Libertarian (free-market) economists, if they believe in God, are certain that He is one of them. This attitude is far from new. In 1835, American economist Henry Carey (1) complained (before his conversion to protectionism) that Britain and France, in restricting trade between themselves, were “doing all in their power to frustrate the designs of the Deity”. In the 1840s, English politician Richard Cobden (2) claimed that “free trade is the international law of God”.
Today, many American Christians, including Catholics such as Michael Novak, Thomas Woods and Robert Sirico, proclaim similar ideas. Novak quarrels with orthodox Catholic teaching on social justice, disparages its traditional emphasis on distributive justice, and holds that the state should have only a “last resort” role in promoting the just society.
However, modern free-marketeers owe much to the ‘Austrian school’ of economists, many of whose tenets clearly contradict Catholic doctrine. Given their huge worldwide influence in recent decades, it is worth examining in some detail the views of a leader of that school, Friedrich von Hayek (1899 – 1992).
Hayek, a seminal free-marketeer
Professor at the University of Chicago between 1950 and 1962, Hayek was one of the chief instigators of the wave of libertarian economics that has swept the world since the 1970s. The late Milton Friedman frequently acknowledged his influence. Michael Novak (3) celebrated his 1999 birth-centenary with a fervent eulogy. Hayek’s theories underlie the economic policies that have allowed inequalities in the USA to revert to the levels of the 1920s and whose consequences in Latin America (4) have provoked widespread leftward reactions. The same theories inspired the ‘shock therapy’ of Yeltsin’s economic strategists Yegor Gaïdar (5) and Anatoly Chubais (6), which brought chaos, paving the way for a return to authoritarian rule under Putin.
Hayek was born into a Catholic Viennese family, but became an atheist in his teens and remained so for life. He studied economics under Ludwig von Mises, another libertarian widely admired in America today. Mises, like Hayek, was non-religious (Jewish but not observant); in Socialism (1922) he lambasted both Catholic and Protestant churches for their unwillingness to endorse free-market dogma.
Negative and positive freedoms
The basis of Hayek’s thought is an uncompromising commitment to ‘negative freedom’, defined as absence of ‘coercion’ of the individual by other people. This has affinity with the immunity from coercion in religious matters propounded in Dignitatis Humanae. However, Catholic teaching sees absence of coercion as just one aspect of freedom. The Catechism’s broader definition (#1733) is positive : “there is no true freedom except in the service of what is good and just”. Or, as Bernard Häring wrote (7), “in essence freedom is the power to do good”. Thus, freedom is essentially a state of grace achieved through the pursuit of goodness and justice.
This Catholic concept might seem to clash with political ideas of freedom as democracy, impartial rule of law, absence of arbitrary authoritarianism. Against the Catholic definition, one might argue that a good and just person is not free if he lives under despotism. But one might equally fault political definitions of freedom, since the politically free citizen is not free if he is a slave to cocaine, to sexual perversion, to obsession with money-making.
One can reconcile the Catholic and political concepts as follows. To be truly free, an individual needs to lead a good life; he must not be enslaved by his own sins. He needs also to live in a community of people who do likewise. People who ‘serve what is good and just’ will not practice arbitrary authoritarianism. They will create and maintain equitable political institutions. They will treat one another as good neighbors. The individual’s freedom thus depends both upon his own morality, and upon that of the community around him.
Hayek, however, repudiated the link between freedom and morality. Philosophers, he complained, (8) “have sometimes defined freedom as action in conformity with moral rules. But this…is a denial of that freedom with which we are concerned.” His freedom simply means not being imposed upon by other people.
As a young man in early twentieth-century Austria, Hayek was appalled by the disastrous consequences of gross misrule in fascist and communist states. He therefore sought a philosophy of politics and economics that would minimize the risk of damage to human society by malevolent states. At its core was the conviction that the state must be disempowered as far as possible.
