Catholic Social Thought and the Economic Problem

There is nothing more useful than to look at the world as it really is — and at the same time look elsewhere for a remedy to its troubles. Leo XIII

1. Introduction

Economists are quick to tell us that economics is about choice. Just about every economic issue is defined as a trade-off between two alternatives: inflation or unemployment; equity or efficiency; guns or butter; the list could go on indefinitely. Yet what is left out of the discussion is the question of the criteria upon which these choices are made. The modern orthodox economist likes to give the impression that he is neutral on this subject, that his analysis is “value-free,” that economics is on par with the natural sciences in that it merely investigates the economic reality as the economist finds it. If economics is a “value-free” science, than there is not much that Catholic social thought (CST) can contribute to our understanding of the economy. Catholic social thought might play a role in forming economic policy, or setting economic and social goals, but the Church should leave the understanding of the economy itself to the “experts.” Yet nothing could be further from the truth. Any so-called “science of choice” must, by necessity, be based on “values” and “value judgements.”

It is because of this centrality of choice in economics that Catholic social thought has much to contribute to our understanding of how the economy operates and how it can be made to serve human needs and wants better. For all their emphasis on the role of choice in the economy, neoclassical economists are often silent on the more fundamental issue of the criteria used in choosing. These issues are often dismissed as “normative” economics, not part of a scientific understanding of the economy. Catholic social thought directly addresses the issues concerning the values and the criteria used for making choices, and it is these issues that need to be understood if economic theory is to be useful in addressing economic issues.

In this article we will look at some of the most basic concepts in economics. In examining them we will highlight the discretionary aspects of these concepts, that is, where choice plays an important role. We will see that one of the most important limitations of neoclassical economic theory is its failure to understand adequately the inherent values and philosophical preconceptions upon which it is based. Furthermore, we will see that its failure to address the most pressing economic problems of our age stems from the blindness of neoclassical economists to the “values” incorporated in their system and thus an unwillingness to consider other, more acceptable, value criteria. At every step of the economic theoretical enterprise, and at every level of economic activity, values play an important role, shaping not only how we think about the economy, but the economy itself.

In order to bring these issues out into the open, we will firstly clearly define what is economics: that is, the economic problem and its three solutions (n. 2). Secondly, we will look at the touchy issue of values in economic analysis, what is usually shielded from serious analysis with the so-called “positive/normative dichotomy” (nn. 3 & 4) Thirdly, we will look at the principles of CST as an alternative foundation for an explicitly normative economics (n. 5).

2. The Economic Problem: Necessary and Discretionary Aspects

What is Economics?

Economics is about social provisioning, or how societies provide for their material reproduction. This definition, which is different from the common “allocation of scarce resources” definition in most textbooks, is general enough to be applied to all societies, past and present, regardless of their level of economic development or their mode of production. All societies must provide for their material reproduction to remain viable, that is, they must solve the economic problem. The economic problem can be broken down into three questions: What to produce? How to carry out production? And to whom to distribute the benefits of production? All three of these questions are deceptively simple. Each question has both necessary and discretionary aspects to how they can be answered. The discretionary aspects to addressing these three questions are vast and provide for the variety of ways these have been answered. Since each of these questions has a substantial discretionary element in how they are answered, every society must choose how to answer them. In order to be clear as to what aspects of the economic problem involve choice and which do not, we will go over each of these three questions is some depth.

What to Produce?

In deciding “what to produce?” every society must consider the role production plays in the viability of the social unit. At a minimum, if a society is to maintain the status quo (keep that society at its existing levels of income and population) it must produce a level of output which replaces the goods and services consumed in the present time period, as well as any goods that have been used up in the production process. Failure to do so will cause the society to shrink in numbers and/or standard of living. The what-to-produce question involves deciding not only the level of production, but more importantly the composition of goods and services to be produced (such as food for all or luxury goods for the leisure class). This question includes the famous guns or butter trade-off, but also includes the choice of production for today (consumption) versus production for tomorrow (investment).

All societies face both technological and natural constraints on how they solve the what-to-produce question. Production has to be in accordance with what the society’s environment and technology can support. Eskimo societies would not be able to include rice as one of their basic staples of domestic production, at least not until they had developed the technology for growing indoors. Yet even with these constraints, there is still considerable, almost endless, variety in how societies have and can decide what to produce. This is particularly true for affluent societies. What a society produces is a direct reflection of its dominant values (or, more often, the values of those with power).

How to Produce?

