THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Wednesday, September 21, 2016

Religion and the Rise of Capitalism . . . and Socialism

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.

[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.
[4] Karl Marx, Critique of the Gotha Program.  Peking, China: Foreign Languages Press, 1972, 17.
[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.