The need for good government
Catholic teaching holds that the proper alternative to bad government is good government. Gaudium et Spes (#74-75): “The political community and public authority….belong to the order designed by God….political authority…must always be exercised within the limits of the moral order and dedicated toward the common good…the complex circumstances of our day make it necessary for the public authority to intervene more often in social, economic and cultural matters.” Thus, negative freedom alone is insufficient. A laisser-faire government which refrains from maltreating its own citizens, but which makes little effort to stop them maltreating each other, or to prevent their pursuit of conflicting goals from leading to injustice, is not doing its job.
But Hayek would have none of that. He insisted that the proper alternative to bad government is minimal government. This mindset underlies the libertarian obsession with shrinking the state: with privatization, deregulation, and minimum taxes.
Yet Hayek was no anarchist. He accepted the need for discipline in human society, but rejected the disciplines of church and state. So who, or what, was to rule? Hayek’s answer: The market mechanism, backed by a rigid legal system, will impose its own discipline, provided the market is indeed free; that is to say, regulated only by fixed general legal principles. There must be no specific interference with the market; no regulation of wages, prices, imports or any such matters.
This desire to replace the state, so far as possible, by the market also reflects Mises’ view (9) that “the capitalist system is a democracy in which every penny represents a ballot paper”. He argued that the market reflects the people’s wishes better than the electoral system, since we vote only every few years, whereas we spend money every day. Note his argument’s radical flaw : on election day we have one person one vote, but in the marketplace, one dollar one vote. Hardly a basis for the ‘preferential option for the poor’.
Here is a sharp contrast with Quadragesimo Anno (#88): “the right ordering of economic life cannot be left to a free competition of forces”; or with Centesimus Annus (#40): “there are collective and qualitative needs that cannot be satisfied by market mechanisms”.
For Hayek, the market’s prime virtue as a source of authority is that it is an impersonal mechanism. Only constraint by persons, not by impersonal forces, damages Hayekian freedom. The mountains of Hayek’s native Austria furnished a striking parable; he claimed that a climber stuck in a crevasse (10) is “not unfree”, since he has not been willfully confined by anyone else.
It follows that, if people are mired in penury or unemployment by the workings of the free market, they suffer no loss of freedom. Nor, indeed, do they suffer injustice. Hayek compared the market with a game in which (11) there is “no sense in calling the outcome either just or unjust”. He argued (12) that “social justice is an empty phrase with no determinable content” and complained (13) that “the Roman Catholic church especially has made the aim of ‘social justice’ part of its official doctrine”.
Distributive justice rejected
He flatly rejected the principle of distributive justice, evoked in Catholic texts from the Summa Theologica to Centesimus Annus. “The results (14) of the individual’s efforts are necessarily unpredictable, and the question as to whether the resulting distribution of incomes is just has no meaning”. He condemned the use of the tax system to mitigate inequalities. A tycoon must not be taxed more heavily (in proportion to income) than a waiter. He grudgingly tolerated (15) “some provision for those threatened by the extremes of indigence or starvation, be it only in the interest of those who require protection against acts of desperation on the part of the needy”.
Hayek was convinced that, if every individual freely pursues his own personal objectives, the outcome will be the best possible for society. This principle goes back to Adam Smith. But Smith embraced it with restraint, arguing in The Wealth of Nations (1776) that an individual (16) “by pursuing his own interest frequently promotes that of the society more effectually than when he really intends to promote it”. Notice that Smith did not write always, even generally; just frequently. In The Theory of Moral Sentiments (1759) he stated (17) that “the wise and virtuous man….is willing that his own private interest should be sacrificed to the public interest”.
Hayek rejected Smith’s moderation. He argued that neither individuals nor governments can possibly know what is best for society. Therefore, they cannot voluntarily promote the ‘common good’, and should not even try to do so. They should leave that to the untrammeled market. But this strategy gives the market near-absolute power. In Centesimus Annus (#40), John-Paul II explicitly warned of “the risk of an ‘idolatry’ of the market”. In Gaudium et Spes, we read (#30) of “each person contributing to the common good according to his own abilities and the needs of others”.
