Pope Benedict and a free and virtuous economy

Those who study Pope Benedict, who announced his retirement yesterday, have been impressed by his humanity and by his understanding of human nature. Statements he has made on the economy, written in his own hand, reflect that.

The Pope, for example, did not see the problems that led to the financial crisis as solvable by government regulation. Instead, he saw an ethical crisis that needed a call to virtue. As he said in Caritas in veritate: “Economy and finance, as instruments, can be used badly when those at the helm are motivated by purely selfish ends. But it is man’s darkened reason that produces these consequences, not the instrument per se”. In other words, credit derivative swaps are not evil, but those who abuse them might be.

He had a similarly wise understanding of the problems facing the welfare state. As he stated elsewhere: “There will always be suffering which cries out for consolation and help. The state which would provide everything, absorbing everything into itself, would ultimately become a mere bureaucracy, incapable of guaranteeing the very thing that the suffering person needs: namely, loving personal concern. We do not need a state which regulates and controls everything”. Solidarity as a virtue is far superior to an intrusive welfare state.

Indeed, though the Church often makes strong statements criticising people’s actions within a market economy, the foundational principles of its social teaching are strongly welcoming of a free and virtuous economy, and very suspicious of the centralisation of power.

Family and civil society come before the state and the state is there only to serve. As was stated in the earliest modern social encyclical: “If one man hires out to another his strength or skill, he therefore not only expressly intends to acquire a right to the remuneration, but also to the disposal of such remuneration as he pleases. Thus, if he lives sparingly, saves money, and, for greater security invests his savings in land, the land is only his wages under another form. Socialists, by endeavouring to transfer the possessions of individuals to the community, strike at the interests of every wage-earner.” This is the so-called “workers” encyclical which did impose moral obligations on employers, but spoke little of regulation.

It is to be hoped that Pope Benedict’s successor will promote articulately the foundational principles of the Church’s social teaching. This keeps the Church above day-to-day politics because, once the requirements for justice exist, society is best lifted out of its mire by the practice of virtues and not the writing of regulations.

Not all in the Vatican see it that way. This can be seen in analysis of some of Pope Benedict’s writings in which the Vatican’s Justice and Peace Commission sometimes takes a hand. That commission often has a keen understanding of human imperfection in the market economy, while assuming that regulators, and those in charge of state welfare, are made of finer clay.

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Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.