Earlier this week, Carl Raschke contributed an insightful post to this blog arguing that political theology must “wake up from its moralistic slumber” and adequately tackle economics in tandem with the more comfortable fields of politics and ethics. Specifically, Raschke suggests that the ongoing debt crisis is not simply a technical problem to be solved by politicians or economists, but a societal crisis demanding a response from political theologians, as its roots extend down to our understanding of the relationship between God, the transcendent, and the political.
Raschke claims that a large part of the blame for the debt crisis can be traced back to the Keynesian revolution in economics, beginning in the 1930s. Keynes argued that economic downturns occur when firms and individuals sit on their money instead of spending it, dampening the economy by limiting the production and consumption of goods. Keynes believed that the solution to this problem is for the government to increase taxes to free up hoarded funds, and then to either spend it directly or make it available to others who will use it to consume. As Raschke writes, “When business could not encourage people to spend more, the government had to take up the slack.” Raschke suggests that this emphasis on consumption as the marker of economic health has contributed to the explosion of both consumer and government debt.
Raschke’s post is fruitfully read together with Christopher DeMuth’s article in the Weekly Standard, “The Real Cliff.” DeMuth covers much of the same ground as Raschke concerning Keynesianism, adding that Keynesian ideas were proposed on the assumption that nations would willingly tighten their belts in good economic times, producing surpluses to balance the deficits needed in bad times. This was a political miscalculation, however, as politicians, and the publics they served, found it easier to focus on present demands rather than planning for the future; deficit spending became normal practice. DeMuth points out that in the U.S., in only five years since 1960 has the budget been in balance or surplus. DeMuth also adds that conservative aversion to taxes has also contributed to the debt crisis. In the early 1980s supply side economics proposed that tax cuts could provide a stimulus to the economy, but its advocates mistakenly believed that the public would not tolerate increasing deficits and debt, leading to corresponding cuts in spending. The conservatives had made the same political miscalculation as the Keynesians, with the same fiscal results.
Raschke is right to call for a response to our debt crisis from political theologians, but Catholic social teaching already provides us with a tradition that has long grappled with the issues raised by Raschke, including the inadequacies of Keynesianism. In this post I will briefly outline the dialogue between Catholic social teaching and Keynesianism in the magisterial documents written in the 1960s and 1970s.
Prior to the Second World War, Catholic economic thinking had largely developed in dialogue with the German Historical School. This school of thought emerged in the second half of the nineteenth century in reaction against the liberal economics being produced in Great Britain. One of the key tenets of the Historical School was the denial that there are universal laws of economics, as liberal economics supposed. Instead, the Historical School economists proposed that the study of economics should be rooted in ethical principles and laws of development distinctive to each nation. As a result, Historical School economics tended to be nationalistic and was closely connected to the policies of the German Wilhelmine Empire in the years prior to the First World War.
It is easy to see how the Historical School would have been attractive to Catholic thinkers, especially since the “laws” proposed by liberal economists such as David Ricardo and Thomas Malthus resulted in scant wages and terrible working conditions for industrial workers. Yet this alliance also meant that early twentieth-century Catholic thinking on economics would tend to lack scientific rigor and be overly moralistic, and contributed to Catholics’ tendency to sympathize with ultra-right wing, nationalistic movements across Europe.
Therefore one of the most important developments in post-war Catholic social teaching is the recognition of the autonomy of economics as a science. This recognition is part of the broader acceptance of the world as an autonomous reality: “If by the autonomy of earthly affairs we mean that created things and societies themselves enjoy their own laws and values which must be gradually deciphered, put to use, and regulated by men, then it is entirely right to demand that autonomy” (Second Vatican Council, Gaudium et Spes #36). This way of thinking was applied specifically to the realm of economics; in the 1961 encyclical Mater et Magistra, Pope John XXIII writes that we must “recognize and, in a sense, obey the laws of economic development and social progress” (#63). Likewise, Pope Paul VI writes in his 1971 apostolic letter Octogesima Adveniens: ““the human sciences give promise of a positive function that the Church willingly recognizes” (#40).
One implication of the Catholic Church’s greater acceptance of the autonomy of the world is that the church must learn from the world, both to teach effectively and to carry out its worldly mission. In the 1960s, in the economic realm this inevitably meant learning Keynesianism, which by that time had become the dominant economic school throughout the Western world. The timing for such a rapprochement with economic science was auspicious, since Catholic social teaching had long presented itself as a third way between laissez-faire capitalism and socialism, and Keynesianism appeared to give scientific support for such a position.
The evidence shows that Popes John and Paul learned their Keynesian lessons well. In Mater et Magistra, John writes: “The present advance in scientific knowledge and productive technology . . . puts into the hands of public authority a greater means for limiting fluctuations in the economy and for providing effective measures to prevent the recurrence of mass unemployment” (#54), a clear reference to the two primary aims of Keynesian economics. John makes similar reference to the government’s responsibility to promote employment in paragraphs 78-79 of the same encyclical, as well as in Pacem in Terris #64. Similarly, Paul writes in Octogesima Adveniens that governments should promote full employment “through an effective policy of investment and of organization of production and trade” (#18).
John and Paul’s criticisms of other aspects of the economy of their day raise some tensions in relation to their endorsement of Keynesianism. John in particular advocates for the role of small businesses and farms (#84), consistent with earlier Catholic social teaching and the Distributist movement. The common good is better served when property and business ownership are widespread, and one reason for this is that the concentration of economic power into a small number of hands can have a corrupting influence on society. Yet the primary thrust of Keynesian policies is toward bigness and the concentration of power. The government economic planning associated with Keynesianism requires large firms and business associations that can more easily respond to government demands and incentives. It is no accident that during the heyday of Keynesianism, U.S. and Western European social life was dominated by the trio of Big Government, Big Business, and Big Labor.
Even more prominently, both John and Paul warn against the increasing materialism of the consumer society developing in the 1950s and 1960s. John warns that in economic policy the true hierarchy of values should always be respected, and that technical progress without spiritual values risks being turned against humanity (Mater et Magistra ##175-209). Similarly, Paul writes that human development must consider the whole person, both material and spiritual (Populorum Progressio #14). He also warns that the economic policies of his day have ignored spiritual values, contributing to materialism (##18, 19, 26). Yet as we have seen, the very Keynesian policies advocated by the popes were a major contributing factor to the consumer mindset they are criticizing. Popes John and Paul seem to assume that similar policies could be implemented but on a more spiritual basis, failing to realize that there is not such a sharp separation between the temporal and spiritual as their teaching suggests.
Overall, Pope John XXIII and Paul VI’s attempt to grapple with Keynesianism can be deemed a failure because of these unresolved tensions, but it can still be instructive today for both what it gets right and what it gets wrong. Raschke, drawing on Aristotle, distinguishes between the city (politics), the household (economics), and the good (ethics), but claims that the three cannot be separated. The two popes clearly recognize this, teaching that the state must manage the economy in a way that promotes the common good while recognizing spiritual values. Yet the popes do not connect the three tightly enough. They failed to recognize how Keynesian policies could unintentionally change the concrete form of life of the polis, both by encouraging a consumption-focused way of life and by contributing to a focus on present wants rather than future needs among political leaders. Likewise, they failed to adequately see how concrete forms of economic life, such as small businesses and enterprises with worker participation, can only thrive in a friendly macro-scale environment. As Christians reflect on a political theology adequate for the crisis we face today, they should learn from Catholic social teaching’s own experience of grappling with economics.
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