The State and the Economy

Matthew Ryan
Political Philosophy
Dr. Muller


The State and the Economy in Light of Catholic Social Teaching


Perhaps one of the most misunderstood subjects in America’s public consciousness is the relation between the government and the economy. Many people mistakenly take for granted that our nation’s currency has its value through the decree of the State and view the Chairman of the Federal Reserve as a quasi “shepherd” of the national economy. The underlying assumption of these ideas is that the State somehow has the power, right, and duty to control and manipulate the economy. In order to gain a proper understanding of the State and its relation to the economic sector of society, we first need to understand what the nature of both the state and the economy is and what the proper end of each is. In this paper I will analyze and critique both the socialist and capitalist models of the State-Economy relationship in light of the Catholic Social Teaching of Popes Leo XIII and John Paul II. My thesis is that the State’s role and intervention in the economy should be limited to the minimum necessary to ensure the free market’s proper orientation to the common good of man and society both for moral and economic reasons.
Origin of Society and the State
Phenomenologically examining the situation of man as he finds himself, we can see that our very existence and being as man does not have our origin and cause in ourselves. We experience ourselves as given unto ourselves from a transcendent source. Our life and existence here on earth is, however, very precarious and demands that we nourish our bodies in order to continue our life. We thus have a duty to provide for the necessities of our physical life. The earth that we find ourselves is fertile and contains much potential for our nourishment. Furthermore, we experience the fruits of the earth as being for us. These fruits, however, do not simply fall into our mouths and nourish us though; the care of our life requires our labor and creativity in order to enjoy these fruits. Pope Leo XIII reflecting on this insight says: “The preservation of life is the bounden duty of one and all, and to be wanting therein is a crime. It necessarily follows that each one has a natural right to procure what is required in order to live[1]”. We see, therefore, with Leo that the preservation of our gift of life is a duty of justice and that subsequently every man has a right and a duty to work for what is necessary for his sustenance.
Having examined the state of man isolated in nature, we are now able to see how and why man enters into society and the state comes into being. One major reason why man enters into society is because procuring one’s nourishment single-handedly can be an extremely arduous task. Self-preservation is much easier if man works together with other men towards their common good. Adam Smith identified this phenomena and articulated it as the ‘division of labor’[2]. The division of labor may be summarized as each and every man in a given society limiting his work to what he does best in harmony with all others instead of attempting to survive alone. The division of labor maximizes efficiency and consequently wealth. The efficacy of the division of labor is one significant reason for the society.
Men come together in society for other reasons as well. The most important reason, however, is man’s vocation to transcendence. To be a person means to be in relation to other persons. Aristotle calls man a “social animal”[3]. Man naturally is inclined to be in relation to others and furthermore, in his encounter with the other person, he experiences a call to be for that person for his or her own sake on account of their intrinsic goodness or value.
Since men are also imperfect, they are inclined to oppose their call to transcendence and seek their own satisfaction, even at the cost of using and dominating other men and women to achieve that satisfaction. To preserve peace, order, and justice, there must be some institution to uphold these things in society. The ordering of society requires a State for the just and smooth exercise of societal functions for the sake of the common good. The State is instituted to protect every member of society’s natural rights and to rectify wrongs incurred among its citizens. Furthermore, the State serves to protect society from external threats to public security. For these reasons men see it necessary to establish the State.
Duties of the State
In our investigation of the origin and nature of state, we can clearly see that man precedes the State and that the State only exists for the good of man and not vice versa. This concept is crucial for a proper understanding of what constitutes a valid and legitimate composition of the particular form the State takes on. Since the State is instituted by men for common good of all, it is evident that the State’s duties are directed to the good of man and are limited to the reasons for which it was instituted. Pope Leo XIII says that “the foremost duty, therefore, of the rulers of the State should be to make sure that the laws and institutions, the general character and administration of the commonwealth, shall be such as of themselves to realize public well-being and private prosperity.[4]” Leo asserts that the scope of the State’s duties is limited to the conformance of law and government to the common good.
What then is included in the common good of man? At the most basic level, the common good entails the protection of every man’s natural rights to life, liberty, and property in addition to the promotion of the general well-being. We have already explained how man has a natural right to his life on account of its character as being given to him. As a spiritual being, man has also been endowed with three essential spiritual capacities: the intellect, the heart, and the will. Through his will, man by nature has a right to choose the good, free from any coercion. Man’s right to property stems from his possession of self. By investing himself through labor in the land given to him ultimately by God, man rightfully possesses the product of his work and creativity. The common good of man, for which the State is instituted, demands that the State above all protect these natural rights.
Pope John Paul II reflects on Leo’s understanding of the role of the State and applies it to its relation to the economy. He says,

