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Contents © 2005
by Jim Holman.
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LETTERS
June 2005

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CLEAR DEFINITIONS, PLEASE

Thank you for your thoughtful reply to my response to Christopher Zehnder's article, "Escape from Capitalism" [February 2005 Faith].

The editor is right to question the results of economic practices in the world. As it would be wrong to call the War in Iraq "Christianity as it is practiced," it is also wrong to call corporatism and mercantilism "capitalism as it is practiced." Corporatism and mercantilism (and war) could not exist in their present forms without the state. The free market peacefully survives despite the state. It's important for us to use clear definitions and labels especially in economics, politics, and religion, where fallacies often reproduce themselves to the detriment of all.

Given that the foundation of free-market thinking is the product of some of the Catholic Church's greatest minds from 1200-1500 A.D., when the editor lectures me on how the "economy is not exempt from morality or the cultural and religious order," and "economic order has an end assigned it by God," he is speaking the obvious. While the editor and I agree there are problems in the economic sphere, we seem to disagree on where to place the blame and/or find solutions. Zehnder's original article suggests "Third Way" economics, partially regulated and partially free. Let's advance this discussion starting with some good definitions.

The editor says a price set by speculation is not gauged by real human need and "like usury, ignores the principle of the just price." This view isn't supported by the vast body of work done by the Church's Medieval scholastics, including St. Thomas Aquinas, St. Bernardino of Sienna, and St. Antonio of Florence. They wrote extensively that the "just price is the price determined or established by common estimation in the market." (Saint Bernardino, Opera Omnia: Bk. 2, Sermon 33, 319). The scholastics also wrote that "just price" has nothing to do with profit, loss, need, or the cost of producing or obtaining goods. It allowed buyers and sellers to trade at prices based on "the estimation of men, even if that estimation be foolish." (Diego de Covarrubias y Levia, Opera Omnia: Bk. 11, chap. 111, 527)

The editor says attempting to get the best price is like usury in that the "goal isn't just gain, but the highest possible gain." The actual definition of usury is "lending at exorbitant interest rates." It doesn't mention gain. One could borrow money at a very high rate and lend it for more while actually earning less than a better financed lender at lower rates. At the high interest rates, it would still be usury according to the definition, even if profiting less than the better financed lender at lower, non-usurious rates.

I correct the editor on definitions not to nit pick but to clarify. A proper assignment of responsibility must be made if we are to learn from mistakes, make changes, and grow. Why blame economic and social justice problems on speculation, prices, and profits if the real problem exists elsewhere?

The editor quotes Pope John Paul II [Leo XIII, ed.] saying the law ought "to favor this right [of private property] and, so far as it can, see that the largest possible number among the masses of the population prefer to own property." The editor submits this in support of his statement that the encyclicals "foster a more widely distributed ownership of productive property."

The Aristotelian, Thomistic, and scholastic definition places distributive justice within the context of the state and the people as it applies to goods held "in common." Commutative justice applies to the voluntary distribution of private property through charity and/or the market. The editor is focusing on the political state here and has ample reason to be disappointed with the current quality of distributed justice. As the editor has shared some opinions, please allow me a few of my own.

The evidence clearly suggests the institution of the political State is vastly overrated as a force for justice. Given the modern State's record of murdering hundreds of millions of mostly their own citizens in just the last 100 years, it's remarkable the faithful, including the pontiffs, still believe it has value. Everyone has problems with the modern State, but they still believe it can be fixed. F. A. Hayek called the idea that the State can be transformed a "fatal conceit."

The editor quotes Pope John Paul II saying the free market system must be "appropriately controlled by the forces of society and by the State, so as to guarantee that the basic needs of the whole of society are satisfied."

I believe "forces of society" governed by free will and the Word of God can be an effective controlling influence, but again have considerable doubts about the State. The political State will exist for justice only when it gives up the power of war, taxation, and imprisonment in favor of the Word, tithing, and liberty. As long as the State wields worldly power, it will continue to attract those who seek worldly power. If the political State ever comes to resemble the Vatican more than our political capitals, I'll stand corrected but won't hold my breath in the meantime.

I refer again to the scholastics as their original definition of usury included any fee for the use of money. This definition was eventually replaced by the "time value of money" theory, leading to the development of modern banking. Just as economic thinking about the nature of usury changed, it seems the way the faithful view the State is ready for an overhaul.

In conclusion, it's clear that the morality of any lawful transaction including those of speculative nature resides in the heart of the individual; not in the transaction itself, the terms, the price or the profit. God Almighty gives life to these transactions and prices in the first place. So rather than wanting "to remove religion from the sphere of the world and make it merely a matter of concern for the individual soul," as the editor wonders of me, I'm saying God's impact on the whole world, including its economics, is the accumulated result of His influence on individual souls and the resulting choices people freely make for right or wrong.