The “how to produce?” aspect of the economic problem is essentially a question of the social division of labour and technology. The necessary aspects of this question involve existing technology and human abilities. It is obvious that how the social product will be produced is limited by the available technology, which includes human knowledge. One cannot produce goods that have not yet been developed, nor use techniques that have not been invented. The social division of labour, however, is not as simple. Nor is the question of choosing between competing technologies. Tasks (jobs) must be assigned in such a manner that the people assigned each task will have the ability to perform them. Only the most primitive society, where all have approximately the same training and abilities, could allow for a random selection process. Yet the element of discretion is great here, for the skills to do most tasks are acquired in the process of doing them and the issue of natural abilities rarely acts as a great constraint. No society could exist for long that needed the “best man for the job” for every job. Societies must come up with a method of allocating economic tasks which insures that the level of social output is sufficient, while maintaining the existing social order.

To Whom to Distribute the Social Product?

How a society distributes the social product also has necessary and discretionary aspects. Social output must be divided in such a manner that enough of the members of society can subsist and reproduce into the next time period. Yet, this is easily achieved, as most societies produce considerably more than the bare subsistence level of production. In this situation, the issue of distribution becomes closely tied up with the issues of status and power (the allocation of the social surplus). How any society divides up the proverbial “economic pie,” as John Stuart Mill has stated (1989, p. 200-1), is largely discretionary:

[T]he Distribution of wealth ... is a matter of human institutions solely. ... [I]n the social state, in every state except total solitude, any [distribution]... can only take place by the consent of society, or rather of those who dispose of its active forces. ... The distribution of wealth, therefore, depends on the laws and customs of society. The rules by which it is determined are what the opinions and feelings of the ruling portion of the community make them, and are very different in different ages and countries; and might be still more different, if mankind so chooses.

Typically only the values of the ruling class are considered in determining the discretionary aspects of this question; however, with the rise of democratic institutions, wider and wider circles of voices have been allowed to speak to this issue and influence how society distributes its output. It should be very clear that ethical or moral guidance must play an important role in how society addresses this issue, as it does for the what-to-produce and how-to-produce questions.

Solutions to the three questions:

Tradition

Throughout history there have been three broad solutions to solving the economic problem: tradition; command; and market. The traditional solution is to use the methods and rules of the past to guide your present economic activity. In such a solution, this year’s production will mirror last year’s. The composition of output will change very little year to year. Under tradition the social division of labor was first set by age and gender, men’s and women’s work, with children working with their mothers (and boys joining their fathers when they reached puberty); in a more complex society, with a more extensive division of labor, the system of sons following their fathers’ occupation is typically followed. This system is socially efficient in that it insures that a sufficient variety of “types” of workers are produced as well as providing for a system of training (Yet it is weak on individual freedom). Many people’s last names today are evidence of this system. Furthermore, all such societies will have rules and customs that determine how the social output is divided.

Command

Under the command solution to the economic problem the answers to the three questions of the economic problem are solved by a central authority deciding: what to produce; how to produce; and to whom to distribute the benefits of production. This too has been a popular solution to the economic problem for it ensures that the questions get answered. The command solution is seen in the building of a Pyramid or medieval castles, as well as in the production directives from the central planning authorities under communism. The command solution is often employed during times of dramatic change or necessity. During WWII all the combatants effectively had command economies. The central authority could be benevolent and democratic or malevolent and totalitarian. The goals of the central authority could be in harmony with those of the people (promote the common good) or they could be pursuing their own self aggrandizement (as is typically the case with most ruling classes).

Market

The market solution is often described as a non-solution, as it does not entail any easy answers to the three questions. Under the market solution the forces of supply and demand interact to determine what gets produced, how it is produced and to whom the benefits of production will go. In this system each individual is supposed to be guided solely by price signals (that are generated by the forces of supply and demand) and their own individual and autonomous preferences and self-interest. As Adam Smith has written (1976b, p. 26-7) “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” Thus self-interest is turned into the public interest, as if “led by an invisible hand to promote an end which was no part of [our] intention” (1976b, p. 456). According to most economists, the market, in its purest form, equates private costs with social costs, private benefit with social benefit.

The market mechanism is quite simple. Each individual is led by a desire to maximize their income or wealth. Income is gained by selling (what Smith calls our “natural propensity to truck, barter and exchange”) in the market place. Prices are determined by the interaction of supply and demand, with prices rising if there is less supply than demand (shortages), and falling if supply exceeds demand (surplus). These price changes encourage some economic actors to enter or exit markets, or to increase or decrease production or consumption, thus countering the surplus or shortages, bringing supply and demand into equality (equilibrium). Through this mechanism the many varied and diverse economic activities in a modern economy can be co-ordinated without a central co-ordinator. Many have in fact argued that the market mechanism is the only way to co-ordinate such an economy efficiently.