“The State has the duty of watching over the common good and of ensuring that every sector of social life, not excluding the economic one, contributes to achieving that good, while respecting the rightful autonomy of each sector. This should not however lead us to think that Pope Leo expected the State to solve every social problem. On the contrary, he frequently insists on necessary limits to the State’s intervention and on its instrumental character, inasmuch as the individual, the family and society are prior to the State, and inasmuch as the State exists in order to protect their rights and not stifle them.[5]”

The important insight in these passages is that the State is ordered to the common good and that indicates in particular that the State assumes an “instrumental character” in its relation to the economy. The common good does not require the State to wield absolute control over the economy; the State’s role in the economy is indeed limited by the common good. The State’s assurance of the integrity of man’s natural rights allows for and promotes economic prosperity. Protection of property is a fundamental principle needed for a prosperous economy. No man will make economic transactions if they have no security that their property will not be subsequently stripped from them. Likewise men will be discouraged from making commercial transactions if there is no security from the State that the contract will not be breached. We see that aside from the philosophical principles that limit the State’s role in the economy, the basic laws of economics argue against state control of the economy.
Socialism
Having examined the duties of the State we are now in a sufficient position to scrutinize both the socialist and capitalist socio-economic models and their understandings of the State and the economy. First of all, let us examine the nature of socialism. Socialism asserts that all men are equally entitled to an equal share of the earth its fruits. The possession of private property inevitably leads to inequalities because greedy men produce much and hoard the profits for themselves so private property must be abolished. In order to ensure an equal distribution the State is must have own and control all the means of production and consequently exercises complete control over the economy. While emotionally appealing, the socialist system rests nevertheless upon a fundamental anthropological error and is doomed to economic failure. Pope John Paul II says,

“The fundamental error of socialism is anthropological in nature. Socialism considers the individual person simply as an element, a molecule within the social organism, so that the good of the individual is completely subordinated to the functioning of the socio-economic mechanism. Socialism likewise maintains that the good of the individual can be realized without reference to his free choice, to the unique and exclusive responsibility which he exercises in the face of good or evil.”[6]

This fundamental error of Socialism is the root cause of its failure both as a just and economically sound socio-economic system.
Socialism is a failure as a just system first of all because Socialism does not respect the intrinsic dignity of the human person in its degradation of the individual man from an end in himself to a means to the ideal socialist utopia. Man, in his dignity as a human person, has an intrinsic value that demands in an imperial manner to all who come into contact with him that he be affirmed for his own sake and not be used as a means to some other end or purpose. This principle is sometimes referred to as the “personalist principle”. The socialist State furthermore violates the natural law teaching that we have seen regarding the proper duties of the State. Man precedes the State; the State must be for the sake of man. Socialism reverses the proper priority of man before the State and subordinates man to the imaginary ideal of the State. Socialism would not only have man’s natural right to property given to the State, but also his intrinsic right to freedom in the economic sector of society.
The historic fall of the Berlin Wall in 1989 marked the downfall and failure of Socialism as a powerful economic system. The economic reasons for socialism’s failure are simple. The economic failure again stems from Socialism’s fundamental anthropological error. Without a proper understanding of man, a proper understanding of the economy is impossible. At its heart, the economy consists of the decisions of individual men to allocate scarce resources. Socialism denies this authentic understanding of the nature of economics and believes that the State can artificially assign value to objects without regard to “market value”, a true indicator of an object's economic worth. The more the State interferes with the proper freedom of the marketplace, the less efficient the economy will be and the belief that complete control is a viable economic system is an exercise in self-delusion.
Capitalism
From our discussion of Socialism it seems that we have concluded that the State has no role whatsoever in the economy and that Capitalism is the ideal model. Capitalism, like Socialism, is also unsatisfactory from both the moral and economic viewpoints. Capitalism is quite a broad term and John Paul II gives us an insightful answer on the acceptability of this model based on two different understandings of the term. He says,
“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, […] 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 in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative.”[7]

