Where's the Recovery?

Posted At : September 2, 2010 8:52 AM | Posted By : name
Related Categories: Economics Errors,Current Events

The other day, I was watching the news on television and the news anchor was interviewing an economist who was defending the government stimulus. The conversation was occasioned by the continued bad economic reports we have so learned to expect. The economist was telling the anchor that the stimulus was the right way to go, and then made the following statement with positive excitement: “There is so much liquidity in the system [this means so much cash put in by Federal deficit spending and the printing of money by the Federal Reserve Bank] that the economy should be really chugging along!” But the conversation was about the fact that the economy was clearly not “chugging along.” It should be noted, if I did not make it quite clear, that the economist said this in a positive vein. He definitely was NOT saying that the economy was not chugging along and I cannot figure out why it is not. He was saying that his paradigm says that we have done what we should have done, and any second it will be chugging along.

Let us take a silly yet analogous story. Say that you were told that to lose weight to need to eat five of the big Hershey chocolate bars every day. After getting off the scale where you see that you gained ten pounds this week, you say, positively, “I ate so much candy this week that I should be losing a ton!” Your paradigm predicted a weight loss and, since you followed the plan, any second you should see a significant weight loss.

In both of these scenarios we see a defection from reality. Everyone knows that to lose weight, one needs to eat less candy, not more. But you accepted a cockamamie theory, and then used the theory to color your perception of reality. It is the same with this economist. He accepted the Keynesian paradigm of government involvement in the economy, which says that in times of economic downturn, it is the job of various government agencies to “stimulate” the economy by injections of money, and that will bring the country out of the recession. The economist does not believe the actual data, like you do not really believe the scale, because the theory “predicts” an economic upturn or a weight loss. This is blindness.

It’s not like there is no historical precedent for this. For all that Franklin Roosevelt is touted as the savior of the country from the great depression, he did no such thing. Actual recovery did not come until after World War II. And it came on its own.

Let us examine why pumping money into the economy does not cause it to recover. First of all we have to realize that all macroeconomic theory has to have a microeconomic foundation or it’s just fantasy. One major fault of Keynes is exactly that: he has no microeconomic foundation for his theory. He treats the macroeconomy as if it is a machine. If you press the gas pedal, it pumps more gas and air into the engine, raises the RPM, and the result is an increase in speed. This is like the little kid’s version of economics. We need to ask how the influx of mere cash into the economy will affect the behavior of actual persons.

An increase in actual economic activity begins with savings being available for the purchase of capital goods, which are used to make consumer goods in the long run. Even if there are savings, those saving must be willing to risk their savings investing in projects which over time will result in more consumer goods. All the plans of the entrepreneur for the production of consumer goods come to naught without the savings needed to purchase capital goods. Savings are an indication of savers’ time preferences. All men have a desire for things now, not later. To persuade persons to save, that is, to put off acquiring consumer goods now, their time preference must become lower. In order for a person to lower their time preference, they must be compensated in the future for goods not purchased now. That compensation is called interest or profit. The lower the time preference, that is, the longer that person is going to go without the availability of his money, the higher the interest rate is going to be; that is, the more compensation a person will demand. In economically uncertain times, additional interest that will be demanded is called a “risk premium.” Now the interest paid to the saver becomes the “cost of capital” to the producer. The producer needs to predict that he will make enough money from selling his final product to pay the interest to all those who saved to help him produce the product. The higher the interest rate, the higher the cost of capital; the higher the cost of capital, the higher the cost to bring the product to market. But in an economic downturn, people are not able or willing to pay more for things, but actually look for cheaper things. The result is that the entrepreneur is reluctant to borrow money for his project because he might not be able to sell it.

So the Keynesian-Obama solution is to pump money into the economy from deficit spending and/or money created out of nothing by the Federal Reserve Bank. The theory goes that an increase in liquidity will lower interest rates and make borrowing cheaper, so that business will be more likely to borrow and invest in capital goods, thus picking up production and employing workers again. Problem number one with this theory is that the lower the interest rate, the less people are likely to save, because their return is not worth the lower time preference. Secondly, the Keynesian-Obamaites do not understand that people learn from previous events. The most recent one is the housing boom, which started this economic downturn in the first place. The Federal Reserve, to stimulate interest-sensitive industries like the housing market, pumped money into the economy, forcing interest rates to an artificial low. Many people, who before could not afford to buy a house because the higher interest rates made housing too expensive and increased the requirements for borrowing, now wanted to purchase housing. Seeing this increased demand, the building industry, which wanted to take advantage of the boom, began investing in house-building. Now while the increase of houses for sale would lower the price for borrowers, this artificial boom put strain on all the things needed to build houses. So now wood, plumbing supplies, shingles, construction equipment, and workers are relatively scarce as compared to the previous housing market, which makes the prices and wages go up, which also means that the houses built later on in the boom are no longer cheap. The result is that people who thought they could afford a house due to the artificially low interest rates now cannot afford them because of the price. Builders are now stuck with houses they cannot sell, and now declare bankruptcy.

In addition to this government-caused disaster, the Federal government passed the Community Reinvestment Act, which pressured banks to give housing loans to those who were hardly credit-worthy (in English, this means to those who probably could not afford to pay back the money). Banks, with the help of government corporations like Fannie Mae and Freddie Mac, lost tons of money because of defaults.

So President Obama and his cronies came up with bailouts. And what did the banks do with the money given them by the Federal government? They covered the losses in their balance sheets caused by the widespread defaults, instead of what Obama thought they would do—lend the money out again. “Fool me once, your fault; fool me twice, my fault.” To make matters worse, the Democratic administration has created a period of great uncertainty with the great deficits, threats of soaking the rich (that is, soaking the movers and shakers of the economy), and the massive health care “reform.” So nothing in the economy is moving. Entrepreneurs are afraid to begin projects, savers are unwilling to lend, and people are unwilling to borrow for or buy even a cheap house. In Detroit (that gem of liberal politician successes), there are houses that go for a few thousand dollars—and no one will buy them.

In short, that is why there is no recovery, and Vice-President Biden’s Summer of Recovery tour is a big joke covered with lies about how things are coming back. Bwahahahah! So, to the economist on television the other day, I say, your paradigm is dead wrong, and I knew even as an undergraduate in the 1960s that things like this do not and will never work. Where have you been?

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Further Theological Reflections on the Nature of Government

Posted At : April 30, 2010 8:30 PM | Posted By : name
Related Categories: Observations

In the last article, I attempted to raise the thinking of the reader to the true nature of government as it really exists, using the Scriptures. I would like to continue that meditation now.

