Less than 75 years after it officially began, the contest between capitalism and socialism is over: capitalism has won. ~Robert Heilbroner
Definition: Liberty is the reign of conscience. ~Lord Acton
We are facing a new relation between “the first and second liberties” — religious liberty and economic liberty — as we begin the second hundred years after Leo XIII’s Rerum Novarum (1891). Religious liberty and economic liberty are intimately connected as two branches of one root; both are inalienably endowed in humans by their Creator. And there are several reasons why, in the twenty-first century, the disciplines of economics and philosophy/theology will converge in the study of many common materials, especially those of human choice.
Three important intellectual streams bring us to this point. After the collapse of “real existing socialism” in 1989, Eastern Europeans who are emerging from the ruins are rediscovering one by one — and with fresh appreciation — the moral practices of the free society. Secondly, distinguished economists such as James M. Buchanan are predicting that the fall of socialism will be followed by new directions in economic science which will render that science in a certain sense more humanistic than it has been in recent decades. Third, while remaining highly critical of many aspects of Western economies, Pope John Paul II has taken two important steps to bring Catholic social thought into closer contact with the genius of modern economic practice: he has emphasized the role of human creativity, fashioned in the image of God; and he has grasped the importance of the fundamental right to personal economic initiative.
If it can be said that human history is a record of the human race in search of itself, then these are signs that the twenty-first century will be marked by a new approach to the philosophy of humankind, a new vision of the nature and destiny of man.
The Miracle Year
Quite impressively, Pope John Paul II entitles one of the chapters of his new encyclical “The Year 1989.” 1989 was, indeed, a year of miracles, at least in the sense that the collapse of socialism, although predicted one-hundred years ago by Leo XIII in Rerum Novarum, surprised the whole world by being both so sudden and so thorough. Quite unexpectedly, the Berlin Wall came down, the Iron Curtain disintegrated, and the Soviet Empire began to implode. The prestige of existing socialism vanished like a puff of smoke.
At the end of the twentieth century, the world is entering a post-socialist era. Those who have turned away from the poverty and misery of the traditional economies of the third world have now joined those who are turning away from the wreckage of existing socialism in Eastern Europe and the USSR. As Nobel laureate James M. Buchanan wrote in a recent issue of The Economic Journal: “The post-socialist century will be marked by a convergence of scientific understanding among those who profess to be economists.” We are all capitalists now, even the pope. Both traditionalist (third world) and socialist methods have failed; for the whole world there is now only one form of economics.
In a curious way, then, the citizens of the formerly socialist world are awakening like Rip van Winkle from a long slumber. Many reports show them, as it were, rubbing their eyes with wonder and rediscovering the ordinary world of human experience. For example, just this April, a young woman in Leningrad, Nataliya Yeromeeva, legally opened a small housewares shop in Leningrad, and thus became one of the first private shopkeepers in the Soviet Union in 70 years. “It’s in people’s nature that if something is theirs, it’s theirs,” she says, “and a person works with a totally different mind set if he has property.”
Through such eyes, the foundations of capitalism look quite different than they do to the jaded West. Former socialists see the moral advantages of capitalism. They see its humanistic qualities. Whereas our aristocratic forebears looked down upon commercial activities, those who have experienced the controlled economy see precisely such activities as a moral advance.
Thus, the East is today discovering the moral case for capitalism in the humble events of daily life, as in Mrs. Yeromeeva’s discovery of private property. Another example is the simple experience of being a free and adult consumer. A Bulgarian citizen writes:
Several German intellectuals and politicians had hard words for the fellow citizens who flung themselves on the West German shops as soon as they could…. These could only be the words of people who have forgotten, or never knew, the personal humiliation inflicted by the permanent lack of the most elementary consumer goods: the humiliation of silent and hostile lines, the humiliation inflicted upon you by salespeople who seem angry to see you standing there, the humiliation of always having to buy what there is, not what you need. The systematic penury of material goods strikes a blow at the moral dignity of the individual.
Even the simple access to material things conveys a moral lesson to those who lived under socialism and waited in lines for two to four hours every day.