This explanation of markets suggests that markets are able, on their own, to coordinate the separate behaviours of individuals, thus creating order out of chaos. This is the myth of the market. Markets are not natural phenomenon, but are socially created. In the real world the market mechanism is best at dealing with small changes to an already existing economic order, providing the signaling function of adjusting relative prices so that a small number of market participants can adjust their behaviour. Markets, however, cannot generate this order. All markets are social institutions, embedded in particular societies and in history. They have rules of behaviour, laws and customs. These come from tradition. Also they have property rights and methods for enforcing these rules and customs. These come from command. Without the proper context, markets are inefficient and chaotic, as Russia is currently demonstrating to the world.

Tradition, Command and Market in a Modern Economy

The pure market solution to the economic problem has not been attempted, for it cannot be attempted. In all the developed capitalist economies there is a mixture of tradition, command and market solutions to the economic problem, as there needs to be. This is not a matter of “liberal” ideology, but due to necessity. Adam Smith knew that markets need fully socialized and ethical market participants in order to be efficient; the economic man that inhabits The Wealth of Nations has already been “civilized and socialized” in Smith’s earlier book The Theory of Moral Sentiments (1976a). Smith, in fact, noted the important role religion and religious values played in this socialization process. We see tradition playing an active role in our economic life whenever habits, values and culture, and not rational self-interested maximization, shape and influence our economic behaviour. One example of this is household production. Although economists have attempted to explain the economic activity which takes place within the family as rational and self-interested, these have been extremely unsuccessful (but often quite funny, though I do not think this is the authors’ intention). Only an economist can seriously believe that parents “invest” love and attention into their children (assets) because they feel they will get a competitive return in the long run. Gary Becker’s economics of the family must be seen as the workings of a dysfunctional family, something one might see on a parody of the Jerry Springer show. Tradition affects all aspects of our economic behavior, most importantly through its setting the “moral” tone for acceptable business behavior.

The role of command in a modern economy is most evident in the role the government plays in modern capitalist economies. The most obvious examples of this can be seen in the recognition that government spending and taxation, as well as regulation, shape how society answers the three questions of the economic problem: influencing what is produced (military goods, mass transportation and other “public goods”); how it is produced (labor and capital taxes influence the firms labor/capital mix, workplace safety laws); and lastly, to whom to distribute the benefits of production (tax and social welfare systems; minimum wage laws). But there are also many non-governmental aspects of command in the modern economy. The large multinational enterprises which dominate so much of the world’s economic activity are institutions of economic power, power which comes from their ability to move economic activity out of the competitive marketplace and into their planning systems (Galbraith, 1967). Collectively their power dwarfs that of governments (and sometimes individually, especially in the third world). It should be remembered that the large corporation is an institutional adjustment to the inherent uncertainties of the market and the needs of technology. The inability of markets to generate stability and certainty in the face of continued economic evolution necessitates that much of the economic activities of these enterprises are removed from the competitive marketplace. Taken together, the amount of economic activity which takes place under the heading of tradition and command would greatly exceed that under the heading of the market.

Once we get away from the market myth we can see that the prices and other economic outcomes we observe serve many functions and can be, and are, the result of many different types of activities and are never the result of the summation of autonomous individual preferences and relative scarcities. Most prices are in fact administered, that is, the result of a firm’s pricing policy, and not the sole result of impersonal market forces. Supply and demand considerations are often important in the determination of a firm’s pricing policy but this is a far cry from the world of Alfred Marshall's scissors. Of particular importance is the role of Power, where groups have the ability to influence or control their prices. To some extent this is the phenomena of market power, in that market structure can and often does influence market power. But this is also the result of custom, tradition, legislation and bargaining power. One of Thorstein Veblen’s (1899) great insights is that much of the power of the leisure class stems from their control and influence over social mores and values (this is the real importance of conspicuous consumption). The role of power and the existence of administered prices gives us a new perspective on contemporary economic issues, for it highlights another discretionary aspect of the economy.

