New Distributism 5 — Towards A Catholic Economic Anthropology (1) : Markets And Original Sin

New Distributism 5 — Towards A Catholic Economic Anthropology (1) : Markets And Original Sin April 10, 2014

I am writing a series of columns on Catholic social doctrine. Here’s all of them.

A possibly apocryphal story holds that, during a state visit to San Francicso, the Soviet Premier Nikita Kruschev was so impressed by the abundance of goods in the city’s stores that he asked to meet the person in charge of supplying them. Today this story makes us smile, but the answer to the Communist leader’s question—no one, and it works much better that way—is actually deeply counter-intuitive.

Nowadays almost nobody questions that markets and private business have some role to play in any just economic system. And yet it is not at all obvious why it should be so. In the 19th century, a very commonly heard argument for collectivism was the idea that competition is wasteful. And isn’t it? If dozens of companies can make good-ish cars, just imagine if they could pool all their resources—their R&D departments, their manufacturing capabilities, and so on. And imagine how much cheaper the cars would be if car manufacturers didn’t have to turn a profit, or spend money on marketing. Again, today we immediately recognize this thinking as preposterous but it is only because of our historical background that we think this is “common sense.” In fact, market thinking runs deeply contrary to common sense.

The way markets work is deeply mysterious. As Leonard Reed’s economic parable I, Pencil, made popular by Milton Friedman, tells, no single person is capable of making a pencil : to make a humble pencil, you need people to cut wood (who need people to make steel to make the saw to cut down the tree), people to mine graphite, people to ship those raw materials, and so on. To make a simple pencil, literally thousands of people all over the world, most of whom have never met and don’t even know of each other, have to cooperate. And they do this seemingly without any coordination. How do they do this? Before ready-made answers pop into your brain, take a moment to ponder the sheer implausibility to our common sense that any pencil should ever get manufactured in this way.

If it’s baffling that markets should work at all, how baffling is it that they (at least, on the whole, in most cases, etc.) work better than when an intelligent planner is at work? And not just marginally better—as the quasi-natural experiments of West vs. East Germany and South vs. North Korea show, markets are stupendously better than central planning—even though, if we are honest, our intuition screams that it should be the other way around.

The best fundamental explanation that I know of was given by F.A. Hayek in his 1945 essay, The Use of Knowledge in Society. The fundamental reason why markets work is not, say, the motivational virtues of the profit motive or of healthy competition. The fundamental reason why markets work is, quite simply, that human beings are not very good at receiving and processing information. Any given individual only knows a fraction of all that is known collectively—crucially, this very much includes any central planner. Because information is dispersed throughout the society, a decentralized system of production is able to incorporate more information and therefore make more judicious decisions. And markets, through the operation of the price system, allow us to aggregate and transmit information much more effectively—or much less ineffectively—than we otherwise could.

In other words, markets work because they take into account the fundamental limitedness of human beings. Thus, the link between market thinking and Christian theology becomes obvious : the most noteworthy thing about man-in-the-world, according to Scripture, is our sinful nature. The world we inhabit, which is falling, is under a curse, ourselves included. Any theology of human endeavor that does not put original sin at the center is doomed to fail—and is not Catholic.

Markets, then, “work” because they are the mode of organization that is most in accord with our nature—that is to say, they function because and through our limitedness. Paradoxically, this also helps us understand why markets are so counter-intuitive. For what is the cause and consequence of original sin? Pride. To advocate central planning is, firstly, to believe that it is possible—that is to say, to believe that it’s possible for a human, or a group of humans, to have all the information necessary to ensure human flourishing. When one thinks of it, one is struck by the hubris of it. But, what is more hubristic than man?

To summarize : Christian social doctrine is for fallen world and man ; if it is for this fallen world, for fallen man, then the thing it must start from is original sin. This awareness of man’s original sin naturally leads to a skepticism for centralization and central planning, and a bias towards, not just towards subsidiarity, but also free markets, even as this knowledge of original sin assures us that no system, including free markets, can be perfect or above evangelical critique.


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  • Scott Harmon

    To anyone interested in Hyaek’s theories (I am), I’d recommend Geo. Gilder’s ‘knowledge and power: information theory of capitalism and how it is revolutionizing our world”.

