Tag Archives: capitalism

In God We Trust: Morally Responsible Investing

George P. Schwartz, CFA
TAN Books, 266 pages

Socialism as an economic system has never worked, asserts George P. Schwartz, investment fund manager and founder of the Ave Maria Mutual Funds, which offer portfolios that respect pro-life and pro-family values. In addition to presenting a rousing endorsement of free-market capitalism, Schwartz describes how investors can reap the benefits of economic growth without backing morally objectionable enterprises — insurance firms that cover elective abortions, for example, or companies with ties to pornography or Planned Parenthood. Earning profit from principal does not require sacrificing principles, and Schwartz shows how this is not only possible, but also the right thing to do.

 

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On faithful stewardship of ‘talents’

Although his media soundbites sometimes sound like sweeping condemnations, Pope Francis has merely “underscored the anthropological errors of capitalism,” according to Father Robert Sirico, president of the Acton Institute, a think tank on liberty and religious principles. “The most critical statement [Pope Francis] has made is about the idolatry of money” rather than wholesale rejection of free markets.

In his 2015 visit to the United States, Pope Francis praised capitalism in his address to Congress. “Business is a noble vocation,” the pontiff said, “directed to producing wealth and improving the world. It can be a fruitful source of prosperity for the area in which it operates, especially if it sees the creation of jobs as an essential part of its service to the common good.” Further, in his referencing the fight against poverty, the pope said, “Part of this great effort is the creation and distribution of wealth.”

Capitalism often is wrongly equated with consumerism or idolizing material wealth, added Fr. Sirico. “The economic question with regard to its morality is a subset of a broader theological question: Is human freedom compatible with religious beliefs?”

Reality of capitalism

Simply stated, in a capitalist system the means of production of goods or services are privately owned and operated for the purpose of turning a profit. Businesses hire workers for wages, and they offer goods or services in competition with other providers.

In theory, a pure capitalist economy involves a free market unregulated by government — meaning production, wages, and consumer prices are driven by the market itself through supply and demand. In a purely socialist economy, all capital assets and means of production are owned collectively; private individuals own nothing, and the government controls production, distribution, labor, and prices.

In practice today, most are “mixed” economies. All capitalist economies are subject to some government regulation by way of tariffs, taxation, antitrust laws, price controls or labor laws. Meanwhile, some countries that follow a “socialist” model nevertheless allow for significant private initiative and market competition.

Catholic social teaching and capitalism

Catholic thought on economic systems has roots in the 4th century, when St. Augustine and St. Basil contemplated issues like the private ownership of property and the charging of interest on loans. In the 13th century, St. Thomas Aquinas’ deliberations on natural law, human dignity and the primacy of the common good laid the foundation for modern Catholic social teaching.

That accelerated with Pope Leo XIII and Rerum Novarum (“On Capital and Labor”), his 1891 social encyclical. The Industrial Revolution had then given rise to an expansion of labor and mass production of goods, even as the principles of socialism and communism were beginning to take root in Europe.

Rerum Novarum was “the first major application of Christian principles to the modern economy,” said wealth-management attorney Tim Busch, founder/CEO of a hotel development and management company and Legate of the Orange County, CA Chapter. “Pope Leo XIII’s ideas have been broadened and deepened by Pope Pius XI, Pope St. John XXIII, Pope St. John Paul II, Pope Francis, and many other thoughtful advocates of a just economy.”

Catholic social teaching developed over time to address new global realities and challenges to human dignity.

To mark the centenary of Rerum Novarum, Pope St. John Paul II wrote Centesimus Annus, arguably the most comprehensive treatment of Catholic social teaching on economics to date.

At the encyclical’s release in late 1991, the Berlin Wall had fallen and the U.S.S.R. was in the final throes of dissolution. “The Marxist solution has failed,” the pope pronounced, “but the realities of marginalization and exploitation remain in the world,” leaving many people “living in conditions of great material and moral poverty.” He warned against the spread of “a radical capitalistic ideology” that “blindly entrusts their solution to the free development of market forces.”