There is a substantial difference in how St. Thomas and St. Augustine see government. St. Thomas is a metaphysician. And metaphysics looks “beyond the physical” to the nature of something as created by God. In essence, the nature of government is good, because some authority is necessary to organize the society, and that is put in us by God, who does not create evil. In the Garden of Eden, we would have some government, but there would be no coercion, because the ruler(s) would always be just, and all people would see the reasonableness of what they ask. Catholics, who have been educated in the thought of St. Thomas for quite some time, accept this at face value, and this, I suspect, has colored the view of Catholics, and even some official Church documents, in the direction of a kind of worship of government. (One might want to see my previous article on cosmos and taxis, and well as those on government and the economy.)

Now, St. Thomas was not some naïve college student. His fifth type of law is called “fomes,” the Latin word for tinder wood. Tinder wood is very dry wood that burns very hot and very fast. The fomes means the tendency that human beings have to let their passions and emotions get control over their reason. If one does this, one winds up with a big, out-of-control, fire (see my article “What a Character”).

Now, let us contrast this approach with that of St. Augustine, a main theological source for the thinking of Pope Benedict XVI. St. Augustine posits the existence to two cities: the City of God and the City of Man, or the earthly city. The citizens of these two cities are distinguished by the objects of their love: the citizens of the City of God love God even to the contempt of selves, and the citizens of the City of Man love themselves even to the contempt of God. But, as in the parable of wheat and the tares (Mt 13: 24-30), God allows them both to grow up together, meaning that this world is inhabited by both, and the citizens of the earthly city outnumber the citizens of the City of God.

For Augustine, the citizens of the earthly city are attracted to the power and wealth of rulership, and, indeed, usually end up as the ruling authorities. Which means, in real life, government has no interest in the common good or virtuous rule. Augustine feels that the only reason government exists is to protect the citizens of the City of God from the citizens of the City of Man. But wait, you may say, why would the earthly citizens who rule protect the Godly citizens? Simple: they do not want to be overthrown. Irritate the Godly citizens enough and they will get rid of the current rulers and get someone who can do the job. Other than that, government is seen by Augustine as a punishment for sin, just as death is. In fact, if you heard the expression, “Nothing is inevitable except death and taxes,” it, or at least the concept, probably came from St. Augustine.

St. Augustine does believe that individual governments can be good. Firstly, occasionally a good person gets into rulership and for a while there is some respite from government stupidity. Unfortunately, these good rulers get killed, die of natural causes, or get exiled. Cicero comes to mind. He was a great thinker, and was called on to rule a consul of Rome twice. He was a very good ruler, and exposed a number of scandals. He ended up being killed by the Emperor and his head and his hand were nailed to the podium of the Senate. Secondly, governments can listen to the Church, and as Bishop of Hippo, he did not hesitate to tell magistrates what they should do. But I would not hold my breath waiting for that; do these names of “Catholic” legislators like Nancy Pelosi and John Kerry and “Catholic” bureaucrats like Kathleen Sebelius mean anything to you? Do they listen to the Church? How about Representative Patrick Kennedy? Did he listen to his bishop, even when his official restraint from receiving Communion became public, or even after the letter from his bishop became public?

So, if St. Thomas and St. Augustine were speaking together about government, after St. Thomas said the government was in essence good, St. Augustine would probably reply: “So what?” He would point out that we do not live in a world of essences, but in a world tainted by men with original sin (the fomes). In real life, government is nothing but a great robbery, a racket. He spends many pages in The City of God showing the atrocities of Rome, which was a great empire founded on a parricide, and never stopped. He quotes a pirate (arrgh!) who was captured by Alexander the Great, who told that emperor that he had a lot of nerve calling him a thief because he stole a few ships, but for stealing whole countries, Alexander is called “emperor.”

Sadly, this well-founded distrust of government does not show up often in the thinking of Catholic churchman, and even the current pontiff (see my article, “Where is Pope Benedict Coming From?”), with the exception of Centesimus Annus of John Paul II. Catholics who merely parrot what they hear and read, without looking at the actual situations, and taking advantage of the findings of such sciences as political science and economics, are doing a disservice to their fellow man, their fellow Catholics, and their country.

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Recent Radio Appearance

Posted At : March 5, 2010 9:12 AM | Posted By : name
Related Categories: Audio

Here is an MP3 file of my recent appearance (2/22/10) on the Religion, Politics, and the Culture radio program.

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Theological Reflections on Government

Posted At : February 22, 2010 8:47 AM | Posted By : name
Related Categories: Observations

On these pages, yours truly has discussed some of the problems of government from the economist’s point of view. Now I would like to tackle the problem of government from a theological point of view, keeping in mind that, to my knowledge, nothing has been written on this subject in the way I am discussing it.

In St. Matthew’s Gospel (Mt 4: 1-11), after the baptism by John, “Jesus was led by the Spirit into the wilderness to be tempted by the devil” (Mt 4: 1). There, in the midst of loneliness and extreme hunger, He was confronted by Satan. Jesus then experienced three temptations, and in homilies we have heard the priest explain them to us and their basic meaning. The first temptation was that Satan wanted Jesus to prove that He was the Son of God by turning stones into bread: “If you are the Son of God, command these stones to become loaves of bread.” The ordinary explanation is that Jesus was hungry, but He was fasting. The devil wanted Him to break His fast of forty days and nights in a prideful way to demonstrate His divinity. Jesus, of course, refuses.

Then Satan takes Him up to the pinnacle of the Temple, saying: “If you are the Son of God, throw yourself down; for it is written, ‘He will give his angels charge of you,’ and ‘On their hands they will bear you up, lest you strike your foot against a stone’” (Mt 4: 5-6). Jesus responds that one must not temp the Lord your God. This temptation is usually explained as a temptation toward pride in Jesus by Him showing that He had almighty power.

Lastly, the devil took Jesus took Jesus to the top of very high mountains and “showed him all the kingdoms of the world and the glory of them . . . ” (Mt 4: 8). And the devil said to him: “All these I will give you, if you will fall down and worship me” (Mt 4: 9, my emphasis). Jesus responded, “Begone, Satan! For it is written, ‘You shall worship the Lord your God and him only shall your serve’” (Mt 4: 10). This last one is an overtly blatant temptation to power by having Jesus sell His soul. It is not for nothing that we sometimes say, usually only in a metaphorical sense, that someone sold their soul for some benefit. This means that they “sold out.” They traded their principles for some material or political benefit. The recent “Louisiana Purchase” might be an example of this phenomenon.

