Wednesday, May 23, 2012

The Global Debt Crisis, XII: Pillars of an Economically Just Society

As we saw yesterday, simply knowing the basic principles does little good if we cannot apply them. Thus, Say's Law of Markets doesn't do anyone any good until and unless we can apply it in the real bills doctrine. We can produce our heads off, and so can our neighbor, but until and unless we can come together and have some shared basis for exchange, we won't be able to strike a bargain and no exchange will take place.

We discovered that the shared basis for engaging in exchange is the offer and acceptance of a contract, a "meeting of the minds," that we call "money." The application of Say's Law by means of which we can offer and accept contracts is called the real bills doctrine. The three principles of economic justice (Participation, Distribution and Harmony) ensure the operation of Say's Law of Markets in the real bills doctrine.

The question now arises as to how to apply the three principles of economic justice. A little reflection allows us to see what is essential to the functioning of the principles. Just as Say's Law of Markets can only be effective when applied in the real bills doctrine, the three principles of economic justice can only function within a system in which the "four pillars of an economically just society" are present. These are:

1. A limited economic role for the State,

2. Free and open markets within a strict juridical framework as the best means of determining just wages, just prices and just profits,

3. Restoration of the rights of private property, especially in corporate equity and other forms of business organization, and

4. Widespread direct ownership of capital.

Limited Economic Role for the State

This one is obvious if we stop to think about it. While the need for the State is built into human nature — as Aristotle said, "man is by nature a political animal" (a possibly unique combination of individual rights and social duties) — the State was made for man, not man for the State.

The primary job of the State is to care for the common good. That does not mean, however, that the State takes care of everybody. That is a matter of individual, not common good. Except in an emergency, the State has no business interfering in how people meet their own goods — their individual wants and needs — through their own efforts.

The common good is not the aggregate of individual goods. That would simply be to say that the State has the responsibility of taking care of everyone. Rather, the common good of all mankind, that is, the good that is common to every human being, is the ability to become more fully human. This is called the capacity to acquire and develop virtue.

Man being political by nature, we acquire and develop virtue within a social context, that is, in association with other human beings within organized bodies or "institutions." We can therefore say that the common good for which the State has responsibility is the vast network of institutions within which humanity acquires and develops virtue, thereby becoming more fully human.

The State has the responsibility of maintaining these institutions in reasonable working order so that everyone is free to participate in them as full members of society, that is, on an equal basis. The State's role is thus to ensure equality of opportunity, not some pre-determined result, and to police abuses of the system so that no one is unjustly prevented from exercising his or her rights.

That's important, because it is by exercising our natural rights (most notably life, liberty [freedom of association/contract] and property) that we normally acquire and develop virtue. If the State does not do its best to guarantee equality of opportunity, it is preventing people from becoming more fully human, and thus isn't doing the only thing that justifies its existence.

Free and Open Markets

If liberty (freedom of association/contract) and property are natural rights — and they are — then people must be free to associate, enter into contracts, and own their own labor and capital in order to acquire and develop virtue. The "free market" is thus a market to which all have equal and equitable access, not a "law of the jungle" situation in which anything goes and the weak are at the mercy of the strong.

On the contrary, for a market to be truly free — a condition that does not appear to exist anywhere on earth at this point — everyone must be free to own both labor and capital. Further, they must be free to enter into contracts and meet their obligations without interference. Finally, the State must provide a set of laws by means of which people know what the rules are and have the ability to comply with them without undue hardship.

Restoration of the Rights of Private Property

The right to own capital as the means of sustaining life is a natural right. It is important to realize that "property" is not the thing owned. It is, rather, the natural right every human being has to be an owner, and the socially determined bundle of rights that define how somehow may use what he or she owns. In general, this means not harming one's self, other individuals, groups, or the common good as a whole.

Today, most shareholders — owners of corporate equity — do not have their rights. "Ownership" includes the right to control, that is, being able to vote one's shares in an election for the board of directors. Ordinary shareholders usually have this.

There is, however, another right of ownership. That is the right to receive the fruits of ownership, the income generated by the capital one owns. In typical corporations today, shareholders do not receive the income attributable to their shares as a matter of course. They only receive a small portion of the income if the board of directors votes a dividend. Rather than justify retaining earnings, under the "business judgment rule," the board of directors can only justify paying dividends if they can show the money isn't needed for business purposes.

Widespread Direct Ownership Of Capital

This is the "fatal omission" from virtually every economy on earth today. The primary means of participation in economic, social and political life, and thus the chief support for human dignity, is direct ownership of capital. Under ordinary circumstances, it is virtually impossible to exist as a moral being without property. Heinrich Rommen, a student of Father Heinrich Pesch, S.J., and member of the Königswinterkreis discussion group, underscored this principle in The State in Catholic Thought (1947):

"Where the institution of property is completely abolished, as in Soviet Russia, man has ceased to be a person and has become a mere tool of the superstate, a mere cog in a non-personal machine. Rightly, therefore, Leo XIII (Rerum novarum) speaks of a slavish yoke that has been imposed on the propertyless modern proletarian.

"It is morally impossible to exist as a free person without property." (p. 189.)

Without property, we do not have power — the ability for doing. Without power, we can neither meet our material needs, nor participate in social life by exercising our natural rights and acquire and develop virtue (pursue happiness), thereby becoming more fully human.

The problem is that most people do not have access to the means of acquiring and possessing property in capital; the institutions of money and credit are closed off to them.

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