A Global Central Bank: Unjust!

Do we need a supranational authority to enforce social justice? The Vatican’s Pontifical Council for Justice and Peace (PJCP) seems to think so. Its new document, “Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority,” calls for global economic regulation by a supranational body and a central world bank to rule world financial institutions in an effort to enforce social justice. It also calls for numerous specific state interventions in the market such as taxing specific financial transactions.

As Jeff Tucker of the Ludwig von Mises Institute notes, this call for increased economic statism is particularly unfortunate because the document diagnoses the cause of the economic crisis relatively well. The problem was created by government manipulation of the monetary system and the inflation it fostered. Monetary inflation in the form of credit expansion fueled a housing bubble that spawned a derivative bubble and a general credit bubble. Such severe malinvestment necessarily resulted in a cluster of entrepreneurial losses as the inflationary boom reversed itself into the Great Recession. Because artificial central bank-created monetary inflation caused the problem, it seems unlikely that central bank-created monetary inflation can also solve the problem.

Additionally, the Vatican document promotes a severe error of mistaken jurisdictions. While it rightly warns against turning the market into an idol, it also claims that “the crisis has revealed behaviors like selfishness, collective greed and hoarding of goods on a great scale.”

While it is true that the crisis revealed many unholy practices, the Vatican’s PCJP is making a big mistake in thinking that behaviors such as selfishness and collective greed can be solved through global economic planning, or any state action for that matter. The institution that exists to make disciples of Christ in all nations is the church, not the state.

If Christians fear that a free economy will result in an unbridled capitalism that produces a society characterized by harsh, greedy, unrestrained industrialists who stop at nothing as they increase their fortunes, they misconstrue the nature of the free market. In a free society, entrepreneurs must convince people to voluntarily buy from them. The action of a profit-seeking entrepreneur, therefore, is far from unregulated. He will be constrained by his conscience and also regulated by consumer preferences. If people do not want to buy from an entrepreneur with a reputation for wrong-doing, no one can force them to. The accounting firm Arthur Andersen, for example, went into bankruptcy at the mere allegation of improper accounting.

The Christian ethic of private property does not allow Christians to use the coercive state to achieve their ends for a better society. Instead Christians are called to evangelize and disciple converts in the paths of righteousness. This is how the Church can properly act to regulate the economy. As the church is faithful in its mission, those who believe will begin to be more loving and kind to their neighbors. If Christians want different market outcomes, they should be obedient in their calling and have faith that God can transform the hearts and minds of men and women.

Not only is state intervention in the economy an ineffective way to thwart spirits of greed and selfishness, it also runs contrary to the Christian ethic of private property. In so doing, government intervention in the marketplace is socially destructive, because it hampers voluntary exchange, artificially constrains the natural division of labor, and makes it harder for entrepreneurs to use prices in calculating profit and loss, thereby making it harder to direct scarce economic goods to their most valued ends. All of these consequences culminate in relative general impoverishment. Calls for a supranational central bank and global economic regulation in the wake of the economic crisis are the sort of destructive policy prescriptions we get when people do not understand basic economics or the nature and role of the Federal Reserve and state intervention in the economy.

 

COPYRIGHT 2011, The Center for Vision & Values.

By

Dr. Shawn Ritenour is a professor of economics at Grove City College, contributor to The Center for Vision & Values, and author of "Foundations of Economics: A Christian View."

  • Gian

    The Christian ethic of private property does not allow Christians to use the coercive state to achieve their ends for a better society

    So production and distribution of pornography is OK by you even though the CCC tells the Govt to regulate it.

  • John Zmirak

    A silly response. Clearly, nuclear weapons could be considered “private property,” but Christians could rightly regulate them. Likewise, toxic wastes poured into the air could be designated private property, but the state should regulate them. Slave owners claimed that the state should leave their “property” alone. Dr. Ritenour speaks of private property qua private property–in other words, if some good or service is intrinsically moral neutral (doesn’t violate the natural law), we may not use coercion to deprive people of it except to rectify specific, legally documented injustices.