The overall lesson of the events in Eastern Europe since 1989 is that there is no “socialist economics.” In the words of many Eastern Europeans, socialism does not work — and there is no “third way.” There is only one form of economics, and it includes markets, private property, incentives, invention, initiative, and enterprise. Haven’t Western economists known this all along? Not quite.
As Aneruca’s most distinguished Marxist, Robert Heilbroner, has written, virtually none of the economists of the left or even of the center predicted the downfall of socialism. It pained him to say so, but the only economists who actually did predict the outcome were such economists as Friedrich von Hayek and Ludwig von Mises, both of whom were treated dismissively by mainline economists in the United States and elsewhere. Where did mainline economists go wrong?
The answer to this question may lead us to a quite new way of thinking about economics. “Why did economists,” Professor Buchanan asks, “fail to recognize that incentives remain relevant in all choice settings? Why did economists forget so completely the simple Aristotelian defense of private property? Why did so many economists overlook the psychology of value, which locates evaluation in persons not in goods? Why did so many professionals in choice analysis fail to recognize the informational requirements of a centrally controlled economy in both the logical and empirical dimensions? Why was there the near total failure to incorporate the creative potential of human choice in models of human interaction?”
To a theologian, these questions from Professor Buchanan are quite stimulating. To a remarkable extent, they bring economists into a territory that philosophers and theologians are also obliged to explore. Incentives? Private property? A psychology of value? Persons rather than goods? Creative potential, human choice? These are concepts that have excited philosophers and theologians for centuries; indeed, these are concepts that philosophers and theologians were the first to draw from the mists of human experience.
The Anti-Capitalist Bias of Intellectuals
Professor Heilbroner’s questions remind us of the anti-capitalist bias of the intellectuals — and not only of economists, but also of theologians. In 1891, Pope Leo XIII condemned socialism; he called it “futile” as well as “evil” and “unjust.” But he was reluctant to praise “liberal capitalism” as he found it in 1891, and he worked assiduously to reform it.
Why were intellectuals, both secular and religious, so opposed to “liberal capitalism”? Mostly, they saw only its negative features. They feared such dangers as “excessive individualism,” “materialism,” “acquisitiveness,” and “excessive concentrations of economic power,” whether in monopolies or in narrow financial circles. They were not wrong to fear such potential dangers and many real abuses. Systematically, however, they underestimated the spiritual resources of real existing capitalist countries, and especially of those in which democratic institutions were powerful, the law was held in high respect, and the religious traditions of Judaism, Christianity, and even a certain ethical humanism remained strong. Over the decades, the original capitalist countries, especially in the Anglo-American world, undertook many forms of social reorganization. In his latest encyclical, Centesimus Annus, Pope John Paul II has recognized these internal transformations — and encouraged yet more of them.
One reason why intellectuals overlooked the self-reforming capacities of capitalism, when embedded in powerful democratic and moral-religious traditions, may have to do with the origins of modern intellectual life in certain powerful aristocratic biases. For modern economics was born not in an era altogether neutral regarding commerce, trade, and industry. As the economic historian Jacob Viner has written:
Among the Greek and Roman philosophers hostile or contemptuous attitudes towards trade and the merchant were common, based in the main on aristocratic and snobbish prejudice, and with no or naïve underpinning of economic argument. Thus Aristotle maintained that trade was an un-seemly activity for nobles or gentlemen, a “blamable” activity. He insisted that wealth was essential for nobility, but it must be inherited wealth. Wealth was also an essential need of the state, but it should be obtained by piracy or brigandage, and by war for the conquest of slaves, and should be maintained by slave workers….
The early Christian fathers on the whole took a suspicious if not definitely hostile attitude towards the trade of the merchant or middleman, as being sinful or conducive to sin.
Adam Smith, the inventor of economic science, was a student of theology in his youth and was occupied professionally throughout his life in the teaching of moral philosophy. Nonetheless, theology in his time was deeply embedded in the habits, images, and practices of preceding centuries. Its viewpoint was as rooted in the land as that of landholders and rural peasants; it was adversarial both to commerce and manufacturing; it was aristocratic. The viewpoint of this earlier theology was, on the whole, favorable to inherited wealth (or wealth conferred by royal endowment), but it was quite dismissive of earned wealth, particularly of wealth earned through commerce and manufacturing.
