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This article was downloaded by: [University of Auckland Library]On: 07 December 2014, At: 01:25Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number:1072954 Registered office: Mortimer House, 37-41 Mortimer Street,London W1T 3JH, UK
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Implementing the SocialEncyclicals in AmericanEconomic LifeJohn F. Cronin S.S. aa National Catholic Welfare ConferencePublished online: 28 Jul 2006.
To cite this article: John F. Cronin S.S. (1947) Implementing the SocialEncyclicals in American Economic Life, Review of Social Economy, 5:1, 1-18, DOI:10.1080/00346764700000001
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IMPLEMENTING THE SOCIAL ENCYCLICALS 7
I N AMERICAN ECONOMIC LIFE*
By JOHN F. CROWN, S.S.
Nation.al Catlzolic Wel fare Conference
I t is a truism to state that the social encyclicals of recent popes p have been momentous in their implications. They have applied the
ancient teachings of the Church to the problems of the modern world. But it would be a grave mistake if Catholic scholars in the fields of economics and related social sciences were to misuse these documents as a pretext for lapsing into complacency and inaction. Certainly such a lapse would be utterly alien to the purposes of the Supreme Pontiffs. They considered their writings as both guiding directives and stimuli to further acti0n.l Catholic scholars and leaders of social action were to amplify, develop, and apply these principles to the problems of their time and place.
Such an analysis is evident from the nature of the documents themselves. On the whole, they deal with general principles rather than with specific programs. These principles of right conduct in
a the social sphere must be applied and adapted in detail, if they are to serve as guides for action. A parallel may be found in the Ten Commandments. These simple statements of Divine and natural law have been applied by theologians to the most complex situations of daily life. We have precise formulations of what constitutes a lie, a serious theft, co-operation in evil, and the like. When one com-
k, pares the immense literature which has grown up in the attempt
*Presidential Address. 1 Qztcld~rrgesil~lo r2111t0, Pars. 19-20, 27, 31; Divi~zi Redewzptoris, Pars. 61-72.
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to apply such laws, with the relatively small body of writings de- voted to interpreting and applying the principles of social justice and charity, one can realize the immensity of the task which confronts us.
While we as Catholic economists and social scientists bear the primary burden of applying moral principles to socio-economic life, there is no intrinsic reason why others cannot share it with us. There is very little in the social encyclicals which is so peculiarly Catholic that those not of the faith would hesitate to accept it. Some of the guiding principles are based upon Divine revelation. But these principles are so generally accepted in the Christian tradition, and have become so integral a part of Western civilization, that most of our fellow social scientists would not question their validity. Such, for example, would be the law of charity, the duty to aid one's neigh- bor and seek his welfare as well as our own. In other cases, the guiding rules are based upon the law of nature or are so closely associated with human reason that they are congenital to the mind of man. Let us not forget that the concept of jus gentium, that elusive and fascinating middle ground between the law of nature and human positive law, was first evolved by Roman juris~onsults.~ Finally, there are recommendations of a prudential nature, based on moral principles, but also involving elements of transient experience. Such might be recommendations on taxation, on strikes, or on the proper organization of economic life.
Thus, we find that in practically every case, a solution which we might reach as a result of the guiding principles of the encyclicals, can be presented to the world in general as a sound policy, in harmony with the accepted standards of our civilization. We accept the sacred- ness of private property as one of the basic institutions of the jus gentium, flowing from the nature of man himself. At the same time, we know that in defending the right of property against collectivist attacks, we should not fall into the opposite error of individualism, which denies man's social nature and duties. Surely the accumulated experience of recent decades would lead thinking men of every back- ground to accept the reasonableness of our stand.3
Against this background, we may now proceed to address our- selves to two problems which deserve major consideration at the - present time. The first concerns organic and structural reform of
2 Carlyle, A His tory of Medieval Political T h e o r y in the W e s t . 3 Quadragesigno Amzo , Par. 21.
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economic life. The second deals with questions inherent in raising standards of living and achieving security in the complex economic life of today.
