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Lesson 03- The Principles Of Capitalism

            Before beginning my topic for today, I want to review the highlights of my previous talk so that we can maintain the continuity of my thoughts on the issue of how our present economic collapse came about. In my last program I began by summarizing the previous one and then I addressed the question as to who was responsible for what happened. Instead of “pointing the finger” at the banks, businessmen, and politicians, who obviously had a great deal to do with it, I “pointed the finger” at ourselves because none of this could have happened without our cooperation and participation. And, furthermore, the most productive approach is for each person and institution involved to focus exclusively on the part that it played since that is the only part of the problem that it controls. So now let me list some of the major points.


   First, in any problem in which we are involved we should assume 100% of the blame to keep us focused on 

     the changes that we must make. In Hegelian terms this means that “whoever faces the antithesis grows while

    whoever avoids it remains the same or deteriorates. In Christian terms this means that “whoever accepts the

    crosses grows towards the fullness of life, while whoever avoids the crosses stagnates.” One of the most

    refreshing and liberating experience is the ability to admit that we are wrong, while one of the most draining

    and imprisoning experience is trying to defend that we are always right. Our ability to admit that we are

 wrong is directly related to our own sense of self-worth. If our own sense of self-worth is equivalent to a  

 penny then we can’t afford to admit to any fault because it will diminish all that we have. If, on the other

 hand, it is equivalent to a million dollars, we can easily accept the loss of even $100 because we still have a

 lot remaining. There is a Jewish saying that if we have the choice of offending God or our neighbor, it is

 better to offend God because He can tolerate the offense more than our neighbor. Why? Because God who

 know and loves Himself to the fullest can not be diminished or harmed by our offenses while our neighbor, who often lacks a sense of self-worth, can. So let us learn to recognize our failings and use them as positive stimulants to grow and develop.


Next: the underlying cause of our economic collapse is greed, which is the attitude that we are entitled to more and more of everything without any consideration for its impact upon other people or things. We have endangered the welfare of our own children and grandchildren through our reckless inflationary debt/buying that caused the cost of housing and other things to skyrocket and have saddled them with trillions of dollars of public debt by demanding that our governments should give us more and tax us less. And in the process we have abused the resources and environment of the earth.


Next: By looking more and more to government to solve our problems we have ignored the Principle of Subsidiarity which says that smallest unit in society that is capable of handling a problem should take the responsibility for it.  By doing so, we have decreased the effectiveness and efficiency of the solution, avoided an opportunity for our own personal growth, inflated the power of government well beyond its rightful role, and replaced “care for our neighbor” with government entitlement.


Next: As Christians, we make a mistake when we commit ourselves entirely to any one worldly system since our commitment should be to solutions, not systems. Our guiding principle should be St. Paul’s advice in Philippians4:8 where he writes:

“Finally, brethren, whatever is true, whatever is honorable, whatever is just, whatever is pure, whatever is lovely, whatever is gracious, if there is any excellence, if there is anything worthy of praise, think about these things.”  And, our ultimate goal should be

             to create a world in which there is a perfect balance between order and freedom.


Next: there are aspect of Capitalism and Communism that we can support and others that we must oppose. We seek a system that incorporates the best of both while eliminating what is worst. There is something to be said about Communism emphasis on cooperation, social order, and communal sharing and something to be said about Capitalism emphasis on competition, freedom and private property. The synthesis between the two would be a system that contained both freedom and order which are the two ingredients that God synthesizes into all His creative acts. We need order to survive and freedom to develop. 


Next: The Church, through its commitment the Principle of Subsidiarity and decentralization, seeks to create a Kingdom of God on earth that would be the mid-point between these two systems and principles. Too much order leads to dictatorship and stagnation; too much freedom leads to anarchy and chaos.


