Monday, December 21, 2009

Free Market vs. Pope Benedict(?)

I got this a while back from Haskovec. Because I suck, though, I'm just now getting around to commenting on it. This article is from the web site for the Ludwig von Mises Institute. Let me say now that I was an economics major, and I typically lean to the ideas that guys like Mises and Hayek espoused. And yes, I know that Mises wasn't really a huge fan of Christianity.

Anyways, the article is a review of sorts for Caritas in Veritate, which we went over here in some detail. The guys with the Institute are not all that thrilled with a lot of what the Holy Father had to say. After giving a bit of an intro, they remark:

From a classical-liberal, Austrian, and free-market perspective, many will agree with the general framework that the Pope has outlined above, particularly those who accept an Aristotelian, Thomistic, and Rothbardian approach to the ethical foundations of voluntary exchange. However, when Benedict transitions from a philosophical framework to specific economic analysis and policy recommendations, particularly as he tries to carefully maintain a "middle of the road" approach to the logic of the market and economic crises, many will take exception.

Can you guess what Complaint #1 is?

Perhaps one policy recommendation encapsulates the problem: Benedict calls for
a reform of the United Nations so that the concept of the family of nations can acquire real teeth.… To arrive at a political, juridical, and economic order which can increase and give direction to international cooperation for the development of all peoples in solidarity. To manage the global economy; to revive economies hit by the crisis; to avoid any deterioration of the present crisis and the greater imbalances that would result … for all this, there is urgent need of a true world political authority. (#67)
Yep, it's the infamous Section 67. I'm not going to try and duck the fact that this is controversial stuff. I will maintain that Hayek mentioned exactly this sort of entity in his own work. Let's let them give an explanation for their views, though.