In regard to organic reform of economic life, we note that the encyclicals, in dealing with current problems, make recommendations upon several levels. Thus, we have many suggestions dealing with specific situations on the assumption that the present social order will not be modified substantially in the immediate future. This would be the case, for instance, when certain kinds of social legislation are under ronsideration. An entirely different level of thought is presented when the Holy Father demands a basic reform in morals as a condi- tion and a concomitant of social betterment. Here is a sweeping chal- lenge t~ effect a thorough and far-reaching change in society. Finally, there are the recommendations that organic changes be made in our socio-economic structure. Here the Supreme Pontiff urges that in addition to piecemeal improvement, we attempt a fundamental change in economic life.
The case for organic change may be stated both negatively and positively. Negatively, we assert that in modern economic life there is an excessive emphasis upon conflict and an underemphasis upon co-operation. This situation manifests itself in many ways. Thus, in business we often find the extremes of unregulated competition on the one hand, and gigantic, quasi-monopolistic concentrations of economic power on the other. Both extremes are accused by the Holy Father as leading to great evils in modern society. Unregulated com- petition can lead and has led to exploitation of labor, waste of natural resources, and instability in economic life. Economic oligarchy in turn has produced grave injustices to small business, to the consumer, and to the worker. I t has produced dangerous concentrations of economic power and, by reaction, of political power.4 In the field of labor-capital relations, the philosophy of struggle likewise has led to titanic struggles for supremacy, often to the detriment of the com- mon welfare. The results of all these conditions have been insecurity in economic life and bitterness in the relationship between social groups.
Approaching the problem from a positive aspect, it can be asserted that economic life should be a co-operative enterprise, using the term
4 Quadragesirno Anno, Pars. 14, 25, 27, 101, 105-109; Divini Redamptoris, Pars. 16, 32, 38.
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broadly and not technically, rather than a warfare. Sound reason tells us that man should be the master of the material world, not its slave. H e should be relatively free to pursue spiritual and cultural values, and not be constantly engrossed in problems connected with making a living. Even in this latter sphere, common sense would emphasize that the elements which different social groups have in common are at least as important as those which separate them. Thus, the fearful problems of economic instability, as signalized by the periodic depressions which shake the economy, constitute a men- ace to all elements in our society. Common action to meet this threat would seem to be ordinary prudence. Again, the productive achieve- ments which we have attained when, under war conditions, some measure of unity was realized, should be a spur to similar action in times of peace. Surely, no thinking man would question the self- evident character of these assertions.
Two well known sections of Quadragesiwzo Anno express the thoughts analyzed above. On the negative side, the Pope says:
"But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life - a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently dem~nstrated."~
Positively, he lays down as a goal a program of co-operation:
"First and foremost, the State and every good citizen ought to look to and strive toward this end: that the conflict between the hostile classes be abolished and harmonious co-operation of the Industries and Professions be encouraged and promoted. The social policy of the State, therefore, must devote itself to the re-establishment of the Industries and Professions. In actual fact human society now, for the reason that it is founded on classes with divergent aims and hence opposed to one another and therefore inclined to enmity and strife, continues to be in a violent condition and is unstable and uncertain.
"Labor, as Our Predecessor explained well in his Encyclical, is not a mere comn~odity. On the contrary, the worker's human dignity must be recognized. I t therefore cannot be bought and sold like a commodity. Nevertheless. as the situation now stands, hiring and offering for hire in the so-called labor market separate men into two divisions, as into battle lines, and the contest between these divisions turns the labor market itself almost into a battlefield where face to face the opposing lines
5 Quadragesirno Anno, Par. 88.
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struggle bitterly. Everyone understands that this grave evil which is plunging all human society to destruction must be remedied as soon as possible. But complete cure will not come until this opposition has been abolished and well-ordered mem- bers of the social body - Industries and Professions - are constituted in which men may have their place, not according to the position each has in the labor market, but according to the respective social functions which each performs. For under nature's guidance it comes to pass that just as those who are joined together by nearness of habitation establish towns, SO
those who follow the same industry or profession - whether in the economic or other field - form guilds or associations, so that many are wont to consider these self-governing or- ganizations, if not essential, at least natural to human society.