Now let us take a deeper look at these temptations. To see these temptations in a purely individualistic manner is to miss part of the boat. The first temptation, the one to turn stones into bread, actually came up again in the feeding of the five thousand people in the desert. Here, “[w]hen the people saw the sign which he had done, they said, ‘This is indeed the prophet who is to come into the world!’ Perceiving then that they were about to come and take him by force to make him king, Jesus withdrew again to the hills by himself” (Jn 6: 14-15). Jesus “ratted out” their true motives when the people He had fed found Him on the other side of the Sea of Galilee. He told them, “Truly, truly, I say to you, you seek me, not because you saw signs, but because you ate your fill of the loaves” (Jn 6: 25-26). This reveals that the first temptation was a temptation to become a “bread king,” that is, one who will give the people food without them working to provide it. The parallels with socialism are obvious here. The difference is that the socialist leader cannot just create bread, but has to take it from those who produce more bread. This king then gets the support of the masses against the wise, disciplined, moral and productive people, who are in the minority. Meanwhile, this action provides a disincentive to the productive minority who feel that since the fruits of their labor are taken from them and given to the non-productive majority, they might as well get on the bandwagon and stop working as well. This puts the nation in a decline.

The next temptation, where Jesus was supposed to throw Himself off of the pinnacle of the Temple, is not only a temptation to show His divinity by signs and wonders, but to get a following this way. In other words, Satan would not care if Jesus had political followers who were “ooh’d and ah’d” by signs, even if these signs did not feed them as in the first temptation, if only this would deflect His message, which transcended earthly things. If Jesus submitted to this temptation, people would follow Him waiting for the next “trick” but would not listen to a word he said. If you go to a circus, do you remember what the ringmaster said, or do you remember the acrobats, etc.?

This second temptation also came up again in the case of Simon the Magician (Acts: 8: 9-24). People were amazed by the magic of Simon. I doubt that his magic was the “pull the rabbit out of a hat” kind, but was of a preternatural type, done with the aid of evil spirits. Simon heard the Apostles preaching and, like so many others, came to believe in Jesus Christ, and was baptized. Later on, when he saw how the Holy Spirit came down visibly upon the people the Apostles laid hands on, he was impressed. He offered the Apostles money in exchange for this power, “saying, ‘Give me this power, that anyone on whom I lay my hands may receive the Holy Spirit” (Acts 8: 19). St. Peter was not pleased, to say the least: “Your silver perish with you, because you thought you could obtain the gift of God with money” (Acts 8: 20). Peter upbraids him, and it is clear why: Simon, the magician, wanted this power, like all of his other powers—for show. Because he already had a great reputation for this magic, this power would make him more famous. In the end, Simon repented by asking St. Peter to pray for him that all of the things that St. Peter predicted about him would not come to pass (Acts 8: 22-24).

But it is the last of the temptations which is important for this discussion. In this one, the devil says to Our Lord: “All these [kingdoms] I will give you, if you fall down and worship me.” St. Luke’s Gospel is even more emphatic: “To you I will give all this authority and their glory; for it has been delivered to me, and I give it to whom I will” (Lk 4: 6). First of all, if God actually worshiped anyone, He and everything would go out of existence. God cannot do evil; it is against His very nature. Even worse, worshipping Satan was the devil’s desire all along. St. Michael’s name means “Who is like God?” The answer is only God is like God. Satan in his pride wanted to be like God, and his fallen nature is forever stuck, frozen in this desire, which he relentlessly pursues through the ages.

But, what did the devil mean by “All these will I give you”? And, “[A]ll this authority and their glory; for it has been delivered to me, and I give it to whom I will.” One cannot give away what one does not own. I cannot say legitimately, “I will give you Bob’s pen.” Only Bob can give you his pen. If, on the basis of what I said, you expected to get Bob’s pen, you would be sadly disappointed when Bob says: “No, chance; you can’t have my pen.” Satan is saying that he possesses all the kingdoms of the earth! Now there are two caveats here. First, Satan is a liar, but he tells half-truths. He doesn’t tell whoppers because people would see through them (see, for example, Gen 3: 1-7). Half-truths make the lies more believable to rational but weak creatures so that they will fall for them. Now, since the other kingdoms of the earth were composed of rulers and their cronies who not only worshipped false gods, whom the Fathers of the Church considered demons, and also did whatever they could get away with, so that they were an easy prey to Satan’s influence, there is a great truth to his claim that he did own these kingdoms.

But does this apply to today? Are all those people who put their faith in governments and their policies missing something? St. Thomas argued that government was good. God Himself gave us a natural need for some to organize the society. We call that government, and since God created that need, in itself, government is good. But St. Thomas is approaching it as a metaphysician. A metaphysician looks at the nature of something. The nature of all things is good, because all things are made by God. Evil does not have a nature; evil is bereft of something it should have, which is why it is an evil. Also, St. Thomas, in his naming the five types of law (eternal, natural, Divine positive, human positive), includes “fomes” as the fifth type of law. This word in Latin means tinder wood, and what does tinder wood do? It flares up very hot and very quickly when lit. The fomes is a reminder that every human being (with two notable exceptions) has a tendency, due to their fallen nature, to allow their passions to flare up, overcoming their reason. It is a major error, and a foolish one to boot, to think that once someone gets into public office, the fomes goes away. The good nature of government aside, it is populated by imperfect people, many, many of whom do not have the grace, never had the grace, or have rejected the grace, to do what is for the common good, but, on the margin, do what is good for themselves. (See my blog entry, “The Economics of Politics.”)

St. Augustine understood this well. Cicero had written many years before that Rome was not a real empire because it was not just. Augustine replies that, yes, Rome was unjust, and he spends a lot of pages showing that this was so. But he says that Rome was definitely an empire, and everyone admits it. Justice cannot be expected from government. Government is run by the citizens of the Earthly City. The main job of government is to keep the citizens of that City of Man or the Earthly City from overwhelming the citizens of the City of God. Now, you may reply, why would rulers from the Earthly City want to protect the citizens of the City of God? It is in their interest to keep the two sides apart. If they do not, they might be overthrown. The rulers’ object is civil peace, not justice or goodness. Why peace and not justice or goodness? Because government attracts those who like earthly things, like power, etc. Since that is the case, how can we expect goodness or justice from people who have no intention of providing it? St. Augustine does say that once in a great while you do get a good and just ruler. History certainly bears this out. But sooner or later he dies or is killed, or retires (voluntarily or not), and it is back to the same old unjust and/or non-good rulers, who are merely interested in peace so that their money and power can keep rolling in.

In my blog entry on Senator John Edwards of North Carolina, I pointed out that political power had become his god. He was willing to lie about his affairs and illegitimate child to the public, rather than give up the possibility of becoming president. Power was his real god, and that is idolatry. He is not the only one. Power tends to attract those kinds of people. While not all public officials are power-hungry idolaters, one good viewing of “Mr. Smith Goes to Washington,” staring Jimmy Stewart, which I believe reflects much of reality, should persuade you that Lord Acton’s expression that “Power tends to corrupt, and absolute power corrupts absolutely” is true. The next time you look to government to solve society’s problems, remember this blog entry, and think it out.