The Church, he affirmed, “recognizes the positive value of the market and of enterprise,” but “at the same time points out that these need to be oriented towards the common good.”

Pope St. John Paul “took Rerum Novarum and gave it a modern focus,” Busch said in an interview. “Pope John Paul clearly attacks communism and socialism, for example, which for decades had suppressed the Church and freedom of religion as well as private property. He also defends private property and markets, while calling for the defense of the rights of the poor and needy. I believe that’s what Catholic social teaching is all about — striking the right balance between the two, while looking at the common good and society as a whole.”

Good capitalism vs. bad capitalism

“Sometimes what is done under the auspices of capitalism by certain capitalists deserves a bad name and is much maligned,” said Anthony DeToto, president of Legatus’ Houston Chapter and senior vice president of an investment management firm. “While capitalism is deeply flawed as you unpack it, it is better than the alternatives.”

He identified “extremely unequal distribution of wealth, price gouging, conspicuous consumption, fraud, and waste” among the potential excesses of free-market capitalists — sins that result from greed, competitive fervor, and a “win at any cost” mentality.

Tom Heule, a Denver Chapter Legate and partner in a private equity firm, agreed. “Competitive pressures can make a series of small decisions lead to discounting the values we cherish,” he said. “Given the pace of business today, it’s imperative to demonstrate to those we interact with at all levels of the enterprise the ‘why’ behind our actions.”

Firms must regularly take stock of their employment practices, vendor relationships and accountability with all stakeholders to review how they align with core values and to assess plans and policies “in the light of the impact on individual persons,” Heule explained.

“Good” capitalism requires governments, business leaders and workers to behave in an ethically responsible way.

“Free markets only work within a moral culture,” Busch wrote in the Wall Street Journal in 2014. “When business is unmoored from a concern for the common good, capitalism can slide into cronyism and corruption—exactly what Pope Francis has critiqued…. It is such perversions of a free-market economy that do not fit Catholic teaching.”

Businesses, he explained, play a central role in advancing Catholic moral principles.

“Business leaders have a moral duty to increase opportunities for the poor to provide for themselves and their families through dignified work—such ‘co-creation’ is a direct reflection of God himself,” he wrote in Forbes magazine last year. “The poor benefit the most from economic progress.”

GERALD KORSON is a Legatus magazine staff writer.

7 Themes of Catholic Social Teaching

The U.S. Conference of Catholic Bishops has identified seven key themes gleaned from the body of Catholic social teaching:

  1. Respect for the life and dignity of the human person
  2. Support for marriage and family, along with the right and duty to participate in society
  3. Protection of human rights, and fulfillment of duties to family, community, and one another, with government practicing the principle of subsidiarity
  4. Fundamental option for the poor and vulnerable
  5. Respect for the rights and dignity of workers
  6. Solidarity in the pursuit of justice and peace for all people
  7. Stewardship of God’s creation

Reforming capitalism for freedom

MICHAEL M. MILLER writes that our economy needs serious reform — business as usual is not acceptable. However, a correct diagnosis of the problem is in order before making significant changes. He also argues that the free market requires serious moral restraint — especially on the part of those with power like big businesses and government  . . . . 

Michael M. Miller

Michael M. Miller

In the wake of the financial crisis, one of the recurring themes among business and political leaders is the need to reform capitalism and create new ways to think about business and the role of profit.

The common narrative is that “business as usual” doesn’t work. We’ve tried the free market and while it made money for some, it also caused the housing boom, the financial crisis, and created a society where all that matters is making as much profit as possible. The financial crisis is calling us to come up with new models of how we should arrange the economy. There are two issues here: first, a new way of looking at business and second, the reform of the current economic system. Let me address both, beginning with business.

