Since its beginnings with Aristotle and Plato, the study of economics has always been regarded as a branch of philosophy, a colony of politics and ethics. But all that changed in the late 19th century, when economists attempted to make of what was then called political economy the pure science of economics. By “pure,” they generally meant a science modeled on physics, where markets moved according to strict laws in the same way that the stars did, and where moral considerations would not be allowed. Freed from the moral order, economic scientists would be able to chart the course of the economy with the same precision that astronomers could chart the course of the planets; only observation and mathematics would count. As W. S. Jevons put it more than 100 years ago, if the economists could just gather enough statistics, then economics would be “as precise as many of the physical sciences.”
Since Jevons' time we have established great bureaucracies, both public and private, devoted to gathering statistics about the economy. Moreover, we have great computational engines that were unimaginable in Jevons' day. Yet despite all the stats passed through all the computers, economic science entirely missed the coming of the current crisis. Ninety percent of all economists failed to see this problem developing, and the few who did were regarded as fringe figures. Nor is this an unusual case. The most prominent economists are prone to pronouncements that “all is well” just as things are all about to collapse. This pattern has been repeated over and over again through each and every crisis. The only rule seems to be that the bigger the crisis, the greater the blindness to the causes.
If economists exhibit such an habitual blindness to the events in the real world, do we not have warrant for suspecting that their “science” is less than complete, for suspecting that they have missed some basic principle that is necessary to the study of the economy?
The Catholic Church has always thought so. Beginning in 1891 (just as economic “science” was beginning to predominate) Pope Leo XIII in the encyclical Rerum Novarum insisted that an economy must be based on justice. Further, he insisted that the sign of this justice was the just wage. The new economists found this perplexing; wages were just another commodity whose price was set like any other commodity, say wheat or pig iron. They simply had no way of incorporating Leo's insights into their calculations, and regarded his pronouncements as a throwback to the middle ages. Nevertheless, every subsequent pope has reiterated and extended Leo's teaching. They have insisted that economics deals with those personal and institutional relationships that are necessary for the material provisioning of society. And since it deals with human relationships, it must be an humane science, one dependent, as are all the humane sciences, on norms of human conduct, norms which we call virtues and morals. The highest of the natural virtues is justice, and in the political and economic arenas, this will mean both personal and social justice.
Now comes Pope Benedict XVI with a new social encyclical, Caritas in Veritate, which exceeds all the other social encyclicals by insisting that a proper economics is based not only on the natural virtue of justice, but on the super-natural virtue of love! Justice is, of course, a part of love; you cannot be said to love someone and treat him unjustly. But no other encyclical has gone as far in asserting the primacy of love as a practical consideration of economics and social life. But Benedict goes even further: He insists on a principle of gratuitousness in business, on the idea of pure gift. At this point, many reasonable observers could conclude that the Pope is indulging a pure utopian fantasy, suitable perhaps for a world of angelic figures, but disastrous in a world of fallen men. And a businessman might be excused if he were to throw up his hands and say, “I can't possibly run my business in this way,” and ignore the whole thing. And yet the Pope's claim is that to ignore this would be a mistake not only on some abstract or spiritual level, but on the practical level as well. What Benedict does is bring us face to face with Tina Turner's great question, “What's Love Got to Do With It?”
The sheer scope of this encyclical is somewhat daunting. In fifty-four pages, the Pope tackles issues of globalization, financial speculation, outsourcing, inequality, migration, technology, patent law, ecology, and the list goes on. But perhaps the best way of getting a handle on all this is to recognize that Benedict is reviving the thought of his predecessor, Pope Paul VI, who was the pontiff at the close of the Second Vatican Council. Paul wrote two highly controversial encyclicals which between them managed to anger both the right and the left. One of them was called Populorum Progressio, which was written forty years ago when what we now call “globalization” was in its infancy, and it dealt with the development of the “third world.” Paul warned that if the world did not develop with justice and equity, the resulting inequality would shake the world apart to produce pretty much the situation we see today. The other encyclical was Humanae Vitae, which dealt with human sexuality, and particularly with the difficult issue of contraception. In Benedict's view, this encyclical “indicates the strong links between life ethics and social ethics" (15).
Benedict has combined the thought of these two encyclicals into one work and applied them to the current situation. His belief is that those who are not open to life cannot in reality be open to their neighbors; he views development as an exercise in solidarity with our neighbors, no matter how far away those neighbors are. Throughout the encyclical, Benedict insists that the moral concern is also an economic concern. For example, in discussing the extremely high levels of inequality, both among countries and within countries, Benedict notes,
Economic science tells us that structural insecurity generates anti-productive attitudes wasteful of human resources, inasmuch as workers tend to adapt passively to automatic mechanisms, rather than to release creativity. On this point too, there is a convergence between economic science and moral evaluation. Human costs always include economic costs, and economic dysfunctions always involve human costs. (32)
Thus Benedict advances social ethics as a practical principle of sound economics. And while he deals with many issues in this way, I would like to focus on the principle of gratuitousness. Can such a principle really be part of economic science? Businesses, after all, are run to make a profit, which seems to run counter to the idea of a gift.
