Papal Economics 101: The Catholic Ethic and the Spirit of Capitalism

If the initial reception of Centesimus Annus is any indication, the pope’s latest treatise may become the most controversial social encyclical issued this century. From the day of its release, May 1, 1991, a struggle has ensued to define its meaning in a concrete form. All parties understand that the stakes are high, for this document has far-reaching implications relevant to the West, the third world, and for recovering Marxist states.

Surely, the distinctive mark of the encyclical—especially in light of previous social encyclicals—is its highly sympathetic explication of the workings of the market economy, as many commentators have already pointed out. The Wall Street Journal carried its first report in the form of an opinion piece by Richard John Neuhaus, who said the encyclical provided a “ringing endorsement” of the free- market economic system. The Washington Times carried articles by Kenneth Craycraft and Llewellyn Rockwell, both of whom interpreted the document as a revolutionary call for replacing socialism and bureaucratism with an ethically grounded, free and entrepreneurial economy.

The news dispatches on the document varied widely. The New York Times, for example, headlined an otherwise fair-minded article with the misleading title, “Pope Criticizes Injustices of Capitalism.” On National Public Radio, Sylvia Paggolioi said the encyclical “focuses on the practical materialism of market economies, their unbridled search for profit, consumerism, and selfishness without solidarity” and “concedes that many of the ills denounced by Karl Marx—such as alienation, the exploitation of workers, and the estrangement of the poor and the weak— still exist in many Western societies.”

Such dispatches aside, the big question is: how will those who have devoted so much time casting serious doubt on the institutions of the market economy respond to this document? Will they concede its endorsement of markets? If so, will they switch their long-held positions, or will they simply ignore the document’s teaching altogether? Or will they try to read the document as an endorsement of the mixed economy, as in “the social market,” “market socialism,” or other vagaries?


For some clues, I attended a public debate in Washington, D.C., organized by the libertarian Cato Institute, one week after the encyclical was issued. The debaters were Father Robert Sirico, CSP, president of the Acton Institute in Grand Rapids, Michigan, and Father David Hollenbach, S.J., visiting fellow at the Woodstock Theological Center and one of the drafters of the U.S. bishops’ pastoral letter on economic justice. Doug Bandow, evangelical author and syndicated columnist, moderated the discussion.

Before the debaters spoke, Bandow recalled that when discussing the document, everyone must remember that the “pope speaks primarily in his role as a pastor and not as a social scientist.” When the pope speaks on economics, Bandow pointed out, there will invariably be “tension between his endorsement of capitalism and his insistence on moral concerns.” To illustrate the point, Bandow read Centesimus Annus’s most oft-quoted passage:

Can it perhaps be said that, after the failure of Communism, capitalism is the victorious social system, and that capitalism should be the goal of the countries now making efforts to rebuild their economy and society? Is this the model which ought to be proposed to the countries of the third world which are searching for the path to true economic and civil progress?

The answer is obviously complex. 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.

Bandow’s reading of that passage in full was a blessing, for it helped to clarify the foggy controversy that would follow.

Sirico began by arguing that whatever tensions may exist between the pope’s spiritual and worldly instruction, they are not at all inconsistent with the Catholic Church’s emphasis on incarnational theology, which has always lead her to address issues relevant to society and economy.

Sirico’s thesis was that Centesimus Annus represents a “major paradigm shift” in Catholic social teaching from economic interventionism to an embrace of generally free markets. It is not at all surprising that this occurred under John Paul II, Sirico added, because the beginning of John Paul’s papacy “sounded the death knell for socialism and was instrumental in bringing about the collapse of Eastern European socialist governments.”

Moreover, Sirico said, the theoretic argument about socialism had ended some 71 years ago, with the publication of Ludwig von Mises’s article “Economic Calculation in the Socialist Commonwealth.” Mises argued that pure socialism meant the abolition of all rational economy, that is to say, without market prices to offer guidance, resources are allocated by arbitrary bureaucratic command and the result is economic (and, we now know, environmental) chaos.

Before Mises “demolished the economic case for socialism,” there was Leo XIII’s encyclical Rerum Novarum (1891), which Sirico called the Magna Charta of Catholic social teaching. Though it severely attacked socialism, it took a decidedly mixed-economy approach to social matters and argued that a combination of socialism and capitalism is the preferred path. “Since that time,” Sirico said, “Catholic social teaching has adopted a leftward tilt on economic matters. Centesirnus Annus reverses that tilt.” Is this kind of development in social teaching legitimate? Sirico said yes, since the social teaching is dynamic and has always patterned itself on Newman’s analogy of a seed growing into a tree, taking a new form from the same source. The pope himself called Centesimus Annus a “development” and “re-reading” of Rerum Novartun.