Next: The Kingdom of God is one based on God’s Wisdom, Jesus, who teaches us through experience, and promised that those who seek would find and those who knocked it would be opened to them. Thus all the social institutions and technological inventions which seek logical solutions to social and technological problems are the result of the Logos or logic within us that leads us down the path of truth whenever we ask with an open mind and heart. In his book, entitled Jesus, Pope Benedict XVI makes the point that Jesus, Himself, is the Kingdom of God. Put another way, this means that Wisdom is the essence of the Kingdom of God and when we follow it, it will take us there.


Next: One of the major problems facing all societies is how to organize its economic system that  determines what goods and services will be produce, who and how they will be produced, and how they will be distributed after they are produced.


Next: It appears that our ancestors evolved from small, nomadic, hunter/gathering groups in which all things were shared communally to larger complex societies through the Laws of Organization and Specialization based on private property.


Next: As societies became more complex, there develop a need for their citizens to find a way to exchange their own skills and talents for the skills and talents of others. For example, teachers, doctors, and lawyers had to find a way to exchange their specialty in return for food, clothing, and protection from farmers, tailors, and soldiers.


Next: The first system seems to have been Barter System whereby there was a direct exchange of goods and services between two persons. For example, a doctor would provide his services in return for a chicken from a farmer.


Next: The Barter System proved inadequate for the needs of larger and more complex societies for a number of reasons. First, the two exchangers didn’t always have what the other person needed or wanted. Second, there was often inequality in value between what they had to exchange, such as, a basket of corn for a pig. Third, there was no way to store value so that things of little value could be stored over time so that they could be exchange later for something of much greater value, for example, potatoes for a house.


Next: when someone asked the Logos or logic within him for a solutions to this problem, he was led to the concept of money. Money was invented as a “medium of exchange” through which some agreed upon object became a symbol for value. In various cultures different things have been used. In Sparta it was large stones; in Rome it was salt; among American Indians it was shells called wampum; and, eventually, gold and silver began to be used almost universally. Later, paper claim checks on the gold and silver began to circulate as a medium of exchange so long as people believed that they could reclaim the gold and silver they represented. Thus, paper money began to replace gold and silver


Next: Eventually people forgot that gold and silver, except for its ornamental used, had mainly symbolic value rather than real value and they started to desire it for their own sake. 


Next: Europe, prior to the economic system of Capitalism, had an economic system called Mercantilism that held that the “wealth of a nation” depended on the quantity of gold and silver that a country had in its vaults. This created a situation in which each country sought to sell goods to other nations in order to acquire their gold and silver, while avoiding buying anything back so as to not diminish their own supply. This had a devastating affect on trade.


Next: During the Age of Exploration, European explorers roamed the world searching for treasures of gold and silver in order to add to the wealth of the nations that they represented. Native populations were ruthlessly subdued and exploited and eventually colonized by these nations.


Next: Colonies became an important part of the Mercantalistic economic system by providing raw materials for the Mother Country that it needed and markets for its own products, thereby keeping the gold and silver in the family. To accomplish this, the Mother Country passed restrictive laws on what the colonies could buy or sell.


Next: These restrictive laws eventually led to the American Revolution when in 1774, colonists dumped tea into BostonHarbor to protest the policies of the English Crown and Parliament.


Next: In 1776, Thomas Jefferson writes the Declaration of Independence listing the abuses of the English Crown against the colonies and declaring natural law right of everyone to life, liberty, and the pursuit of happiness and to form a government of their own choosing to secure these rights. In doing this he replaced the theory of the Divine Right of Kings, which limited political power to kings and their heirs, with the Social Contract Theory, which allowed the wealthy business and merchant classes to obtain the political power that was equal to their economic power.


Finally: The year 1776 became a pivotal date in our history, not only because it marks the beginning of man’s political freedom but also because it marks the beginning of his economic freedom. And that is where we will pick up the story in this talk. This was the beginning of the collapse of the monarchies throughout Europe and the rise of the modern day Democratic/Republican states in which elected representatives of the people made, judged, and enforced laws that are necessary for social order and justice. It was also the beginning of the collapse of the Mercantalistic economic theory and the rise of the theory of Capitalism.


