Back

Morality and markets ... beyond the need for laws

The Winter 2004 issue of The Public Interest carried an article by Irwin M. Stelzer entitled "The Corporate Scandals and American Capitalism." Mr. Stelzer, a director of economic studies at the Hudson Institute, analyzed public policy proposals needed to constrain misconduct illegal practices in the corporate world.

A short list of the corporate scandals evokes troubling memories of "the collapse of Enron and other major corporations, revelations that securities analysts hyped stocks to help their investment-banking get lucrative assignments (small investor be damned), and revelations that CEO-friendly corporate compensation committees often awarded executives packages that were inscrutable and not necessarily related to any measure of performance….”

According to Stelzer, the need for regulation "to secure a healthy functioning of markets” is only an aspect of a much larger issue ---“the battle of ideas over the acceptability of capitalism" as a system.

Not surprisingly, Stelzer does not favor more extensive government regulation than necessary.  But his case for the larger issues spells out some elements which must be integrated into an adequate solution.

Stelzer's position regards necessary structural reforms or enacting tougher prison sentences only as partial remedies for corporate misbehavior. He argues that such reforms cannot be an adequate substitute for the virtues called for by Adam Smith ---"temperance, decency, modesty I and moderation." A root cause for the collapse of the market in the late 1990s can be traced to erosion of conventional morality which ought to have operated as a constraint on executive greed.

In a word, Stelzer identifies "a collapse of a sense of ‘enoughness.’ ” The continued survival of the capitalist system demands that "executives behave with moderation." Virtue must suffuse the culture of economic life.

That insight bears an affinity to some recent analyses of market economies set forth by Catholic theologians and social philosophers who are developing the social teaching of Pope John Paul II. Beyond the enactment of structural reforms and fair regulation virtue must thrive in a moral economy.

As quoted in a previous column, Kenneth Himes, O.F.M., stresses that laws, while necessary, cannot dictate "honesty, diligent work, compassion, generosity, creativity, thoughtfulness, friendship."

In Centesimus Annus (On the Hundredth Anniversary of Rerum Novarum, 1991), Pope John Paul II rejected an "idolatry of the market, an idolatry which ignores the existence of goods which by their nature are not and cannot be mere commodities." (CA n. 40) Thus, the demands of justice and the common good place limits on market mechanisms since "there are collective and qualitative needs that cannot be satisfied by market mechanisms."

Government has the responsibility "to provide for the defense and promotion of common goods such as natural and human environments, which cannot be safeguarded simply by market forces." The demands of justice for meeting essential human needs that elude "the logic" of markets call for more than market solutions.

The Holy Father attributed the ethical failures of the economic system more to "an ethical and cultural system" which underpins the economy than merely to the economic system in the abstract. (CA n. 39)

Moreover, it should be noted that Centesimus Annus was the first social encyclical to treat the virtues required by a “business economy.”  Pope John Paul II identified “the role of disciplined and creative human work and, as an essential part of that work, initiative and entrepreneurial ability” as a corollary of the turn to the “human capital” of intelligence, creativity, and disciplined collaborative enterprise. (CA n. 32)

The contemporary “market economy” or “free economy” depends more and more on human capital --- “the possession of know-how, technology and skill.”  In other words, the hi-tech economy of the 2000s depends more on the “ownership” of human resources and capabilities than in the past.  The Holy Father points out that a “community of work” will continue to engage “ever widening circles.” (CA n. 32)

Centesimus Annus enumerates the virtues which are integral to a “free economy” and “ever more extensive working communities:”

Important virtues are involved in this process, such as diligence, industriousness, prudence in undertaking reasonable risks, reliability and fidelity in interpersonal relationships, as well as courage in carrying out decisions which are difficult and painful but necessary, both for the overall working of a business and in meeting possible set-backs. [CA n.32. Emphasis added.]

In the modern economy, Pope John Paul II notes the centrality of the human person with “his knowledge, especially his scientific knowledge, his capacity for interrelated and compact organization, as well as his ability to perceive the needs of others and to satisfy them.” (CA n. 32)

Therefore, economic activity entails both “the right to freedom, as well as the duty of making responsible use of freedom.” (CA n. 32)

The responsible use of freedom must be accountable to the moral law and be exercised in a human ecology of virtue.

Daniel R. Finn published "John Paul II and the Moral Ecology of Markets" in the December 1998 issue of Theological Studies. In that article, Finn, a professor of economics and liberal arts at St. John's University (Collegeville), proposed several elements integral to creating an adequate "moral ecology" of markets.

One of those elements entails "the morality of individuals and groups." The law can prohibit "the worst abuses that unrestricted self-interest in the marketplace would otherwise effect." However, disengaged from a moral context, laws can at best engender only a minimalist degree of moral sensitivity.

Finn states that "the morality of individuals and groups is the ethical core of non- governmental 'forces' of society designed to help 'control' the market." Common  virtues such as "honesty, reliability, kindness, and a host of other ordinary virtues are essential to every day economic life."

The lack of conventional morality dominant in the corporate culture of the' 80s and the '90s was expressed in the immortal mantra of Gordon Gekko. Mr. Gekko, the character in the film Wall Street, bellowed out ---"Greed is good." In many instances, self-interest maximizing became the virtue that sanctioned the "Greed is good" ideology. That shibboleth was displacing Adam Smith's basic virtues presumed for a political economy --- "temperance, decency, modesty and moderation."

Robert Bellah of Habits of the Heart fame has commented that efforts on the American scene to construct "a social world that would serve the self" have in reality produced "a world that dwarfs the self it was meant to serve."

Pope John Paul II judges a society to be morally flawed when men and women become preoccupied "solely or primarily with possessing and enjoying" and lose the moral discipline to control "instincts and passions." Acknowledgment of the truth about God and fellow citizens and neighbors becomes the first condition for reordering needs and desires "according to a correct scale of values.” (CA n. 41)

Catholic Conference of Kentucky

1042 Burlington Lane

Frankfort, Kentucky 40601

502-875-4345 502-875-2841 Fax cckstaffATccky.org

Last modified: April, 2008