November 28th 2009

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Articles from this issue:

SAME-SEX MARRIAGE: Are we about to create another Stolen Generation?

CANBERRA OBSERVED: National sorrow over plight of forgotten Australians

EDITORIAL: ETS: Rudd's one-way ticket to hell

POLITICS: Whither the Liberal Party?

COVER STORY: Brian Mullins (1925-2009): a true Australian hero

CANBERRA OBSERVED: National sorrow over plight of forgotten Australians

SAME-SEX MARRIAGE: Are we about to create another Stolen Generation?

FINANCIAL CRISIS: Splitting the megabanks for financial stability

FOREIGN AFFAIRS: Afghanistan: Obama's no-win rhetoric

WAR ON TERROR: Grim lessons of the Fort Hood massacre

NATIONAL AFFAIRS: Rudd's 'Indonesia solution' has been in place since 2007

HEALTH CARE: Labor unleashes class war on doctors

NEW ZEALAND: John Key sells New Zealand short

COLD WAR: The year the Berlin Wall fell

UNITED STATES: Obamacare: the ego has landed

ABORTION: An abortion-provider changes her mind

Statesmanship needed (letter)

American health cover (letter)

Some orphanage carers were admirable (letter)

BOOK REVIEW: THE VOCATION OF BUSINESS: Social Justice in the Marketplace, by John C. Médaille

BOOK REVIEW: THE THIRTY-SIX: A story of a boy's miraculous survival in wartime Poland, by Siegmund Siegreich

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THE VOCATION OF BUSINESS: Social Justice in the Marketplace, by John C. Médaille

News Weekly, November 28, 2009

Putting ethics back into economics

Social Justice in the Marketplace
by John C. Médaille (John C. Medaille)

(New York: Continuum)
Paperback: 359 pages
ISBN: 9780826428097
Rec. price: AUD$59.95

Reviewed by Garrick Small

There are many recent books critical of the current economic orthodoxy. Many can be dismissed as simply left of centre, but many more are the result of an author's surprise that economic theory and economic reality do not fit nearly well enough together to be called science. These writers are usually conservative, conventionally educated economists, who are often marginalised as socialists because they no longer believe practical capitalism has theoretical legs.

Too many in this category are strong on evidence but short on a convincing alternative theoretical framework. They are too easily dismissed by the mainstream.

Their problem comes from the very fundamentals of their thinking. While they see that economic theory does not work convincingly in practice, they are still looking for a solution that works within the paradigm of modern thought. They do not realise that modern thought is structured to make moral problems opaque, and economics is a moral problem.

John C. Médaille is an economist and academic. He also has a secret weapon for the understanding of economics. He recognises that economic action is the result of human action and not the doings of the theoretical caricature of the human person called homo economicus. Economics uses homo economicus as its economic actor because real humanity it too difficult to work with if economics is to be a natural positive science. Médaille uses this larger perspective to plug the gaps where economic science is not positive.

Real humans are moral creatures. Everyone except economists knows that economics is connected with ethics. There are good and bad commercial acts. Economists will even find the moral system of utilitarianism hiding at the root of their discipline if they look hard, though many will ignore its implications.

Utilitarianism is a very limited moral system and if you build an economics on it the result will be just as limited. Médaille uses Christian ethics instead and in particular the moral advice coming from a century of papal writings known as the social encyclicals. His examples demonstrate the surprising fact that economies that use them work better, even if they are not Christian.

This should not surprise the Christian who could be expected to believe that Christianity is the best presentation of genuine ethics. Fundamental to genuine ethics is the idea that ethically challenging situations are those where persons must make uncomfortable choices that run counter to self-interest for the greater good.

Making uncomfortable choices is the key to civilisation. Adopting this view makes economics a sub-discipline of morals and you are on the way to answering the riddle of economics. You are also on your way out of the economics establishment. How well you fare depends on how well you can reframe your thinking to see through the intellectual darkness known as the Enlightenment.

Our culture is so heavily laced with Enlightenment thought that is hard to see beyond it. Médaille's study The Vocation of Business illuminates the landscape of economics in such a way that one is led through both theory and practical evidence. It connects economics to a larger view of the human situation, including ethics, theology and history.

The history of economics begins with the ethical matter of justice in economic life. It is instructive that Adam Smith, the Enlightenment's father of modern economics, was actually a professor of moral philosophy. His moral system was the anti-intellectual moral sentiment theory propounded by his friend David Hume. They were both fond of inverting moral structures, and Smith succeeded in turning greed into the key virtue driving economics. Enlightenment thought tends to oppose common sense.

Médaille shows how rejecting common-sense ethics gave rise to an economics that did not work. He draws out other ways that economic theory and practice do not meet. His treatment of the impossibility of business cycles within the various strains of early economic thought is timely. It also explains why few economics courses these days include the history of economic thought.

Médaille bases his economics on the question of property. Aristotle suggested that property should be privately owned with common use, creating a paradox at the root of economics that has only been understood by the Catholic Church. This is despite the fact that these seemingly contradictory aspects of property are found operative in every growing civilisation and traditional community.

