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The role of Catholic social theory in economic policy

Dissertation
Author: Jeremy J. O'Connor
Abstract:
This dissertation examines Catholic Social Theory (CST) in the context of its relationship to and impact on economic policy. CST emerged formally in the latter part of the nineteenth century in response to social changes and movements that were dividing the world, particularly in Western Europe and the United States. These movements included the emergence of both capitalism and socialism. To address the conflict that inevitably developed in this changing world, economic policies were instituted. These policies were intended, at least the argument goes to serve the common good and were based on theoretical concepts and perceptions. One question, from the perspective of CST is: are the policies in agreement with CST? The purpose of this study is to establish what relationship there is, if any, between selected U.S. economic policies and CST. Perhaps nowhere can this question be more fully addressed than in an examination of two important economic policy movements of the last century, New Deal economic policies and recent health care reform proposals in the U.S. Thus, this dissertation will examine the relationship between CST and these two areas of socio-economic policy. In particular, this dissertation examines the question: are the economic policies in question consistent with CST? If so, in what ways do they agree? If not, in what ways do they differ? The answers to these questions have importance not only from an economic theory and policy perspective, but from a social and religious perspective as well. There are nearly 70 million Catholics in the United States and approximately 1 billion worldwide. Thus, whether or not public policy is in agreement with CST is of consequence to a significantly large community of people.

CONTENTS ABSTRACT ................................................................................................................................... iii LIST OF TABLES ........................................................................................................................ vii ACKNOWLEDGEMENTS ......................................................................................................... viii Chapters 1. PROBLEM STATEMENT AND METHOD ................................................................ 1 2. SURVEY OF THE LITERATURE ............................................................................... 7 3. CST AND THE NEW DEAL ...................................................................................... 28 4. CST AND HEALTH CARE REFORM ...................................................................... 62 5. CONCLUSION .......................................................................................................... 105 REFERENCE LIST................................................................................................................. 110 VITA ....................................................................................................................................... 116

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TABLES

Table Page 1. Estimate of the Effects of Health Care Reform on the Deficit…………………..74

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ACKNOWLEDGEMENTS

The author would like to thank the faculty and staff of the School of Graduate Studies at the University of Missouri-Kansas City for their support through my studies and this project. A special thanks is extended to the members of my research committee, Dr. Douglas H. Bowles, Dr. Max J. Skidmore, Dr. Theresa L. Torres, Dr. Karen S. Vorst, and most notably, Dr. James I. Sturgeon.

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CHAPTER 1 PROBLEM STATEMENT AND METHOD The purpose of this study is to examine specific economic policies, i.e. selected New Deal policies and health care reform, in order to establish whether or not they are consistent with CST. In the process of this examination, the standard approach to economic theory and policy (defined below) is used for comparative purposes with CST. As one can imagine, the development of policy is as complex and varied as the differing theoretical perspectives one can take when rendering an opinion on the direction of policy. The Catholic Church seeks to provide guidance to individuals and society in a world of conflict. This is reflected in the body of work known as CST. At the same time, standard economic theory also provides theoretical guidance on how to achieve socio-economic order. However, the path to harmony is very different in CST than it is in standard economic theory. Since the theoretical path one chooses has an influence over the decisions one makes regarding economic policy, the policy itself is affected by the theory one uses. One way to describe standard economic theory is as a consensus social theory. That is, standard economic theory seeks to provide a consensus understanding and explanation of the capitalist system. One way to describe consensus social theory is to discuss the opposite perspective, social conflict theory. Social conflict theory is based primarily in Marxian theory, which argues that individuals and groups of individuals fall into essentially two different social classes, those who own property and capital and those who do not. Those who own property use their power to exploit the lower classes. This is clearly a social relationship wrought with conflict between the upper class and the lower class.