The importance of seeing markets as social institutions, and of seeing the elements of tradition, command and market in all solutions to the economic problem, arises because of the need to look beyond standard economic solutions to the economic issues that advanced capitalist economies face today and will increasingly face in the future. The conservative economic solution to all economic and social problems is to expand the market (which frequently means removing elements of tradition and command), while the standard liberal response (often called the knee-jerk response) is to increase the role of the government, that is command. While it is true that not every economic problem requires a government solution, it is equally true that every economic problem cannot be solved through the market. Any success at addressing our economic problems will require a creative mixture of tradition, command and market solutions. Our goal cannot be tradition, command or market for their own sake, but what best promotes the common good. In this we must take note of the wise advice of Pope Leo XIII “There is nothing more useful that to look at the world as it really is — and at the same time look elsewhere for a remedy to its troubles” (O’Brien and Shannon, 1992, p. 20). We must look beyond the economist’s view of the economy (capitalism) to find solutions to our pressing economic problems.

3. The Role of Values: Positive and Normative Economics

One of the most obvious objections to a Catholic Social Thought based understanding of the economy is the claim that it entails religion interfering with science. More than any of the other “social sciences,” economics has claimed the mantel of being a “science,” on a par with the natural sciences. This distinction stems from two attributes of economic theory: its use of mathematical formalism and its claim at being “value-free,” that is, the claim of being a “positive,” and not a “normative,” science. The first attribute is easily dismissed. Mathematical formalism has given economics the appearance of being a hard science, but only because it makes economics look like physics. This is no accident, for modern neoclassical economic theory was developed based on mid-nineteenth century physics (Mirowski 1989; Clark 1992). Yet appearances are not reality. The reality is that 1) mathematics is not an empirical science, the use of mathematical formalism in no way insures that economics is “scientific” (Beed 1989); 2) there is nothing in the reality of capitalism that suggests that it is driven by “mathematical” logic or is mechanical. The role of time, money, uncertainty and culture prevent this, among other things. To quote Robert Heilbroner (1979, p. 198) “the prestige accorded to mathematics in economics has given it rigor, but alas, also mortis.”

Over a century ago economists started making the distinction between “positive” and “normative” economics. In the first week of classes, every first-year economics student learns of this distinction. “Positive” economics deals with what is, and is thus value-free, while “normative” economics deals with what ought to be, and thus involves value judgements. It is by adhering to this distinction that economists have made the case that their analysis is “scientific.” Wouldn’t an economics based on CST be explicitly a “normative” economics? Doesn’t this entail the abandonment of the “scientific” economics research program? The short answer to the first question is an unapologetic and emphatic: yes. An economic theory based on CST would be explicitly a “normative” economic theory. Yet, all economic theory is necessarily normative. An economic theory based on CST would replace the “utilitarian” and laissez-faire values and ideology of neoclassical economics with the principles and values of CST. As for the second question, if by “scientific research program” we mean an economic theory that is pure mathematics and has no social or historical context, than the answer is also yes. However, if a “scientific” economics research program means an understanding of actual economies and real economic activity, then the answer is no; in fact following CST moves us closer to this desirable goal.

Normative/Positive Distinction

A detailed examination of the positive/normative distinction is beyond the scope of this article, but a few points need to be made. First, it is a totally false dichotomy, and has been recognized as such by methodologists for some time. As Gunnar Myrdal long ago noted, all economic theory and observation are value laden and cannot help being such (Myrdal 1954; 1958). Even the most basic observation requires a viewpoint from which to observe, and this viewpoint is not and cannot be based solely on past “objective” observation. All observation requires theory to help bring “order” to the chaos of daily life. We need a theoretical system to assimilate and give meaning to our observations. Observation without theory would have an effect on us much like the gift of sight has on people who have been blind from birth. Seeing is a very frightening experience for these people, for they have no way of assimilating the barrage of visual stimuli. Theories and models help us to categorize reality, but these categories are humanly created and are always based on value judgements. This is not a radical point, and most, if not all, philosophers and historians of science would readily accept it. Only economists seem, as a group, to reject this fact.

Just as all observation requires theory, all theories require value judgements. At the most basic level, these are the judgements of what to observe and what to theorize about. A theory of unemployment must first start by making the decision that it needs theoretical explanation and second it must define what unemployment is, both of which are blatantly value-laden (and political) activities. Furthermore, the choice of what methods to use to investigate this phenomenon also involves value judgements, as does selection of the critical criteria about what will be accepted as the “final term” in the analysis, the bases of what arguments will or will not be accepted. However, values and value judgements enter into theory construction on the ground floor by giving the theorist the “vision” of the reality s(he) is attempting to explain. This “vision” is pre-analytical in the sense that it exists before theoretical activity takes place. It comes from the theorist’s philosophical preconceptions and is often unknown to the theorist, as it is accepted as true without itself being subject to investigation. Most importantly, it is often a reflection of the theorist’s view of the “ideal” of that which they are investigating. Thus in social theory the “vision” is often a mere reflection, some times clear, sometimes distorted, of the theorist’s opinion of the ideal society. Adam Smith’s “society of perfect liberty” is the most obvious example of this point, but we could easily use Jeremy Bentham’s “Utilitarianism,” or Walras’ system of general equilibrium. In fact these three “visions” make up much of the neoclassical economist’s preconceptions of the economy and society. They are accepted without investigation or inquiry. All legitimate (accepted by the mainstream of the profession) theory must be in conformity with these presuppositions. They provide the definition of society, of human nature and the moral justification of a market economy. And all have been shown to be quite clearly based on values and value judgements. The ideal always influences the real. The ideal provides the framework within which we will understand the real. And since humans create their reality, and since they strive for the ideal, the ideal, as a goal, necessarily influences the development of the real.