            In 1776 another man, less known than Thomas Jefferson, made a declaration for economic freedom that was just as important as the Declaration of Independence. His name was Adam Smith, a Scottish professor, who wrote a book entitled “The Wealth of Nations” in which he challenged the Mercantilistic economic theory that the wealth of a nation was the gold and silver that it acquired. He said that the real “wealth of a nation” was not the amount of gold and silver it possessed but, rather, the “goods and services” that it produced. Of what value was it to have the kings coffers filled with gold and silver if the average person was lacking in necessary goods and services.

Thus, he criticized all the restrictive laws on economic activity that had existed under Mercantilism and called for a free economy that would be controlled by market forces. The economy, like nature, was too complex and contained too many variable to be rationally controlled by a central authority. Like nature, it should be controlled through the interaction of competing forces who, without intending it, would bring about a natural balance. In other words, he was calling for a decentralization of economic activity based on what the Catholic Church would call the Principle of Subsidiarity. But before we consider this, let’s first explore what the world was like under the Merecantilistic system in 1776.


            It was a world that emphasized order, control, and tradition. In 1776 the Industrial Revolution had not yet impacted Europe in full force. Things were pretty much done as they had been done in the past. People were born into hereditary situations from which they rarely escaped. The carpenter’s son was expected to become a carpenter; the baker’s son a baker; and the miner’s son a miner. Generation after generation the roles were passed down from father to son. Professor Robert Heilbroner, in his book the Worldly Philosophers, noted that this served a very important societal function.


All societies are faced with the problem of how to insure that important jobs and functions necessary for the societies survival are fulfilled in the future. In other words, when the carpenters, bakers, and miners die who will take their place? Professor Heilbroner says that societies had solved this problem mainly in two ways: make the jobs hereditary or have some central authority assign people to fulfill the necessary tasks. Europe, prior to 1776, and India with its caste system is an example of the first solution where people are born into their roles in life, while Communism in the Soviet Union and China are an example of the second solution, where a central authority assigns people to their life’s role. Adam Smith, in his book, Wealth of Nations, was suggesting a radically new way that flew in the face of common sense.


He said, “let everybody do whatever they wanted to do.” But, protested his opponents, “what if too many people choose one job or profession and not enough choose another? Without a tradition or central authority to make sure that every job is adequately filled, society would suffer or collapse. Why this would surely lead to utter chaos. The society and its economy had to be planned by those on top if it was to survive from generation to generation.” “No,” said Smith, “the economy should be free and the only control over it should be the “Law of the Market” which, like an invisible hand, would control everything through the principles of “self interest and competition.”


Now it might occur to you that what Adam Smith is proposing are the very laws by which nature operates. No one could rationally regulate the number of deer in relationship to groundhogs, squirrels, beavers, birds, wolves, bears, eagles and all the other living creatures in a forest. There is a natural balance that results from each of them seeking its own “self-interest”, in “competition” with the other creatures, for survival. In fact, every time we interfere through misguided sympathy, such as feeding the deer in the winter, we create an imbalance in the deer population in relationship to the available resources that leads to an even greater disaster the following year. Thus, his theory, runs counter to those tender feelings that we have all inherited from movies like Walt Disney’s Bambi and has been rightly criticized by his opponents as “the law of the jungle.” And, in it unadultered form, it is. Thus, you can see how the Church, and Christian society in general, opposed it from the start. Yet, there was a natural wisdom in it, based on Natural Selection and Survival of the Fittest, that couldn’t be disputed. What Smith was saying is that the economic system of Mercantilism was trying to control what was better left free to natural forces.


Robert Heilbroner writes in his book “The Worldly Philosophers”:

“The game was called the “market system” and the rule was deceptively simple: each should do whatever was to his monetary advantage. In the market system, the lure of game, not the pull of tradition or the whip of authority, steered each man to his task. And yet, although each was free to go wherever his acquisitive nose directed him, the interplay of one man against another resulted in the necessary tasks of society getting done.”