It celebrated the arts of statecraft and war, of entertaining and dining, of magnificence and lavish giving, of ceremony and play. It did not look with equal esteem upon the grubby and sweaty arts of providing goods and services, of buying and selling, and of pioneering in invention and manufacture. It loved the categories of the liberal arts, and looked down upon the “servile” industrial and commercial arts. It called the liberal arts “noble” and the commercial arts “merely useful.” The first it commended as a way of “being,” while it dismissed the second as crassly “utilitarian.” Resenting this rebuff, economists for their part began regarding religious reflection as unrealistic and irrelevant, if not positively harmful to the condition of the poor and to honest empirical inquiry.
Reconciling Economics and Religion
The new encyclical of Pope John Paul II, Centesimus Annus, issued on May 1, 1991, indicates a strong desire to end the divorce between religion and economics once and for all. Noting the collapse of Marxism, Pope John Paul II completes the efforts begun by Leo XIII a century ago to point to necessary reforms of a democratic, law-abiding, anthropologically sound form of capitalism.
One-hundred years ago, Pope Leo XIII won a name for himself as “the pope of associations” because he made free associations central to his social teaching. In a similar way, 100 years from now, Pope John Paul II may be accorded fame as “the pope of economic enterprise” because he made “personal economic initiative” central to his social teaching. In Sollicitudo Rei Socialis, the Holy Father declared the right of personal economic initiative to be a fundamental human right, second only to the right of religious liberty, rooted (like religious liberty) in the image of the Creator endowed in every human being. Like their Maker, he suggested, men and women are called to be co-creators in the economic realm.
Perhaps those who have been trained in the disciplines of business life and economics will immediately discern the significance of this theological insight. Schumpeter, Hayek, and Kirzner have taught that the cause of the wealth of nations is invention, discovery, enterprise. In important ways, therefore, human capital is prior to physical capital. Thus, in turning to the creation story of Genesis as a guide to his reflections on economics, Pope John Paul II has found a way to heal the breach between religion and economics from which the West has suffered for 200 years. This move also makes possible a reconciliation of economics and religious reflection, after their long divorce of almost 200 years.
All these moves allow us to look again at the history of the last two centuries, especially the rise of inventiveness. The new order of the eighteenth century — the “commercial republic” — first commended itself to Western civilization by its moral superiority to the old order. In place of brigandage and war, it offered law and consensual contracts. “Commerce and Peace” was the motto of commercial Amsterdam. When the path to wealth was blazed by innovation, industry, and exchange, rather than by plunder, brigandage, and conquest, it was a great moral gain for the West.
To be sure, a new economy was not—is not—enough; we must be democratic capitalists, in the sense that a full and thriving form of the free economy requires a sound political system rooted in the consent of the governed, as well as the guidance of a deep, compassionate, and realistic moral and cultural system. Thus, economics will increasingly come to be seen as the study of human choice. Choice will become ever more central in economic analysis. This means the human being will become more central. Now that the world is turning rather more unanimously to forms of political economy which enlarge the scope of choice in the political, economic, and moral/cultural fields, we must deepen the science of public choice. In an important sense, economics will necessarily become more focused on the human capacity to reflect and to choose, that is, more humanistic.
Exactly these two activities, reflection and choice, the Catholic tradition has long held, constitute the image of God in the human creature. Down the ages, many metaphors have been used of God: God is like the mountains, or like the boundless seas, or like the constant stars, or like the hen taking her chicks under her wing. But the most compelling analogies for God have come from the most complicated form of life found on earth, the human being. No one has seen God, but whatever God is like, He is imagined to be more like the activities of reflecting and choosing — of understanding and loving — than like any other phenomena in the world of human experience. Within the human being, since at least the time of Plato and Aristotle, nothing has been found more godlike than the human capacity for insight and choice: that fire of light and passionate longing for the good, which have so animated Western civilization. Emboldened by Professor Buchanan, I predict that a new vision will take shape around the concept of choice — public choice and private choice.
