Chesterton and Capitalism Part Two

The second part of our three part series.

From the ChesterBelloc Mandate

Chesterton's social philosophy, therefore, correctly identifies what is basically wrong with the modern economy, and with modern economics. Outside the encyclicals this social philosophy is practically the only one which gives a proper definition of Capitalism. This in itself is a major achievement, for wrongdoers depend greatly upon ambiguity and euphemism, using names which belong to what is normal for what is abnormal, such as “free exchange”, “competition”, “private property” etc.

The very name which he gives to the social remedy, “distributism”, is felt to be quaint or strange only because of our complete lack of familiarity with the notion of distributive justice in this context. This is not to be wondered at given that the reality has been missing from almost every society and especially in modern times. Not even the moral theologians have paid much attention to this dimension of justice, practically the whole of the moral theology of justice being focused upon commutative justice. In discussing the notion St. Thomas himself confines himself to the example of the dispensation of honours. Yet it obviously applies to all common goods, material or rational, that can be distributed from the whole (community) to the parts (individuals).

Chesterton's insight in this regard is, as in most things modern, genial. He saw clearly that the root of the modern social problem of poverty was man made, that the condition of impoverishment of the worker was not something necessary or natural, but a radical failure of justice, not because of a deficiency in the institution of property but because of a deficiency in the institution of government, which had failed and was failing in its obligations in distributive justice.

The word “Capitalism” as applied to the actual economy is another evil euphemism, for it suggests an economy characterised by people who have capital or property. But in fact in such an economic system the great majority have little or no capital, but depend for their livelihood on the wages of labour. We should be honest enough to call things by their proper names. "The truth is that what we call Capitalism ought to be called Proletarianism.” (from “Outline of Sanity”)

It is reasonably clear, then, that Distributism, as championed by Chesterton, is the social philosophy that best articulates the alternative explanation of the social economy that is necessary for us to have in answer to the false ideologies of Liberal Capitalism and Radical Socialism. It is also the social philosophy that most closely accords with the teachings of the social encyclicals and Catholic moral theology, especially with regard to the right of property and the rights of those dispossessed of property. For the key to these is an understanding of justice, and particularly distributive justice.

A Necessary Addendum

But we have yet to understand why academic intellectuals specialising in the study of the social economy (the economists) regard Distributism with such disdain. Part of it can be put down to the anti-catholic culture discussed in the previous article “Chesterton's Mind and Method” with its underlying materialist and/or atheist philosophy. This would account for the academic intellectuals' preference for Liberal Capitalism or Radical Socialism as socio-economic philosophies. But the professional economists seem generally to regard both Distributism and the teachings of the Church on economic matters as altogether unrelated to the real world.

In order to explain this and defend the reality of Chesterton's social philosophy (and the Church's moral theology) in relation to the subject matter of Economics it is necessary to examine further the condition of the modern economy.

There is another disorder of the exchange economy which if not properly understood inhibits the full understanding of the social problem and of how Capitalism works its injustice. Chesterton seems to have intuited it without clearly making the distinctions necessary. It is a disorder that exists within the sphere of exchange or commerce itself. It has to do with the notions of trade and profit. Its understanding requires a careful distinction of money from wealth and of the twofold meanings of trade and profit.

The errors of modern economic science, whether in the older rationalist mode (Political Economy) or according to the newer mathematico-empiricist methodology (Economics), which take capitalism as the “natural” or real order of things economic, are founded in the confusion of the notions of wealth and money.

St. Thomas, following Aristotle, distinguished between natural and artificial wealth, of which latter money is the prime example (cf. I-II, q. 2, q. 1.) Shoes, for instance, are natural wealth. It is to be carefully noted that “natural” here is not taken in a physical but in a moral sense. For what makes things such as shoes natural wealth is their natural utility for satisfying a human need, in this case the protection of one's feet. Natural wealth is characterised by the fact that there is a natural limit to our need for them. We do not desire them without limit.

Money, on the other hand, is artificial wealth. Again the term “artificial” does not have its primary meaning (for shoes are works of art) but is also taken in a moral sense, being defined relative to its end (which is the facilitation of the exchange of natural wealth – a purely rational end). It signifies something conventional, whose utility is not something natural in things so used but arises purely from social convention or agreement. The important difference for our purposes here is that there is no natural limit to the desire for money itself.

According to a rational view of things and goods, our natural wealth is sufficient for the satisfaction of our needs. This is subject to a condition: “Seek you first the kingdom of God and his justice”; that is to say even our material welfare depends not only upon our productiveness, but also and more so upon our observation of the social moral order. Our desires for material goods are however not infinite.