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Consensus social theory, i.e., standard economic theory, is concerned with removing this conflict and explicitly or implicitly assembling an argument that justifies and maintains the prevailing capitalist order. Through its models and theories, standard economic theory demonstrates that the capitalist social order is harmonious and in the best interest of society as a whole. The major tenets of standard economic theory, i.e., individual self-interest, private property rights, unlimited accumulation and social stratification, are derived from several schools of thought including classical liberal social and political philosophy, the positivist philosophy of social science, neoclassical economics, functionalist sociology and pluralist political science. As mentioned, the theory that develops out of this can be described as representing the conventional wisdom that dominates a large part of the global socio-economic and political structure. CST is different from standard economic theory. Theologians, such as St. Thomas Aquinas, began directly addressing social issues from a Catholic perspective at a time when patriarchal societies and monarchies ruled large parts of the world. It was not until the industrial revolution, the expansion of capitalism and the development of socialism that the Catholic Church once again began to address socio-economic issues and their ramifications. The reasons for the 500 year hiatus between Aquinas’s work and CST of the late nineteenth century are largely the result of the economic, social and technological structures that existed during this period of time. As argued by Rosser Melton, the feudal world formed the basis of social, economic and religious thought of the canonists. The canonists included authors of early Roman Catholic theology including St. Augustine and St. Thomas Aquinas, whose ideas developed Greek philosophers, including Aristotle (Melton, 1940). In canonists thought during this period, the status of individuals defined social, economic and religious relationships. Thus,

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the top ranking lord of the manor ruled by divine right over their subjects and this relationship defined social and economic interaction. The canonists’ conception of the just price and the theory of value supported the feudal structure. As usury had been condemned by Christ, the just price must be determined without the exploitation of any individual. Therefore, the just price in canonists teaching came to represent a formula of equal value for equal value as determined by labor. As a result, no participant in the exchange can gain from the exchange. As argued by Melton: This process of justification was managed by identifying the ―one true value‖ of an object with the just price. No independent identification of the ―value of objects was ever attempted. ―Values‖ and ―prices‖ were no doubt interchangeable terms for the canonists—for the very good reason that they were the same thing (Melton, 1940, p. 103). When no one can gain or lose from trade, trade does not advantage any one individual over another. However, with the vast growth of commercial life during the nineteenth century, economic and social relationships began to change more rapidly than in the previous 500 years. As argued by Melton, prior to this industrial expansion, standards of consumption were relatively well defined and practiced among the various social groups. However, with expanded productivity and, the increasing flexibility of the theory of just price and the softening of the canons of cost…the old ideas no longer were sufficient to enable comprehension of what should be and should not be consumed by specific groups (Melton, 1940, p. 111, 112).

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As a result, the tightly woven fabric of just price and value began to fray. The economic world had changed and was changing quickly. However, the social structure had not adapted and neither had the canonist theory. The economic and social changes stemming from the industrial revolution were the impetus for the development of CST during the nineteenth and twentieth centuries. No longer was the equal value for equal value explanation of just price sufficient to explain the vast discrepancies in wealth between the owners of the means of production and the workers. The developments in CST, which are addressed by Melton, are vast and address issues from just price and cannons of cost to the subsistence wage and the charging of interest. For the 500 years between Aquinas and Leo XIII, Aquinas’s theory was sufficient, or at least was considered as much. However, Aquinas’s doctrine alone was not sufficient to address the technological, productive, consumptive and social changes that took place during the nineteenth and twentieth centuries. As a result, CST experienced a period of new development that sought to address the issues of the time. Breaking away from the traditional practice of remaining isolated from the people, Pope Piux XI’s reign from 1846-1878 lead the way to brining the Papacy closer to people. His audiences with individual Catholics, coupled with his informal interactions and chats with the people led to Catholics experiencing a more personal devotion to the Pope. This proved to be a valuable step as the Church and its people were moving out of the ―medieval state of siege‖ and were beginning to grapple with the problems of the twentieth century (Bokenkotter, 1977, p. 320). The latter part of the twentieth century witnessed a movement towards more self- awareness and active involvement by the people in political and social decision making that had not been experienced during the rule of monarchists. This was marked with the loss of the Papal