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Aristophanes on Inflation

Posted At : December 11, 2009 10:05 AM | Posted By : name
Related Categories: Good Resources of Others

The following article was written by Clifford F. Thies and appeared on the web site of the Ludwig von Mises Institute.
http://mises.org/daily/3885

It used to be that every economist worth his salt knew Gresham’s Law (or, if he was Polish, Copernicus’s Law): “bad money drives out good.” Narrowly understood, this rule says that when the government requires people to accept different forms of money at an exchange rate fixed by law, the form of money that is overvalued (the “bad money”) will circulate, while the form of money that is undervalued (the “good money”) won’t.

Now comes a new translation of the plays of Aristophanes by Paul Roche, among them “The Frogs,” which has the oldest known expression of this rule:

You know what I often think:
We treat our best men
The way we treat our mint
The silver and the golden
We were proud to invent
These unalloyed
Genuine coins, no less,
Ringing true and tested
Both abroad and [in] Greece
And now they’re not employed
As if we were disgusted
And want to use instead
These shoddy coppers minted
Only yesterday
Or the day before
(as if that matters).
(Aristophanes: The Complete Plays, trans. Paul Roche, New American Library, 2005, p. 573)

In “The Frogs,” two citizens of Athens descend into Hades for the purpose of resurrecting two well-respected politicians of the past to save the city-state from its current, corrupt rulers. The current rulers are said to be like the base-metal coins in circulation, while the rulers of the past are like the full-bodied, precious metal coins that formerly circulated.

The full-bodied coins “rang true”; that is, when flipped onto a solid wooden table, they gave out a distinctive ring. Think of Edgar Allen Poe’s “The Bells.” The heft, feel, and tone of the coins were sufficient, for most purposes, to distinguish a counterfeit from the genuine article. And these coins circulated abroad as well as at home because they had intrinsic value. In contrast, the debased coins were impossible to distinguish from any counterfeit, since they had no distinctive qualities, and were repugnant to foreigners and anyone else not compelled by law to accept them, just like current politicians.

The passage doesn’t actually say how the base-metal coins came to replace the full-bodied coins. Nevertheless, we can infer that the audience knew what had happened, since the play was a comedy, not an economics lecture. From historical sources, we know that Athens had been involved in a series of wars against Sparta and other Greek city-states, and that it was threatened by Persia.

The continuing expenses of these wars depleted Athens’s treasury. Even the gold and silver objects at the temple were melted and recast as money. Then the city resorted to debasement and to legal-tender laws compelling acceptance of the debased coins at the values of precious-metal coins. Soon, the coins were recast only with base metal.

The story of debased coins and their connection with fiscal imbalance and corruption is perennial. The prophet Isaiah (1:22) writes “Your silver has become dross, your wine diluted with water.” Dross is base metal. The silver coins that had formerly circulated had come to be replaced by coins of base metal. The base metals might be polished so as to look like silver, as in the case of many contemporary US coins, but this only hides the corruption that would otherwise be manifest in the coins.

Similarly, the Islamic scholar Ibn Taymiyyah (who can be viewed as a forerunner of Wahhabism) wrote, at a time of continuing warfare against Christians to the west and Mongols to the east, “If the ruler cancels the use of a certain coin and mints another kind of money for the people, he will spoil the riches which they possess.” Like Isaiah and Augustine, Ibn Taymiyyah wrote at a time of decline in his civilization and called for revival and separation from the world.

Speaking of the Mongols, it is to the Emperor Kublai Khan that we owe the invention of paper money. Marco Polo, who brought the news of this innovation to the Europeans, wrote in his travelogue, “nor does anyone, at the peril of his life, refuse to accept it in payment.” During the later years of Kublai Khan’s reign, the issues of paper currency became excessive, and an inflationary cycle got underway.

During the reign of his successor, the fourth Mongol emperor, the world’s first “currency reform” was undertaken, with a forced conversion of the old currency for the new at the rate of five to one. The former prosperity was also replaced by corruption and decline.

Upon the overthrow of the Mongol dynasty in the 13th century, and the ascension of the Ming dynasty in China, history recorded yet another milestone in the evolution of money, the first inscription of a legal-tender law onto paper money: “This paper money shall have currency and be used in all respects as if it were copper money.” At the beginning of the Ming dynasty, 17 units of paper money were the equivalent of 15 units of copper money. By the 15th century, 5,000 units of paper money were the equivalent of 15 units of copper money. Economic conditions deteriorated, and the empire suffered incursions by the Tartars.

Our own country’s experience with legal-tender laws goes back to the colonial days, when the colonies issued paper money then known as “bills of credit.” The first issue was by the Massachusetts Colony in 1690, during King William’s War, when the English colonists of Massachusetts thought to outfit an expedition to take Quebec, then a French colony. The bills were inscribed, “This indented bill of Five Shillings … shall be in value equal to Money.”

Soon after this war came Queen Anne’s War and another issue of bills of credit. Then came another war whose name escapes me just now, and then yet another. Each time, more bills of credit. And, of course, accompanying all these Bills of Credit was inflation.[1]

During mid-century, the English limited the ability of the American colonies to issue bills of credit, and the inflation was ended. Later in the 18th century, the American colonies chafed under the burden of this British constraint on issuing paper money. This constraint was among the grievances referred to in the Declaration of Independence. According to Benjamin Franklin, it was the primary one. And so they had a revolution.

Freed of the outside constraint on issuing paper money, guess what? As is obvious to everyone who does not prostrate himself before the throne of big government, there was inflation. And to compel acceptance of the paper money, guess what? Those not accepting the paper money being issued by each of the self-proclaimed independent states or by their Continental Congress were to be treated as Loyalists and have their property seized.

So, in view of the inflation that burst out during the Revolution and Confederation periods, there was called a convention for the purpose of drawing up a new agreement among the states. This agreement, among other things, limited the ability of the state governments to issue paper money and did not grant such a power to the federal government. What is remarkable about the constitution that they drew up is not that it only restrained the issue of paper money for a certain number of years (until the United States got into the cycle of war, deficit spending, inflation, corruption, and decay), but that it restrained the issue of paper money for as long as it did.

So let us, with the same cruel humor, make fun of our condition as Americans the same way Aristophanes did of the condition of Athenians. Let us send a delegation to Hades to resurrect Ludwig von Mises, Thomas Jefferson, John Locke, and Aristotle to replace the corrupt, debased politicians we now have.

Clifford F. Thies is the Eldon R. Lindsay Chair of Free Enterprise at Shenandoah University in Winchester, VA.

