Catholic Social Teaching and Economic Justice, VIII: Pillars and Laws

Having determined that the three principles of economic justice as developed by Louis Kelso and Mortimer Adler are not only consistent with Catholic social teaching, but are actually implied in papal encyclicals, we are faced with two final problems. That is, problems apart from developing a specific program to implement the principles — something that is beyond the purpose of this series and, in any event, is outside the scope of the Church's sphere of activity. The Catholic Church does not endorse any specific program implementing principles of economic and social justice, however much she may insist that the principles be implemented.

We need to state — in general terms — what specifics need to be present in society for the principles of economic justice to function, and then what means may be used to implement and maintain these specifics. On reflection, we discern four essential "pillars" of an economically just society, all of which are also consistent with Catholic social teaching:

1. A limited economic role for the State. Someone's first recourse for meeting his or her material needs and those of his or her dependents is the person him- or herself. As Leo XIII explained, "There is no need to bring in the State. Man precedes the State, and possesses, prior to the formation of any State, the right of providing for the substance of his body." (Rerum Novarum, § 7.)

2. Free and open markets within a strict juridical framework as the best means for determining just wages, just prices, and just profits. Even though the free market doesn't exist anywhere — yet — that does not invalidate this principle. As Pius XI explained, "Certainly the laws of economics, as they are termed, being based on the very nature of material things and on the capacities of the human body and mind, determine the limits of what productive human effort cannot, and of what it can attain in the economic field and by what means." (Quadragesimo Anno, § 42.)

3. Restoration of the rights of private property, especially in corporate equity and other forms of business organization. Being nominally an owner without the rights of ownership is, effectively, not to be an owner at all. As Leo XIII explained, "a working man's little estate thus purchased should be as completely at his full disposal as are the wages he receives for his labor. But it is precisely in such power of disposal that ownership obtains, whether the property consist of land or chattels." (Rerum Novarum, § 5.)

4. Widespread direct ownership of capital, individually or in free association with others. While this is the pillar missing from virtually every economy on earth today, it is the one most clearly stated in the encyclicals, not once, but many times. Leo XIII, however, may have said it most forcefully: "We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners." (Rerum Novarum, § 46.)

Since widespread capital ownership is the one pillar missing from every economy today, it would appear to be the key. That makes it all the more critical that a feasible means be found, consistent with natural law, that will enable people to acquire and possess private property in capital. This we find in "Say's Law of Markets," one of the "laws of economics" that tell us what is possible through human effort by following right principles.

Say's Law can be stated very simply. We cannot consume more than we produce. In order to consume, we must produce, either by labor, by capital, or both. Further, we cannot obtain what others produce unless we can trade them something we have produced. This is consistent with the basic principle of economics: the purpose of production is consumption.

Thus, although it is dangerously misleading to summarize Say's Law without understanding this brief explanation, Say's Law can be summarized (and thus misunderstood) as "production (supply) equals income (demand). Therefore, supply generates its own demand, and demand its own supply."

As we can see, then, Say's Law is a combination in economic terms of the natural rights of private property and liberty (freedom of association/contract). Private property says that we have the right to enjoy — consume or dispose of — the fruits of our efforts, whether labor or capital. Liberty says that we can either consume what we produce, or trade with whomever we like to exchange what we produce for what others produce.

This is all well and good. The problem is what do we do if labor is becoming less important than capital as an input to production as technology advances, and people lose their jobs to capital? Obviously, the answer is (as Louis Kelso put it), "If the machine wants our job, let's buy it."

At first, this seems impossible. The general presumption is that the only way to purchase capital is to cut consumption and accumulate cash. Unfortunately, that option is not open to most people. They simply don't make enough in wages to meet their daily expenses, much less set anything aside to purchase a meaningful amount of capital when their labor declines in value or they can no longer find work.

Nor is paying people more money the answer. Increasing wages increases costs, and raises prices. Since part of inflation is the anticipation that prices will go up, prices tend to go up faster and sooner than wages can be increased. Since he buys less with more money due to inflation, the worker is worse off with more money than he was with less.

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