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States in 1871, which changed the Papacy form a political head of state to serving as an advocate for the people. In addition, the extensive mechanization of production and concentration of wealth that began in Great Brittan quickly spread throughout Western Europe and the U.S. This came with a revolution in modes of travel and communication, which further fed the industrial process. As a result of expansive industrialization and the necessity of individuals to be more politically informed and involved, a more direct line of communication between the Vatican and the people was necessary for the Church to share its message with the people. Pope Piux IX’s deliberate efforts to reach the people came with his condemnation of liberal teachings and practices, i.e. ―freedom of the press, democratic constitutions, separation of Church and state, civil liberties, including freedom of religion and trade unions‖ (Bokenkotter, 1977, p. 333). Pope Piux IX’s opposition to liberalism, coupled with his retreat from politics as a result of the loss of the Papal States, was such that it prevented him from more fully leveraging the advantages of mass communication in order to advocate for the people. It was Pope Piux IX’s successor, Pope Leo XIII, who made distinctions between the teachings of liberalism that were not consistent with the teachings of the Catholic Church and the practices of liberalism that enabled the Church to more effectively communicate with and advocate for the people. The Rerum Novarum is the ―Magna Carta of Social Catholicism‖ both because of its ability to reach the people and because of its direct handing of the problems of modern society that had come to the forefront during the industrial revolution (Bokenkotter, 1977, p. 333). These problems included industrialization, fair wages, poverty, workers rights, capitalist ideology, socialist ideology, and numerous other social questions. The Rerum Novarum not only formulated theoretical and practical proposals to these problems, but it encouraged Catholics to

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become actively involved in development of social justice and reform of the social order. The elements of CST discussed in the Rerum Novarum are the basis for CST as it is written today. While the teachings of the Catholic Church are not accepted by all, it is a religion of significance. An examination of the relationship between CST and economic policy is important as it will show if economic policy is in accord with the teachings of the Catholic Church, which is the religion for approximately one-sixth of the world’s population. Chapter two of this dissertation presents a summary of the literature used to analyze the relationship between CST and economic policy. Following the literature survey, chapter three provides an analysis of the relationship between CST and New Deal Policy. Additional analysis of the relationship between CST and economic policy is provided in chapter four in which the relationship between CST and health care reform is examined. Chapter five presents the conclusions drawn from the analysis of the relationship between CST and economic policy.

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CHAPTER 2 SURVEY OF THE LITERATURE Introduction In this chapter four strands of literature that bear on the relationship of CST and economic policy are surveyed. These are found in both primary and secondary works in standard economic theory, CST, as well as literature that examine the relationship between CST and economic policy. The works have been divided into four major categories, CST, Standard Economic Theory, CST vs. Standard Economic Theory, and finally, CST and Economic Policy. What follows is a synopsis of the primary literature utilized in this dissertation.

The Literature of Catholic Social Theory: A Survey St. Thomas Aquinas is credited with providing some of the earliest writings in CST. The most famous of Aquinas’s work, the Summa Theologica, written from 1225 to 1274, serves as a compilation of the main theological teachings of the time. It summarizes the reasons for almost all points of Christian theology in the West, which, before the Protestant Reformation, existed solely in the Roman Catholic Church. The Summa's topics follow a cycle: the existence of God, God's creation, Man, Man's purpose, Christ, the Sacraments, and back to God. It is famous for its five arguments for the existence of God, the Quinquae viae. This work is referenced often and serves as a basis for CST. Pope Leo XIII observed the social conflict associated with the industrial revolution and was not indifferent to the issues at a hand. As a result, a series of encyclicals were published starting in the late part of the nineteenth century that sought to provide guidance to both

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capitalists and workers in the midst of economic change. These encyclicals address a wide range of issues relevant to the industrial revolution, ―rigid‖ capitalism and socialism (Pope John Paul II, 1981, Sec. 14). These encyclicals also serve as the basis for CST, which became more fully developed during the twentieth century. The Catholic Church’s first official statement on the social effects of the industrial revolution was presented in Pope Leo XIII’s 1891, Rerum Novarum. This encyclical explains the Catholic Church's response to the social instability and labor conflict that arose in the wake of industrialization, which led to the rise of socialism. Pope Leo XIII restated the Church's long- standing teaching regarding the crucial importance of private property rights, but recognized that the self-regulation of market forces must be tempered by moral considerations. The encyclical discusses the relationships and mutual duties among labor, the government and its citizens. Of primary concern was the need for addressing: the misery and wretchedness pressing so unjustly on the majority of the working class (Leo XIII, 1891). The Rerum Novarum supports the rights of labor to form unions, but at the same time it rejects communism and capitalism. Yet, the Rerum Novarum also supports private property, which is a fundamental institution of capitalism. The Rerum Novarum was included in this study because the issues addressed in the encyclical, i.e., social instability and worker rights, are critically important to an analysis of the role of CST in economic policy. In addition, the Rerum Novarum serves as a basis for subsequent encyclicals addressing social issues and theory from a Catholic perspective. Pope Pius XI’s 1931, Quadragesimo Anno, unlike the Rerum Novarum, which addressed the condition of workers, addresses more directly the ethical implications of the social and

