Ten Key Points on Economics from Catholic Social Teaching

The roots of modern economics lie in Adam Smith, who argued that self-interest, the division of labor, and market competition would - through an invisible hand - lead to wealth creation. There’s no doubt that the market can create wealth, but it’s not so good at distributing it - or at recognizing any rights other than property rights. This is why the alternative perspective of Catholic social teaching is so important. Catholic social teaching argues that a market economy is legitimate, but it must be encased within a firm moral boundary. With that in mind, here are ten key implications of Catholic social teaching for how we govern and structure the economy:

First, it calls for the market to be governed by a directing principle. Here is how Pope Pius XI formulated it: “[T]he right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching…free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life—a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated. Therefore, it is most necessary that economic life be again subjected to and governed by a true and effective directing principle.”

Second, it rejects the idea that economic activity must be underpinned by self-interest and competition. Instead, Catholic social teaching insists that all economic transactions should be guided by values such as solidarity, fraternity, reciprocity, and gratuitousness.  As Pope Benedict XVI put it, “authentically human social relationships of friendship, solidarity and reciprocity can also be conducted within economic activity, and not only outside it or ‘after’ it. The economic sphere is neither ethically neutral, nor inherently inhuman and opposed to society. It is part and parcel of human activity and precisely because it is human, it must be structured and governed in an ethical manner.”

Third, the primary rights are economic rights. In Catholic social teaching, economic rights come first, even more political and civil rights. This stands apart from a free market, which would recognize only property rights. Some of the rights recognized by Catholic social teaching include rights to food, clothing, shelter, medical care, rest, social services, the opportunity to work, just wages, and property. And rights always linked to duties in the rights-holder. For example, if there is a right to work and to a just wage, there a duty to work diligently, to support one’s family, and contribute to society.

Fourth, private property is subject to the universal destination of goods. The universal destination of good is the notion that the goods of the earth are destined for all people. It goes back to Aquinas’s distinction between private ownership and common use, whereby the poor have rights against the rich. Here is how the Second Vatican Council document Gaudium et Spes defines it: “In using them [earthly goods], therefore, man should regard the external things that he legitimately possesses not only as his own but also as common in the sense that they should be able to benefit not only him but also others.” Pope John Paul II emphasized that private property always comes with a “social mortgage”, and Pope Francis calls property rights “secondary natural rights” (harking back to Aquinas). And when private ownership and common use are out of balance, it is for the public authorities to align them.

Fifth, there are many needs that cannot be met on the market. As Pope John Paul II put it, “there are many human needs which find no place on the market. It is a strict duty of justice and truth not to allow fundamental human needs to remain unsatisfied, and not to allow those burdened by such needs to perish.” Many of these goods are either poorly provided by the market or are only available to those who can afford to pay for them. But they must be made available to all people, in line with economic rights.

Sixth, the government has a special duty to protect the poor and workers. This goes all the way back to Pope Leo XIII, who in 1891 said that: “The richer class have many ways of shielding themselves, and stand less in need of help from the State; whereas the mass of the poor have no resources of their own to fall back upon, and must chiefly depend upon the assistance of the State. And it is for this reason that wage-earners, since they mostly belong in the mass of the needy, should be specially cared for and protected by the government.” This justifies the government intervening to redistribute resources from rich to poor and from capital to labor—and to respect the bargaining rights of workers. This lies behind the principle of the preferential option for the poor.

Seventh, it has no truck with neoliberalism or trickle-down economics. As Pope Francis puts it: “Neoliberalism simply reproduces itself by resorting to the magic theories of ‘spillover’ or ‘trickle’ – without using the name – as the only solution to societal problems. There is little appreciation of the fact that the alleged ‘spillover’ does not resolve the inequality that gives rise to new forms of violence threatening the fabric of society.” Pope Paul VI also condemned this economic ideology, which would “present profit as the chief spur to economic progress, free competition as the guiding norm of economics, and private ownership of the means of production as an absolute right, having no limits nor concomitant social obligations.”

Eighth, the purpose of business is not just to maximize profits. This goes against the idea of Milton Friedman who denied that businesses have any social purpose beyond maximizing profits, identified with shareholder value. Catholic social teaching adopts a different position. Pope Benedict XVI has endorsed stakeholder capitalism, noting that businesses should be responsible not only to shareholders but also to workers, customers, suppliers, the environment, and the community at large. He called for hybrid firms based on mutualist principles that can make profits and serve a social purpose at the same time.

Nineth, it emphasizes the dignity of work and worker’s rights. Catholic social teaching emphasizes the importance of work for human flourishing. As Pope Francis puts it, “Work is a necessity, part of the meaning of life on this earth, a path to growth, human development and personal fulfilment.” This gives rise to a moral injunction to prioritize decent, dignified work as a goal of public policy. It also gives rise to a robust set of workers’ rights, include the right to bargain collectively and to strike when necessary. Instead of collectivization, Catholic social teaching calls for the socialization of the means of production by allowing workers to share in the ownership and management of enterprises.

Tenth, it calls for a new form of progress that goes beyond economic growth. Pope Paul VI prioritized “integral human development”—the development of the whole person and all people—ahead of economic growth. And especially in light of the environmental crisis, Pope Francis calls for a new type of progress, “one which is healthier, more human, more social, more integral.” “[T]he idea of infinite or unlimited growth,” says Pope Francis, “which proves so attractive to economists, financiers and experts in technology…is based on the lie that there is an infinite supply of the earth’s goods, and this leads to the planet being squeezed dry beyond every limit.” Pope Francis is calling for integral and sustainable human development.