Sirico then ticked off a list of the kinds of institutions we find the pope openly promoting in the document: profits, private property (in more than just land), the division of labor, competition, a sound currency, and, most prominently, creativity and entrepreneurship. The section on entrepreneurship, said Sirico, “could be mistaken as having been written by Israel Kirzner,” the famed free-market economist of the Austrian school who alerted the economic profession to the importance of discovery and creativity in economic progress.

The new document, Sirico pointed out, represents a return to the late-medieval school of Catholic economic thought. Although overlooked until quite recently, this school solved many economic dilemmas that perplexed even Adam Smith a century later. Its leading lights were uncompromising defenders of private property and the market economy, on both pragmatic and moral grounds.

The Pope vs. the Bishops

Sirico then embarked on the sticky task of contrasting the U.S. bishops’ pastoral letter on economics to the pope’s encyclical. Whereas the bishops presupposed the importance of the “redistributive state” and “heavy interventionism” on behalf of the poor, the pope, Sirico said, presupposes the importance of a vigorous market economy and prudently limits any interventions in it in terms of their level, extent, and duration. In contrast to the bishops’ letter, “we do not find in this encyclical discussion about income gaps or disparities in wealth,” he said.

To bolster his contention that the pope rejects both socialism and generalized interventionism, Sirico quoted the remarkable passage in the document that criticizes the welfare state. Says the pope: welfarism “leads to a loss of human energies” and is “accompanied by an enormous increase in spending” and an “inordinate increase of public agencies, which are dominated more by bureaucratic ways of thinking than by concern for serving their clients.” As an alternative, the pope invokes the principle of subsidiarity: “needs are best understood and satisfied by people who are closest to them and who act as neighbors to those in need.”

Sirico drew three implications from Centesimus Annus. First, it makes possible the celebration of capitalism, not in its secularist form, of course, but in a form undergirded by religion and ethics. Second, it effectively kills the Christian-Marxist dialogue and invites a new dialogue with free- market thinkers. Third, it leaves the “social justice establishment” unprepared to understand the new way of thinking, because that establishment is “largely unfamiliar with the traditions and literature, both ancient and modern, that bolster the case for markets, enterprise, and economic liberty.” He included Hollenbach, whom he called “a democratic socialist,” as a member of this establishment.

Hollenbach rose to speak and immediately made clear that a confrontation was at hand. He ridiculed the neoconservatives (“bad enough”) and libertarians (“worse”) who have read this document as a free-market statement. Specifically, he knocked Michael Novak: “he is emphasizing the elements of the document which support his view, the parts he agrees with, but he is leaving a substantial part of it out. The encyclical is more complicated than Novak wants to portray it.”

Centesimus Annus is not a paradigm shift, said Hollenbach, contra Sirico, in part because there is no disagreement with what the U.S. bishops said in their letter “Economic Justice for All.” Both “reaffirm the same themes. Markets and entrepreneurship are needed, but within a strong social framework.” “In both, there is a strong endorsement of economic freedom, the importance of entrepreneurship, and a rejection of statism. What irritated neoconservatives is that the bishops talked about the need for government policy to address poverty and unemployment. They did not say ‘free up the market and all be well.’ ” Hollenbach then re-read the key passage, recited by Bandow earlier, which asks whether capitalism has triumphed, and he put special emphasis on the pope’s point that the “answer is obviously complex.” The document’s criticisms of capitalism, he argued, “exactly parallel” its attacks on communism, in both theme and substance.

“Of course the pope endorses markets,” Hollenbach said, “but he says these markets must be limited by a juridical framework, and this framework is not simply just a matter of personal values. It must be shaped by the government in a systemic and structural way.”

As examples of interventionism recommended in the document, Hollenbach cited unemployment insurance, job training, full employment policies, minimum wage levels, and injunctions against labor exploitation. He also pointed out that the pope wants trade unions to play a decisive role. As for the pope’s invocation of subsidiarity over against welfare statism, Hollenbach understood this as a preference for small over big solutions to social problems, but not a ruling out of big solutions when necessary, “as they often are.”

In the question period, Hollenbach sharpened his opinions further. “The sections of the document that endorse the market position are directed to fully socialized countries”—the Soviet Union, Czechoslovakia, Poland—and in “no way” to the economies of the West, which the pope “beats up on” because of their lack of “social guarantees.” “The pope wants markets,” said Hollenbach, “but there are many different kinds of markets in the world today.” The one Hollenbach thinks “most closely reflects” the pope’s ideas is Germany’s “social market economy.”