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economic order. The encyclical discusses the dangers associated with both capitalism and communism. The problems associated with industrialization, evident in the 1930s, were affecting not only factory workers, but society as a whole. Free competition, kept within definite and due limits, and still more economic dictatorship, must be effectively brought under public authority in these matters which pertain to the latter's function. The public institutions themselves, of peoples, moreover, ought to make all human society conform to the needs of the common good; that is, to the norm of social justice (Pius XI, 1931, Sec. 110). While it is argued that private property is essential to development and freedom, Pius argues that the possession of private property must serve the common good to be moral. Therefore, the government has the obligation to expropriate and distribute private property. This position is important in analyzing the role of CST in economic policy and is the reason that the Quadragesimo Anno has been included in this dissertation. Pope John XXIII’s Pacem in Terris (1963) is divided into four sections. The first section discusses the relationship between individuals and society as a whole, including the issues of human rights and moral duties. The second section addresses the relationship between man and state, speaking directly to the collective authority of the state. Human society can be neither well-ordered nor prosperous without the presence of those who, invested with legal authority, preserve its institutions and do all that is necessary to sponsor actively the interests of all its members (Pope John XXIII, 1963, Sec. 46). The third section establishes the need for equality between nations and the need for the state to be subject to rights and duties that the individual must abide by. The final section

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presents the need for better relations between nations. The encyclical ends with the urging of Catholics to assist non-Christians and non-Catholics in political and social aspects. The Pacem in Terris has been included in this dissertation because of Pope John XXIII’s discussion on moral duty and the relationship between individuals and society as a whole. A discussion of the CST perspective on moral duty and the relationship between individuals and society as a whole is important to the analysis of the role of CST in economic policy. The Mater et Magistra, published by Pope John XXIII in 1961, also deals with the relationship between man and state. As Pope John XXIII states, It should be stated at the outset that in the economic order first place must be given to the personal initiative of private citizens working either as individuals or in association with each other in various ways for the furtherance of common interests. But—for reasons explained by Our predecessors—the civil power must also have a hand in the economy. It has to promote production in a way best calculated to achieve social progress and the well-being of all citizens (Pope John XXIII, 1961, Sec. 51-52). However, the Mater et Magistra deals in a more depth way with the power of science and technology and its ability to not only raise the standard of living, but its ability to challenge the freedom of individuals. Pope John XXIII further treatment of the relationship between man and the state as well as his discussion on the role and impact of science and technology are crucial to analyzing the role of CST in economic policy. This is because economic policy, as demonstrated in forthcoming discussions on the New Deal and health care reform, are affected by technology directly and inevitably deal with the relationship between man and the state.

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The Laborem Exercens, completed by Pope John Paul II in 1981 is a continuation of the larger body of CST. In this encyclical, Pope John Paul II discusses man’s dignity in work, structuring it into four points: The subordination of work to man; the primacy of the worker over the whole of instruments; the rights of individuals as the determining factor of socio-economic, technological and productive process, which must be recognized; and finally, elements that can help everyone identify with Christ through their work. The theme of the encyclical is set with the opening statement, THROUGH WORK man must earn his daily bread and contribute to the continual advance of science and technology and, above all, to elevating unceasingly the cultural and moral level of the society within which he lives in community with those who belong to the same family (Pope John Paul II, 1981, Opening Blessing). The encyclical is then divided into four chapters: ―Work and Man,‖ ―Conflict Between Labor and Capital in the Present Phase of History,‖ ―Rights of Workers,‖ and ―Elements for a Spirituality of Work.‖ The Laborem Exercens has been included in and is important to this dissertation because deals directly with the CST perspective on work and the worker. More specifically, it discusses the importance of work to the worker, worker rights, and how one is to relate their work to their spiritual existence. This understanding of the CST perspective of work is critical to analyzing the relationship between CST and economic policy. The Caritas in Veritate published by Pope Benedict XVI in 2009 addresses the major social issues of today’s world. The first part of the encyclical discusses the contributions of Popes Paul VI and John Paul II to Catholic social teaching. More specifically, the Caritas in Veritate begins with a discussion of Pope’s Paul VI’s and Paul II’s rejection of simplistic