The sins of deregulation
Deregulation of markets may enhance the ‘freedom’ of entrepreneurs, but its effects on society can be painful. In the course of my career as a stockbroker in the City of London, I have observed many serious abuses in deregulated markets. Some of these abuses have been curbed by government re-regulation, much disliked in the City because the new rules are more burdensome than the old. But, as John-Paul II wrote (Centesimus Annus #35), “the market [must] be appropriately controlled”.
Hayek insisted that the law, like the market, should so far as possible be an impersonal mechanism, based mainly on judicial precedent, with minimal scope for judges to exercise discretion. Disgusted by the arbitrary behavior of civil servants, policemen and judges in despotic states, Hayek aimed to depersonalize governance. He argued that a mechanistic market and legal system could largely replace the administration by human beings that we call the state. He hankered after what T S Eliot (18) called “systems so perfect that no-one will need to be good”, even claiming (19) that his ideal was “a social system that does not depend for its functioning on our finding good men for running it”.
Hayek yearned for the supremacy of the market as a freedom-friendly substitute for the hated state. But also because (20) “through competition, not through agreement, we gradually increase our efficiency”. The unconstrained competitive market promotes efficiency and innovation; therefore, restraints on competition are unacceptable. Like other libertarians, he delighted in the power of free markets to provide a torrent of exciting and unexpected innovations. But too much and too rapid change is not welcomed by most people. Indeed, it can provoke nasty retrograde reactions.
Untrammeled competition means the disappearance of all loyalties in business, whether between employer and employee, between owner and enterprise, between supplier and customer. It implies the end of solidarity among workers; instead of uniting for mutual support, they should all compete against each other. Hayek complained that British trade unions were ‘the prime source of unemployment…the main reason for the decline of the British economy’ (21). He argued that unions cannot enhance wages in real terms without causing higher unemployment - a theory that hardly agrees with historical experience.
In Rerum Novarum (#51) Leo XIII wrote, concerning workers’ unions, that “to enter into a ‘society’ of this kind is the natural right of man”. John-Paul II in Laborem Exercens (#20) commended unions as “a mouthpiece for the struggle for social justice”. But Hayek had little time for the principle of solidarity. He claimed (22) that we “gain from not treating one another as neighbors”. What a charming vision of the free-market paradise!
Novak’s libertarian Catholicism
Though the gulf between Hayek and mainstream Catholicism yawns wide, neo-conservative Catholics have striven to bridge it, and thus to demonstrate that Catholic doctrine can be interpreted to legitimize libertarian capitalism. Since Michael Novak is among the best-known of these Catholics, let us consider how his views reflect, but also diverge from, those of Hayek.
Novak avoids the purely negative Hayekian definition of freedom. For him (23), “true liberty is ordered liberty”; “temperance, fortitude, a sense of proportion (justice) and practical wisdom are…cardinal habits [that] give order to our capacity for human freedom”. Here we have a positive concept not far from that of the Catechism. However, Novak argues that justice comes only from individual self-discipline and cannot be imposed from above. Compare Dignitatis Humanae (#6) : “the protection and promotion of the inviolable rights of man ranks among the essential duties of government”.
For Novak, ‘social justice’ means citizens working together voluntarily (24) to “put up a school or build a bridge”, to “hold a bake sale for some charitable cause”, to “clean up the environment” and so on. Hayek (25) favored such voluntary action, but did not call it “social justice”; he reserved that term for attempts (which he abhorred) by the state to construct a just social order.
Novak holds (26) that “social justice is a virtue that can be exercised solely by individuals”. This makes better sense than Hayek’s fantasy, the society that does not need good people to run it. But Novak insists that we must work towards a better society through voluntary action, not through political and legislative process. The latter should merely provide (27) “a fair and open system of rules” within which virtuous individuals can spontaneously create a just society, “only (28) as a last resort, when all else fails, through turning to the state”.