The extent to which ideology and “values” have influenced the development of economic theory over its history has been well documented and need not be repeated here (see especially Myrdal, 1954). All economics, as with all social science, is normative and cannot help being otherwise. The claim of the “positive” scientific label is more an attempt to dress up one set of value judgements as “scientific” so that they do not get examined and are not subject to criticism.

Along with the abandonment of the false claim of being “value-free,” an economics based on CST will also lose much of the pretense and false appearance of being a “science” on a par with the natural sciences.

4. Values Underlying Neoclassical Economics

Neoclassical economic theory’s lack of historical and social context is justified by the belief that economic phenomena are in essence “natural” and not “social,” that is, the result of natural forces and laws (scarcity and human nature) and not the end result of social activity. The laws and theories that make up neoclassical economic theory are considered natural laws, exposing invariant economic forces. Yet neoclassical economic theory, like all social theory, is built upon value judgements and premises.

Value and Utility as the Good

Underlying neoclassical economic theory is the marginal utility theory of value. The purpose of value theory in the history of economics is grossly misunderstood. For most economists it is merely an archaic term for price theory, yet value theory is at the heart of all economic theory. As Robert Heilbroner has noted, the theory of value is really about the underlying order of the economy and society. Prices are at best a rather imperfect manifestation of this order, even under ideal conditions, but they are of interest only to the extent that they reflect this order. One of the most important aspects of this order are the “ideals” of a society, their conception of the “good.” Value theory is an expression of what the particular society, or those who are its active force, value; specifically, it is an expression of what they value enough to influence their actions and adjust their behavior to bring about. In this case, as in all others, the real chases after the ideal.

“In the classical and much of the neoclassical tradition in economics, the maximal satisfaction of wants, notably consumer wants, has been and remains the basic criterion of judgement, the standard of value, the basis on which to distinguish between good and bad, proper and improper, and desirable and undesirable” (Tool 1986, p. 89). Value comes from and is measured by utility. The theory of marginal utility serves both of the functions of value theory: the ordering properties of society and the legitimation and evaluation of ends (Clark 1995). For the neoclassical economist something has value only in so far as it delivers utility to someone through the marketplace. The marketplace sums the total individual utilities of consumers and balances these against the disutilities of producers (demand and supply) and reaches an equilibrium when these are equal. The underlying order of the market (which for neoclassical economics is society) is an expression of society’s values. Economists often note that utility can be had outside market transactions, but this is seen as a market failure and leads to inefficiencies (that is without market determined prices, individuals will consume the incorrect amount of non-market generated utility). Thus they view the solution to all problems, economic or otherwise, as involving the establishment of property rights and a market for exchange.

If a society is motivated solely by the search for utility through the marketplace, then neoclassical economics can be a realistic depiction of such a society (although why anyone would want to live in such a place is beyond me). If neoclassical economic theory comes to dominate a society, establishing its vision and setting its values, then the society will start to reflect the neoclassical world. However, it can never fully reflect such a world for such a social order is not viable. As James Gordley has recently demonstrated, the world of neoclassical economic theory must, in order to work as an actual economy and society, be populated with citizens who religiously follow the four virtues (prudence, justice, temperance and courage) highlighted in the work of Aristotle and St. Thomas. The problem for neoclassical economic theory is that neither “markets” as a socializing institution nor neoclassical economic theory as an ideology or “religion” produces such people. Furthermore, their emphasis on greed as a “good” eats away at such virtues. Thus neoclassical economic theory becomes a contributory problem for social order for it glorifies and legitimates anti-social behavior.

Human Nature

The neoclassical view of human nature is an outgrowth of their theory of value. This view of human nature is frequently called “rational economic man’. Although the vast majority of economists will quickly admit that it is a narrow depiction of human nature, overly simplistic and often presented (and accepted) as a caricature, they would also nevertheless claim that it is essential for an understanding of economic activity and market forces.