    Also since we’re taking about sin and markets, a popular view that needs de-bunking is that markets are driven by ‘selfishness’ (the sin of covetousness). They work because of self-interest (in utilitarian terms), which in Christian terms is best through of as stewardship.

    • Thanks for the rec.

      On your latter point, I agree that it’s wrong to say that markets are only driven by greed. But I think it’s hard to deny that actually existing economic and business arrangements are greed-free.

  • mochalite

    Your writing always makes me want to praise God … this time for being the only One “…to have all the information necessary to ensure human flourishing.” Then, of course, I’m sad that people keep setting themselves up as that, as you said, spoiling even free markets. The first and ultimate temptation: “And ye shall be as gods.” But how superior even our flawed free market system is! Would that every central-planning-hearted liberal could understand that.

    Beyond that, I love the video of the pencil sharpening …mesmerizing! And every time I listen to Milton Friedman, I just want to take him home!

  • Yes!!! We finally agree on something. This has been my observation for a long time:

    “In other words, markets work because they take into account the fundamental limitedness of human beings.”
    That’s why it’s impossible for a single person to devise a system of economics, either Communist or Distributism. The human interactive dynamics are impossible to generate the outcome you want.

    • Distributism requires markets.

      • Yes, and it’s certainly preferable to Marxism. For the most part it’s capitalism, but it tries to prevent corporations. From what I understand it tries to preserve an ideal of small business and prevent large businesses from being created. I understand the desire to limit a corporate bureaucracy. I share the disdain. But large businesses provide an efficiency that cannot be matched and provide wages and benefits that small businesses can’t afford. It’s an idealism that is counter productive, and frankly impossible to enforce.

        • I agree that it’s a big problem for Distributism. Stay tuned. 😉

        • Distributism can include corporations- Mondragon Corporation in Spain is the textbook example, but even more locally to me, Bob’s Red Mill, Intel, and Les Schwab Tires have all taken steps to bring distributism into the common work day, mainly through Employee Owned Stock Plans.

  • The problem with Friedman’s pencil is, I’ve done it. Oh, I used charcoal instead of graphite, but making a pencil alone, while extremely labor intensive, is possible.

    Markets are just another form of central planning, and Hayek was an atheist.

    • Atheists can be baptized.

      • Yes, so what? The point is about his philosophy, not the state of his soul. Materialism is materialism, no matter how much you dress it up in mathematics.

    • Mike E

      Did you also build all the tools you used and come up with the techniques you used? Oh.
      Reminds me of that joke where God picks up some dirt and creates Adam. The devil says “Easy-peasy, I can do that.” And he picks up some dirt. Then God says “Slow down, goat-boy; make your own dirt.”

      • “Did you also build all the tools you used and come up with the techniques you used?”

        What is so hard about lighting a fire to char wood? I’m not claiming to be God, just that I know how to make a pencil with less than a full market involved. It’s not like the laws of physics change just because you have a free market involved. God made trees that twigs grow on, all a primitive pencil is, is a charred twig.

      • 🙂

  • Frank McManus

    This is quite wonderful, and is inspiring all sorts of inner reactions from me. Above all, I love how you effortlessly destroy the heroic mythology of free markets — the radical individualism that trumpets the lone entrepreneur as the source of all progress, innovation, efficiency, etc., etc. The vision implied in this post is one of interdependence, in which the flaws and failings of many somehow add up to a whole greater than the sum of its parts. This understanding of free markets also implies that we should expect routinely to see staggering incompetence not only in governmental entities, but also in the private sector.

    Yet this post speaks only of free markets versus total central planning. In so doing, it encourages the fiction that liberals advocate central planning and oppose free markets. After all, that is exactly the rhetoric used by those who adopt a libertarian and/or conservative view of economics and politics. This ignores the ever-increasing centralization of the American (and world) economy. But instead of emanating from Washington, the central planning we have now emanates largely from Wall St., and the apologists for it claim they are defending free markets. Yet we have more and more giant banks and corporations devouring more and more of the economic pie. In so doing, they insulate themselves from market forces.