However, the desire for money does not have in itself any reason to say ”enough”. For it has no character at all of an end. It is a pure (rational) means. One can see the importance of the distinction in this regard when one looks at modern economics. For it imputes to the desire for wealth of any kind an infinite character. Our wants are unlimited. The “economic problem” in fact is seen as one of “choice”, of selecting which of our numberless wants to satisfy in a world of limited resources. Our natural wealth can never be sufficient to satisfy our desires for material goods. The economic condition is inevitably one of “scarcity”. Such a viewpoint makes no distinction between wealth and money; indeed, the concept of wealth is equated with money, and the desire for wealth with the desire for money.

This changes our whole perspective on matters economic. It shifts our attention onto trade or commerce, and most importantly to the use of trade or exchange in which money becomes an end instead of a means. Such an economic world becomes entirely focused upon its commercial (and financial) aspects. But, in order to follow this, we need to employ a distinction from Aristotle with regard to the notion of trade, or exchange, or commerce (they all here mean the same thing – except in English “trade” is also used in another sense, not relevant here, of a productive occupation).

Aristotle distinguished exchange into two kinds or modes, which he called “natural” and “unnatural” (cf. Politics, 1, 8 1236b 27-39). Following St. Thomas's commentary it would be better to call them “natural” and “artificial”, which distinction is related to the one above to do with wealth. As we shall see there is a place for using the term “unnatural”. But, the essential distinction between the two kinds of exchange is determined by reference to their ends. The appropriate exchange being considered is one involving the use of money. A natural exchange is simply one in which money is the medium of the exchange of two goods between two parties to the exchange. It is called natural because the end or purpose of the exchange on both sides is natural wealth. Money fulfils its purpose as the rational and conventional instrument or medium of the exchange.

An artificial exchange, on the other hand, is one in which money (artificial wealth) is the immediate end or purpose of the whole process of exchange (selling and buying). We can symbolise each process by CMC in the first case and MCM in the second (using C to signify natural wealth or goods and M to signify money or artificial wealth). As St. Thomas notes, this second kind of exchange (MCM) can again be divided into two, for though it has no natural end it can voluntarily be and ought to be ordered to the natural end of exchange which is the same as that of the first kind of exchange (CMC), namely, the obtaining of a sufficiency of material goods. However, if it is not so ordered, and money is sought for its own sake (i.e. without end or limit) it becomes an irrational activity or unnatural exchange.

Thus, in any exchange involving money (or trade or commerce) we have to be careful to identify if it is natural in the first sense (CMC), or artificial (MCM) but not unnatural and hence natural in a secondary sense, or if it is artificial and unnatural. It is only this last kind which is morally blameworthy and can be (if extensively engaged in) socially harmful. The theory of Capitalism and modern economics do not know any such distinctions and, if anything, conceive trade and commerce in terms of the last kind. For money is thought to be the principal end of economic activity, and the desire for wealth in the sense of money (since they are treated as the same) the supreme motive of homo oeconomicus. Indeed, modern economics inevitably treats the unnatural form of exchange as the paradigm of all trade and commerce.

Moreover, the modern mind is locked into thinking of social matters in materialist terms, and thus conceives money as the driving force or motor of all economic behaviour, which it is metaphorically only in the case of the second kind of exchange (MCM). On top of the perversion of language, therefore, in talking of private property where it has been almost totally misappropriated and of free competition in a situation of virtual monopoly, we have to contend with trade and commerce being practically identified with its unnatural mode.

This has had significant implications for the way people conduct their economic affairs. What in the past was looked upon as an unworthy way to engage in trade, namely, seeking to amass one's stock of money without limit by the simple process of buying and selling the same things and so making a profit, consumed as it were by the love of money (philargyria), came first to be regarded as a legitimate way to do business and then when fortunes were made by such businessmen or “entrepreneurs” even came to be looked upon as the very way business is done. The modern mind cannot understand why St. Thomas and the theologians and moralists of his time should have condemned this kind of business. For, in modern economics, this pursuit of profit (without any reason to be limited) is made the very thing that drives the economy. Such successful enterprise should be commended not condemned.

