As we saw in the previous posting on this subject, human beings are by nature what Aristotle called “political animals.” That is, each human being is an individual who by nature associates with other individuals within a structured social context or environment, and it is within that environment that people ordinarily acquire and develop virtue.
|"Man is by nature a political animal."|
A structured social environment necessarily implies some kind of regulations or rules to govern acceptable behavior in that context, even if everyone in that particular society has attained perfection — and especially if they haven’t! Every individual’s wants and needs are different, and even with perfect virtue and complete goodwill can come into conflict with other individuals and groups, and sometimes the whole of society.
That, in fact, was the point Adam Smith was making in The Wealth of Nations (1776) in his “invisible hand” argument. The sense of Smith’s argument is that if the institutions of the common good are properly structured according to the correct principles (that he called “moral sentiments” and detailed in his 1759 book, The Theory of Moral Sentiments), then society will function to the benefit of all, just as if an “invisible hand” were guiding things.
But what if someone decides to circumvent the system in order to do good, even the greatest good? Then the system will not function properly or in some cases at all.
You thus can have the seeming paradox of a completely selfish individual doing things only for his own benefit, yet operating within the system, actually doing good that he never intended. At the same time, someone else, who intends to benefit the entire human race but violates the rules to do so ends up causing immeasurable harm! As Smith explained in the passage that also describes “Say’s Law of Markets”:
|"He thought of it, but MY name's on it!"|
But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. [Say’s Law — ed.] As every individual, therefore, endeavours as much as he can, both to employ his capital in the support of domestic industry, and so to direct that industry that its produce maybe of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.
What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can in his local situation judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
|"Yes, but I'M the one they remember!"|
Was Smith saying that there should be no regulation? No. He was actually making a very good argument for both subsidiarity and social justice. Social justice relates to the proper structuring of the institutions of the common good in accordance with good principles. If that is done, then the system will operate for everyone’s benefit, even if those using the system intend no such thing.
And who should decide what the principles are and how to apply them? Why, the people involved in the system, of course, not some outsider who tries to manipulate the system to obtain a desired political result that might not even correlate in any way with what the system is intended to do.
(A good example: central banks designed and intended to provide adequate “accommodation” for industry, agriculture, and commerce, are today used to finance government and fund politically motivated projects. Instead of creating vast private sector wealth, they have created mountains of government debt.)
That is why both capitalism and socialism are wrong, but socialism is worse. Capitalism seeks to manipulate the system for the selfish benefit of the few. That can sometimes work, for if the system continues to operate adequately, then others will benefit even though the capitalist never intended that they should.
|Nothing says they can't both be wrong, you know.|
Of course, today’s system is not operating adequately, but that doesn’t mean we should kill all the capitalists and redistribute their ill-gotten gains because they were greedy. No, it means getting rid of capitalism, not the capitalists, by reforming the system to enable everyone to own capital.
For its part, socialism tries to change the system so that it functions for everyone’s benefit (as defined by the socialists, of course), but without regard to individual rights, human nature, or even the viability of the system itself. In common with capitalism, all that matters is the desired result, not the means by which it was achieved.
Despite the fact that socialists constantly advocate “social justice” and the capitalists rail against it, the principle of social justice is not that everything is allowable if it gets you what you want, regardless how good it might be. No, that is the principle of what Pope Leo XIII referred to as the “New Things”: socialism, modernism, and esoteric thought.
|"Mercy! You mean I agreed with Adam Smith?"|
Rather, the true principle of social justice is that everything is allowable IF constrained within a clear set of moral principles that are applied in a manner that is effective in gaining the desired end without harming anyone’s rights. That is what Adam Smith was talking about, not an unregulated market Donnybrook. As Pope John Paul II explained,
Rerum novarum is opposed to State control of the means of production, which would reduce every citizen to being a “cog” in the State machine. It is no less forceful in criticizing a concept of the State which completely excludes the economic sector from the State’s range of interest and action. There is certainly a legitimate sphere of autonomy in economic life which the State should not enter. The State, however, has the task of determining the juridical framework within which economic affairs are to be conducted, and thus of safeguarding the prerequisites of a free economy, which presumes a certain equality between the parties, such that one party would not be so powerful as practically to reduce the other to subservience. (Centesimus Annus, § 15.)
The question then comes up, What are the principles that should guide the regulation of the market? That is what we will look at in the next posting on this subject.