Notes

[1] During one of these wars (does it really matter which?) came yet another first in the history of money: the first use of a price index to try to deal with inflation. By contemporary standards, it was a crude index. Only the prices of four commodities were involved.

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One Major Source of Our Problems

Posted At : December 7, 2009 9:09 AM | Posted By : name
Related Categories: Economics Errors

An economist friend of mine, who is a Salesian Brother, recently gave a lecture at Oxford University reminding us of one major problem that is neglected by many economists and by papal writings on economic things. Yet this just might be the biggest problem that we are facing. All attacks on the free market by Catholics saying that it fosters greed, etc., have been shown to be nonsense, and that greed resides in the human heart. I learned this many years ago in the philosophy courses I took at a good Catholic university as an undergraduate. You would think that our clergy would also have learned it as well. Both the rich and the poor can be just as greedy.

But the “morality” industry, that is, those who make their living, so to speak, arguing that the cause of our financial problems is the lack of morality inherent in the free market, have missed the major point made by my Brother colleague: the problem of “rent seeking.” Famous economists Robert B. Ekelund and Robert D. Tollison define rent seeking as: “The behavior associated with the use of scarce resources in the pursuit of monopoly profits created by government action; the process of using scarce resources in an effort to obtain rents or a transfer of wealth.”[1] A rent is the payment to a factor of production such as land, labor, capital and/or entrepreneur skill in excess of its opportunity costs.[2] Basically a rent is profit. What the lay person calls rent, as in apartment rent paid to a landlord, is just one type of rent. And the rent paid becomes a rent only when the money paid for the apartment exceeds the cost of maintaining it and repaying the money loaned to build it. (This is one of the problems of rent control—government rent ceilings are usually too low to maintain the building so the owner has to abandon it and chalk it up a loss. The result is a slum.)

Notice that the definition given above includes government. How this works is that in exchange for financial and other support in future elections,[3] government leaders have an open door for those in business or unions who seek monopoly privileges. The privileges must be licensed by government, or the goods or services of the rent-seeking company will be open to competition, which will allow competition to drive down the prices charged for a similar product or force the rent-seeking company to improve the quality. Take the example of General Electric, oddly the company for which Ronald Reagan used to be a spokesman. GE is a failing company, but it also owns NBC. It appears that GE president Jeffrey Immelt got a lump of money from the government TARP funds, which was only intended to go to banks. It was given to GE’s financial arm, but since GE is not a bank, none of the strings attached to the TARP money banks received were applied to General Electric. GE CEO Jeffrey Immelt is a frequent visitor to the White House, and I am sure they have a coffee cup with his name on it. You can see the rent seeking here as NBC and MSNBC, owned by GE, were almost news outlets for the Obama campaign and now for his administration, bitterly attacking Obama’s critics. In addition, GE is a big supporter of the cap in trade (cap and tax) bill. One of the reasons behind its support is that it would stand to manage billions of in cap and trade contracts if the deal goes through. Not coincidently, Mr. Immelt is on the Board of Directors of the New York Federal Reserve Bank, which is the most powerful of the Fed banks.

I am not picking on GE, but I am attacking the notion that the government has a role in managing the economy, because this opens the door to groups and companies looking to get a hand on government monopoly privileges and your tax money, instead of earning it the hard way. Take the current “Jobs Summit” now being held in the White House. All of the Obama cronies are there: big unions, some big corporations, all looking for handouts or privileges. Noticeably missing was the US Chamber of Commerce, a public critic of Obama’s economic policies, and other representatives of small business owners—small business which employs most American workers. It was reported that when one person at the conference told the President that if he wants to help the growth of jobs, do not pass the health care plan, Obama replied that “we” are going to pass it whether you like it or not.

All this is rent seeking, and government is the middleman in the process. If the government were strictly prohibited for touching business or labor in the country, these folks could not get anything from it. Sadly, Catholics are among the biggest supporters of government’s running of the economy; therefore, Catholics are big supporters of rent seeking to the detriment of the economy and the common good.

[1]Robert B. Ekelund and Robert D. Tollison, Microeconomics, 3^rd edition (New York: Harper-Collins, 1991), 676, my italics.

[2]Ibid.

[3]In other countries, outright bribery.

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Where Is Pope Benedict Coming From?

Posted At : November 5, 2009 4:26 PM | Posted By : name
Related Categories: Church Teaching on Economics

It is interesting that we have been presented with a gift of sorts. This writer stated in another place that Popes do not reveal their sources. In the case of Pope Benedict XVI, we have an indication from what intellectual tradition he approaches economic problems. In 1985, in a symposium in Rome entitled, “Church and Economy in Dialogue,” Cardinal Ratzinger (at the time) gave a talk, “Market Economy and Ethics.”[1] Looking at this document gives many insights into the approach he takes in Caritas et Veritatis.

Ratzinger begins his talk by describing the economic state of the world in the same way as Pope Pius XI described the world in Quadragesimo Anno. To Ratzinger, the world is in terrible economic shape, especially when you consider the differences between the northern and southern hemispheres. He says that this situation poses such a threat “no less real than that “proceeding from the weapons arsenals with which the East and West oppose one another.” He states that all methods used to remedy the situation have been ineffective. In fact, according to the Cardinal, “the misery in the world has increased in shocking measure over the last thirty years.”[2] This is much too general a statement to make much of, but some checking of data leads us to question this assertion. Speaking of the southern hemisphere, in Latin America for the period to which he refers, the trend has generally been upward economically, despite some dips in some countries, and stalling in Haiti.[3] Africa, on the other hand, is illustrative. Northern Africa is developing well, but sub-Saharan Africa does poorly. But this is no mystery, and many economists have the solutions for this state of affairs, but hardly anyone listens.[4] The main point here is that the world was not doing as bad as Cardinal Ratzinger supposes. Some keys to his point of view come from the rest of the article and his admitted source.