The first sense of capitalism that John Paul II affirms is the free market system that is within a juridical framework that places the market in the service of an authentic and whole freedom of the human person. Man’s economic decisions are unimpeded by the State as long as they are in conformance with the common good of the human person. The “free market system” is a better term than “capitalism” is for what the Holy Father intends as a just system.
The other and more widely accepted sense of ‘capitalism’ that the Holy Father condemns differs essentially from the true “free market system” in its understanding of personal freedom. When most people think of “capitalism” or the “free market”, they think of freedom as pure unadulterated choice. Fedoryka says, “In this more derivative usage, the notion of freedom refers simply to the absence of obstacles or hindrances to a movement. It does not refer to the ends or goals of the movement.”[8] The name for this false understanding of personal freedom and particular brand of capitalism has taken the name of “Libertarianism”. The important thing for what I will call “libertarian capitalism” is simply the choice. Man should be just as free to buy pornography, drugs, etc., as he is to practice his religion or walk his dog. Libertarians have a “laissez faire” (‘leave us alone’) attitude to any governmental role in the economic sector. The libertarian’s “free market” means that the economy is completely autonomous and independent from any state intervention or ethical norms. The true meaning of personal freedom, however, is more than the mere choice of man and necessarily includes the proper object of choice, namely the good. The common good demands that the State respect and uphold the proper object of the individual’s choice, the good. Man’s “freedom” to choose that which is evil and in opposition with the common good ought not to be respected by the State and justice even decrees that the State intervene and disallow the “choice” against the good.
Conclusions
So what then may we say is the proper relation of the State to the economy if both socialism and libertarian capitalism are unsatisfactory socio-economic models? For many, it is either one or the other or somewhere between the two. John Paul II affirms that presenting a specific socio-economic model is outside of the scope of the Church’s competency. He says, “The Church has no models to present; models that are real and truly effective can only arise within the framework of different historical situations”.[9] Presenting a specific model is also outside of the scope of this paper, but we can conclude on what principles an ideal relation between the State and the economy would and should be based upon.
I believe the most important requirement for a just and proper socio-economic model is an accurate and sound understanding of the freedom and dignity of the human person. The State needs to ensure the basic conditions necessary for ordering the free market to the common good and for allowing man to follow his call to transcendence in a gift of self to other persons. Both the dignity of man and his common good demand that the State respect and protect the freedom of the market. Protecting the authentic freedom of the market sometimes requires the State to intervene and punish unjust business practices. Basic conditions that employers must respect under pain of state law should include safe working conditions, a just (non-exploitive) wage, and any other conditions that respect and protect the integrity of the person, body and soul.
Since the essential characteristic of the human person is his freedom to choose the transcendent good in itself, man can work for others; he need not work only for himself and his satisfaction. A just man should be free to work for his wife and his children, for God and neighbor. The common good of all demands that this freedom be respected and revered. The State’s role is to protect and promote the common good, any and all interventions in the economic sector must be kept to a minimum, extended only as far as the good of man requires.
Some might argue that the government need not be limited to its technical duties and obligations and can do proactive social work as well, like public education, public housing, and welfare. While it is true that the State must be sensitive and especially caring for the weakest in society, there comes a great danger in giving the State more power than its strict duty requires. As the saying goes, ‘power corrupts and absolute power corrupts absolutely’. Giving power to the government is a dangerous thing as history proves, and in my opinion an ideal system will give the government as little a role possible as is necessary in society. Those proactive things that “promote the common good” can be better accomplished by localized and private organizations than by an impersonal and power-inclined state.
Regardless of what shape a nation’s socio-economic system takes on, the basic principle that I believe is absolutely central is the dignity of the human person as a free agent for the good in itself. Systems such as socialism and libertarian capitalism fail to see the dignity and freedom of the person and consequently fail as moral and just economic systems. Both fail first in their duties prescribed by natural law, whether by restricting man’s freedom too much or by failing to order his freedom to the common good. They both fail secondly as efficient economic systems as a consequence of having a deficient understanding of value, subjective and objective. Socialism neglects man’s freedom to choose and his right to property and thereby steals the work of his hands before he could give it to those he loves and so dries up any desire he had to work and produce. Libertarian capitalism fails economically because it values an abstracted notion of freedom. Without the State’s role of placing that economic freedom in the service of good, the “free market” quickly devolves into exploitation and cutthroat competition that destroys itself with the mightiest business domineering and devouring any competition that would dare try to compete. I believe that the principles founded on the dignity of the person as outlined in the Catholic social teaching of the encyclicals mentioned above provide a proper and fitting solution for the basis of a just and economically efficient socio-economic system.



I pledge upon my honor that I have not received any unauthorized aid on this assignment.

Matthew Ryan
Bibliography
John Paul II. Encyclical Letter, Centesimus Annus. 1991.

Leo XIII. Encyclical Letter, Rerum Novarum. 1891.

Fedoryka, Damian. “The “Third Way” of Centesimus Annus: Is it Elusive or Merely an Illusion?.” Faith & Reason Winter 1991 EWTN. 26 Nov. 2005 .

Gronbacher, Gregory M. A. “The Wedding of Three Philosophical Traditions Toward a Refined Philosophy of Economics.” Religion & Liberty November and December 1992 Acton Institute. 26 Nov. 2005 < id="64">
[1] Leo XIII, Rerum Novarum, 44.
[2] Adam Smith, Wealth of Nations.
[3] Aristotle, Politics, Book I, 1253a7 (Note: Some translations use the word ‘political’ instead of ‘social’)
[4] Leo XIII, Rerum Novarum, 32.
[5] John Paul II, Centesimus Annus, 11.
[6] Ibid., 13.
[7] John Paul II, Centesimus Annus, 42. [My emphasis]
[8] Fedoryka, Damian. “The “Third Way” of Centesimus Annus: Is it Elusive or Merely an Illusion?” Faith & Reason (Winter 1991) [accessed on November 26, 2005]
[9] John Paul II, Centesimus Annus, 43.