"Because order, as St. Thomas well explains, is unity arising from the harmonious arrangement of many objects, a true, genuine social order demands that the various members of so- ciety be united together by some strong bond. This unifying force is present not only in the producing of goods or the rendering of services - in which the employers and employees of an identical Industry or Profession collaborate jointly - but also in that common good, to achieve which all Industries and Professions together ought, each to the best of his abiltiy, to co-operate amicably . . .
"It is easily deduced from what has been said, that the in- terests common to the whole Industry or Profession should hold first place in these guilds. The most important among these interests is to promote the co-operation in the highest degree of each industry and profession for the sake of the common good of the country. Concerning matters, however, in which particular points involving advantage or detriment to employers or workers, may require special care and protection, the two parties, when these cases arise, can deliberate separately or, as the situation requires, reach a decision separately.
"The teaching of Leo XI11 on the form of political govern- ment, namely, that men are free to choose whatever form they may please, provided that proper regard is had for the require- ments of justice and of the common good, is equally applicable in due proportion, it is hardly necessary to say, to the guilds of the various industries and profession^.^ I regret to burden you with a long citation, but this passage, con-
sidered by many to be one of the key presentations of the encyclical, is vital for an adequate consideration of the problem now under discussion.
6 Qz~admyesiwzo A~zlzo, Pars. 81-56.
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Reverting to the first and shorter quotation, the Holy Father states that competition cannot be the sole ruling force of economic life. He asserts that :
"Just as the unity of human society cannot be founded on an opposition of classes, so also the right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualistic economic teaching. De- stroying through forgetfulness or ignorance the social and moral character of economic life, it held that economic life must be considered and treated as altogether free from and indepen- dent of public authority, because in the market; i.e., in the free struggle of competitors, it would have a principle of self- direction which governs it more perfectly than would the inter- vention of any created in te l le~t .~
This statement is clear and unequivocal. It is, of course, a challenge to laissez faire. I t is a direct denial of the doctrine that economic life is self-sufficient. This much hardly needs comment in this day and age. However, it goes further and denies the absolute regulatory value of free competition. This point needs further analysis.
The Pope states the case against absolute free competition mainly in two terms. The first was noted above, that it is conjoined with a philosophy of individualism. His second point is that it is self- destructive, and that it leads inevitably to its opposite, namely, con- centration of economic power with its accompanying rigidities and power struggles. The Pope also notes in other sections that un- bridled competition has led to unequal distribution of income and wealth, exploitation of labor, and similar abuses.
This moral challenge by the Holy Father is of the highest in- terest to us as Catholic economists. In fact, it impinges strongly upon the very raison d'8tre of our Association, since it deals with a vital borderline case where economics and ethics interact. As economists, we are familiar with price theory and the case for competition as a means of allocating resources, stimulating efficiency, and rewarding the factors of production. As students of economic history, we are well aware of the fact that competition today is fre- quently imperfect, and that in the past it has been accompanied by the abuses of individualism. And, finally, as proponents of Catholic social theory, we condemn laisse faire, exploitation, and economic
Quadragesirno Anno, Par. 88.
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oligarchy. The question then arises: is there any inherent conflict among these three points of view?
I t appears undeniable that there is a direct conflict between the Papal statement and some of the early classical formulations of economic theory. Between the position that the free market is an all-sufficient guide of economic life, and the categorical denial of such a statement in the encyclical just quoted, no reconciliation is possible. Does it follow from this that Catholic economists do not follow economic science, but only expound pre-determined conclu- sions based on nonscientific grounds? Such a judgment could be reached only by those who consider economics a self-sufficient science to such a degree that no outside discipline may affect its conclusions. Thus, for example, a position identical with that reached by the Pope could be arrived at by psychological arguments, independently of ethical principles. It could well be argued that business men will not submit to atomistic competition. The instinct to combine and to soften the conflict will prevail in spite of economists and legislation, as Adam Smith wisely observed. It is surely more than a coincidence that our present economic system is characterized by areas of mo- nopoly, oligopoly, monopolistic competition, and similar forms of im- perfection in or denial of the competitive process. The economist who would ignore these historical facts and psychological drives would condemn himself to sterile unreality. But man is not governed by psychology alone; he is also a creature of ethical and moral obliga- tion. Accordingly, a complete analysis of the market situation must take into account all the factors which actually enter into men's choices in economic matters.