What Smith was proposing was an unplanned economy in which everybody did whatever they thought would profit them and, in some inexplicable way, it would result to the benefit of all. To illustrate how this must have appeared to the people of the time, I used to tell my students that I always had a class picnic at the end of the term to which everybody had to bring something. However, no one was to tell anybody else what they were bringing. In other words, it was an unplanned picnic. They would protest that it couldn’t work because we would have an oversupply of some things, an undersupply of other things, and might be totally missing in something else. For example, we might have hotdogs with no rolls, or steaks without charcoal, or potato salad and no plates. And they were right. So if an unplanned picnic couldn’t work, how could an even more complex economy work without any planning? Well, let’s see how Mercantilism handled the problem and how Capitalism would handle the same thing. Professor Heilbroner gives a number of examples from the past.

First, in 1305 there is a fair on a feudal manor in which the merchants, unlike modern capitalist, are very unorganized and casual with their transactions. One entry in the merchant’s book of transaction reads: “Owed ten gulden by a man since Whitsuntide. I forgot his name.” Can you imagine a modern capitalistic businessman saying the same.

Calculations are done in Roman numerals and were often wrong. For example, how do you add up 5, which is V, with 41, which is XLI,  and 9, which is IX? Or multiply ten, which is X, by 5 which is V? The answer, by the way, to both problems is 50 which is L but the only way that I know this is by using Arabic numbers which we got from the Arabs following the Crusades. Can you imagine our modern economic system if we had never learned Arabic numbers.

Finally, the  total amount of goods coming into France in one years wouldn’t fill a modern fright train.


Next stop, Germany in 1550. A traveling merchant is come back home to BadenGermany. Each community that he passes through has its own rules, measurements, and regulations which the merchants of that time had to know and deal with.  Today’s merchants only have to deal with our measurements and the metric system.


Next: In Boston in1644, Robert Keane and upstanding member of the community is being charged with the crime of “making sixpence profit on a shilling.” Mr. Keane is publicly berated and acknowledges before the elders of his church “his covetous and corrupt heart” for which he repents. Today, credit card companies charge loanshark interest rates that used to be illegal. The minister goes on to point out other sins, such as,

Buying things cheap and selling them as high as you can

Raising the price on your remaining products to cover the loss due to damages while being shipped

Reselling something you bought that was overpriced for the same price you paid


Next: In England and France the merchant and trade guilds controlled not only the quality of the product but also the morality of their members. For example, the number of threads in a piece of cloth was specified and it could contain no more or no less. An offending piece was put on public display for the first offense and the maker of the cloth was subject to public humiliation for any additional offenses. Members were expected to avoid foul language, card playing, or quarrels with other members. Can you imagine a manufacturing group or trade union today having that type of control over its members?


Obviously, the pre-Capitalistic world was quite different from our world today. It was a world based on rules, traditions, and moral responsibility and was intimately connected to the teachings of the Catholic Church, who taught that all men were brothers and were to be treated as such. So let us contrast the existing worldview of Christian society at that time with Adam Smith’s theory of Capitalism.  


They considered a “fair price” to be slightly above the producer’s cost of production. In other words,

 the amount that he needed to support his family. Capitalism says a fair price is whatever the seller

 is willing to charge and the buying is willing to pay. It is based on a contract between the buyer and seller and is related to “supply and demand.” When the supply is greater than the demand, the seller lowers his prices. When the demand is greater than the supply, he raise his prices. It has nothing to do with the cost of production or how much the seller needs to support his family.


They considered a “fair wage” the amount of money that the worker needed to support his family. Capitalism says that a “fair wage” is whatever the employer is willing to pay and the worker is  willing to receive. It too is related to “supply and demand.” When the supply of workers is greater than the demand, wages go down. When the demand for workers is greater than the supply, wages go up. It has nothing to do with how much the workers needs to support his family.  


