Luke 6:27-36 and Matthew 25:31-46.

It is a great travesty to take away the rights of our own, when so many great men and women of courage fought and continue fighting for that very freedom we take away. Great abundance of material goods and comfort of living should not be our primary goal. Loving and serving each other should alawys come first.

Thank you to all the men and women who fought and fight for us in battle and especially those who died. May God bless you for your sacrifice and service!