The economist who accepts Catholic social principles in one sense does bring outside considerations into his study of economic prob- lems. But so does every other economist who is not content to deal with pure abstractions. Most economic laws are conditional, in the sense that they rest upon certain assumptions, whether clearly stated or merely implied. These assumptions are grounded in man's nature and patterns of behavior. They are based upon psychology, sociology, and history. But surely the consciousness of ethical obligation is just as real a part of man's nature as his selfish desire to maxi- mize wealth and comfort. Ac&rdingly, a Catholic economist might
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restate the Pope's position in language more common to the profession. Such a statement might be phrased in these terms:
"Granted the argument that perfect or pure competition might lead to a maximum utilization of economic resources, nevertheless there are impelling reasons which cast doubt upon the feasibility of such competition as the exclusive directing principle of economic society. Among these arguments are the following: Various economic groups are so unwilling to submit to the adjustments implied in the assumption of extreme mo- bility of labor and capital that in the past competition has be- come extremely imperfect. Examples of this trend are business combinations and labor unions. (Psychological and historical argument) The results of such interference with competition have been economic instability and faulty use of resources. On the other hand, in certain special situations, such as exploita- tion of land and mineral resources, a highly competitive situa- tion has often led to social waste. Thus, the struggle against pure competition in certain fields, and the acceptance of it in other cases, have both led to unsatisfactory results. (His- torical argument) Finally, the impact upon the human person- ality implied in the postulate of high mobility of capital and labor is such that a question of values arises. Noneconomic values, such as the dignity of the human personality, the sta- bility of community and family relationships, and the like, certainly would suffer in the short run under pure competition. The question arises whether these values may be sacrificed for the long-run goal of maximum use of resources. (Ethical and sociological argument) ." 1 would submit that an argument of this nature, far from sacri-
ficing the scientific standing of the Catholic economist, would actually improve the value of his contribution. Economics has suffered in the minds of many because it has been considered an overspecialized science. I t has estimated too narrowly its field, when formulating its theories, and yet many of its exponents have overlooked such specialized assumptions when prescribing for the problems of real life. W e cannot have our cake and eat it too. If we desire that our science reach precise mathematical conclusions, based upon highly limited assumptions, then we must admit that it applies to real life only when such assumptions are fulfilled. If , on the other hand, we wish to prescribe for the actual problems of the day, then our assumptions must encompass the full reality of concrete situations, including the historical, psychologic$l, and ethical facts just noted.
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If the conclusion argued above is accepted, our problems have merely begun. The thesis that competition cannot be the sole ruling principle of economic life is purely negative. What other principles must supplement competition? What is the proper proportion of forces in the right ordering of economic life? How much competition, and how much control of one form or other? What are the "certain limits" mentioned by the Holy Father as the sphere in which com- petition is "justified and certainly useful?" When these questions are asked, we are venturing into the sphere of prudential application of ethical principles to concrete life. In such a sphere, unanimity of opinion is not easily had. Such certainly has been the case with American attempts to apply Catholic social principles to our economy.
The teachings of American Catholic social scientists on this ques- tion have varied widely. At one extreme we have those who are so attached to the idea of economic planning that they would reduce competition to an absolute minimum. They envision in each industry and in agriculture a system of complete price-fixing (and by im- plication, capital allocation and production control) through boards which represent the industry, labor, consumers, and the public in- terest. Presumably under such conditions there would be no price competition within an industry. There would be competition in a ncn-price manner and also to some extent between products in differ- ent industries. Such competition, however, would be so limited as to lose its historic function of allocating resources, stimulating pro- duction, and rewarding achievement.
At the other extreme we have those who hold that our problem rather is to bring about a greater degree of competition than we have today. They envision most important economic problems as stem- ming from the imperfection or the lack of competition. Such theo- rists would oppose monopoly or approximations thereto by either capital or labor. They object to the stickiness of prices and the rigidities which prevent quick adjustments in unbalanced economic situations. They would concede, however, the value of social legisla- tion to prevent certain evils brought about by unregulated competition. This school would not oppose pure food and drug regulation, the policing of security markets, old-age security provisions, and even moderate minimum-wage legislation.
