Wednesday, November 20, 2013

"Distributive Justice"?, XX: “On Capital and Labor”


Investigating how so many Catholics today became convinced that the Catholic Church has somehow changed its position on the natural law in general, and the natural right of private property in particular — and thus that G. K. Chesterton meant the exact opposite of virtually everything he said — I’m tempted to exclaim with the late, great Anna Russell, “I’m not making this up, you know!”  The facts are clear and speak for themselves.

As the decade of the 1880s drew to a close, it was obvious that something was dreadfully wrong with the economic machinery on which people depended for goods and services: “the system.”  This was especially the case in the United States, to which evidence suggests the leaders of the Catholic Church looked as the strongest, if not sole bastion of reason and natural law against the rising tide of moral relativism that threatened to engulf Europe.

From an economic perspective, flaws in the system of financing new capital caused this situation.  Methods of finance severely restricted ownership of new capital — and, ironically, there was no reason for it.  Technology was advancing at an incredible rate; the latter half of the 19th century may have been the period of the greatest increase of wealth in history.

The new capital was financed in large measure by the expansion of bank credit based on the anticipated future increases in production and secured by collateral in the form of existing wealth (mostly capital instruments already in production) owned by the rich.  In consequence, to all intents and purposes, by using the commercial banking system properly the rich could create all the money they needed to finance new capital formation, and still have more than enough income to spend building mansions, collecting art, traveling in Europe, and throwing the incredible parties of the Gilded Age.

At the same time, government and banking policy for ordinary people was based on the assumption that only by restricting consumption and accumulating money savings is it possible to finance new capital formation.  Under this assumption — the fundamental assumption of Keynesian, Chicago/Monetarist, and Austrian economics — as capital became increasingly expensive, only the rich could afford to finance new capital — or be permitted to.  “The rich are different,” as F. Scott Fitzgerald would say a few generations later . . . to which Hemmingway replied, “Yes.  They have more money.”

More and more people were forced into the wage system in commerce and industry just as the safety valve of “free” land available under the Homestead Act was running out.  Accounting for the great popularity of Henry George, this shutting off of the opportunity to become an owner of landed capital on easy terms led to the spread of socialism in the industrialized East, and the transformation of populism into another form of socialism in the agricultural South and West.

The financing of new capital formation was bound by traditional, if misapplied concepts of the natural law, especially private property.  Rights reside in every person, and cannot be changed in their essence, only in their application.

Nevertheless, the generic right of dominion (the universal destination of all goods), which is a critical feature of the natural right to property, was violated by the presumption that only the rich could finance new capital, and then only through past savings. Even though past savings is not, as we have seen, the only source of financing for new capital formation, the belief that only past savings could be used created a situation to which there seemed to be no way out.

The conclusion seemed inevitable.  If the (presumed) traditional understanding of the right to be an owner was to be maintained in the face of the presumed necessity of past savings to finance new capital formation, only the rich could own capital.

As we will see presently, there is a way out.  It requires, however, that changes be introduced into the entire system of money, credit, taxation, and finance.  Future savings can replace past savings as the source of financing for new capital for everyone, not just the rich, capital credit insurance and reinsurance can replace traditional forms of collateral over which the rich by definition have a monopoly, and the act of social justice can replace State action — but we will get to that presently.

Our concern now is with the dilemma faced by ordinary people caught in the outdated financial paradigm and myths of the late 19th century.  The system neither corresponded to reality, nor even pretended to meet their needs.  Added to this was the traditional understanding of the natural law, especially with respect to private property, that seemed cold and distant from the needs of ordinary people, even inhuman.

Misunderstanding and misapplication of the system of finance, and the misapplication of the traditional understanding of the right to private property combined to form the degradation of capitalism and brought many people close to despair.  At the same time, the shift in the source of rights from the people to the State that the Supreme Court reasserted in the opinion it rendered in the Slaughterhouse Cases provided fertile soil in which the socialist message of Karl Marx and Henry George took root.

George’s political acumen far surpassed that of Marx, however.  Proposing that the State take over effective title instead of actual title made George’s Fabian socialism attractive to people who would have been repelled, even outraged by outright confiscation.  This is despite the fact that in both cases the State takes over control, the essence of property.

Disguising the true import of the single tax, however, was critical to its acceptance.  If people actually understood how meanings of essential terms were being changed, common sense would have come to the rescue, and georgism rejected out of hand.  As Orestes Brownson had noted in the 1840s,

“[Socialism] is as artful as it is bold. It wears a pious aspect, it has divine words on its lips, and almost unction in its speech.  It is not easy for the unlearned to detect its fallacy, and the great body of the people are prepared to receive it as Christian truth.  We cannot deny it without seeming to them to be warring against the true interests of society, and also against the Gospel of our Lord.  Never was heresy more subtle, more adroit, better fitted for success.  How skillfully it flatters the people!  It is said, the saints shall judge the world. By the change of a word, the people are transformed into saints, and invested with the saintly character and office.  How adroitly, too, it appeals to the people’s envy and hatred of their superiors, and to their love of the world, without shocking their orthodoxy or wounding their piety!  Surely Satan has here, in Socialism, done his best, almost outdone himself, and would, if it were possible, deceive the very elect, so that no flesh should be saved.”  (Orestes Brownson, “Socialism and the Church,” Brownson’s Quarterly Review, January, 1849.)

George’s proposal gave people hope, although at the cost of their personality rooted in their possession of rights and thus, ultimately, their humanity.

It should come as no surprise, then, that Leo XIII issued Rerum Novarum.  The encyclical gave explicit instructions regarding a specific remedy to be implemented to counter socialism, whether Fabian or fascist: widespread capital ownership.

In a startling paradox, today many people see in the encyclical support for what is fascist — as opposed to Fabian — socialism in all but name.  This is due in large measure to the efforts of Msgr. John A. Ryan.  In 1891, however, no one was in any doubt.  Referring to socialists as enemies of the working classes, severely limiting the role of the State, carefully explaining the traditional understanding of private property as a natural and unchanging right . . . no, Leo XIII was very clear where and what the dangers were that were undermining the social order.

Most particularly, the pope focused on the essence of socialism: the abolition of private property, and why this was profoundly evil.  This was a direct, if general, response to Marx, who asserted that only by destroying private property in capital could justice be established and maintained.  As Marx declared, “The theory of the Communists can be summed up in the single sentence: the abolition of private property.”

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