The Pope does understand the need for profit, a word he uses fourteen times, but he understands profit as a means to an end, rather than an end in itself (21, 32, 38, 40, 41, 46, 47, 66, 71). Making a profit tells a businessman that he has properly allocated the resources of the firm. Without this, he has no real way of knowing if he is running the business in a correct way. However, “Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty" (21). Actually, most business people understand this intuitively. While they might intone, “I entered business to make a profit,” they also know that they became entrepreneurs for a variety of reasons: to express their own skills, to support their families and even their associates' families, to contribute to the community, to achieve a sense of mastery and self-worth. These emotions are familiar territory to most entrepreneurs. As Benedict notes, there is,
[A] growing conviction that business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference...many far-sighted managers today are becoming increasingly aware of the profound links between their enterprise and the territory or territories in which it operates. (40)
These sentiments will not come as a surprise to many entrepreneurs. However, to many corporate bureaucrats, these words will be mysterious, since they have been trained in the belief that their only obligation is to the shareholders, and not to any other social good. Ironically, these bureaucrats end up serving only their own interests, getting as much as they can in the way of pay and privileges at the expense of the owners, the workers, and the larger community. Indeed, we are in the habit of speaking of “business” as if it were all of the same kind. But in fact, there are at least two modes of business: the great corporations, run bureaucratically by and for the bureaucrats, and the small and medium-sized enterprises run largely by the entrepreneurs who own them. The latter group has a much easier time in seeing their obligations to their workers, their suppliers, and their neighbors.
Now, with all of this as background, it is easier to see what Benedict means by gratuitousness. The worker and the entrepreneur offer their services to the community, and offer it in solidarity with all the other stakeholders. On the mere level of exchange, this is of course covered by the rules of contract, by the laws of supply and demand. Nevertheless, “in commercial relationships the principle of gratuitousness and the logic of gift as an expression of fraternity can and must find their place within normal economic activity. This is a human demand at the present time, but it is also demanded by economic logic. It is a demand both of charity and of truth" (36). This “logic of gift” does not negate the logic of exchange or the logic of duty or law, but transcends them both. It allows us to see our work in a new light, and thus enlightened, to contribute our talents to the commonwealth and the common good.
This enlightened way of viewing business allows the Pope to imagine new forms of enterprise:
Alongside profit-oriented private enterprise and the various types of public enterprise, there must be room for commercial entities based on mutualist principles and pursuing social ends to take root and express themselves. It is from their reciprocal encounter in the marketplace that one may expect hybrid forms of commercial behaviour to emerge, and hence an attentiveness to ways of civilizing the economy. Charity in truth, in this case, requires that shape and structure be given to those types of economic initiative which, without rejecting profit, aim at a higher goal than the mere logic of the exchange of equivalents, of profit as an end in itself. (38)
Once again, we may ask ourselves if Benedict is merely fantasizing about new forms of enterprises. But in fact, such enterprises are not new. They exist, have always existed, and are, by and large, quite successful. Many examples could be advanced, but some of the more prominent ones include the Mondragón Cooperative Corporation of Spain or the cooperative economy of Emilia-Romagna in Italy. The former, a fifty-year-old collection of worker cooperatives is one of the largest corporations in Spain, and has over 100,000 workers doing more than $20 billion in sales. But Mondragón is not just a business; it operates schools, research institutes, a university, training institutes, a social welfare system, and a credit union, all of which are self-funded. Such a huge enterprise requires no outside investment but the commitment and dedication of its own workers and its community.
In the Emilia-Romagna region (the area in Italy around Bologna) worker cooperatives provide 40% of the GDP. Wages are about twice the average for Italy and the standard of living is among the highest in Europe. Moreover, they have pioneered a new process of industrial production which involves networking among small firms to cooperate on large projects, a feature which allows them to maintain small and medium-sized companies, but to compete internationally on big jobs. And these are just two of many thousands of examples that could be offered.
The most definitive reply to someone who says “it can't work” is to show that it is working, and has been doing so for a long time. Obviously, such firms are not the norm, but the exception. But there is no reason they cannot be the norm. Rahm Emmanuel has famously said, “Never let a crisis go to waste.” It would be a shame if we wasted the current economic crisis, if we did not use it as an occasion to reflect on the meaning and role of business. I believe that Benedict provides us with the intellectual and spiritual tools to reflect on this crisis, and on what we must do with it. Caritas in Veritate, “love in truth,” can and should be the focus of this reflection for all faithful Catholics. Love, caritas, is not sufficient to enable one to found a business; a great deal of technical knowledge is required as well. But such knowledge is likely to go astray if not enlightened by a vision of love for one's neighbor. There must be a continuous dialogue between them. Or as Benedict puts it,
Charity is not an added extra, like an appendix to work already concluded in each of the various disciplines: it engages them in dialogue from the very beginning. The demands of love do not contradict those of reason. Human knowledge is insufficient and the conclusions of science cannot indicate by themselves the path towards integral human development. There is always a need to push further ahead: this is what is required by charity in truth. Going beyond, however, never means prescinding from the conclusions of reason, nor contradicting its results. Intelligence and love are not in separate compartments: love is rich in intelligence and intelligence is full of love (30).
This article will appear in Catholic Men's Quarterly