Regína sacratíssimi Rosárii, ora pro nobis!

From the June Ad 2005
Our Lady of the Rosary
Parish Bulletin

Thomas E. Woods, Jr., The Church and the Market: A Catholic Defense of the Free Economy (Lanham MD: Lexington Books, 2005) 237 pages $19.95. Paper. [Highly recommended]

(also of related interest:)

The Politically Incorrect Guide to American History (NY: Regnery Publishing, 2004) 270 + xv pages. $13.97 (from Amazon) Paper.

How the Catholic Church Built Western Civilization (NY: Regnery Publishing, 2004) 280 pages. $29.95 HB

    In writing The Church and the Market, Thomas Woods set out to do a number of things, all of which have been accomplished masterfully. Perhaps the underlying thesis of the entire book is that economic systems are governed by laws which operate independently of the dictates of the Church or the government. The economy will operate in certain, generally predictable, ways which are not always directly in accord with what the Church would like for the poor or the state would like for political purposes.

    For example, the Church quite correctly holds that no man should live in dire poverty-but that does not mean that the problem of poverty can be solved by an edict of Church or state-indeed, encyclicals and statutes may cause even greater material suffering if they do not take economic realities into account. A common example is the minimum wage. Today it is five or six dollars an hour-what would happen if the Pope or the President decreed that it should be ten or twelve dollars an hour? To begin with, businesses employing workers at minimum wage would lay off all but the most essential workers (“we can sweep the floors and wash the windows once a week instead of every day”). Some businesses would be forced to close altogether. With less people employed, society would produce fewer goods-raising the general price level, thereby making conditions even worse for the poor. Further wage hikes would be necessary to retain those workers who bring their skills and equipment to the workplace. In short, prices and unemployment would rise, most hurting those expected to rise from poverty by means of the minimum wage law.

    Ultimately, consumers-including consumers with small incomes-must pay for the increase in the wage rate. It is illusory to think that the increased wages will come from the “excess” profits that the businessman is thought to make at the expense of labor. If the businessman has a bigger house and car, better clothing and food than his numerous workers, they would gain very little even if he shared all of the difference with them (62). It is the profit motive which causes the entrepreneur to risk his money and work the long hours needed to make a business run; and which induces investors to finance the operation and growth of the business. It is the profit motive which causes businessmen to produce the goods desired by society, and to do so as efficiently as possible (21, 202). If the owner’s wealth were all confiscated and divided among the workers, each would gain very little; and, very likely, none of them would have a job in the morning-not out of retribution, but simply because the golden-egg laying goose would have been slaughtered. It is only when wealth is being created by viable businesses that there are wages to be paid and products to be purchased-even the most totalitarian government cannot confiscate and redistribute what does not exist!

    What most helps the poor is a general growth of the economy, so that there are more goods available for consumption, the price levels are lower, and more of the population is gainfully employed (67, 173). Such growth is rarely, if ever, the result of Church or state intervention into the forces of the economy.

    Catholic writers who treat of economic issues from the Church’s perspective tend to devote most of their attention to describing the way things ought to be, often without a great deal of thought as to how the things that ought to be can actually be made to happen in real world society. This “ought-to-doxy” which was fairly narrow a hundred years or so ago has broadened considerably. While Pope Leo XIII only suggested that society ought to figure out a way to pay all workers a “family wage,” modern churchmen have gone on to declare a positive right to pensions, vacations, education, medical care, and even sport and recreation. The operative presumption is that all of these “ought-to-haves” can be satisfied by an unspecified process somewhere between magic and forced redistribution of wealth-which usually means that the government should intervene by printing money, regulating industry, or raising taxes on the productive sectors of society.

    Writing from this perspective, Catholic moralists rarely present any sort of analysis of how wealth is created and distributed in an economy, or what the consequences of intervention might be. Those that claim to subscribe to a particular economic school usually expend more effort on describing what is wrong with other systems, and much less on explaining how their system will work in practice. Capitalism is often portrayed as not much better than Communism, without any real world analysis of what might be preferable.

    In The Church and the Market, in non-technical terms, Dr. Woods gives the reader an understanding of what is called the “Austrian school” of free market economics. He makes no claim that this is or should be the Catholic economic system, and right up front (page 4) quotes Pope Leo XIII, saying, in effect, that the Church has no favored system: “If I were to pronounce on any single matter of a prevailing economic problem, I would be interfering with the right of men to wok out their own affairs....” Thus the reader is free to espouse some other economic system than the “Austrian,” but Woods makes a very compelling case that the general material welfare is best served by little or no regulation-and that politicians, priests, bishops and even Popes cannot annul the laws of economics by making pronouncements of what ought-to-be. Clergymen as such have no special competence in how the economy can be made to provide for domestic poor or lesser developed countries.

    Those skeptical of the power of the free market might well consider the “miracle” by which thousands upon thousands of different goods and services are made available to all of the people in a city like New York-and every other city and town, large and small, across the nation. With very little scarcity or waste, the things that people need and want are available in the quantities they want-precisely because enterprising people are free to respond to the conditions of the market. Does anyone believe it would work any better if the mayor or the bishop of the city took it upon himself to set the prices, build and staff the factories, order the goods, and arrange for their distribution? Without the forces of the market it is impossible to determine how much of what to produce or to set a price for it (20-24).