They considered that it was the moral obligation of the producers to maintain high standards of quality

 and workmanship and thus had manufacturing and trade guilds set the standards for their

 members. To accomplish this they had master craftsmen train apprentices who had to produce a

 “masterpiece” to become a master themselves. Capitalism says that the quality of the product and

 workmanship is between the buyer and the seller. If consumers are willing to pay for low-cost junk,

 then producers are free to make it. If the consumer wants higher price quality, then producers will

 choose to make it. The consumer drives the market and what it produces is a reflection of the

 consumers’ values. Furthermore, the use of machines has eliminated the need for master craftsmen or

 masterpieces since they are capable of duplicating in large quantities near-copies of what craftsmen in

 the past produced.


They considered it immoral to charge interest on money lent to a person in need. Since, everyone, 

 morally speaking, are brothers and sisters, then one should not try to profit at their expense. 

 Capitalism says that money, like everything else, is a commodity for which one has to pay. And, like other things, is subject to the Law of Supply and Demand. When money is scarce and the demand for it is high, then interest rates go up. When money is plentiful and the demand for it is small, then interest rates go down.  


I could probably go on and find other important difference between pre-Capitalistic society and Capitalistic society but I think these examples are enough to identify the different spirit that divides them. Pre-Capitalistic society was a subsistent one based on what one needed to exist and survive. Capitalistic society is a developmental one based on the acquisition of more through profit. In fact, according to economists, Capitalism created a new type of man: a man who would continue to work even after his basic needs and wants were satisfied.


Throughout most of human history, human beings, like animals, only roused themselves to hunt or work to satisfy their immediate needs. If their stomachs were full, then they sat back and relaxed until it was empty. In other words, they lived by bread alone.


Have you ever considered the lives that our domestic animals live. They lay around all day with nothing to do and, so long as they are fed, walked and shown a little attention, they seem to be perfectly content. Humans, as Mark Twain once observed, are the only animals that can be bored. However, this is only partially true. It is certainly true of modern humans but may not be true of primitive people. When the Panama Canal was being built, our government hired primitive Indians to help dig out the canal. A problem arose, however, because, following “payday” all the Indians disappeared. The government thought they had quit. However, as the weeks went by they began to drift back to the site. So long as the money lasted, they didn’t see any reason to work. But when it ran out, they returned. Unlike modern economic man, they will not continue to work after their basic needs and wants are satisfied. And that, according to economists, was the mindset of most human beings throughout our early history.


I once read an article by a businessman who, to get away from the hustle and bustle of his hectic world, took extended vacations to an isolated island in the South Pacific where just a small group of native people lived. In the article he was complaining that as modern civilization started to impinge on his restful paradise, it was losing the serenity it once had. He said that he and his native friend Oburu used to sit under a palm tree for hours watching the waves crest on the beach. He would turn to Oburu and ask, “What are you thinking?” And Oburu would answer, “Nothing!” and, said the article, “That was absolutely true.” However, once his batteries were recharged, the businessman was anxious to return to his job. 


The mind, like a computer, can function only to the degree of the content in its data base. A idyllic island, with few problems and crosses, may be peaceful but it is hardly stimulating and without stimulation, the brain, like any organ, functions at a substandard level. This takes on a more ominous meaning when we consider that Gehenna, the Old Testament word for hell, means “empty thought.” It also adds more significance to Jesus’ statement, “If you want life and want it fully, pick up your cross and follow Me, the Truth. It appears that the problems, difficulties, and crosses of life are essential to our growth and development and they exist to benefit us, not harm us.  


Anyway, the point that I am making is that the year 1776 marked two major paradigm shifts for the human race. The first involved political freedom and the second was economic freedom. And, if as Christians we believe that God, through the Judeo/Christian/Linear/Utopian/Concept of History, has been using history as a stage to lead Humankind toward a Kingdom of God, then we must view these changes as steps in His plan. Neils Bohr, a famous physicist, once said that the whole evolutionary process is aimed at one thing: freedom. So, like the ancient Hebrews, God is taking us from the slavery of Egypt, through the Wilderness of Sin, to the freedom of the Promised Land. Well, I see that my time is up.