Between these extremes are various nliddle positions, which have in common two features. First, advocates of these positions are
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convinced that some degree of planning of economic life is necessary. They do not feel that any automatic regulation of the economy through price mechanisms can prevent economic instability and insecurity. Nor are they willing to accept the thesis that a life-and-death struggle between economic groups is either inevitable or desirable. Some type of control must replace class warfare and a boom-and-bust sequence. AS a second point, these theorists would insist upon the absolute necessity of price competition within a framework of social control. I t would be competition within limits and with proper safeguards against exploitation and waste. Nonetheless, it would be real com- petition within industries and between industries.
The arguments for the middle position rest upon certain inade- quacies in the two extreme views. The idea that economic life can function properly without positive social control and planning is rejected because of the business cycle and the implications that class warfare must continue. On the other hand, the notion of complete economic planning is rejected on both economic and political grounds. The task of regulating prices, production, and investment in this huge land would be a practical impossibility. Under centralized con- trol, it worked very imperfectly under the urge of wartime patriotism. Such control would be unthinkable in a peace-time democratic econo- my. If control were decentralized, the advantage of co-ordination, which is so central to the idea of economic planning, would be lost.
If economic planning were to extend to the concept of price con- trol, it is difficult to see how extreme rigidities and exploitations of the consumer could be avoided. Where business has been able to set prices in the past, it has generally tended in the direction of high prices, controlled output, protection of high-cost and uneconomic producers, and the like. If economic control were instituted, the problem would be to prevent its abuse in the form of excessively high prices, with consequent unemployment. Who would perform such a task in the planning boards? Not business, in view of its past record. Nor has organized labor any better history in this regard. Organized workers have often pressed a monopoly advantage, to the detriment of the consumer and the unorganized worker. They have often failed to realize that such tactics result in unemployment. Accordingly, the only practical way of preventing high prices in a planned economy would be to give the government the final control over prices. (Consumer representatives, if having such were feasible,
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could only have a power of protest, with government alone being able to implement such a protest.)
I t is difficult to see how government control of prices could work in a democratic economy. In the first place, the administrative prob- lems would be unbelievably complex. A gigantic and probably un- workable bureaucracy would result. In the second place, it is ques- tionable that a democratic government could withstand such highly organized pressure groups as business and labor combined for a com- mon objective. Let us take as a concrete illustration of the problem the case of a high-cost and obsolescent producer in an industry. Under competition such a firm would be compelled to write off its capital costs and modernize its equipment. Under control, the price structure needed to give this firm profits would probably prevail in the entire industry, to the loss of the consumers and the entire economy. In- centive to improve would be lessened, and economic life would stagnate. It would be unlikely that capital and labor would agree to the liquidation of an obsolescent firm, and it would be politically impossible for a democratic government to do this against their combined opposition. The history of the building trades illustrates this point.8
What is asked of the advocates of total planning is that they think their theories through on the practical level. The idea of a blueprint for the economy is fascinating in the abstract, but how will it work in practice? One does not need to agree completely with Hayek's T h e Road to Ser fdom to have grave misgivings over the feasibility of total control. At present, even with all its imper- fections, the price mechanism leads automatically to millions of de- cisions which would task the wisdom of the most ideal control board. Hundreds of thousands of conflicting claims and interests are resolved in an impersonal manner by prices reacting to the interplay of supply and demand. I t is doubtful whether any substitute short of complete totalitarian control of economic life could achieve comparable results.
For the sake of complete clarity, let us repeat that a plea for the exemption of prices from economic planning is not a call for laissez- faire individualism. Competition can be limited by social legislation, wise demands made by unions in collective bargaining, and provisions to level out the business cycle and attain high employment. Bounds
For a lengthy analysis of this problem, see A. R. Burns, The Decline of Competition.
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and limits can be laid to protect workers, consumers, and business men. But no matter how competition be circumscribed, it is never- theless, in the opinion of this writer, superior to a system whereby boards set prices for a whole industry, and higher boards correlate these separate decisions into a national economic pattern. This latter approach, though attractive in the abstract, would be unbelievably complex and cumbersome. It could only work in a totalitarian economy.