Ratzinger says that following Vatican II, it was held that the separate disciplines had their own autonomy and should be allowed to operate according to their own laws. He seems to be saying that this idea was not developed by the official Church, but came from outside official channels. The problem with this notion is that Vatican II actually states this in a number of places.[5] And it is also true. Etienne Gilson once said that if you want to use chemistry for God’s sake, you must learn if for its own sake. But the Cardinal criticizes this. He takes the case of Adam Smith who, he says, believed that the market operates on its own and “moral considerations imposed on it from without.” The Cardinal says that according to Smith, “this position holds that the market is incompatible with ethics because voluntary ‘moral’ actions contradict market rules and drive the moralizing entrepreneur out of the game.” But Smith holds no such thing. Adam Smith was a professor of moral philosophy, and prior to writing The Causes and Consequences of the Wealth of Nations, he wrote The Theory of Moral Sentiments. In the latter book, we see Smith on the cutting edge of a phenomenological idea of morality based on empathy.[6] Empathy can only take place between human beings because we share a common nature. In addition, Smith obviously assumes moral behavior on the part of the actors. The whole free market economy is based on trust, and it very short-sighted to ignore this obvious fact. Moral actions do not contradict market rules, they are the foundation of successful market functioning. When people are immoral in their actions, the market gets skewed. No one in their right mind, economists included, thinks that Bernie Madoff is the ideal market participant. Law itself, going way back to English common law, has prohibitions against fraud, outright deception and coercion. It is said by business experts that on average a customer who does not get treated well in a store will tell over 40 people about the experience. Those folks will tell others, and on and on. Why? Top of the list is moral outrage in not being treated according to the dignity that one deserves. After this comes the desire of the offended person to warn others about the offending place of business. In both these cases, both morality and the laws of economics operate as a check on the entrepreneur, who is punished but shrinking sales. It is very likely, unless the merchant in question was just having a bad day, he has treated others like this, or presented them with faulty merchandise or bad service and the like. This means that the reputation of the place of business will be blackened.

But let us take this one step further. Cardinal Ratzinger reveals his source of this thinking—Peter Koslowski. Peter Koslowski is a philosopher who is primarily interested in propagating the discredited German Historical or Romantic School[7] of economics. Most of the references in Cardinal Ratzinger’s speech are from works by Koslowski. He quotes Koslowski: “The economy is governed not only be economic laws, but is also determined by men . . . .” Not only is this statement so obvious it is laughable, but it also reveals an ignorance of economics which is astounding. Ratzinger sees free market economists as picturing the market in a purely mechanical way: “[I]t is deterministic in its core. It presupposes that the free play of market forces can operate in one direction only, given the constitution of man and the world, namely, toward the self-regulation of supply and demand and toward economic efficiency and progress . . . . man is completely controlled by the binding laws of the market.” He also asserts that these economists hold that the forces of the market always work for the good, despite the morals of the individual participants.

Nothing can be further from the truth. What Cardinal Ratzinger probably has in mind is the methodology of the neo-classical economists, whose use of mathematics creates more of an engineering-like economics rather real world economics. Some years ago this writer heard a lecture by an Austrian school economist who quoted a neo-classical economist who admitted that the neo-classical economists were more in love with their mathematical models than with economics to the extent that they frequently do not care if the models reflect reality. Even so, economics is a science because there are regularities the behaviors of the vast majority of human beings such that we can with some accuracy gauge what the individual person will do under some specific conditions, ceteris paribus. The reason that economics is a separate science is that it studies human action, especially in the fields of exchange (but not always).[8] People generally do what they think betters their conditions, and will act accordingly. Ethics is a separate science from economics because it deals with a different aspect of man. It is a science of the acts of the deliberative will of man as they are ordered to his ultimate end—happiness. Aristotle tells us that all men choose the good, meaning that no one intentionally chooses an evil as evil. Men go wrong when they choose an apparent good rather than a real good. It is the job of moral science to direct man to choices that bring him closer to that ultimate end. It is the job of the science of economics to tell us what men do, not what they should do, and to show what actions and choices will bring us a better material conclusion. Ultimately, both sciences, moral and economic, focus on the human person. Both are part of the practical reason. Moral science tells the person which actions bring him closer to his end, economic science has the more modest end to showing him how the world works so that the can take of his material needs, so that he can move on to better and higher things, like education and charitable acts. Man is not a disembodied spirit, but acts with his whole being, thus the necessity of acting in the world that exists, but never unethically. Economists never say that a person is allowed to act unethically in the real world. They do say that people do act unethically. They also show that sometimes those unethical actions have deleterious repercussions in the world of business.

Studies have shown that the two most religious type of persons in the United States are, aside from clergy, military personnel and business executives. Is it likely that the percentage of unscrupulous persons in business is higher than in other fields, such as medicine, sports, law or the clergy? Not likely, if you believe with St. Thomas that we share a common nature. If you are a German Historical School economist, you have nominalist tendencies[9] and do not believe in a common human nature, and believe that everything is historically and culturally conditioned. Hence, like Rousseau, you believe that evil is caused by external, societal forces. Therefore, the tendency of these German thinkers to blame the free market system for the evil actions of men in the system, and the economic decline that the west is currently experiencing.

Such thinking is not defensible from the Catholic or the scholastic point of view. All persons are obliged to develop the cardinal virtues, prudence, justice, fortitude and temperance in whatever situation they find themselves in. Moral failures are not caused by the system; immorality resides in the human heart.[10]

[1]This talk appears in http://www.acton.org/publications/occasionalpapers/publicat_occasionalpapers_ratzinger.php?view=print. All quotations are taken from this version.

[2] Italics are the present author’s.

[3] See, http://oxlad.qeh.ox.ac.uk/results.php, accessed 10/29/09.

[4] See, James A. Dorn, Steve H. Hanke, and Alan A. Walters, The Revolution in Development Economics (Washington, D. C.: Cato Institute, 1998, and the very full bibliographies at the end of each chapter; and Edward L. Hudgens and Bryan T. Johnson, “Why Asia Grows and Africa Doesn’t,” http://www.heritage.org/Research/AsiaandthePacific/lg756.cfm, accessed 10/29/09.

[5] See, for example, Apostolicam Actuositatem, #7; Gaudiam et Spes, # 34 and #36.

[6] Compare with Edith Stein, The Problem of Empathy, trans. by Waltraut Stein (Washington, D. C.: ICS Publications, 1989).

[7]For a full discussion of the German Historical School and its romantic roots, see William R. Luckey, “Romanticism: The Ultimate Source of Misguided Views on Economics.” Unpublished manuscript. See, also, Peter Koslowski, ed., The Theory of the Ethical Economy in the Historical School: Wilhelm Roscher, Lorenz von Stein, Gustav Schmoller, Wilhelm Dilthey and Contemporary Theory (Berlin: Springer-Verlag, 1995), andPeter Koslowski, ed., The Theory of Capitalism in the German Economic Tradition: Historicism, Ordo-Liberalism, Critical Theory Solidarism (Berlin: Springer-Verlag, 2000).

[8]See, Ludwid von Mises, Human Action: A Treatise on Economics Third revised edition (Chicago: Henry Regnery Company, 1963), Introduction and chaps, I-VI.

[9][9]William R. Luckey, “The Intellectual Origins of Modern Catholic Social Teaching on Economics: An Extension of a Theme of Jesús Huarta De Soto” Austrian Scholars Conference, Auburn University, March 23-25, 2000.