    For instance, if we as voters decided that we preferred a society where no one inherited any money, but everyone started with a clean slate, so we instituted a 100 percent inheritance tax, that would be a clear instance of state-sponsored theft–of precisely the sort condemned by Leo XIII in Rerum Novarum. Many, many interventions of the current state lean closer to this second sort of intervention than they do to regulating kiddie porn, nuclear weapons, or biohazards.

  • Sarto

    The problem is, it is a global economy but whatever controls there are are purely local. It’s like a state passing a law against snow storms.

  • Tom

    …by the same token, it seems to me that if a financial institution calls its self a “bank” open to the public, it can not provide “products” that they call “mortgages” but are in fact scams. Yet theses institutions (and the politicians they pay off) call for more deregulation, but obviously can not police themselves. But they expect to be bailed out by tax payers when their pyramid schemes eventually collapse, as sure as tulip pyramid schemes centuries ago. Its seems to me that some degree of subsidiarity dictates that, at some local level, institutions that call them selves “banks” should be held accountable. The name “bank” should not be left 100% to the “free market”, anymore that the “free market” dictates who is called a “doctor” or “lawyer” or “priest” (or even a “lit professor”). The role of the free market is for people to choose between banks, doctors, lawyers and lit professors that are not frauds at some basic level.
    For lawyers, docs and lit profs this determination is made not even at a national, but at a regional level, not by government, but by trade groups. If “bankers” can not be trusted some other mechanism should be put in place, but at a local level. For example, Canadian laws define banks is a much more strict and conservative way (to compensate, banks are allowed to be much bigger, per capita). As a result, the banking sector is much more robust compared to much of the rest of the industrialized world.
    Perhaps some people in the curia confuse their universal priestly duties with those of bankers. Or perhaps some bankers working for the curia think that they are the new church hierarchy.

  • http://na david j peterson

    As a Catholic, I have some issues with the cynical tone of this commentary. Unfortunately, some of the prominent Catholic websites, authors like Dr Thomas Woods and some prominent Catholic Think Tanks are reviving an old theme which goes: “The Vatican can not be trusted, and should not be suggesting solutions and economic proposal. This is because (they contend) the ‘unscientific” and unsophisticated popes (like John Paul and Benedict) have little or know knowledge about “REAL ECONOMICS.” It appears they believe these matters must always be left to “experts” like the IMF, World Bank, G8 and the many Wall St. gurus. The document presents one of the best analyses of the world financial crisis, with insights that have escaped the Wall St. journal and the American left/right media elite. The Pontifical Academy shines a light on the tremendous lack of justice and fairness of the dominant global institutions. In addition, many well informed scholars agree that the creation of the Breton Woods system, despite its faults, did a commendable job in the decades immediately after WW II. As a Catholic, I view the Vatican initiative (while not a panacea) as a very positive and hopeful initiative. Many of the responses lack charity and vision.

  • Jack

    Mr Peterson

    You are not alone!!! As a former libertarian I am astounded at the number of my felllow Catholics (especially amerians) who worship at the altar of von mises and smith monday – friday. They also fail to realise that economics as a science does not stand apart from salvation, would mr Zmirk condone a situation where the ‘market’ dictates that a man must work on the Sabath and a faithful Catholic is torn between mortally sinning and letting his family starve?

    I use the above as an exmaple because in our 24/7 society it is the most obvious but there are many many more.

    Your Brother

    J.A.H

  • Tom

    …DJP and JAH, personally, evidence of “good governance” from the hierarchy would be more effective than speech/lectures. Look up the Vatican bank’s history over the last 3 decades, and you want this to be the model (dead bodies, mob money laundering, uncounted for transactions, etc..)? The Legion of Christ has reportedly over $30 billion in assets. Do you know how much money this is? Where did it com from? what is it for? who controls it? Yet it’s the same crew in charge. No investigation are going to be made on past cover ups, because the appointed delegate thinks that those are secrets too great for him too look at. You can’t make this stuff up…

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