    On the other hand, there are writers and activists these days who call themselves “socialists,” yet they would oppose central planning as strongly as you. Instead they advocate market-based economics that increase worker control of the workplace. The purpose of strong government, in this scheme, is to do things that can’t be done at a lower level, such as regulating the big corporations.

    • Thank you.

      I very much agree that “private” centralization is very much a problem, perhaps as much as “public” centralization, and I agree that we do have “central planning from Wall St,” which is all-too often wrongly described as “free markets.” I do believe that most self-described progressives are less well-aware of the benefits of decentralization than many conservatives (witness the debates about healthcare, for example).

      • UnknownTheFirst

        Health care, like scientific research, roads, and water, simply make more sense administered by central planning (answerable to the public of course). They are public goods. The debate about healthcare (in the US) reflected this.

        • BTP

          I actually laughed at this. Why not throw grocery stores and cell phones in the mix, while we’re at it?

          • UnknownTheFirst

            Because, you know, some things make sense, and some don’t? I didn’t just throw together a random list.

            The vast majority of medical and basic science research worldwide is government funded (NSF,etc. Cell phones were developed by NTT in Japan, at the time a wholly government-owned monopoly, just so you know).

          • BTP

            The list may make plenty of sense to you, but that’s not much of an improvement over a random list, I’m afraid. There is an entire science devoted to this sort of question in which the idea that something just makes sense is not considered a valid argument.

            In any case, I think you are conflating central planning with government funding; these are two very different things with entirely different justifications.

          • UnknownTheFirst

            BTP, healthcare is a more controversial examples, at least in the US,
            but all the others are Econ101 textbook examples of public goods.

            admit the justice of your point about government funding not being
            equal to central planning. Some of these goods, roads for example, are
            (mostly) centrally planned, others, like scientific research, is
            government funded but there is a complex mix of decentralized decision
            making (what research to do) and centralized action (does NSF/NIH/INRIA
            etc. fund these people’s research or not? peer evaluations play a big
            role here.)

            The Asian countries that have been so economically
            successful (Japan, S. Korea, China, Singapore…) all have strong
            government industrial policies that more or less tell industry what
            directions to go.

            I *like* decentralization, I would be much
            happier if I were sure it would work. It just doesn’t seem to work very
            well in public goods situations, though the late Nobel Prize winner
            Elinor Ostrom did important research about groups that managed commons
            without central control, so maybe we just need new ways to do this.

          • BTP

            I’m glad we agree on the distinction between public funding and central planning. However, I’d still disagree with your points about roads and primary scientific research. Any exercise in central planning for roads, for example, is a pretty trivial attempt simply to build a single road where people want to go. Managing the negative externality of too many roads going the same place is hardly an example of central planning.

            Central planning is a much more involved process of setting prices and quantities in industries — ordinary stuff a government should be doing, like managing externalities or buying public goods (like parks, for example) shouldn’t be confused with central planning.

            Don’t get me wrong, you need government to do the things that reduce negative externalities — set fishing quotas and whatnot. But I don’t think we should come away saying central planning is, therefore, groovy.

          • UnknownTheFirst

            Well, I think we *can* therefore come away saying that central planning’s grooviness is indeterminate, given the data we have. I’ve suggested why I think some of the “obvious” failures of central planning (NK, for example) are not so clear, and I could give more, but really that is not a very important issue to me (the fact that the conventional wisdom about this is largely due to American propaganda bothers me more).

            You didn’t address the science example, which is clearly a mix of centralized/decentralized planning. Personally I think the issue really doesn’t run so much along that axis as along a market/nonmarket axis. Science (and say open source software in its pure form) are examples of nonmarket institutions.

            Your view (that the government should just negotiate externalities, for the most part) is a common enough view. I’m not sure where that leaves government funding, which in your view doesn’t count as central planning, but looks pretty centralized to me. (Ironically both the Internet and the web that we are using for this discussion were developed with such funding.) But maybe this is too far off the original thread.

        • Interesting, this notion of public goods. I should really look that up.

          • UnknownTheFirst

            Look for phrases “tragedy of the commons”, “prisoner’s dilemma” and “free-rider problem”, as well as “public goods”. You are probably already familiar with most of these, but they are closely related to the problems involving public goods. “Externalities” too, I guess (the fossil fuel industry pushes much of its costs onto the environment; air, water etc.; that is an example of an externality).