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conservative-liberal categories and their use of natural moral law. The second part outlines the moral principles necessary to address current social issues, including the abuse of human dignity and life, poverty, war, peace, terrorism, environmental issues, and globalization. Pope Benedict summarizes his message with, Since love of God leads to participation in the justice and generosity of God toward others, the practice of Christianity lead naturally to solidarity with one’s fellow citizens and indeed with the whole of the human family…It leads to a determination to serve the common good and to take responsibility for the weaker members of society, and it curbs the desire to amass wealth for oneself alone. Our society needs to rise above the allure for material goods and to focus instead upon values that truly promote the good of the human person (Pope Benedict XVI, 2009). The statements made by Pope Benedict XVI illustrate the importance in CST of the serving the common good rather than individual self interest. Pope Benedict also points out that society must put aside the emphasis on material wealth and focus attention on promoting the well being of people. More specifically, similarly to Pope Leo XIII, Pope Benedict XVI questions relying on the ―commercial logic‖ of the economic system to reach a socially optimal outcome. Questioning the ―commercial logic‖ of the economic system supports the idea that CST does not support a laissez-fair approach to economic policy.

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Standard Economic Theory The industrial expansion that took place in Western Europe and the United States during the nineteenth and twentieth centuries was accompanied by significant social change. These social changes manifested themselves notably in the strife felt by workers resulting from the change from a rural, feudal society to one of ever increasing urban industrialization. The harsh working conditions and growing disparity between social classes eventually spurred social movements and protests. The issues that propagated these movements were clearly economic in nature and include not only vast differences in wealth, but low wages, poor working conditions and high food prices, among others. In the years leading up to the industrial revolution and the years following, significant works that serve as the foundation for standard economic theory were published. Many of these works were developed to provide a theoretical justification for the laissez-faire approach to economic policy. For instance, Locke’s and Hume’s writing on property, interest, trade, and the accumulation of wealth, notably in Locke’s Two Treatise on Government (1690), are critical to standard economic theory and were precursors to Adam Smith’s Wealth of Nations (1776) from which the concept of the invisible hand of the market developed. Standard economic theory was further developed in the nineteenth century writings of Malthus including, Inquiry into the Nature and Progress of Rent (1815), and Ricardo’s On the Principles of Political Economy and Taxation (1821). The development of standard economic theory continued into modern analysis including Cournot and the Historical School, Jevons and Menger and the Marginal Revolution, the Walrasian auctioneer, Pareto optimality, and Marshall’s Principles of Economics (1890). While not an exhaustive list of the primary works in standard economic theory, these works are

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significant to the foundation of standard economic theory and are important to the theoretical justification of laissez-faire approach to economic policy. More specifically, the dismantling of the feudal society and the establishment of an economic order enabling capitalists to accumulate material wealth required a theoretical justification. This justification serves as a basis for the standard economic theory that largely guides the conventional wisdom and economic policy of today. For example, John Locke’s Two Treatises of Government provides a theoretical justification that still resonates in mainstream economics textbooks. The First Treatise is essentially an argument against the feudal order. The Second Treatise outlines a theory of a civil society. It begins with a depiction of the state of nature in which individuals are under no obligation to obey one another but who are each themselves the judge of what the law of nature requires. The work covers conquest, slavery, property, representative government, and the right of revolution. Locke argues that all men are created equal in the state of nature by God. He then goes on to give a hypothetical explanation of the rise of property and civilization all the while arguing that the only legitimate governments are those that have the consent of the people. As much land as a man tills, plants, improves, cultivates, and can use the product of, so much is his property…therefore he can not appropriate, he can not inclose, without the consent of all his fellow commoners, all mankind (Locke, 1689, Sec. 32). Rousseau’s, The Social Contract, discusses the development of society and the simultaneous development of laws necessary to maintain the division of labor and private property. By joining together in a social contract, a civil and free society can be formed.