Economic theory conceives of human nature in utilitarian terms. The human person is a rational utility maximizer, driven solely by self-interest, chained, as Jeremy Bentham has so vividly described, to the twin pillars of pain and pleasure. This mechanical view of human nature comes from, and is necessary for, the mechanistic view of society. This “hedonistic” view of human nature was best characterized by Thorstein Veblen (1919, p. 73-74) when he wrote:

The hedonistic conception of man is that of a lightening calculator of pleasures and pains, who oscillates like a homogenous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact. He is neither antecedent nor consequent. He is an isolated, definitive human datum, in stable equilibrium except for the buffets of the impinging forces that displace him in one direction or another. Self-imposed in elemental space, he spins symmetrically about his own spiritual axis until the parallelogram of forces bears down upon him, whereupon he follows the line of the resultant. When the force of the impact is spent, he comes to rest, a self-contained globule of desire as before.

Man seeks pleasure and avoids pain, and every decision comes down to a calculus of costs and benefits, pains and pleasures. Economists will frequently admit that man may be driven by other motives outside his economic life, yet they claim that this depiction of human nature is very useful for developing economic models and theories to explain economic activity. Their deep belief in this view of human nature can be seen by their willingness to use this conception of economic man to explain non-economic behavior (this being the basis of economic imperialism, the attempt to explain all social phenomena via economic theory), and in their exclusion of other motives as impinging on the economic realm.

One reason economists’ hold this view of human nature, as Veblen pointed out long ago, is that their view of society and the economy as equilibrium systems requires deterministic and atomistic behavior, as do their mathematical models. Rational economic man has no free will. In one of the great ironies of intellectual history, the theory of free markets based on free choice requires that the individuals that make up the economy and society display deterministic behavior, that is, have no freedom of choice. If one wants to show that a market economy produces optimal equilibrium outcomes, than one has to exclude human choice.

This idea of a universal human nature causes the neoclassical economist to expect that policy carried out in fully capitalistic societies will work similarly in post-socialistic societies (for the people will behave the same way). Such economists have not fully realize that reacting to market signals in an efficient manner is a socialized response, not fully realized in the most developed capitalistic economy, and non-existent in non-capitalistic economies.

Vision of Society

The atomistic and hedonistic view of human nature leads to a mechanical and individualistic view of society. The individualistic view of society has its roots in the mechanical view of nature, with Isaac Newton as its greatest proponent. In this approach, society is conceived as a collection of individuals. Only the individuals really exist; society as a separate entity is a mental fiction. Mechanics and physics are the primary source of metaphors for economics according to this view of society. Mechanistic social theorists have looked to the individual as the “final term,” in that all explanations must be in terms of individual actions and motives. This adoption of “methodological individualism” stems from the belief that inherent in human nature are the drives and propensities which will produce social order (equilibrium) and not chaos.

The mechanistic view of society has dominated both classical and neoclassical economic theory. At one level we see this in the extensive use of mechanical and physical analogies and metaphors. The market equilibrium story is a displacement from the theory of Newtonian mechanics into economic theory, so as to provide a way of theorizing economic activity where the resultant equilibrium is determined by the balance of individual forces. It is also seen in the necessity to explain all social phenomena as the result of individual human propensities. The net result of adopting the mechanistic view of society is that it forces the theorist to exclude historical and social context from analysis. The most extreme form of this type of economic analysis is modern general equilibrium theory, in which neither history nor social context exist. In fact, neoclassical economists see this as a strength of their approach. As Werner Stark (1962, p. 56-7) has noted: “If the social order is likened to an equilibrium system, ... then it is almost certain to be interpreted in a non historical and unhistorical spirit. An equilibrium has no history; its laws do not change with the centuries. The formal equations in which it can be described are of timeless validity, as all purely quantitative propositions must be. Rational mechanics is a branch of mathematics and its students glory in the fact: those social theorists who wanted to model [social theory] on rational mechanics [cannot] admit the reality of developmental change.” As we will see, the CST tradition has been extremely critical of the individualism which is at the heart of orthodox economics and the laissez faire philosophy it supports, and rejects this view of human nature and society.