          • Huh. Thank you. I’ll go google all that.

    • BTP

      I see what you did there. Is it really necessary to point out that another result of the Fall is a preoccupation with acquiring unfair advantage, and that this applies to a big business exactly as it applies to a big union?

  • Razo Bravo

    Brilliant and thought-provoking. My only concern is that your ideas seem to contradict – or least not be totally aligned with – official Catholic teaching:

    1897 “Human society can be neither well-ordered nor prosperous unless it has some people invested with legitimate authority to preserve its institutions and to devote themselves as far as is necessary to work and care for the good of all.”15

    1898 Every human community needs an authority to govern it.16 The foundation of such authority lies in human nature. It is necessary for the unity of the state. Its role is to ensure as far as possible the common good of the society.

    It is hard to imagine how or why economics, which is so central to human flourishing, should like outside the purview of this teaching. Let me anticipate your response based on your post above:

    “Economics lies outside the scope of what the Church teaches about government because man does not have the knowledge of God.”

    Am I missing something?

    • I am not in any way contradicting those quotations.

      • Razo Bravo

        Then I am not understanding the following sentence:

        “This awareness of man’s original sin naturally leads to a skepticism for centralization and central planning…”

        You say: we should be skeptical of central planning.
        The Church says: Central authority is necessary.

        I look forward to reading, perhaps in future posts, how you resolve this apparent conflict.

        • That a central political authority is necessary does not entail central planning, nor does it entail that this authority be devoid of humility.

          • Razo Bravo

            I agree. I look forward to hearing more about your New Distributism.

  • UnknownTheFirst

    While I like the general picture, I want to correct what I see as a common misreading of one centrally planned economy. To whit, the easy picture of the “natural experiment” of North Korea and South Korea.

    After the Korean war, North Korea’s cities had been bombed into rubble by the US and its allies. Nonetheless, the GDP of both NK and SK were comparable until 1970 or so. South Korea boomed after that, at least in part because of the economic aid of two of the largest economies at the time, the US and Japan.

    North Korea’s troubles do not really come from having a centralized economy, but from the capture of their entire social system by a bizarre dynastic cult of personality, and the self-imposed economic isolation that came with it.

    Communist Yugoslavia semi-successfully tried to implement a system of market socialism, and consequently was generally more affluent than other Eastern European countries. Not all the more centrally planned economies did that badly, either; part of the difficult with the simple story is that both the US and the USSR really didn’t want Eastern Europe trading with their neighbors to the west.

    Also, isn’t China the obvious example of a centrally directed market economy? I don’t know what Hayek would have made of its obvious success.

    • I’ll let your comparison of North Korea and South Korea stand on its own. Suffice it to say that North Korea was not the only country to have been ravaged by war, and that South Korea was not the only country to have received economic aid. And yet North Korea is the poorest country on Earth (modulo one or two) and South Korea has had the fastest 50-year real per capita GDP growth of literally any country on Earth.

      I honestly don’t know enough about Yugoslavia to be able to comment, here.

      And I really wouldn’t count China as a “success” of a centrally directed market economy, and I think the long term will vindicate this. China today is a more prosperous place than China in 1965, but that doesn’t prove much. This is a pretty good relativization of the Chinese “success”:

      • UnknownTheFirst

        Pascal-Emmanuele, the US (I’m American) has never taken moral responsibility for the virtual complete destruction of North Korean cities (and the massive civilian deaths, men, women, and children, that means). War ravaged SK too, but they were not bombed into rubble like NK. The US and the West generally is morally culpable for indiscriminate bombing of civilians in every major conflict (WW2, Korea, Vietnam, and now whatever kind of vague war the US is fighting with drones) from the mid 20th century onward.

        Historians say the chaos caused by the saturation bombing of Cambodia by the US (more ordnance than was used in all of WW2, except for the atomic bombs) led to Pol Pot (as an unintended consequence, of course, but the US didn’t *care* what the consequences would be, as long as they met their military objectives.)