It’s good that business leaders are making an effort to understand that business is about more than just profit. Profit is important, of course, but as Blessed John Paul II reminded us, profit is not the main purpose of business. The main purpose is to serve human needs and wants. Profit is one of the indicators that reveals whether you are meeting those needs.

I also agree that business as usual is not enough. We’ve had some serious moral crises in business from fraudulent accounting to big banks colluding with the government to receive special bailouts. What’s more, business is not outside the requirements of morality. Most corporate social responsibility programs have a serious flaw — they are relativistic. You can’t build a culture of business ethics if there is no truth and no right and wrong. Though mainstream business leaders rarely talk about it, business has the moral and social responsibility to cultivate a healthy moral ecology. This means honesty and obeying the laws; it also means respecting families and not exploiting women to sell products.

Let’s move to the issue of reforming the economy. There is incessant talk about the need to reform capitalism, but my first question is: What do we mean by capitalism? Unfortunately, the term “capitalism” has become proxy for “that which is bad” and often becomes a substitute for the sins of greed and avarice. There’s another problem — and a more serious one. In common parlance word “capitalism” is usually identified with a free-market economy both by its detractors and defenders. But capitalism and the free market are not always the same thing. There are many different varieties of capitalism: oligarchic capitalism, corporate capitalism, crony capitalism, managerial capitalism, and free-market capitalism to name a few.

Most of the critics of capitalism lament so-called “market fundamentalism” or “unfettered markets,” but we don’t have anything of the sort. What we have in the U.S. is a type of managerial-crony capitalism where big business and big government collude to make regulations that serve their interests. When things went wrong with our managerial capitalist system, instead of assigning blame correctly we blamed this mythical free market.

Our economy does need reform, but if we are going to address a problem we have to identify it correctly. The problem is that our diagnosis is wrong. The source of the financial crisis was not “market fundamentalism” but a complex interrelationship of government regulation, lobbying by interest groups, the manipulation of interest rates and the money supply, big business and government collusion, and political and social policy all mixed in with age-old vices like greed and imprudence.

There is a tendency to think that the default position of capitalism is a free market and that regulations and government interventions are necessary to resist this return to what is called “unfettered” or “savage” capitalism. But this is a serious misconception. In practice, the free market requires serious moral restraint — especially on the part of those with power like big businesses, government and interest groups. They have to exercise restraint and virtue not to use their power to gain an unfair advantage by colluding or lobbying the government for protection. One of the most important, though often neglected, elements of authentic corporate social responsibility is for companies to help maintain and encourage a free and competitive economy that enables entrepreneurs to compete — even if this means a possible loss to their own business. Too often companies, once they become successful, look to government to undermine the free and competitive economy that they benefited from.

Free economies are like free societies. As William Allen said well, you cannot have self-government without self-governors. In the same way you cannot have a free economy without free and virtuous people. A real free and competitive market, to use Lord Acton’s line, is “the delicate fruit of a mature civilization.”

MICHAEL M. MILLER is a research fellow at the Acton Institute and director of PovertyCure, which promotes entrepreneurial solutions to poverty in the developing world.

Defending the Free Market

Father Robert Sirico shows why free market capitalism works and must be preserved . . .

Defending the Free Market
Regnery, 2012
254 pages, $27.95 hardcover

The Left has seized on world economic troubles as an excuse to “blame the rich guy” and paint the free market as selfish, greedy and cruel. Father Sirico argues that the opposite is true.

He shows why free-market capitalism is not only the best way to ensure individual success and national prosperity, but is also the surest route to a well-ordered society. Capitalism doesn’t only provide opportunity for material success, it ensures a more ethical and moral society as well.

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Capitalism, socialism … or something else?

Dr. Andrew Abela writes that the Catholic Church’s teaching on economics is clear on the validity of the market economy. Find out what the Church has to say about capitalism, socialism and other economic systems. Abela draws from the forthcoming Catechism for Business to explore what the Holy Fathers have written about both socialism and capitalism over the past decades.