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The Sovereign, having no force other than the legislative power, acts only by means of the laws; and the laws being solely the authentic acts of the general will, the Sovereign cannot act save when the people is assembled (Rousseau, 1762, Bk. 3 Ch. 12). In other words, by submitting to the authority of society’s general will, the individual is protected against the will of other individuals. Individuals are therefore only required to follow the very laws which they themselves authored as a collective. Much of standard economic theory stands in support of the capitalist system. However, there is disagreement within standard economic theory regarding the social implications of capitalist ideology. Adam Smith’s work is no exception. For example, The Theory of Moral Sentiments goes well beyond capitalism and addresses Smith’s overall ethical, philosophical, psychological and methodological approaches. The Wealth of Nations, however, discusses economics at the beginning of the industrial revolution. More specifically, it addresses capitalism pointing out not only the benefits of the self-regulating market economy as more productive and beneficial to society as a whole, but it also identifies many problems and contradictions that come with the capitalist system. The mainstream view is that Smith is an advocate of capitalism. However, whether or not Smith’s view is truly pro-capitalism depends, in part, on how one reads him. As described by Heilbroner, Smith’s was a ―baggy‖ system, in which while good emerges as the byproduct of selfishness, And yet, for all its eighteenth-century flavor, its belief in rationality, natural law, and the mechanized chain of human action and reaction, the world of Adam Smith is not without its warmer values. Do not forget the great intended beneficiary of

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the system is the consumer—not the producer. For the first time in the philosophy of everyday life, consumer is the king (Heilbroner, 1953, pp. 71-72). Thus, while it is true that Smith makes arguments that would put him into a standard economic theory position. However, he also makes arguments that would take him out of the standard economic theory position. His work is important to this dissertation because it shows that there is conflict regarding capitalist ideology even within mainstream economic theory. One of the most famous illustrations of the benefits of the capitalist market made by Smith is in his discussion of the division of labor in a pin factory. What Smith argues is that one person making pens alone could hardly make one pen in a day and certainly not twenty had they not been educated in that line of business. However, through the division of labor and the associated increase in efficiency, Ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day (Smith, 1776, Bk. I Ch. 1 Paragraph 3). Smith further notes that the increase in commercial and manufacturing activity contributes to the improvement and development of nations in the three following ways. First, the advancement of markets for the products of a country contributes to the advancement of the nation. Second, the wealth gained by the people is used in purchasing land for sale, which would otherwise go uncultivated. Third, the development of manufacturing and trade ushered in an orderly government, which provides security and liberty to everyone of the nation (Smith, 1776). However, further examination into Smith’s work can lead one to the conclusion that while he makes arguments in favor of capitalism, he also makes many arguments that point out what he sees as the inevitable problems that develop in the capitalist order. As evident in The

Full document contains 125 pages
Abstract: This dissertation examines Catholic Social Theory (CST) in the context of its relationship to and impact on economic policy. CST emerged formally in the latter part of the nineteenth century in response to social changes and movements that were dividing the world, particularly in Western Europe and the United States. These movements included the emergence of both capitalism and socialism. To address the conflict that inevitably developed in this changing world, economic policies were instituted. These policies were intended, at least the argument goes to serve the common good and were based on theoretical concepts and perceptions. One question, from the perspective of CST is: are the policies in agreement with CST? The purpose of this study is to establish what relationship there is, if any, between selected U.S. economic policies and CST. Perhaps nowhere can this question be more fully addressed than in an examination of two important economic policy movements of the last century, New Deal economic policies and recent health care reform proposals in the U.S. Thus, this dissertation will examine the relationship between CST and these two areas of socio-economic policy. In particular, this dissertation examines the question: are the economic policies in question consistent with CST? If so, in what ways do they agree? If not, in what ways do they differ? The answers to these questions have importance not only from an economic theory and policy perspective, but from a social and religious perspective as well. There are nearly 70 million Catholics in the United States and approximately 1 billion worldwide. Thus, whether or not public policy is in agreement with CST is of consequence to a significantly large community of people.