From the point of
view of organized religion, the situation in the first half of the nineteenth
century was a virtual shambles. There
was a perceived conflict between reason and faith. The Will (opinion) had replaced the Intellect
(knowledge) as the basis for discerning the natural law — the general code of
human behavior.
Cold, heartless
rationalism of the Age of Reason contrasted sharply with wildly emotional
fideism in religious life such as the various Great Awakenings. What Msgr. Ronald A. Knox later termed
enthusiasm was rampant in religion, as was its counterpart, secularism, in
civil society. Faith and reason seemed
irrevocably divided.
This was not by
coincidence. By the beginning of the
nineteenth century the means by which people were able to lead productive, and
thus virtuous lives, had changed enormously.
This was due almost entirely to improvements in the way new capital
formation is financed. The new method
accelerated the rate of technological development at the same time it cut most
people off from ownership of that technology.
The
institutionalization of commercial banking in the fifteenth and sixteenth
centuries, and the invention of central banking in the late seventeenth
century, made this great change possible.
For the first time in history, effective social tools existed to finance
new capital formation out of its own future savings, that is, to pay for new
capital out of its own earnings.
Previously, the use of future savings had been restricted to relatively
rare instances in individual contracts, and to people willing to take great
risks.
Institutionalizing
commercial banking reduced the individual risk of using future savings to a
tiny fraction of what it had been previously, while central banking reduced the
social risk. Paradoxically, this made it
virtually impossible for ordinary people without significant savings to finance
new capital.
To explain, the
parties to a contract that involves only them may decide to forgo
collateral. This is because they may be
well known to one another and each has confidence in the other’s
creditworthiness, or they are willing to assume great individual risk.
A contract with
an institution, however, involves everyone connected with that institution as
well as surrounding individuals and institutions. Because the risk is collective instead of
individual, the demand for collateral within an institutionalized banking
system becomes absolute as a matter of both prudence and justice.
For a commercial
or central bank to work properly and minimize both individual and social risk,
then, no one without collateral can use future savings to finance new
capital. As a result, the wealthy
enjoyed a virtual monopoly on new capital formation.
Still, had labor
and land remained the primary factors of production, this would have made
little difference. Commercial and
central banking, however, made great advances in both tangible (machinery) and
intangible (systems) technology financially feasible with a minimum of both
individual and social risk for the first time.
This is because,
except at low levels of technology, new inventions and systemic innovations
tend to be very expensive when first introduced. This makes it almost impossible for workers
and small owners who lack savings and are displaced by advancing technology, to
purchase the machinery or put together the necessary organizations. As a result, innovations and advances take
away jobs and destroy businesses.
Nevertheless,
existing savings are not essential to finance new capital formation — nor, as
Dr. Harold G. Moulton demonstrated in The
Formation of Capital, are existing savings sufficient to finance new
capital during periods of rapid growth.
During these periods, money savings have already been drained out of the
economy to finance the increased consumption that justified new capital
formation in the first place.[1]
The new
industrial magnates did not typically take chests full of gold to finance
capital formation. Instead, they
financed their new technological and social tools through the expansion of
commercial bank credit, and collateralized the credit with their existing
invested wealth.[2]
As a result,
ownership of productive capital became increasingly concentrated. More and more people were alienated from capital
ownership. Wages and welfare became the
norm for subsistence for the great mass of people. This was capitalism.
Hilaire Belloc
believed that, had the workers replaced by machinery at the beginning of the
Industrial Revolution pooled their savings and purchased the machines that were
taking their livelihoods, ownership of the new capital instruments could have
been widespread.[3] Belloc, however, did not understand
commercial or central banking. He failed
to realize that the new factory owners did not, as a rule, use past savings to
finance the new capital, and that even in the best of times workers’ savings
would have been grossly inadequate to purchase the new machinery.
Only commercial
bank credit resulting from monetized contracts redeemed or fulfilled with
future profits generated by the new capital itself (bills of exchange) are or
can be adequate to finance most advanced technological tools. In addition, only a central banking system
can minimize the risk to the financial system as a whole.
Not understanding
the power of commercial and central banking as a social tool for financing new
capital formation and thus ownership, socialists decided that private ownership
of capital — the exercise of the natural right to be an owner — was the
problem. Seeing that capitalism
alienated people from production, and realizing that concentrated ownership of
capital was the cause of this alienation, socialists proposed, instead of a few
people owning capital, no one should own capital.
The socialist
solution to the concentrated private ownership of capital under capitalism,
then, was for the State to take over ownership or control — ownership and
control being the same in all codes of law; title without the rights of
ownership is meaningless. The socialist
rule was, “from each according to his ability, to each according to his needs.”[4]
Here we see the
error of socialism that makes it “utterly foreign to Christian truth”[5]
by attempting to nullify or circumvent the natural law “written in the hearts
of all men.”[6]
That is the idea that the abstraction of
the collective has rights that individual human beings do not. In the name of the People, the State or the
community delegate natural rights of life, liberty, and private property to
actual people as need or expedience dictates.
The specialized social tool of the State becomes overburdened in an
effort to take care of every possible need.[7]
God, however,
created man, not mankind. He built natural
rights — the matter of the natural law — directly into people, not into the
People. God does not, as an omniscient
being, deal in abstractions. That would
make Him less than perfect, and thus not God.
Abstraction is a mechanism by means of which imperfect human beings deal
with an infinite reality that they see “as through a glass in a dark manner.”[8]
Socialism being
contrary to nature, the only result of abolishing private property is to
increase the alienation of workers and consumers from production. As Leo XIII later put it,
Socialists, therefore, by
endeavoring to transfer the possessions of individuals to the community at
large, strike at the interests of every wage-earner, since they would deprive
him of the liberty of disposing of his wages, and thereby of all hope and
possibility of increasing his resources and of bettering his condition in life.[9]
The result was
only to be expected. Organized religion
and traditional political forms having failed to adapt to the new things and
meet their needs, people began turning to enthusiastic religious phenomena and
authoritarian government to reestablish and maintain order and give meaning to
life, sometimes combining the two in a totalitarian whole.
#30#
[1]
Harold G. Moulton, The Formation of
Capital. Washington, DC: The Brookings Institution, 1935, 26-36, 75-84,
91-92, 100-108.
[2] Ibid., 104.
[3]
Hilaire Belloc, The Servile State. Indianapolis, Indiana: Liberty Fund, Inc.,
1977, 101.
[5] Quadragesimo Anno, § 117.
[6] Ia,
IIae q. 93 a. 2; Ia IIae q. 94 a. 6.
[7] Quadragesimo Anno, § 78.
[8] 1 Corinthians
13:12.
[9] Rerum Novarum, § 5.