Dr. Andrew Abela

The current lingering economic malaise has led some to question the validity of the market economy. I will draw again from the forthcoming Catechism for Business to explore what the Church has to say about capitalism and socialism.

Let’s begin in the middle: Does Catholic teaching on economics represent some sort of middle or third way between capitalism and socialism? The answer is No. “The Church’s social doctrine is not a ‘third way’ between liberal capitalism and Marxist collectivism … it constitutes a category of its own … [as] the accurate formulation of the results of a careful reflection on the complex realities of human existence … in the light of faith and of the Church’s tradition” (Blessed John Paul II, Sollicitudo Rei Socialis, #41).

Nor does the Church recommend a particular economic model as the Catholic way for economic life. “The Church has no models to present; models that are real and truly effective can only arise within the framework of different historical situations through the efforts of all those who responsibly confront concrete problems in all their social, economic, political and cultural aspects as these interact with one another” (John Paul II, Centesimus Annus, #43).

Does socialism, then, conform with Gospel teaching? Again, the answer is No. “The illusion that a policy of mere redistribution of existing wealth can definitively resolve the problem must be set aside. In a modern economy, the value of assets is utterly dependent on the capacity to generate revenue in the present and the future. Wealth creation therefore becomes an inescapable duty, which must be kept in mind if the fight against material poverty is to be effective in the long term,” Pope Benedict XVI said in his Jan. 1, 2009, message for the World Day of Peace.

This, in part, is because “solidarity is first and foremost a sense of responsibility on the part of everyone with regard to everyone, and it cannot therefore be merely delegated to the state” (Benedict XVI, Caritas in Veritate, #38). Also, by “intervening directly and depriving society of its responsibility, the social assistance state leads to a loss of human energies and an inordinate increase of public agencies, which are dominated more by bureaucratic ways of thinking than by concern for serving their clients, and which are accompanied by an enormous increase in spending” (Centesimus Annus, #48).

And thus, “religious socialism [and] Christian socialism are contradictory terms; no one can be at the same time a good Catholic and a true socialist” (Pope Pius XI, Quadragesimo Anno, #120).

What about capitalism, then? Does it conform to Gospel teaching? The answer here, given by John Paul II in 1991 in the wake of the collapse of the Soviet Union, is carefully and beautifully nuanced. He wrote:

“If by ‘capitalism’ is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a ‘business economy,’ ‘market economy’ or simply ‘free economy.’

“But if by ‘capitalism’ is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative (Centesimus Annus, 42).

Thus a market economy conforms to Gospel values if it is set within a system of laws that ensure that it serves all of human freedom, not just economic freedom. This is because “economic freedom is only one element of human freedom. When it becomes autonomous, when man is seen more as a producer or consumer of goods than as a subject who produces and consumes in order to live, then economic freedom loses its necessary relationship to the human person and ends up by alienating and oppressing him” (Centesimus Annus, #39).

In a previous column I mentioned the new Master of Science in Business Analysis (MSBA) program at the Catholic University of America, a one-year graduate program designed to teach liberal arts students the language and tools of business (msba.cua.edu). As part of that program, I teach a course called The Spirit of Enterprise in which we read the major papal documents cited above in their entirety to give students a sound moral perspective on the economy. And employers seem to agree. I’m happy to report that all graduates who were in the job market coming out of our first year are gainfully employed — and at an average salary more than 50% higher than what they would have made a year before, prior to the program!

A charter member of Legatus’ Northern Virginia Chapter, Andrew V. Abela, Ph.D., is chairman of the Business and Economics department at the Catholic University of America.

Morality and the meltdown

Who would have imagined 20 years ago with the fall of the Berlin Wall and the end of socialism — or in the 1990s when so many made their fortunes in the new economy — that now in 2009 capitalism would be under heavy fire. The Cardinal of Westminster, Cormack Murphy O’Connor, reportedly went as far as to say that as 1989 marked the end of communism, 2008 is the year when capitalism came to an end.