From this special problem of competition, we may turn to the broader question of an organic renovation of society. Before going into the substance of the problem, some time may be profitably de- voted to matters of terminology. Here we must confess that we have not agreed upon an accurate and attractive term to render in English the Latin "ordines". The earlier translation used "vocational" or "occupational" groups. These terms were vague and subject to mis- understanding. The new translation favored the phrase "organized industries and professions". Here accuracy is achieved, but at the price of stiffness of language. The Pope himself in Divini Redemptoris changed his terminology and used references to the guild system. This was repeated in the 1940 document Tlze Clzurch and the Social Order issued in the name of the American bishops. Unfortunately, however, the American public has a distorted notion of the guilds, acquired from inaccurate and unhistorical texts used in many schools. As a result, the episcopal document received at times unfavorable press ~ o m m e n t . ~ The same result impaired the usefulness of the phrase "corporate organization of society." Still another phrase has been used in that alert Catholic labor paper T h e Wage Earner, the organ of the Detroit Association of Catholic Trade Unionists. The Detroit A.C.T.U. speaks of "industrial democracy." This phrase, while some- what vague and inaccurate, has the advantage of being a slogan familiar to the general American public.
I t is unfortunate that terminology should be so influential in bringing about the acceptance or rejection of a sound idea. Semantics should not have the place which it has in modern society. Never- theless, taking life as we find it, we should give thought to the question of a sound terminology to express the Encyclicals in language which has meaning to most Americans. Perhaps in our more technical literature we could retain such phrases as "organized industries and
U s an illustration of this viewpoint, see Tlze Arclzbislzops Look a t Aiuerica, University of Chicago Round Table, April 7, 1910.
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professions", "guilds", and "the corporate structure of society" and use the more popular "industrial democracy", for general consumption.
In aiming at a functional organization of economic life, our thought is to achieve the common interest and the public good. In each industry, there are common interests which exist in addition to the special claims of the different class groups. As American society is presently organized, we have organizations to represent special interests, but only as a matter of exception do we have the other type. Genuine social reform would seek to remedy this defect and to achieve some structure which would put order and purpose into economic life. The practical problem, however, is how to ap- proach such a goal. The suggestions given here are given in the hope of noting first steps and feasible approaches.
As a general principle, change is best achieved when it is based upon existing organizations and techniques, and upon common prob- lems. Men do not ordinarily make revolutionary changes; reform is gradual and piecemeal. In present American society, we have trade associations to present the special claims of capital; trade unions to press the claims of labor; and farm associations to seek the interests of the farmer. We have occasionally attempted labor-management co-operation to express the common interests of both groups in higher production and better conditions of work. Some joint thought has been given to other common problems, such as the achieving of stability of employment in an industry, the attaining of industrial peace, and the leveling of the business cycle. In some industries, formerly highly seasonal in operation, labor and management have gotten together to iron out peaks and troughs of employment. The Toledo Plan for industrial peace is a joint achievement. On the other hand, the Committee for Economic Development is mainly a business-sponsored enterprise. These beginnings, however, give us clues as to practical means for initiating organic social reform.
In industry, for example, we have two common problems which can serve as the basis for structural unity between capital and labor. Both groups have an interest in higher production at lower cost, although labor may not always realize this interest. Both Iikewise have an interest in stable and high employment, although industry may have neglected this problem in the past. Here is an ideal op- portunity for the trading which is such a feature of collective bar- gaining. Labor would be willing to raise productivity, if it did not
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result in unemployment. Industry would be attracted by proposals to stabilize employment, if they did not raise costs and lower out- put. By joining the two issues, we have a basis for labor-management co-operation at the plant and industry level.