[10]Pontifical Council for Justice and Peace, Compendium of the Social Doctrine of the Church (Washington, D. C.:United States Conference of Catholic Bishops, 2005), sect. 117.

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Some Suggestions for an Austrian Theory of Organizational Behavior

Posted At : October 15, 2009 9:46 PM | Posted By : name
Related Categories: Economics Errors

Introduction

The purpose of this paper is to suggest ways in which the insights of the Austrian school of economics can be applied to the understanding of exactly how institutions behave. While this question has been probed somewhat by political scientists and scholars in the field of management, the results are far from adequate. Firstly, the political scientists have been afflicted with the same positivistic plague that has infected economics. This “physics envy” has them reducing everything to statistics and graphs that are just as vague and generic as those of the neo-classical economists. Just as the economic models assume full knowledge and a single product, the political scientist presumes that all governmental officials and persons working in organizations want power. All attempts to discuss the behaviors of actors by using a version of the Austrian “mind construct” methodology are termed “journalistic,” and not taken seriously. This prevents any methodological breakthroughs. Even so, this method of analysis is still fraught with the presumption that power is almost the only value of persons in their organizational roles, and it seems to pan out in the form of a revealed preferences theory.^{^[1]}

By contrast, management scholars have made more headway in examining the behavior of individuals in organizations.^{^[2]} The reason for this is that the management scholars deal in real case studies, and have more empirical evidence at their disposal. Nevertheless, their studies are hampered by the fact that they have no interest in developing an overall theory of behavior in organizations, if, in fact, this is possible.

A Common Error in Organizational Theory

The first problem that appears in the formulation of a theory of organizations is the tendency to see an organization as a monolith. Hayek rightly criticizes the tendency of our culture to see everything as a product of design. In point of fact, the activities of an organization are the outcome of the actions of the many individuals which compose it. While there is certainly some (even much) design in the formation of the organization and its operations, routines, and outcomes, the actual, factual activities of the organizations can never be completely predicted. This is true, not only of organizations working in the market selling a product or service, but also of the not-for-profit organizations such as churches, schools, Project Hope, etc. It may be even more true for these latter organizations simply because they are not beholden to the vicissitudes of the market.

Some Applications of Austrian Theory to the Understanding of Organizations

The first insight that Austrian theory suggests is that organizations must be seen as semi-closed systems. While organizations deal with the public at various levels, how they do that is very much a product of the internal machinations of the people in the organizations who have varying levels of the influence on policy.

Secondly, the reason for the above is very well stated by Menger himself. In the Principles, he points out that all goods can be classified either as material goods or useful human actions.^{^[3]} The very reason that these are called goods is because they are useful to the satisfaction of human needs.^{^[4]} People, will, then, pursue goods (in the Menger sense, and not in the limited neo-classical sense of “consumer goods”) in whatever they do. While these goods can be power, more often than not they are many other things. Abraham Maslow, for instances, argues that there is a hierarchy of needs that can be arranged in ascending order from physiological needs (such as pay), to safety and security needs (such as benefits and job security), then love and belonging-ness (such as being invited to picnics, or being asked to be on a team or committee), esteem needs (grants of autonomy, increasing responsibility, pay raises as a sign of esteem), and lastly, self-actualization and growth needs (job challenge and increasing autonomy). While pay is part of many of these levels, it is only an integral part of the lowest level. In all of these levels, the lowest unsatisfied need becomes the most powerful and significant need.^{^[5]} The realization that there are a variety of needs that each person tries to fulfill nullifies much of the previous thinking regarding the behavior of persons in organizations.

How each employee or member of an organizations will satisfy his or her needs and what level each is on at the time are questions that lead us to the next, or third, application of Austrian insights into the theory of organizations—subjectivism. Without knowing each member of an organization intimately, it is impossible to tell what are the real goals each is seeking at any one time. The closest we can come is the use of “pattern analysis” which assumes a certain amount of regularity about certain types of employees, and that there are parameters outside of which non-psychotic employees will not venture.

Fourthly, time and ignorance have a role to play in the internal workings of an organizations. Time is important for the same reason it is in the market economy. People’s perceptions and tastes, and even family life, change with time. The age of an employee or the length of service affect his world-view. In addition, organization members have problems finding out what others are planning or doing, or how their division is seen by the higher levels of management. They way these persons carry out their tasks is determined in large part by their guesses about these subjects. A wrong guess could be disastrous or providential in the fulfilling the needs spoken of in the last section.

What about the entrepreneurism inside an organization? Actually, in the face of a more competitive market, firms that want to survive must encourage entrepreneurial behavior. This allowance for experimentation within a firm is called “intrapreneurism,” and it takes place outside of the R & D channels. To be successful, it must be allowed without reprisals for failure.^{^[6]} Neo-classical economics have generally ignored this kind of internal change overtaking many companies today in favor of the “black box” version of firms. Here the method by which decisions are made in real companies and organizations (not to mention the government) is ignored in favor of the old assumptions. This approach is not only of no help in understanding organizations, but is actually misleading.

Lastly, what about the application of Austrian insights to the behavior of government. While this is the subject of another paper, a quick perusal of the above subtopics provides some insight into the seemingly irrational action of government actors aside from the socialist calculation ideology so effectively defeated by Mises and Hayek.^{^[7]}

Finally, it could be said that within the level of formal verifiable constraints set by policy makers in organization, an organization is a spontaneous order just as market economy is. The reason for this is that, as Mises shows, Economics is really a universal science of human action—praxeology, and can no longer concentrate merely on the mere catalatic aspects of that science^{^[8]}. Hence, it can be used to analyze the macrocosm of the society at large, or the microcosm of the organization.

^{^[1]}See, for example, the analysis by Evens and Novak, The Reagan Revolution: An Inside Look at the Transformation of the U.S. Government (New York: E.P. Dutton, 1981).

^{^[2]}See, for example, Judith Gordon, A Diagnostic Approach to Organizational Behavior, 4^th ed. (Boston: Allyn and Bacon, 1993).

^{^[3]}Carl Menger, Principles of Economics, trans. by James Dingwall and Bert F. Hoselitz (Grove City, Pennsylvania: Libertarian Press, 1994), 55.

^{^[4]}Ibid., 52.

^{^[5]}Abraham H. Maslow, Motivation and Personality 3^rd. Ed. (New York: Harper and Row, 1987).

^{^[6]}See, G.F. Pinchot, III, Intrapreneuring (New York: Harper and Row, 1985). For an extreme version of entrepreneurship inside firms see, Tom Peters, Thriving on Chaos: Handbook for a Management Revolution (New York: Harper Perennial, 1988).

^{^[7]}An interesting foray into this area probably not realization that he is using a loose Austrian methodology is Harold Seidman, Politics, Position and Power (New York: Oxford University Press, 1975).