Already in Sollicitudo Rei Socialis the pope had linked religious and economic liberty with the liberty of association and other core liberties:
The denial or the limitation of human rights — as for example the right to religious freedom, the right to share in the building of society, the freedom to organize and to form un-ions, or to take initiative in economic matters — do these not impoverish the human person as much as, if not more than, the deprivation of material goods?
The pope added that
In today’s world, among other rights, the right of economic initiative is often suppressed. Yet it is a right which is important not only for the individual but also for the common good. Experience shows us that the denial of this right, or its limitation in the name of an alleged “equality” of everyone in society, diminishes, or in practice absolutely destroys the spirit of initiative, that is to say the creative subjectivity of the citizen.
Two Concepts of Liberty
Yet liberty is a concept that begs us to go slowly. It is not the easiest concept to understand. In particular, the tradition of Roman law (and the Napoleonic code) give rise to a different view of liberty than that implicit in the common law. In much of Continental Europe, liberty — the French liberte, the Italian liberta, and perhaps the Latin libertas — seems to embrace the realm of whatever is permitted or not forbidden. Within this horizon, liberty and law are conceived of nearly as opposites: on one side, those things commanded or forbidden, on the other side, those things not covered in the law, concerning which one is free. The Anglo-American conception (the Whig conception) is quite different. Here liberty is conceived of as the inner form of the law. The intelligibility of the free act derives from reason, law, duty, or a well-ordered conscience.
We need to examine this notion further, for it brings religious reflection closer to the economists’ notion of “rational choice,” while at the same time enriching the economists’ notion. This understanding makes plain that “rational” does not mean only “utilitarian” or only “materialistic.” Empirically, this notion seems quite sound. After reflection, human beings do frequently act from more than materialistic motives and from motives in no narrow sense utilitarian.
One of the great philosophers on the theme of liberty is the great English Catholic layman and historian, Lord Acton. For Acton, the expansion of human liberty is the key to the design of Providence for human history. And Christianity is the chief historical force in fitting this key to history.
The Christian notion of conscience imperatively demands a corresponding measure of personal liberty. The feeling of duty and responsibility to God is the only arbiter of a Christian’s actions. With this no human authority can be permitted to interfere. We are bound to extend to the utmost, and to guard from every encroachment, the sphere in which we can act in obedience to the sole voice of conscience, regardless of any other consideration.
And conscience, as Acton understood it, is not free-floating or arbitrary, but responsible to reason. He means a rightly ordered conscience. Among other “definitions of liberty” given by Acton, we read: “reason reigning over reason, not will over will” and “reason before will.”
Religious liberty is not the negative right of being without any particular religion, just as self-government is not anarchy. It is the right of religious communities to the practice of their own duties, the enjoyment of their own constitution, and the protection of the law, which equally secures to all the possession of their own independence.
It should be clear from this that the Anglo-American definition of liberty is distinctive. It means liberty under law, not liberty from law. It means the liberty to do what we ought to do, not the liberty to do anything we feel like. In this respect, liberty in the Anglo-American sense is like the definition of practical wisdom in Aristotle. In Aristotle, prudence is recta ratio, ordered understanding (recta, that is, directed by a good will), and in American terms, liberty is ordered liberty. This is illustrated in the classic and popular American hymn: “Confirm thy soul in self control; Thy liberty in law.”
The visual image of this novel insight, captured by its French architects, is presented by the Statue of Liberty: Liberty is a woman (wisdom) with the lamp of reason uplifted in one hand, and in her other hand the book of the law.
The Traditionalist Concept of Order
In traditionalist religious circles, there are two problems with the idea of liberty. First, traditionalists confuse liberty with libertinism. They do not understand that in the democratic capitalist countries, laws are framed by the consent of the governed, so respect for law is high. And liberty is ordered by law, reason, and conscience. Without law, it is widely recognized that liberty cannot be achieved.
Secondly, traditionalists imagine that liberty must lead to chaos. Where there is liberty, they think, each person will go off in a different direction, at whim, or in pursuit of crass self-interest without order. Only the law, they imagine, or only a strong leader, can hold other wills in check, channel them, and make the trains run on time.