He explores this curiosity and uses it to move into consideration of the last century of papal social encyclicals. Rupert J. Ederer has done the best job of summarising the social encyclicals for the modern economist in his Economics as if God Mattered (1995), but Médaille provides a well-rounded treatment appropriately proportioned to the task at hand.

Aristotle's theory of property implicitly recognised that the owner of property has an ethical obligation to the community. Private property is licit only when its owner has the moral strength to use it to some degree for the common good. That means to allow those without property wealth to share in its use.

This offends the despotic absolute private property of the Enlightenment, but it is not the dehumanising coercion of socialism. It recognises Christian solidarity as human brotherhood. To the modern mind this is a tall ask, too tall to be practical. However, Médaille shows many examples of where it has worked, often amongst non-Christians.

A second paradox appears in the question of trade. Médaille defends the market while rejecting the practical reality of capitalism. This is a delicate matter and a stumbling-block for many well-intentioned advocates for a better system.

Modern thought believes that human nature requires that commerce must be controlled either by market forces or by the force of the state. This means that under both capitalism and socialism, the economic actor is assumed incapable of acting appropriately through conscious willed action and must be forced.

The supposed effectiveness of the free market to force its actors to accept socially optimum prices actually makes the expression "liberal market capitalism" self-contradictory. It also ignores the fact that in practice the market does not do a very good job of forcing its players to play fair.

Market failure

The technical name for this is market failure and results in every real marketplace being imperfect. Market economics assumes perfect market competition and the sliver of opportunity between a perfect market and an actual imperfect marketplace is wide enough to harbour enough self-interest to scuttle the whole system.

To reject the efficacy of free market forces is to reject capitalism. Here again the modern dichotomy between capitalism and socialism is unsatisfactory. Even the mixed economy employing the twin coercions of market forces and state power pays no greater respect to the human actor. Despite its practicality, it tends to attract twice the criticism.

This popular dichotomy is flawed by its theory of the human person, its anthropology. The modern opinion of the human person is a dismal caricature and it begets the dismal science, along with the other flawed modern social sciences. If humans are capable of any moral good they are capable of choosing the economic good. They are capable of setting prices based on ethical considerations. Commerce becomes a matter of will, not the result of external forces coercing reluctant participants.

John Médaille focuses especially on the pricing of wages and the importance of paying a just wage. This is a wage gauged on the reasonable needs of the employee and not on the idea of wages as mere commodities. It recognises that employers tend to have the upper hand in the wage market. In practice, it would place wage justice prior to profit maximisation. This is not to ignore the importance of profits as a socialist might, but is sufficient to change the nature of the corporation.

The directors of the corporation may choose the common good by paying a just wage, and history shows that when they do the entire economy prospers. Modernity has been oriented away from any admission that the individual should consciously act for the common good in any area of life.

Modern man has almost forgotten that he is capable of it in the marketplace, but the reality is more encouraging. Médaille offers a series of modern instances where economic action has been more humane on a scale large enough to transform nations. These include micro-banking, the island of Taiwan and the Mondragon family of worker self-managed cooperative enterprises. There are many others.

Recent Christian economic thought could have been expected to address some of these issues, but the results are patchy. Historically, the Protestant Max Weber was famous for recognising the link between the Reformation and the flourishing of capitalism. Catholic economic thought was uniformly aligned against capitalism until quite recently.

Médaille considers two recent directions in Catholic economic thought. The first is distributism, championed by G.K. Chesterton and Hilaire Belloc and realised in the Mondragon cooperatives. It focuses on the wide distribution of property and is consistent with Catholic economic thought running through the social encyclicals back to St Thomas Aquinas and beyond.

The key components of St Thomas's economic thought were expressed as moral principles. They included the treatment of private property, just prices, just wages and the immorality of usury. In practice, they tend to be found in civilisations on the rise and are betrayed as civilisation recedes. They are not unique to Catholic societies, though their best expressions are usually associated with traditional Christian cultures.

A second and more recent innovation in Catholic economic scholarship and activism is the Catholic neoconservative movement. This has enjoyed strong support in recent decades and is often fuelled with substantial funding from the winners in liberal market capitalism. Médaille contrasts Catholic neoconservative economics, which is little more than the promotion of liberal capitalism, to the more enduring economic thought of the Catholic Church.

Split among conservatives

This section is succinct and serves as a good primer for those who want to be true to Catholic thought and are confused by the recent trend to align conservative Christianity with conservative economics. In the United States, this difficulty is better understood and has resulted in the conservative movement splitting between the neo-conservative extreme and the more moderate and paleo-conservatives.

John Médaille sets out an economics for paleo-conservatives but it is not merely a third way, somehow fusing Left and Right. It sees humanity as beyond this false mono-dimensionality and reminds humanity that it can be human in the marketplace as well as in the chapel.

He is also an optimist who believes in freedom. He upholds the spirituality of work described by John Paul II and the role of business leadership as moral leadership.

The Vocation of Business paints a practical landscape where the businessman understands that he has moral obligations in the economy and has the informed opportunity to freely choose them. As a view of economics, it is refreshing in its scope, practicality and intellectual integrity. It would be an excellent choice as a text for any economics program run by a Christian university.

Dr Garrick Small is a senior lecturer in property economics at the University of Technology, Sydney.

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