    In The Church and the Market we find insightful discussions of wages and prices, and money and banking (chapters two and three, respectively). (The information on money and banking is invaluable for anyone who wishes to be an informed citizen, for the nature of the nation’s money is extremely important, but not well understood by many.) In virtually every case it is demonstrated that artificial interference with wages, prices, or money has a negative effect on productivity-any interference, Church, state, or guild. Woods’ training is as an historian, and he ably presents the development of Catholic thinking on these subjects. Economic thinking, he demonstrates, has its roots in the Catholic middle ages, centuries before the work of modern theorists like Adam Smith and the others of the eighteenth century. Readers interested in this history would also do well to consult Woods’ more recent book How the Catholic Church Built Western Civilization (chapter eight). Not surprisingly, many of the names in the chapter on economics are also found in chapter five on “The Church and Science.”

    No book on The Church and the Market would be complete without a discussion of social welfare programs, both foreign and domestic (chapters four and five). Woods marks both as being wasteful and positively harmful. At great cost, foreign aid, international loans, and protective tariffs tend to bankrupt the recipient countries. Often they are forced to conform to the social and economic demands of the developed countries and agencies like the UN which have a strongly anti-Christian agenda. Brutal and corrupt regimes remain in power for they control the local expenditure of foreign aid money (129). On the other hand, Woods cites the perennial example of Hong Kong, a giant of the free market in spite of its tiny size and lack of resources-prosperous precisely because of its refusal to become involved in the receipt of foreign aid and the associated trade restrictions(140). Sadly, the US Bishops are strongly in favor of more of the same expensive and destructive interference in the affairs of the less developed nations (142).

    The folly of domestic welfare programs is even easier to see. Rent control programs produce a shortage of living spaces and poor conditions in those available, exactly as economic theory predicts-why would a landlord build new units or maintain old ones if he can profitably invest his time and money elsewhere, instead of breaking even or taking a loss (30)? What good are job training programs, the graduates of which have no better prospects of employment than those who applied for the program and failed to show up-despite the fact that the cost per student could have paid for a Harvard education!? As Woods puts it: “two-thirds of these people did not even bother to complete a free job training program. Is it a hate crime to suggest that perhaps we have happened upon one of the reasons why they have such difficulty finding work?” (152-153). But the worst evil of the welfare state is in the damage it does to families and extended families. Woods does a fine job of explaining how welfare programs have made the raising of children a net liability, and have given children the excuse they need to leave their elders in the care of the state (142-152). Certainly, from a Catholic point of view this degeneration of the family unit is fraught with evils far beyond the economic ones.

    The next-to-last chapter deals with an economic system called “distributism,” designed by such Catholic luminaries as G.K. Chesterton and Hillaire Belloc, and claiming to be based on the principles of the papal economic encyclicals. Very briefly, under distributism, each family has a piece of productive land on which to raise animals and crops. Any attempt by an individual to establish a business with more than his own personal property and family labor is discouraged by government taxation. A few government run industries might be permitted where economies of scale were recognized to be a necessary evil-but the workers would split their time between the factory and their plots of land. Distributism, which has never gotten off the ground in practice, is reminiscent of the utopian socialist communities which flourished briefly in the early United States-flourished until the realities of dealing with the outside world and the personalities of disillusioned second generation members became overwhelming. Woods does a thorough job of debunking distributism, and reiterating a number of valuable economic principles in the process.

    Dr. Woods’ earlier book, The Politically Incorrect Guide to American History contains two chapters that are “must reading” for those interested in the morality of the free economy. Chapter eight, “How Big Business Made Americans Better Off, roundly debunks the myth that industrialists like Dow, Carnegie, and Rockefeller made monopolistic profits at the expense of the American consumer, and that government regulation and anti-trust laws made things better. Chapter eleven narrates how FDR and the Federal Reserve exacerbated and prolonged the great depression, and how World War II was not what brought it to an end. The entire book should be of interest to all Americans; these two chapters are an important adjunct to Wood’s argument for the free market.

    The Church and the Market closes with a brief chapter reiterating the distinction between matters of faith and morals on the one hand, and economic matters on the other. While the Church is infallible in its magisterial pronouncements on the former, it cannot pretend to make similar pronouncements in matters of economic behavior. In doing so it often harms the poor rather than helping them. Professor Woods makes a very good case that the Austrian school of economics is an “edifice of truth” in the great tradition of Catholic thinkers, and one which ought to be consulted in matters of economic policy.

    It may be off the exact subject of the book, but this reader would have liked The Church and the Market to contain one more thing-from the chapter on foreign aid, and the general tenor of the book, we probably know Woods’ position on free trade from the American perspective, but it would have been interesting to read his analysis of agreements like NAFTA and GATT, and the American balance of payments problem. It is not at all clear that our free trade policies are truly free and represent anything more than an intermingling of national bureaucracies across the borders. Dr. Woods is a prolific writer, so perhaps we will read his thoughts one day soon.


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