^{^[8]}Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: Regnery, 1966), 3.

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John Paul II: On the Cutting Edge of Catholic Social Teaching on Economics

Posted At : October 9, 2009 7:43 AM | Posted By : name
Related Categories: Church Teaching on Economics,Issues in Social Teachings

Some people treat Catholic Social Teachings in the same way that the Church treats revealed dogma—as mostly unchanging, but that there can be some expansion to our understanding of those revealed dogmas, but no change in Social Teaching. But Catholic Social Teaching has three aspects. The first is eternal principles. Catholic teaching of any kind has to be founded on eternal principles, or else there would be no solid foundation at all. In point of fact, beyond those eternal principles, especially justice, prudence and charity, the Church applies those eternal principles to changing circumstances, which means that the teaching changes. There is no such thing, for example, as pure justice. Justice must be applied to an actual circumstance. In addition, the Church, as Church, has no particular expertise or divine commission in the particular, non-theological sciences. This means that it accepts the opinions of scholars of the sciences prevalent at the time of the writing of an encyclical. Of interest to us is economics. As I have shown in many papers, for many years the Church accepted the conclusions of the German Historical School of Economics as its paradigm for understanding economic reality. That School is totally discredited, and slowly, but surely, popes have backed away from its worldview, despite the fact that many Catholics tend to quote past encyclicals like Protestants quoting “proof-texts” from the Bible to prove their anti-Catholic views.

There is no space here to go into the teachings of the German Historical School but here I would just like to demonstrate briefly the case for development with a few quotations.

Gaudiam et Spes of Vatican II:

“It is necessary that the voluntary initiatives of individuals and of free groups should be integrated with state enterprises and organized in a suitable and harmonious way.”

This reflects Pius XI’s corporatist suggestions, originally propounded by the German Historical School. Indeed, Pius saw competition as an evil:

[T]he right ordering of economic life cannot be left to a free competition of forces. From this source . . . have originated and spread all the errors of individualist economic teaching. Destroying through forgetfulness or ignorance the social or moral character of economic life, it held that economic life must be considered and treated as altogether free from and independent of public authority . . . free competition, while justified and useful provided it be kept within certain limits certainly direct economic life—a truth which the outcome of this application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated.” (Quadragesimo Anno)

But John Paul II shows the developing view of capitalism even during his own papacy:

In Laborem Exercens, he agrees with the Marxist and German Historical School’s understanding of Capitalism in saying that any system in which primary attention is paid to the “objective dimension of work,” where man’s status as “the effective subject of work and its true maker and creator” is not recognized, is capitalist.

In other words, any system in which the person is trivialized is capitalistic. Here, men are seen as mere means of production. Of course, this applies both to an approach to a free market and to socialism and communism as well.

But more recently, he says new forms of capitalism have developed. Workers rights have been recognized, and where more worker control over aspects of productivity and aspects of the business have been recognized.

In Solicitudo Rei Socialis, he recognizes the right of economic initiative and says that this right is not only important to individuals but for the common good. The attempt to limit this right in favor of so-called equality suppresses or destroys the spirit of initiative or “the creative subjectivity of the citizen.”

In Centesimus Annus, the Holy Father points to the complexity of the subject. Asking the reader if capitalism should be the goal of the countries recently freed from Communist domination, he writes:

If by “capitalism” is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative even though it would perhaps be more appropriate to speak of a “business economy,” “market economy” or simply “free economy.” But if by “capitalism” is meant 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 and its totality and sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative.

Pope John Paul II is right is expressing reservations here, but his reservations are not about the free market but the social context in which that market, or, quite frankly, anything else, operates. Everything in society functions in an environment of ethical/religious, political/juridical and economic reality. For the free market to work, there needs to be a moral society, backed up by revealed religion, and a system of just law, respected by the people and enforced justly by the courts. Economists have created a whole body of literature on the effect of institutions on economic life. If there is a problem with how the market operates, the first place to look is the society and the government. Obviously Pope John Paul II realized this. Now if only other Catholics would be as informed.

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Back to Nature

Posted At : September 25, 2009 8:14 AM | Posted By : name
Related Categories: Economics Errors

There are a number of Catholics, thankfully not too many, who believe that it would be more pleasing to God if we all gave up our highly technical lives, or money, vacations, etc., and lived on a subsistence level. These same folks are always championing “Western Civilization.” They never ask what made Western civilization possible. The existence of great writers and thinkers does not make a civilization. A civilization is made up of all those people who have learned and accepted the values of the great thinkers of that civilization, and in the West, the teaching and contribution of the Catholic Church, not all of which is doctrinal, but intellectual as well. Notice that it is not just the teachings of the Church that made up Western civilization, but the accumulated wisdom of that whole civilization. Even the Church in its theological debates uses philosophical language and concepts developed by the great, and frequently pagan, thinkers.

But how did this wisdom get around? It got around because some folks had excess wealth to finance the development of schools to educate thinkers. The early Church Fathers were very educated men. The money of dedicated people sponsored schools which they attended. Think about it: one cannot spend time getting the required learning if one has to put food on the table. Learning requires leisure. Leisure is purchased for the student by someone else. That someone else gives that money to the student or the school, or both, so that the student and teachers do not have to spend their time putting food on the table by farming, or working in an asphalt plant (as yours truly once did) and the like. This means that someone in the society has to have discretionary funds. If we all lived in a subsistence mode, there would be no discretionary funds, and there would be no learning, no churches, no artists.

Nor is that all. The reader might notice that the life expectancy of people in the West has taken tremendous leaps since the 1800s. Why? Because in the West the free market system has discovered ways to create wealth. Much of that created wealth goes into the paychecks of households and is spent on medical care. But where did the medical care come from (“Take out two pints!”—Theodoric of York, Medieval Barber)? It comes from the fact that some people and the “evil” corporations take their discretionary income and save it. This money is then used to develop diagnostic medical equipment, medicines, and surgical equipment, and support medical schools which train practitioners who are able to use these great things for the health of every patient. The households pay these practitioners to keep them healthy. It is nice for the healthy 20-year-old to talk about living on a subsistence farm or owning a small shop, like you see in the movies—until he contracts cancer, or gets hit by a car. He does not run (or crawl) to old Theodoric (above), but he goes to the oncology department of a good hospital, or the trauma center of the same hospital, none of which would exist if these “back to nature” folks had their way.

Those people who think “small is beautiful” need to think how much of a disservice they are doing to the rest of us because of their fantasies disguised as Catholicism. If it was up to them, we would all die at 25 years of age. We would have little sanitation, little medical care, no education, and the creativity of mankind would be stifled, or limited to painting pictures on cave walls.

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