But there are serious practical obstacles to achieving a just society purely through individual good behavior. For instance, if unscrupulous entrepreneurs pay grossly inadequate wages, benevolent employers may be unable to do much better, since their higher costs would make them uncompetitive with the rascals. Regulation of wages may therefore be necessary.
Benedict XVI in Deus caritas est (#28) eschews anti-statism, distinguishing clearly between the roles of the state and of voluntary Christian charity: “the Church cannot and must not take upon herself the political battle to bring about the most just society possible. She cannot and must not replace the State…A just society must be the achievement of politics…caritas will always prove necessary, even in the most just society”.
The problems of the hypercompetitive society find little recognition in Novak, whose account of competition – “the natural play of free persons” (29) – is wholeheartedly favorable.
Against those who object to Mises’ ‘every penny a ballot-paper’ theory, Novak (30) argues that “corporations which seek mass markets have a far larger economic base” than those which cater to the rich. Official statistics disagree. They show (31) that half of all US personal income goes to 20% of households, while (32) half of all personal wealth is held by well below 10%. Mises’ ‘market democracy’ is, in reality, a plutocracy in which minorities hold the majority of ‘votes’.
Novak, following Hayek, gives low priority to distributive justice. “Under democratic capitalism, inequalities of wealth and power are not considered evil in themselves…nature itself generates inequalities” (33). “It is not unjust if some acorns fail to become oaks” (34). Compare the Vatican’s Compendium of Social Doctrine (2004) (#172): “each person must have access to the level of well-being that is necessary for his full development…property rights and the right of free trade must be subordinated” to the principle of the universal destination of goods. Benedict XVI (35) affirms that “it is right to foster equality in the distribution of wealth in the world”.
Novak argues (36) that “the ethics of justice have shifted decisively from distributive justice to productive justice…the latter is the precondition of the former”. He propounds “the moral imperative of sufficient productivity”. This means that the top priority is to increase output, so that there will be more for everybody; an argument dear to defenders of libertarian capitalism. It accords ill with the evidence of recent American history: despite robust growth, inequalities have widened, poverty and insecurity are more widespread.
Nor does it meet today’s urgent need to curb the environmental ravages of economic expansion. Novak denies (37) that there are real limits to growth; he decries (38) those who see social justice as a “zero-sum game” of distributing fairly a limited pool of riches. But ecologists warn (39) that the human race is already consuming the earth’s resources at a more than sustainable pace, even though many people are still extremely poor. So it would seem that there are indeed certain limits to economic growth, implying a need to spread available riches more evenly.
A reactionary movement
Libertarian economic thought develops and extends that of the ‘classical’ eighteenth-century economists: Smith in Scotland, Ricardo in England, Turgot in France. The world of economics has never lacked thinkers averse to state regulation, to redistributive taxation, to strong trade unions.
Yet, through most of the twentieth century, these institutions, despite their failings, have helped us achieve fairer, more civilized economies. But when the practical difficulties of operating them became troublesome, in the 1960s and 1970s, right-wing economists saw their opportunity to reinstate the attitudes of the early nineteenth century. They refuse to recognize that their philosophy has, in the past, had many harmful consequences, leading to its gradual rejection from the later nineteenth century onwards.
Given the troubled circumstances of his times, one can understand why Hayek felt moved to write as he did. However, from a Christian standpoint, many of his ideas seem seriously misguided. We need an economic philosophy that recognizes the need for judicious regulation of capitalism; that disfavors excessive inequalities; that warns that we cannot hope to be free citizens unless we are good citizens; that, far from despising the state, stresses the vital importance of good government. All these principles can be found in Catholic teaching. We Catholics need not be shy of proclaiming that our recipe for the good society is superior to that of the market-obsessed neo-conservative economists.