Hollenbach’s point about Germany raised certain confusions. Was he speaking of the post-War World II German economy, which was de-Nazified through the efforts of Finance Minister Ludwig Erhard? In the stroke of a pen, Erhard abolished all price and wage controls to create one of the freest and fasted-growing economies in world history. Moreover, Erhard was a student of von Mises and Wilhelm Roepke, he is beloved of Milton Friedman, and many free-market scholarships are named in his honor. In fact, the pope does seem to praise Germany’s post-war economic reform. Rather than this free-market vista, perhaps Hollenbach was referring to the highly interventionist and bureaucratized social democratic welfare state of today’s Germany, which no serious analyst regards as having much in common with Erhard’s post-war economy?

Later, I asked Hollenbach to clarify. He indeed said he regards the two German economic regimes as continuous. In both, “a basic social framework provides the context in which markets are to function. That framework is put in place through government. It also involves participation by labor unions and other kinds of groups in the economy. There are a series of guarantees for the poor in place.” The problem with this answer is that Erhard did not, and would not, set up anything like the current German system. Instead, Erhard is the current inspiration for Czechoslovakian Finance Minister Vaclav Klaus, whose primary intellectual mentor is Friedrich Hayek (no Hollenbachian, he). When asked if this document indicates a papal endorsement of Erhard’s actions in particular, Hollenbach said “the kind of thing Erhard’s actions represent, in creating something like a social market, could approximate some of the description of policies that the pope is affirming.” Could not the pope’s denunciation of the welfare state suggest that Germany has gone too far with welfarism? How far is too far? Might the anti-welfarism section of the encyclical prove instructive for framing policy in the U.S.?

“Frankly,” replied Hollenbach, “the pope’s passage on the welfare state is perplexing to me. I don’t understand it. I don’t know why the pope put that in there since it contradicts other passages in the document.” In fact, the antiwelfarist theme is a popular one with the pope, who reiterated it, for instance, in an April 27 address to businessmen, workers, and farmers in southern Italy. Quoting from a letter by the Italian bishops, he told the audience they “do not need a ‘distorted, dependent, welfare’ development, but a ‘self-motivated,’ total development.” These sentiments also call to mind William Simon and Michael Novak’s lay letter on the U.S. economy, released just before the first draft of the U.S. bishops’ letter; the lay letter, too, called on citizens to “help the poor” without at the same time “generating an incapacitating dependency.” Indeed, as in other areas, there are many parallels between the lay letter’s treatment of welfare and that of Centesimus Annus.

In addition, it seems a little odd for Hollenbach to hold that the closest national approximation to Catholic social thought is that of Germany. (Certainly, the U.S. bishops’ letter did not proclaim that the U.S. must become more like Germany.) Centesimus Annus is quite critical of the more advanced “welfare states” and “social assistance states,” and for good reason.

On close analysis, the wide disparity between Hollenbach’s evidence and his conclusion weakened the argument for his reading of the encyclical. It does not make one a social democrat to support free-market capitalism and also unemployment insurance (as does Charles Murray), a minimum wage (which in free economies is often made irrelevant by economic growth), and government-paid job training (wasteful, perhaps, but hardly injurious to the free market). In most Western countries, holding these combined positions would put you on the free-market fringe of the political spectrum. Novak, for example, along with most free-market advocates, supports a social safety net. Moreover, the principle of subsidiarity would seem to suggest that such economic interventions should be implemented and enforced at the lowest possible institutional level, with a strong preference for private over public efforts. (This last point echoes the views of Bishop Wilhelm von Ketteler, a nineteenth-century pioneer of Catholic social teaching who argued that the public virtue of state charity could never replace its private counterpart.)

Finally, perhaps the most striking aspect of the encyclical, and certainly its most anti-socialist element, is the absence of any principled complaint that wealth is unevenly distributed between and within nations. Such complaints presuppose the envious principle that inequality is, per se, unjust; therefore states must re-distribute it equally. In Rerum Novarum Leo XIII explicitly condemned the notion that all must be brought down to an equal level. This “struggle against nature” is in vain, he said, and it little resembles the Christian virtue of charity that seeks to help the poor become self-reliant—a virtue it is every Christian’s duty to practice, as John Paul rightly insists.

In the question period of the debate, the divergence of views between the debaters left the impression that both Sirico and Hollenbach were, to some extent, correct about the pope’s encyclical. And to the audience of libertarians, this merely indicated that the pope’s statements were inconsistent, non-operational, and easy to dismiss. But that is a wildly unfair conclusion. The debaters were right to urge everyone to read Centesimus Annus for themselves. It doesn’t need spin doctors to alter its message; it contains its own power to persuade.

Jeffrey Tucker


Jeffrey Tucker is managing editor of Sacred Music and publications editor of the Church Music Association of America. He writes a bi-weekly column on sacred music and liturgy for Crisis Magazine and also runs the Chant Cafe Blog.

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