In traditional cultures, this may be so. But in cultures based upon free and dynamic markets, purely centrifugal activities would be self-defeating. For there is one secret to the free society that traditionalists do not grasp. The free market is a centripetal force. Where it is truly dynamic, based upon invention and innovation, the free market obliges those who would succeed in it to pay attention to others, even to their unexpressed wants and desires, and to their longing for basic respect and dignity.
Unlike an aristocratic order, a market order begins on the assumption that all who enter the market are equal, that each has dignity and that each deserves respect. Where these are lacking, something is quite lacking in the market, and its participants will loudly complain. The market’s ideal is that every exchange should be based on the full consent of those who take part. In the ideal situation, not only should both parties to an exchange be satisfied; each should think that in a way each has got the better of the deal (given the different immediate needs and concrete situations of the two). Each should be glad to do business with the other again. This is the meaning behind the common axiom, “The customer is always right.” If you want your customers to return, they must leave your presence with a certain sense not only of dignity intact, but also of satisfaction obtained.
Thus the insight most lacking to traditionalists is that intelligent and practical persons, acting freely and on behalf of their own practical wisdom, can in their free exchanges generate a spontaneous order, which is superior in its reasonableness to any order that might be planned, directed, or enforced from above. Some traditionalists seem to believe that the only possible order is order enforced from on high. Order, in the traditionalist view, is first an intellectual construct conceived in the mind of the leader, then promulgated, then enforced. In a free society the conception of order is quite different. When free persons try to be reasonable and cooperative, and attempt to enter into reasonable contracts with their fellows, these very efforts give rise to a social order much more alive with intelligence, and more subtly and gracefully ordered, than all the planned and top-down directed orders on earth.
That free markets, under some conditions, produce a superior social order should be treated as an empirical statement. That is, such a statement will be true only if extended social experiments are compared and if the predicted consequences do in fact occur. The prediction of the traditionalists is that a free society will lack all order. The prediction of those who believe in the power of free markets to encourage reasonable and cooperative behavior is that markets will give rise to a more dynamic order, shot through with greater intelligence and a wider and deeper intelligibility, than any known alternative.
The democratic capitalist order is not a static order. New inventions continually disrupt it. Before there was an automobile culture, there was a democratic capitalist culture of horses and carriages. Before there were word processors, there were only typewriters — but typewriters were already a great advance upon quill pens. Before there was an electronic revolution, there was an industrial revolution (characterized by pulleys and pistons and grease). The amazing thing about a civilization built upon choice is that it is a civilization of the most remarkable dynamism. Its order is not the order of static equilibrium, but the order of continual change.
Moreover, this principle of change appears to have a fascinating characteristic: the direction of change does not seem to be random. On the contrary, change fairly regularly occurs in the direction of a purer and more immediate expression of the human mind. If the typewriter seemed obedient to the human mind, the electronic display of the word processor seems to reflect the human mind even more translucently. In the computer screen, the human mind has hardly to think before it sees an expression of itself. The logic built into the computer encourages the human mind again to take flight and to imagine yet more docile machines.
Although we have not come to the end of the series of social experiments to build a social order worthy of the human mind and soul, we have discovered that there are three fundamental orders of liberty: political liberty, economic liberty, and cultural liberty. Even the structure of the famous document of Vatican II on the Church and the world, Gaudiun et Spes, was conveniently divided into three parts, one part for each of these three spheres of liberty.
Yet, curiously enough, attempts by the modern world to develop institutions that more fully express the human capacity for liberty in all three spheres have resulted in a world more interdependent than ever before. Far from leading to anarchy, ordered liberty leads to interdependence. Far from leading to uniformity, it nourishes cultural variety. Indeed, seldom in history have movements of ethnic, religious, cultural, and linguistic differentiation been stronger. These are normally expressed within and balanced by the powerful centripetal forces of interdependence. In an important way, the motto of such a world might well be: E pluribus unum.
One may thus imagine that in the twenty-first century philosophers and theologians will acquire a great deal more economic sophistication than they now have. It may also be expected that economists will become ever more skillful in developing humanistic categories — philosophical and theological — adequate to the complex phenomena of human choice which they try to interpret. Fundamentally, the proper subject of both economics and philosophy/theology is the human person and the human community, in their creativity and mutual sustenance.
In the twenty-first century, the disciplines of economics and religious reflection should converge.