Angus Sibley, a Fellow of the Institute of Actuaries, is a Paris-based analyst. His work can be found at Equilbrium-Economicum.net
1 Henry Charles Carey, Essay on Wages (1835), p 9
2 See Jacob Viner, The Intellectual History of Laissez Faire, in Journal of Law and Economics, vol. 3 (October 1960), pp 45 - 69
3 Michael Novak, Hayek, practitioner of social justice, chap. XI in Three in One: Essays on Democratic Capitalism 1978 – 2000 (Madison Books, Lanham MD, 2000)
4 In particular, Hayek’s ideas were pursued vigorously in Chile during the Pinochet era. The Economist, a leading British weekly review whose stance is strongly pro-free-market, writes of Hayek’s “admiration for General Pinochet’s achievements in Chile” (The man who knew enough, 29 May 2001)
5 I read Friedman’s books with interest, and also Hayek. They were very authoritative for me…Yegor Gaïdar in an interview on PBS (“Commanding Heights”), 10 May 2000
6 Chubais remembers nights spent in a St Petersburg library reading Hayek as the happiest of his life…Andrew Cowley, Moscow correspondent of The Economist (London), letter to the International Herald Tribune, 10 February 1995
7 Bernard Häring, The Law of Christ (1961), vol. I, p. 99
8 Hayek, The Constitution of Liberty (Routledge & Kegan Paul, London, 1960), chap. I
9 Ludwig von Mises, Socialism, an economic and sociological analysis (1922),
tr. J Kahane (1931), p 428
10 Hayek, The Constitution of Liberty, chap. I
11 Hayek, The Mirage of Social Justice (vol. II of Law, Legislation and Liberty) (University of Chicago Press, 1976), chap. X
12 Ibid. chap. XI
13 Ibid. chap. IX
14 Hayek, The Constitution of Liberty, chap. VI
15 Ibid. chap. XIX
16 Adam Smith, The Wealth of Nations (1776), book IV, chap. ii
17 Adam Smith, The Theory of Moral Sentiments (1759), part VI, sect. iii, chap. 3
18 T S Eliot, Choruses from The Rock (1934)
19 Hayek, Individualism and Economic Order (Routledge & Kegan Paul, London, 1949),
20 Hayek, The Fatal Conceit (Routledge, London, 1988), chap. I
21 Hayek, Unemployment and the Unions (Institute of Economic Affairs, London, 1980), p 52
22 Hayek, The Fatal Conceit, chap. I
23 Novak, This Hemisphere of Liberty (American Enterprise Institute Press, Washington DC, 1990), appendix
24 Novak, Defining Social Justice in First Things, no. 108 (December 2000)
25 Hayek, The Mirage of Social Justice (loc. cit. supra), chap. XI
26 Novak, Three in One (loc. cit. supra), chap.XI
27 Ibid. chap. XI
28 Novak, On Cultivating Liberty, chap. IV
29 Novak, The Spirit of Democratic Capitalism (Madison Books, Lanham MD, 1991), chap. XX, part ii
30 Ibid. chap. V, part ii
31 US Census Bureau (HHES) Historical Income Tables (2001), table IE-3
32 Arthur B Kennickell (Federal Reserve Board), A Rolling Tide: Changes in the Distribution of Wealth on the US, 1989 – 2001. This paper suggests that US personal wealth in 2001 could be attributed “about a third each to the wealthiest 1%, the nest 9% and the remaining 90% of the population”. Thus it appears that the top 10% hold two-thirds of total wealth; accordingly the majority (just over 50%) is held by well below 10% of the total population.
33 Novak, The Spirit of Democratic Capitalism (Madison Books, Lanham MD, 1991), chap. IV
34 Novak, Three in One, chap. XI
35 Benedict XVI, address to HE Valentin Bizhilev (Bulgarian Ambassador to the Holy See), May 13 2006
36 Novak, Three in One, chap. V
37 Ibid. chap. VI; The Spirit of Democratic Capitalism, chap. V
38 Novak, The Spirit of Democratic Capitalism, chap. V
39 The World Wildlife Fund’s Living Planet Report gives a detailed analysis covering practically every country in the world. This shows that the “ecological footprint” of the entire human race (in 2003) was “1.25 planets”, ie that overall consumption of natural resources is running at a rate 25% more than sustainable. See http://assets.panda.org/downloads/living_planet_report.pdf