        This is sinful. If you create a hellish situation then walk away from it and let it degenerate into chaos and horror, that is sinful, even if you didn’t participate in the horrors afterwards (and the US *protested* when Communist Vietnam overthrew Pol Pot, something else conveniently forgotten in the US. Why? National sovereignty. Disgusting.)

        Anyway, you seem to think I am some sort of apologist for the NK. I am not. They are stuck in a hellish system. But there are historical reasons for all situations like this.

        Anyway, I am little surprised you don’t point out the obvious about South Korea: their economic success correlates pretty well with the democracy movement and overthrow of their military government, and major figures in that movement were Christian.

        I wasn’t saying that China is an unmixed success, but they have managed to improve their living standards by orders of magnitude. Their industrial policy has taken huge chunks of US manufacturing away, something I don’t think anyone would have predicted 30 years ago.

        • Your points are duly noted.

          • UnknownTheFirst

            A non-response. I guess I deserved that, getting on my soapbox. I will try to stick to the topic (economics) in the future.

          • Heh. Sorry for being curt, but yes, while American imperialism is an interesting and important topic, it’s not what I’m most interested in discussing here.

  • Kasoy

    The reason why the Church cannot be involved in defining the “best” economic system for society is because economy is based on material goals – efficient production and distribution of goods and profits as incentive to undertake risks. It is best left to economic experts. Having said that, the Church, however, can be engaged in a different sphere that of the “charitable redistribution of goods” whose main goal is alleviation of suffering, not profits. And like free market economics, this “charity economics” must also be free or entirely voluntary. It must never be forced nor coerced, say like, by taxation (democracy) or confiscation (totalitarian).

    No economic system can totally achieve its goals either because of man’s greed or because of unforeseen “acts of God”. Where economic activities fail to prevent poverty and suffering, “charity economics” should take over. (Recall: Hurricane Sandy or Katrina or Haiyan: no economic policy can prevent those, but its effects can be alleviated through charity.)

    The Church social doctrine is based on very sound Christian principles: universal destination of goods, solidarity, subsidiarity, and human dignity.

    Universal destination of goods is based on the concept of stewardship, ie, everything we have comes from God (life, talents, wealth, fame, health, power, time, etc.). Solidarity is that we are our “brothers’ keepers”. Subsidiarity is freedom to take morally sound actions at one’s level without interference from a higher level group of society. Human dignity is the reality that man was created in God’s own image and deserved to be loved not only by God, but also by his fellowmen. This makes man the most valuable creature in all material creation and therefore take precedence over accumulation of material wealth and comforts.

    Although economic activity and the Church’s “charity economics” are distinct, they can be combined in a synergistic way by men who manage the economic processes in society. Although charitable institutions are mainly tasked to implement the Church’s own redistributive activity on a larger scale, for-profit corporations can engage in “charity economics” through their CSR programs.

    Healthcare for the elderly is one obvious area where the Church social doctrine can be best applied. In the US, the elderly rely on social security and Medicare for their healthcare needs. In poorer nations, the elderly depend on their own families and immediate communities (neighbors and parishes) for their healthcare. Perhaps, the Church can propose a more effective alternative to social welfare programs that is not based on taxation, but on voluntary contributions and family-based, community-based support. (Probably, this is why people in poorer nations have bigger families. Richer nations have smaller families because of the more developed social welfare programs. This reminds me of a video that showed on the screen at same time two sick old women. One was lying in bed in a very clean quiet room in an ultra modern hospital equipped with the latest technologically equipped monitoring devices, but she was alone. On the other half of the TV screen was shown another old woman lying in bed in a very poor room, but she was surrounded by family members – her adult children talking to her, one son was holding her hands, while some of the grandchildren sitting on the floor playing games.)

    The Church “charity economics” can only be implemented with some (not total) success through a change in hearts of men esp Christians. This is why evangelization and Christian education is critical to reduce poverty, suffering, and injustice in society. Christians should take much effort to understand the Church social doctrine and the principles upon which it is based.

    Let me end this by citing a paragraph in the CCC, the quote is from St John Chrysostom: “2446: Not to enable the poor to share in our goods is to steal from them and deprive them of life. the goods we possess are not ours, but theirs. The demands of justice must be satisfied first of all; that which is already due in justice is not to be offered as a gift of charity”.