In a recent statement to the world's diplomats, Pope Francis called for an end to the free market. He said that free-market capitalism had created a “tyranny,” and that countries should impose more control over their economies and not allow “absolute autonomy”, in order to provide “for the common good.”In his opinion economic inequality is caused by "ideologies which uphold the absolute autonomy of markets and financial speculation, and thus deny the right of control to states, which are themselves charged with providing for the common good."
Pope Francis is one of my favorite Popes of all time. He knows how to love and lead the Church well, but his infallibility extends only to matters of “faith and morals,” as does the rest of the magisterium. No one would argue that Pope Francis and the rest of the bishops’ infallible teaching power extends into the realms of biology, so why do we accept that the Church’s teaching power extends to political philosophy and the economy?
Yes, the current financial system is terribly screwed up. Yes, we are dominated by the tyranny of money. However, we are not living in a free-market economy. What we have are centrally planned economies that pretend to be free markets. Pope Francis’ diagnosis is wrong, and therefore his prescription must be called into question. Should countries impose more control over their economies than they already do? Well, what is the common good? I would say general prosperity (the leisurely kind) is a good. Poverty, though a spiritual virtue, is not something that we want people to live in. God’s heart for his people is that the poor be cared for, which means that he doesn’t enjoy watching his kids live in poverty. A high standard of living across the board is the best scenario for the common good, economically speaking. I’ll prove that by asking the following question: “would you rather be poor in Richmond, America or poor in Bangalore, India?” No one would pick Bangalore. Why? The standard of living is higher in Richmond.
So what sort of factors cause growth in an economy, which then leads to a raise in the standard of living? Does more government control lead to the general welfare, or does more free market capitalism lead to the general welfare? First, let’s talk about the difference between a free market economy and a centrally planned economy. In a free market economy, banks set their own interest rates according to supply and demand of money. The currency has inherent value (Gold/silver) and is therefore stable and not easily manipulated. When an institution fails, its capital is redistributed to new entrepreneurs at cheap prices. This creates opportunity for the little guy. On the other hand, in a centrally planned economy, interest rates are set arbitrarily by a central bank. The currency is a fiat currency (paper, printed money) that is manipulated for the states benefit. Big business is bailed out when it fails and generally propped up by the state.
Clearly, our economy is centrally planned. But let’s just take this one at a time, shall we?
In a free market society, interest rates work the following way. A bank opens up. They don’t have money to lend out, so they raise their interest rates. That makes you want to save your money in a bank as opposed to take out loans. Once the bank has enough resources to lend out to entrepreneurs, they lower the interest rates. This makes you want to save less and borrow more. This sort of system rewards you, the small guy, for SAVING YOUR MONEY.
In an economy with a central bank, however, ( 90% of the developed nations in the world), the interest rates are set arbitrarily, and they are generally set LOW. (The Federal Reserve has them fluctuating between 0 and 2 through 2014). This does not encourage you to save, but rather to take out loans. Here’s a thought, one of the greatest struggles of our economic lives is getting out of debt. Not enough people save right? According to people like Dave Ramsey, we are all just being stupid consumers, not saving our money or thinking long term. It’s not because we’re stupid. It’s because our current financial system doesn’t reward us for saving. There are so many repercussions to this practice that it would take hundreds of pages and lots of big economics terms. The point is that centrally planned interest rates make us much more debt laden. This true of us as individuals, and of the country as a whole. The debt crisis in the west is not caused by the free market running unhampered. It is caused by central banks.
The second thing that central banks do is they inflate the currency. The Fed calls it “quantitative easing.” They basically print money. In a free market, a currency has inherent value and cannot be inflated. Gold and silver have inherent value. It’s scarce, it’s shiny, and it’s easily divisible. A government cannot simply print more gold to finance its bloated welfare system and adventurist foreign policy. When the fed prints money to finance these things, it makes our money worth less. It is a hidden form of taxation. This removes money from the middle class and puts it in the pockets of defense budget lobbyists, insurance company lobbyists, and all the rest of the wall street big wigs.
Moreover, when these institutions fail, like in the 2008 crisis, the Fed bails them out with printed money. This sucks value from the middle class’s dollar, and gives it the wealthy. That is called wealth redistribution. It is NOT good for the poor, it is NOT good for the middle class. It LOWERS our standard of living. The state also likes to prop big business up by hurting their competitors. Big companies love to lobby to government for more and more regulation. They don’t care about regulation. They have armies of lawyers and accountant divisions specifically for the purpose of handling government regulation. They eat the cost. On the other hand, small business gets slaughtered. If you want an example of how this works, watch Senator Ted Cruiz talk about the new internet sales tax. Big business lobbied for it. Small business doesn’t lobby. Big business crush’s small business.
In conclusion, central planning makes for a hostile environment for growth and innovation. Pope Francis’s attempts to correct what is clearly a terrible issue, tyranny, but he does it by encouraging more of the same. The Church, indeed the entire world, needs to start taking the economic sciences seriously. We cannot afford, as a church, to be encouraging practices that entrench poverty and keep the worlds resources clutched in the hands of the 1%. The free market is the answer, not the enemy.