Benedict's logical support for this policy stems from the following faulty arguments:
1. The market is the institution that permits the exchange of goods of equivalent value between two individuals in order to satisfy their needs (commutative justice) (#35).
2. Since the market cannot solve all social problems, since it creates problems of its own, and since economic action is merely an engine of wealth creation, it must be complemented by the political action of the state to intervene for the purposes of redistribution of wealth (distributive justice) (#36).
3. Profit is a means for the allocation of scarce resources, but profit risks destroying wealth and creating poverty if it does not recognize the common good as its ultimate goal (#21).
4. The market cannot produce by itself the social cohesion that it requires to function well (#35).
5. In a world economy, redistribution of wealth and regulation of financial institutions cannot be carried out by the current territorial constraints of states; therefore, a world political authority is needed.
Ok, at this point, let me just say that I think the Institute is missing a lot of Pope Benedict's point. As I mentioned previously, what the Pope is looking for is a Catholic entity that will regulate these items in accordance with Catholic principles. This requires that economics (and everything else) be ordered towards the transcendent, rather than the merely temporal. Moving on:
But Benedict's definitions of the market and of commutative justice are mistaken. In a free market, individuals do not exchange goods of equivalent value. They exchange goods of unequal value. If the values were equivalent, market participants would be indifferent and there would be no reason to make the exchange. It is precisely because a buyer values an apple more than 25 cents and because a seller values 25 cents more than an apple, that the buy/sell transaction takes place. This error originated in Aristotle's treatment of exchange in his Nichomachean Ethics (Book V, p. 5), it was restated in Aquinas's treatment of commutative justice in his Summa Theologica (q. 61 a. 2) and is repeated by Pope Benedict.
Sort of. The values in question are subjective for the transacting parties. A person who really likes apples is going to pay more for one than someone who thinks they're disgusting and just happens to be a bit hungry. This is just a setup, though.
Since we cannot measure value, we cannot define the market as the place where actors establish equivalency of value between goods.
Now why is this such a critical insight? If central planners and their supporters believe they can objectively measure the value of goods, then they will believe that equivalence can be established. It follows that belief in redistribution of income and wealth — based on an arbitrary standard — can be justified. Once a policy of redistribution is pursued, it is a very small step for the state and its apologists to justify intervention in matters of commutative justice itself, such as wages, prices, costs, and interest rates. Examples of these errors in theory and practice abound, but the most notorious one is Marx's labor theory, which erroneously states that capitalists rob workers of the surplus value of their work and maintain them at subsistence income levels. According to the socialists who follow Marx, then, the state is justified not only in expropriating the means of production to correct this distributive injustice, but also in managing the factors of production and the economy as a whole by central planning, statistics, and other mathematical tools.
And here we see the beginning of the Institute's error. This encyclical wasn't just about economics. In fact, economics was just a sidebar, really.
Even if we were to accept Benedict's definition of commutative justice, it does not follow from the inner logic of his argument that he can justify state intervention in the regulation of wages, prices, and income, precisely because each of these is a commutation matter between individuals and not a distributive justice matter pertaining to common goods. And moreover, even if we were to accept the Pope's policy recommendation encouraging the political action of the state to intervene in commutative justice for the purposes of wealth redistribution, it does not logically follow that the redistribution itself should be aimed at achieving a certain desired level of equality between the haves and the have-nots. Indeed, Aquinas states very clearly that redistribution of common goods under distributive justice does not use the principle of equality but the principle of proportion between things and persons (Summa Theologica, q. 61 a. 2); therefore, in distributive justice, the more prominent a person's position in the community, the more of the common goods he should receive.
Did you catch it? Here's a hint: It's the same error that Obama and Pres. Jenkins of ND preach.
Benedict's call to temper the pursuit of profits with the pursuit of the common good misunderstands the function of the entrepreneur in creating wealth and ameliorating poverty.[2] It is impossible to conceive of the common good apart from its connection to entrepreneurial action. The French word 'entrepreneur' comes from the Latin "prehendo," to lay hold of, seize, grasp, catch, detain, or arrest.[3] It is an individual's entrepreneurial action in the pursuit of the goals he values most, using scarce factors of production, taking into consideration his costs, and guided by expected future prices in an unhampered market economy that creates wealth and diminishes poverty for society. Motivated by profit, the entrepreneur plans and then acts to satisfy the needs of other individuals. The common good is the unintended, but logically necessary byproduct of the entrepreneurial process. There exists no other rational mechanism to achieve the common good.
Ok, ok. I give up. These guys are so hung up on the temporal that they miss the whole point. The Pope's WHOLE SHPIEL in this encyclical is precisely that you can conceive of "common good apart from its connection to entrepreneurial action." Common good entails the spiritual good of the masses. In other words, fulfilling the role of the State in its duty to perfect the citizens in virtue and help get them to heaven. I honestly wonder if they read the whole document.
It is precisely distributive justice mechanisms controlled by the state which interfere with entrepreneurial activity, destroy wealth, and create poverty. The common good is the result of an integral dynamic process of human action in an environment of freedom.
Yeah, and it's the forces unleashed by unchecked capitalism that lead to materialism and uninhibited gratification of disordered appetites. This is stuff you don't really see addressed in economic discussions. I get that. It's also what makes these criticisms of what the Pope is saying unfair. They aren't even paying attention to the arguments he's making.
The social cohesion, solidarity, mutual trust, emancipation, friendship, reciprocity, and the pursuit of the common good of which Benedict speaks (#35 & #36) are the result of individual human actions. Society is the outcome of human action in an environment of the division of labor. Humans perceive that it is more efficient and effective to specialize in a particular function and then trade in the marketplace. It is because humans intuitively know this truth that friendship, belonging, solidarity, and even charity can and do arise in society; but the cause and effect relationship between human action and feelings of cohesion flow from the first to the second and not the other way around. Cohesion is the result of individual human action and not its precondition.
Right. God has nothing to do with any of this stuff.
Unhampered entrepreneurial action in free markets is not merely the most efficient and best way to achieve the common good, it is the only way. There is no "middle of the road." As Mises puts it, "The market economy … and the socialist economy preclude one another. There is no mixture of the two systems possible or thinkable. Production is either directed by the market or by the decrees of a production tsar."
What does "unhampered entrepreneurial action" do to save souls?
Contrary to Benedict's assertions that the market becomes a negative force if it is guided by selfish ends (#36), actors in a free market — and the entrepreneur in particular — do not have to be angels, saints, or unselfish to act to the benefit of the common good. Individuals simply need to employ means with the aim of attaining the goals they value and entrepreneurs simply need to comply with the wishes of the consumers who patronize them.
This pretty much sums it up. Who cares if all these folks go to hell as long as the market is left alone? The Pope cares. Everybody else should, too.
The rest of the article is basically this same straw man beat up over and over again, while decrying that the Pope didn't build on the "classical-liberal ideas" from Deus Caritas Est and Centesimus Annus. Maybe somebody should remind them that the Church's main interest isn't market-friendly economics. It's getting people to heaven.


Haskovec said...

In all fairness, I think you are looking at it the wrong way. I think Economics can't really tell us anything about God much like I think Science can't either. They are separate domains. As a result they are only looking at the economic discussion in the letter and not the spiritual discussion as they have nothing to add in that space.

As such they are only going to focus on the material aspects of things. Given however that the Pope is more concerned with salvation of souls obviously he has different priorities as well. That being said I think there is a lot of value in the discussion of the unequal value of goods. I completely agree that whenever I do a financial transaction it is because I value what I am getting more than what I am giving (whether that is my time for a paycheck or my money for something I am spending it on). So I think it is good that they point out the flaw in this argument and discuss it. And their point on the UN yeah it has been beat to death by everyone, but I understand the concern just as we have seen the Federal government take over more powers and feel fairly helpless to affect change in DC it would be much worse if the UN took on sovereignty and now we have a global body that is ignoring us.

Throwback said...

On your first point, I very well might be missing the proper perspective. The problem is that they use the Pope's term "common good" as though it is synonymous with temporal goods. That's just incorrect.

While the Pope does misstate the basis for economic transactions, the point seems almost negligible in light of the rest of the encyclical. Entirely unfettered capitalism doesn't work because it is ordered towards men rather than God. What we have now are the effects of this. You can't just take the economic picture the Pope paints without the spiritual background. He wouldn't even be discussing the former if the latter wasn't his chief concern.

On the UN bit, I admit myself that my theory there is probably completely wrong and cracked in the head. I just can't shake the feeling that the Pope is trying to angle the Church back into the political realm and not just from the perspective of the "world's conscience" or whatever.

I'm going to do the Protestant article this week so make sure you come back.