What are we to make of capitalism in light of all these crises, fraud and government bailouts when even some traditional advocates of markets are supporting bailouts and seem to have lost faith in the market order? Is capitalism really to blame for all of the financial woes we now face?

Before we try to answer that question, it’s important to point out that the word “capitalism” is actually a Marxist term. While we use it interchangeably with “market economy,” the Marxist view of capitalism surprisingly still shapes the way we understand economics. The word “capitalism” gives the impression that the market is something out there — a nebulous force which can create great wealth but can also turn and harm us.

This impersonal understanding can lead us to blame markets when things go wrong instead of looking for reasons that are harder to diagnose and often reveal deeper cultural and spiritual issues. In his 1991 encyclical Centesimus Annus, Pope John Paul II specifically rejected the term “capitalism,” preferring instead “market economy,” “business economy” or “free economy.” He did this not to be pedantic but to illustrate the important truth that markets are fundamentally networks of human relationships. Understanding markets this way sheds light not only on many economic problems, but also on the underlying moral nature of markets.

Markets are the combined activities of millions of individuals, not just some guys on Wall Street. But like all human institutions, markets are not perfect and can fail. If people become overly speculative and are convinced that prices can only go up, they will violate all norms of prudence and keep buying at outlandish prices. It happened in the tulip bubble in 1637, the dot.com bubble in 2000 and the housing bubble last year. Sooner or later, reality sets in and the bubble bursts.

Markets can teach us important, though often painful, lessons about life, and we cannot separate markets from human action and human responsibility. Despite their failures, however, free markets have lifted more people out of poverty and helped create prosperity and peace than any system ever devised — so much so that even in today’s financial downturn, very few people who live in mature market economies are desolate and on the brink of starvation. Notice that markets are often blamed for the downturns, yet we tend to forget the cause of the upturn.

In these days of financial turmoil, we often hear critics speaking about de-regulation or “unbridled capitalism.” Yet both of these are straw men. Unbridled capitalism is a myth. Try to think of one country where there are no regulations on the economy or business. In fact, for free markets to succeed and be sustainable, they require a framework with rule of law, contracts, secure property rights and so on. The real question is what regulations and what level of intervention we should choose.

It’s important to remember that many of the primary reasons for this crisis are precisely an overly invasive government that created regulations requiring banks to provide mortgages to customers who could not pay back the loans, the Federal Reserve which manipulated the money supply and thus exacerbated the housing boom, and the promise of bailouts which incentivized irresponsible behavior. These are prime examples of what Friedrich Hayek labeled “the fatal conceit,” the notion that bureaucrats and politicians have enough knowledge to plan an economy better than the individuals and businesses.

Sustainable markets also require a specific moral culture. This includes trust, diligence, collaboration, honesty, perseverance and prudence. If this crisis has taught us anything, it’s the importance of morality for a market economy. Wall Street bankers took imprudent risks with clients’ money and bought financial instruments they hardly understood.

Yet instead of learning the lessons of the past, we again hear calls for increased regulation and government involvement. Some regulation is necessary, but we must not look to regulation to solve our moral problems. Here is where the realization that markets are networks of human relationships is important. If we regulate too much, we concentrate the power of markets in fewer and fewer hands. This has led to all sorts of corruption. Socialist economies, cartels, oligarchies and union-controlled industries where the price mechanism cannot function lead to stagnation and create incentives for corruption.

It is a false hope to believe that regulation will make everything right, a utopian dream that ignores human failing and is the same promise that has been peddled by the socialists. It is likewise delusional to believe that markets alone are enough. Markets require more than just efficiency, they require virtue. Our Founders taught us that political liberty could not long be sustained without virtue. The same holds true for economic liberty. Yet without economic liberty there can be no political liberty. Like liberty, the market must be moral or it cannot be.

Michael Miller is the Director of Programs at the Acton Institute for the Study of Religion and Liberty in Grand Rapids, Mich.