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."

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