Proceeding to higher levels, we find that the problem of full employment and economic stability is an amalgam which might unite diverse groups. In this problem, labor might stress the employment aspect, while business might emphasize stability. Actually, the two are so interrelated that a study of one almost invariably involves the other. Indeed, the issue is so broad that inevitably farm, financial, and even professional groups would enter into any discussions and plans which might be projected on the matter. Furthermore, the implications of the subject are so vast that it would inevitably involve economic planning and co-ordination on the widest scale. In- telligent discussion of this question alone, if properly guided, could lead to a realization of the need for co-ordination and common action. I t could lay the foundations for a far-reaching organic reform of economic life.11o
If the analysis given above is correct, it furnishes a guide for those whose vocation it is to promote social reform. To the extent that we can find common issues which would serve to unite capital and labor and both with the farming community, we can promote the first steps towards organic unity. Unfortunately, at times it seems that we are the only group with such an interest. Others seem too preoccupied with their own special and immediate concerns to see the larger picture. Here, then, is a challenge to an extensive and badly needed educational work.
Closely related to the matters just discussed is the second problem which we are treating today. The objective of a good economic so- ciety would be prosperity and rising standards of living for all. Apart from the organic reform which is sought as a long-time objective, the question arises as to the suitable immediate means for raising standards of living. On this question, several passages from Quadra- gesimo Anno seem relevant. In discussing wages, the Pope says that:
"the amount of pay must be adjusted to the public economic good . . . opportunity for work must be provided to those who are able and willing to work. This opportunity depends largely
10As an illustration of such an approach The Report of the Cowrtnission on V o - cational Organization, established by the government of Eire, is masterly. The
Stationery Office, Dublin, 1913.
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upon the wage and salary rate . . . For everyone knows that an excessive lowering of wages, or their increase beyond due measure, causes unemployment."
In addition to a right proportion among wages and salaries, the Pope calls for a "right proportion in the prices at which goods are sold that are produced by the various occupations, such as agriculture,
1 manufacture, and others".ll
Few persons would question the wisdom and moderation of the 1 analysis given by the Holy Father. Yet in applying these principles
to American economic life, we find sharp divergences which spring from the economic philosophies of the several proponents. Thus, one school of thought tends to go along with labor unions and consider wages primarily as sources of purchasing power. Members of this school tend to favor higher wages on the grounds that work- ers can thus buy the products they make. For the sake of consistency, they hold that such higher costs should come out of profits, thus ' translating a money wage increase into a real wage increase.
At the other extreme, there is a school of thought which em- phasizes the close relationship between productivity and real wages, and the social function of profits. Partisans of this approach argue that real wages can increase only when productivity mounts; other- wise one has an illusory gain in money wages which is offset by higher prices. They would not accept the principle that high profits necessarily indicate such a gain in productivity and thereby justify wage increases. This school stresses the need for preserving excep- tional profits as an incentive for good management and a stimulus to investment. If the profit motive is removed or impaired, the eco- nomic system would stagnate and unemployment would result.
In commenting upon this controversy, the most important point 1 that can be raised is that each school represents a different economic
I philosophy. Each is using its philosophy to apply and interpret the social encyclicals. The ethical principles of the encylicals offer no certain guide to resolving the dispute. The pope does not indicate the point where he considers wages to be too high or too low. Ac- cordingly, it behooves partisans of both groups, in public discussions, to make this point clear. The objectives are clearly set by Catholic
I social philosophy. The choice of means is often the product of the ' economic predilections of the speaker or writer. I t is unfair to put
11 Quadragesirno Anno, Pars. 74-75.
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out in the name of the Catholic Church ideas which are in fact those of the Keynesian-Hansen schools in the United States. It is equally unfair to baptize Pigou or Hayek and make them exponents of the encyclicals.
Speaking as an economist only, the following suggestions are offered in the interest of narrowing the sphere of controversy. First, the idea that a shortage of purchasing power causes unemployment and depressions is a serious oversimplification. A reductio ad absurdurn is too easily applied to this argument. Let us suppose, for example, that farmers, doctors, barbers, and bootblacks were to apply this principle by constantly raising their incomes through higher prices for their products and services. All we would get would be economic dislocation. We cannot live by taking in one another's washing. Income should represent payment for production not the exploitation of a monopoly position.
Secondly, an economist would hold that profits which do not spring from the abuse of a monopolistic situation have a definite function in society. They reward enterprise and ingenuity and direct investment. The investment aspect is particularly important in modern society, where the plague of unemployment has been so serious. If there are no incentives to new investment, on the one hand, and technological displacement continues, on the other hand, the problem of unemployment could reach a disastrous magnitude. Indeed, un- less our economic system expands, both through new investment and through lower prices which increase the demand for existing prod- ucts, it may not survive.