Efficiency

There are two working conceptions of efficiency in neoclassical economics, a micro and a macro. The micro conception is the Pareto principle. This is the notion that any change in the holding of commodities (including money) that makes at least one person worse off is inefficient. This is so because, under the assumptions of neoclassical economics, no one would make such an exchange voluntarily. At the same time, however, neoclassical economists do not allow for interpersonal comparisons of utility. As we would expect in neoclassical analysis, no mention is made as to the original distribution of goods and incomes. All are considered outside the purview of their analysis and thus, by default, all distributions are given equal moral weight. A small number of people or families owning all or almost all of the commodities with everyone else starving or nearly starving is morally equivalent to everyone enjoying a decent standard of living, equal in the sense that neoclassical economic theory is indifferent between the two. One cannot, within neoclassical economic theory, choose one over the other.

The neoclassical theory of efficiency is operationalized in the macro sense in the concept of Gross Domestic Product — the price of aggregate output. Here the final criteria is: does it produce economic growth, i.e produce an increase in GDP? This is the most important criteria for neoclassical theory, for it measures utility consumed in the market place, the neoclassical conception of the “good.” The limitations of this are well known or at least should be. Yet it is worth pointing out that much of the United States economic growth in the past 30 years is merely social decay by another name, as pollution, the decline of the family, crime and other social ills have generated vast increases in market transactions, but little feeling of social improvement.

The limitations of neoclassical economic theory for understanding and guiding economies in transition can be summed up as such: it cannot include historical and social context and it has a morally bankrupt and socially damaging conception of the “good.” It therefore cannot understand the present and cannot help in moving towards a desirable future. We must look elsewhere.

5. An Alternative Vision: The Perspective from Catholic Social Thought

Unlike neoclassical economic theory, the Catholic social thought tradition openly and explicitly states its vision and its value judgements. They are not hidden preconceptions, but instead celebrated pillars upon which all social formations and analysis need to be built. It is a vision grounded in the Old Testament and comes to life in the Gospels; it provides the explicit underpinning for the various Encyclicals and other Church documents that make up the Catholic social thought tradition. At the heart of this “vision” is, as Sean Healy and Brigid Reynolds have written, the belief that “God speaks to every reality. Whatever we are looking at whether it is an issue such as world hunger ... or an economic system such as Capitalism, God does have something to say to that reality. Our world either is or is not in accord with God’s ideal for it. Consequently it is important for us to come to know what God is saying to whatever reality we are examining. God speaks to these issues or situations in various ways: through the Bible, through the teachings of His Church, through the signs of the times and through the prophets who interpret those signs” (Healy and Reynolds, 1983, p. 5-6).

One bedrock value of this tradition is the assertion of the dignity of all humans. “The dignity of the human person, realized in community with others, is the criterion against which all aspects of economic life must be measured” (Economic Justice for All in O’Brien and Shannon, 1992, p. 584). This is an assertion that runs through the Catholic social thought tradition and its significance cannot be understated, for it calls for a view of society which is not mechanistic and individualistic, as is neoclassical economic theory, or completely organic, as is vulgar Marxism. Both the individual and the community are interconnected and neither can be reduced to the other.

This interconnectedness is at the core of the idea of the common good. Since human nature is defined as social, the welfare of each individual is connected with that of the community. The common good is not an equilibrium state of affairs. It is a process. As David Hollenbach has said “The common good is a social reality in which all persons should share through their participation in it. It is not simply the arithmetic aggregate of individual goods suggested by the utilitarian formula ‘the greatest good for the greatest number.’ In a utilitarian understanding, increased aggregate social good (e.g., gross national product) is compatible with the exclusion of some persons from participation in it. Emphasis on the participation of all in the common good is particularly important” (Hollenbach, 1994, p. 193). Pope John XXIII defined the common good as that which “embraces the sum total of those conditions of social living, whereby men are enabled more fully and more readily to achieve their own perfection” (Mater et Magistra, 65). This interdependence was particularly highlighted in the Vatican II document, Gaudium et Spes: “Man’s social nature makes it evident that the progress of the human person and the advance of society itself hinge on each other. From the beginning, the subject, and the goal of all social institutions is and must be the human person, which for its part and by its very nature stands completely in need of social life.” John Paul II has recently emphasized that concern for the environment is an essential aspect of the common good, for the obvious reason that man needs more than community to flourish.

In Economic Justice for All, the US Bishops state six principles which must be followed if economic policy is to promote the common good: “1) every economic decision and institution must be judged in light of whether it protects or undermines the dignity of the human person; 2) human dignity can be realized and protected only in community; 3) all people have a right to participate in the economic life of society; 4) all members of society have a special obligation to the poor and vulnerable; 5) human rights are the minimum condition for life in community; and 6) society as a whole, acting through public and private institutions, has the moral responsibility to enhance human dignity and protect human rights” (O’Brien and Shannon, 1992, p. 575).