As Lord Acton said, "liberty isn't the freedom to do whatever one wants; it' s the freedom to do what one ought." The Church has long taught the effectiveness of free markets as a way of distributing scarce goods. The Church has also taught that our problems are related to sin and that our salvation can be found through prayer, penance, and charitable works. Placing responsibility for problems or solutions outside the scope of this personal, in-heart dynamic is a mistake.

So rather than titling Zehnder's original article "Escape from Capitalism" and my earlier letter "Capitalism is the Only Way" (your title, not mine), it might be better to simply state that freedom governed by the Word of God works in the market economically, in society morally, and in our hearts spiritually. We will be judged by God and our peers by "our fruit." Blaming free markets for problems or looking to other mechanisms like "Third Way" economics and the State to solve our problems is a mistake. A friend recently suggested the faithful would do better if we quit trying to make the State a better parent or agent of God ... and simply grew up.

Michael F. Denny,
San Francisco

Editor replies: To say the government — that which directs society toward the common good — should regulate economic activity is not to make it a parent (we are not discussing families as such); but it is to say that it functions as an agent of God, with authority from God. St. Paul said no less when he wrote that the king wields the sword by God's ordination.

I had not thought Mr. Denny had such a mastery of the scholastics. However, he does not prove his point that free-market thinking (à la, perhaps, the Austrian school of economics) is the product of some of the greatest Catholic minds of the Middle Ages. (It is certainly, as Mr. Denny suggests, not the product of the Church.) Two quotations, without producing their context, do not make a proof. And is Diego de Covarrubias y Levia one of the greatest minds of the Middle Ages? I confess I've never heard of him, though that is saying little. But more to the point. In my reply in the April Faith, I said that a just price is based on real human need, both of the buyer and the seller. This, indeed, is often arrived at in free exchanges (not identical to speculation), as long as they are between equals, with all things being equal; but there are situations where either the buyer or the seller has unfair advantage or is deceptive, and injustice occurs. To say the governing authorities should have no care for this is to say their authority doesn't extend to economic justice.

But economic justice is an aspect of the common good, over which, at least some scholastics (as St. Thomas Aquinas) said the government has directive authority. Too, "governing authorities" does not necessarily mean the modern state as such; it can mean bodies like the medieval guilds or the economic groups suggested by Pope Pius XI in Quadragesimo Anno. The state as it exists today is far from perfect, both in its ruling philosophy and in its very structure, but it is not valueless. (Would not Mr. Denny call the police if his house were robbed?) Further, when the popes assign a role to the state in economic affairs, it is in the context of justice and with due respect for subsidiary authorities in society. If a modern state acts thus, it is fulfilling a necessary role in society — and is well on the road to its reform, which is for it to become an articulated, hierarchical order based on the family and with local communities exercising the predominance of governance.

Mr. Denny asserts that "the actual definition of usury is 'lending at exorbitant interest rates.'" As he indicates later in his letter, this is not the definition of usury given by the Scholastics, which is any fee charged for the mere use of money. Incidentally, this is what the Church has traditionally defined as usury. (See the encyclical Vix Pervenit, of Pope Benedict XIV, at www.ewtn.com/.) The issue of whether or not an interest rate is exorbitant arises when one is dealing with just interest — that is a fee charged for some other reason than the simple use of money (for instance, as a penalty or for real and certain — not just putative — risk.) And, generally, though perhaps not always, one charges an exorbitant fee for the sake of gain.

Mr. Denny presents an interesting theory — that "placing responsibility for problems or solutions outside the scope of [the] personal, in-heart dynamic is a mistake." He suggests too, the state should abandon "worldly power" (for what? spiritual power?) Thus, the state should exercise no oversight of the economic order but leave it to divine influence on individual souls. But is this true only for economics? Should we abolish the police and law courts and trust the divine influence to work on the hearts of would-be thieves, rapists, and other criminal sorts? Is Mr. Denny calling for universal anarchism? And if not, what makes the market so inviolate that it alone should be free of a human, directive principle?

It is interesting to note that in his first letter, Mr. Denny spoke of the "overwhelming success of capitalism," presumably referring to the economic system as it currently stands (what else was he referring to?) After I questioned this success in my first response to him, he, in his current letter, proceeds to blame the ills of the economic order on "corporatism" and "mercantilism," which are functions of the "State." Perhaps Mr. Denny sees the distinction between modern capitalism and corporatism, but I do not. It is nice to know that "the free market peacefully survives despite the state," but how does one discern whether modern economic successes (and failures) arise from this "free market" or from "corporatism"? Perhaps Mr. Denny has a ton of research to support his contention; but he may also be making good, old-fashioned a priori assumptions about the character of men and markets and be interpreting reality to fit his theory. And as for "pure," unregulated capitalism — well, as Hilaire Belloc once suggested, dallying with this dame always produces an unpleasant and bastard birth — socialism or the very statism that Mr. Denny so deplores.

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