Thirdly, more and more economists today concede a partial va- lidity to the purchasing power arguments, in that they note the im- portance of proper income distribution. It is now widely held that savings which are not invested are a serious deflationary factor. The first remedy for such a situation would be to expand investments and thus draw off idle funds. This ~vould preserve the social func- tion of profits and bring about the economic expansion which is necessary to maintain employment. But if this is not done, or cannot be done, the ratio of income distribution should be changed. Savings should not exceed the point where they can be invested. Experience seems to prove that the interest rate alone will not automatically equate savings and investment.
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Fourthly, the raising of wages in substandard industries and pro- fessions need not necessarily cause unemployment. Each individual case needs to be examined on its own merits. In certain highly competitive industries, such as textiles, a higher price structure, based on higher wages, need not affect output seriously enough to cause extensive unemployment. In other cases, as with domestic servants or marginal industries, higher costs to the consumers will mean a definite curtailment in the use of the product and consequent unem- ployment in the occupation or industry. Such a fact need not in itself be an argument against higher wages for persons now receiv- ing substandard income. Perhaps labor and resources should be allo- cated differently. Indeed one of the good by-products of aggressive unionism has been the forcing of increased efficiency upon manage- ment. America has higher labor wages and lower labor costs in more &
industries than has any other nation in the world. Within reasonable limits, the demand for higher wages will stimulate sound management practices and thus bring about the productivity which is the basis
I for real wage increases. These few observations do not solve the problem or remove the
I conflict. They are brief to the point of superficiality. But they will serve their purpose if they will indicate a method and an approach for Catholic social scientists. Too often in the past we have tended towards extremes. Some of us have become so engrossed in eco-
I nomic science that we have neglected the social encyclicals and ex- cluded ethical considerations from our writings. Others among us , have pIaced the emphasis upon ethical ideals but have neglected the study of economic means necessary to realize our objectives. There have been notable exceptions. To speak only of the dead so as not to discriminate among the living, the late Monsignor John A. Ryan was a close student of economic science as well as a fearless fighter for social justice. His mind was open and fair. Even those who disagreed with his theories respected his integrity. He might indeed serve as a model for the objectives of this Association.
The implications of the points raised in this brief paper indicate the tremendous task which lies before the Catholic Economic Asso-
I ciation. Our long-term objective should be to translate and apply the
I ideas of Catholic social ethics to the economic life of our country. This will not be an easy task. Much discussion and detailed study will be necessary before the goal is achieved. Undoubtedly differences
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of opinion will remain. But if we could furnish a forum for dis- cussion, a directing force for research, and a common meeting place for trained minds, we shall have justified the sacrifices made by the pioneers who founded our Association.
As a concluding note, I wish to report upon an attempt that is currently being made along these lines. In our meeting last year, the President was authorized to co-operate with the Department of Social Action in the National Catholic Welfare Conference, in the preparation of a Catholic Social Manifesto. This would be a state- ment, in the light of American conditions, of Catholic social prin- ciples and such of their applications as were generally agreed upon. The preparing of such a manifesto would bring out points of dis- agreement and indicate fields for further research.
The Department of Social Action entrusted this work to your President, who since became associated with it as one of the assistant directors. Work on this task has begun, but has progressed very slowly. I t seems that all of us have become so burdened with problems occasioned by postwar adjustments that time has been lack- ing. This situation is discouraging, but it wiIl not be permitted to detract from so vital a project. It is hoped that within a few months further steps can be taken and that at our next meeting we can report encouraging progress.
The world is moving fast from one political crisis to another. Within a few years, in all likelihood, we shall have the further com- plications of grave economic problems, even more serious than those which beset us today. In such times the need for wisdom and modera- tion is critical. Let us hope that it may be granted to our small Association to render a real service to our fello~v men in the crisis. Jf we can implement Christian ethics with sound economics, we can evolve a program which can command the respect of all men of judgment and prudence. Let us carry on to this exalted goal.
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