It is in this context that the notion of “profit” must be discussed. St. Thomas uses the notion (lucrum) specially in the discussion of the secondary kind of exchange (MCM), as he does also with the notion of business (negotiatio) (cf. II-II, q. 77). Their modern use, however, for reasons that will be clear, has a more general sense, being extended to include the first kind of exchange (CMC). They are used in reference to any kind of commercial activity, naturally enough, since the modern mind, as noted above, makes no distinction between the kinds of exchange. The first kind of exchange according to St. Thomas, however, does not properly pertain to business people (negotiatores) but to ordinary households or public offices which have to provide for the necessities of life for the home or the city. “talis commutatio non proprie pertinet ad negotiatores sed magis ad oeconomicos vel politicos, qui habent providere vel domui vel civitati de rebus necessariis vitae.” (II-II, 77, 4 c)

This notion of oeconomicos in St. Thomas ought not to be taken in too restricted a sense. It is meant to bring out the fact that the first kind of exchange (CMC) is directly aimed at satisfying the ordinary needs of life. It would include therefore the multifarious trades (such as shoemaking) and activities productive of all kinds of goods and services, whereby people are able to obtain a reasonable living; it would include all activities ordered to exchange except those “business” activities directly aimed at increasing one's stock of money by buying and then re-selling the same things (MCM).

All economic activity, however, is seen in modern eyes as directed to the making of a profit in the sense of making money – indeed it is all seen to be motivated in the same way as the person who engages in what Aristotle and St. Thomas call unnatural exchange (MCM in its second sense), needing to start with money (capital – already possessed because one is a capitalist, or has borrowed from same), and engaging in business (whether productive or not) for the purpose of increasing their stock of money (or its equivalent), called economic “growth”, without limit. All kinds of occupations are therefore conceived as if they were all modes of the same kind of “business”.

All businesses, therefore, are the same from the modern economic standpoint, their raison d'etre being to make a profit. Does anyone suggest that they aim at making a loss? It is no wonder that there is great difficulty in applying Aristotle's and St. Thomas's economic analysis in this regard to modern conditions. One has to say that hardly anyone gets it quite right, even among Catholic theologians and moral philosophers. It is also not surprising when modern economists look with disdain on their efforts to criticise profitmaking.

The discussion is inevitably at cross purposes. The economists cannot understand what the theologians are talking about; it all seems quite naïve and simplistic. The theologians cannot quite match their ideas with the workings of the modern economy; it all seems impossibly complicated and difficult to understand, as it must be if its object is something unnatural.

What the encyclical Centesimus Annus has to say on the matter is: “Profit is a regulator of the life of a business, but it is not the only one; other human and moral factors must also be considered which, in the long term, are at least equally important for the life of a business”. This is all very true. But it does not make use of the important distinctions with regard to the notion of profit made by St. Thomas.

Just as some exchanges are naturally good (CMC), so their profits are naturally good. For their profits are not money as such but the things produced or provided from the activities engaged in. That does not mean that such profit cannot be badly used from another perspective; whiskey may be used to get drunk; nor that a business making a legitimate profit cannot be behaving badly in another respect, e.g. in relation to its treatment of employees and its customers. But these are all moral considerations or regulators outside the matter being discussed here.

The intent of the argument about the legitimacy of profit or the profit-motive concerns the nature of such themselves. St. Thomas does not use the word “profit” in the case of exchanges that are naturally good (ironically, there the concept of gain is used to indicate a proof of inequality or injustice in such exchanges). He reserves it for the money profit (lucrum) made from the secondary exchange activity (MCM). For it is only here that the question of its legitimacy or otherwise is raised. The goodness of “profit” in relation to the first kind of exchange is self-evident. It simply means the equivalent received of the product offered in exchange, expressed in terms of its monetary value.

In St. Thomas's analysis not all money profit obtained by buying and selling the same things is illegitimate. Like money itself it is good or bad depending on whether it is ordered to natural and rational purposes which in this context is the satisfaction of one's natural needs or reasonable wants, taking into account one's family and community needs and wants. If it is not so ordered but sought without any such limit, then it is not good.

There is then a sense in which the word “profit” is to be taken as bad or illegitimate. It does not immediately impinge upon anyone except the one who engages in it (for it is a form of the vice of avarice). But it can become socially significant if many engage in it or are encouraged to indulge their desire for money without limit. When the encyclical says that “profit is a regulator of the life of a business”, it is necessarily taking profit in the good sense. So far as the “business” (e.g. shoemaking) is concerned it is the fundamental regulator – not much point in carrying it on at a loss.

It is true that there are other “regulators” (moral factors) involved even if one's motive for this kind of profit is a good thing. But that does not address the precise question of whether the motive for the other kind of profit (money increase - lucrum) is to be considered good or bad. As indicated, the encyclical is taking profit as something good in itself and it is true that other considerations or circumstances can make the profitable transactions not good.