Economic theory defines efficiency in terms of market transactions and outcomes, profit and loss, underpinned by the mythical entities of utility and disutility. The Catholic social thought tradition asserts a different yardstick. Yet it is not anti-growth or hostile to economic life (both common charges). It is to economic growth as an end in itself that the Catholic social tradition objects, not to economic growth as a means. CST offers a different “vision” of economic development and progress (see Populorum Progressio). To follow productivity as a goal, without regard for the context of economic activity and its human dimension, is to follow a false god. As the U. S. Bishops have stated:

Productivity is essential if the community is to have the resources to serve the well-being of all. Productivity, however, cannot be measured solely by its output in goods and services. Patterns of production must also be measured in light of their impact on the fulfillment of basic needs, employment levels, patterns of discrimination, environmental quality and sense of community (O’Brien and Shannon, 1992, p. 595).

The key distinction that Catholic social thought makes is that humans can never be treated as means to an end, for they are the ends. Thus the treatment of workers as mere commodities to be used to maximize profits is objectionable. We can see a clear statement of this view in Rerum Novarum:

The following duties bind the wealthy owner and the employer: not to look upon their work-people as their bondsmen but to respect in every person his or her dignity and worth. ... They are reminded that ... to misuse people as though they were things in the pursuit of gain ... is truly shameful and inhuman. ... Furthermore, employers must never tax their work-people beyond their strength, or employ them in work unsuited to their sex and age. Their great and principal duty is to give every one what is just. ... to gather one’s profit out of the need of another , is condemned by all laws human and divine. . . . Lastly, the rich must religiously refrain from cutting down the workers’ earnings, whether by force, fraud or by unjust dealings ... (RN 16-17) (quoted in Dorr, 1992. p. 24).

And this theme is continued in numerous subsequent documents. Thus for Catholic social thought the concept of efficiency must be defined in terms of the meeting of human needs, regardless of whether these needs are expressed in the market. Furthermore, these needs are not limited to material ones and include the need to participate.

The Catholic social thought tradition also has a very different conception of equity. The basis of equity in Catholic social thought is the common gift of the earth from God. Thus the minimum equity criteria is that all have a share in this gift so that each will be able to meet their basic, minimum needs. “God destined the earth and all that it contains for the use of all people and peoples. Furthermore, the right to have a share of earthly goods sufficient for oneself and one’s family belongs to everyone” (Vatican II, in Dorr, 1992, p. 154). This is not a claim for perfect equality, but that all be insured a decent standard of living. This claim is also put forward in the United Nations Universal Declaration of Human Rights.

The Catholic social thought tradition also notes that greater equity is to the benefit of both rich and poor and that there are gains to society from greater equity. “Excessive economic and social inequalities within the one human family, between individuals or between peoples, give rise to scandal, and are contrary to social justice, to equity, and to the dignity of the human person, as well as to peace within society and at the international level” (Gaudium et Spes, 29.3 in Dorr, p. 158). This observation has been made more widely; Adam Smith recognized it as well.

Catholic social thought has, for the most part, followed a two pronged attack on social justice issues. On the one hand it has noted the many structural issues that lead to the abuse of human dignity and the many social inequities we see today. These issues require structural reform, most often in the form of national or international regulation. Here we would find policies like minimum wage legislation and better terms of trade for the developing countries. Yet equally important for the tradition is the changing of the hearts of individuals. Catholic social thought calls on each of us to look at every person as a fellow child of God, to see Christ in them. This is true for us in our business lives, as owners, managers, workers, consumers and voters, thus it is a call for a new attitude in the micro-aspects of our economic lives.

6. Conclusion

In deciding how to solve the economic problem, society cannot take a “value-free” stance. It must explicitly state its values as goals to be strived for, as both ends and means. CST offers this necessary moral vision. Robert Heilbroner once said that the market is a useful servant but a terrible master. By using CST as a moral compass we can have the servant serve the master, instead of the reverse, as in our current situation.

How we will solve the economic problem will be based on our “values”. While the values of the marketplace dominate every aspect of our society at present, they as yet do not dominate our vision of the good and our ideals. These are, for the most part, still the Gospel values and ideals. We must reassert these ideals in our analysis of the economy and expose the morally lacking “ideals” that dominate economic analysis. Then we will be able to develop a useful economic theory (understand the world as it is) that will help us to create a more just world (looking elsewhere for the remedy).

A longer version of this paper was originally presented at “Catholic Social Thought in the Academy: Engaging the Disciplines”, John F. Henning Institute 3rd Annual Conference on Catholic Social Thought, St. Mary’s College of California, March 12-14, 1999.

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