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The Church and the Market

At a conference given in Vienna in 1985, Friedrich von Hayek stated that the moral systems and institutions as “Guardians of Tradition” had a decisive influence in the formation of the “extended order” which is characterized by the market. In his last book, The Fatal Conceit, he wrote an important sentence full of controversy: The survival of our civilization “may rest on the question of how people conceive the relation between the moral traditions and a personal God.”

I do not want to comment on that statement, but I would like to concentrate on the question which underlies the statements of Friedrich von Hayek: How do religions and churches interpret the essential institutions of our modern society–in our case the market–and what can they contribute to its function? It is obvious that I can speak only in the name of Christian churches and in particular in the name of Catholic social teaching. I shall do this in three short steps.

The Challenges of Social Changes

First, it is fascinating to see how Christianity at its beginning was convinced that religion and the Church would be able to substitute the laws of the market with such a high degree of morality from its members that private property and competition could be abolished and that the ideal Christian society would function in the following way (to say it with the words of Karl Marx): Everybody contributes to the common good as much as he can, but takes for himself only what he is in need of. We know from the Bible itself that this utopian vision did not function for a long time, not even among the closed group of the first Christians. Later on it was reserved to religious orders. Therefore a new interpretation and orientation had to be found.

This new position of the Church lasted for more than one-thousand years and can be summarized in the following way: Private property and competition are morally legal but they have to be socially controlled. Through the feudal system, the nobility reserved the right of the so-called “higher property” while the simple farmers, who represented more than seventy percent of the population, had only the so-called “lower property”, with several restrictions. In this world of peasants, property and competition were socially controlled by the guilds and brotherhoods. Prices were fixed and the amount of production prescribed. There was a certain function of the market, but limited and controlled by the socio-political system. The Church supported this system since she herself had a privileged position in the feudal system of the Middle Ages.

But it has to be added that the Church also tried to control the market through her moral teaching and moral sanctions. A little example: In quite a few cities, on the day when the market opened, a huge wooden cross was erected in its center in order to tell the participants in the market: Be honest–God is watching you.

Finally, with the industrial and political revolutions, the previous controls of property and of markets broke down, and the market became the invisible hand which should have almost automatically guaranteed the greatest well-being of the biggest number. Hayek spoke about the transition from a “closed” to an “extended order”. That this belief in the automatic function of the market did not work has been proved by the misery of the proletariat and the beginning of socialism.

A Completely New Situation

The Church had to face a completely new situation. Her own privileged position in the society was challenged, the misery of the new proletariat overstepped by far the possibilities of Christian charity, and the fast-growing socialist movement declared war on the Church because it saw in religion a dangerous drug hindering the necessary revolution of the proletariat.

The reaction of the Church at the beginning of this new situation was rather confused. She was used to interpreting and orientating her members in a rural and handicraft society. It is understandable that a variety of programs and movements came up. Some battled the industrial society and wanted a return to the pre-industrial economy. Still others were looking for a combination of the new industrial society with a corporate system of the Middle Ages. Many were in favor of socialist ideas.

Centesimus Annus’ Response

It is surprising how in spite of these sometimes violent discussions, Catholic social teaching during the past one-hundred years step-by-step developed a rather coherent position on the market and the market economy, which the present pontiff, Pope John Paul II, formulated in the 1991 encyclical Centesimus Annus. It can be summarized briefly in the following points.

• Private property is essential for personal freedom and for an efficient economy.

• Labor has a direct relation not only to the production of goods but also to the self-fulfillment of the person. Therefore, there exists a right to work and also a right of participation of labor in the economic process.

• In any society of free people, the market and competition constitute an essential element in the economic process.

• Entrepreneurship is not only an economic necessity but also a moral value in the dynamic process of modern economy.

• Markets and competition are important, but they do not automatically guarantee the common good. Therefore, the market needs collaboration and control by social forces and, in a subsidiary way, by the state.

Some of these points are controversial and need further clarification, but such is impossible in this brief overview.

Values Which Transcend the Market

Let me add one final observation: The churches have learned that they cannot substitute economic laws and that they will not be able to build the ideal society on earth.

But the same churches are also convinced of two factors.

First, economic laws can be misinterpreted and misused by man. Therefore, moral values and moral behavior are essential for the functioning of the market. Adam Smith insisted on the role of moral sentiments. The churches believe that they are one–although not the only –agent in the foundation and communication of moral values.

Second, those same churches are convinced that the market and competition can produce many things for the happiness of mankind. But there are many things important for the happiness of man and the well-being of society which cannot be bought in the marketplace: love, solidarity, generosity, mercy, and forgiveness. Much of the functioning of the market depends on whether it is inserted into a society of hatred and violence, or into a society of human tolerance and respect for human rights. The churches feel responsible to contribute to this humanization of our modern society through their religious and moral forces.

In 1945, at the end of the Second World War, Friedrich von Hayek gave his famous speech at the University College of Dublin, formulating the tasks for the reconstruction of Europe. One of them was: Europe needs institutions and forces convincing people to contribute freely to the well-being of others.

One of the great German economists, Wilhelm Röpke, said in view of the challenges of the next century: We shall certainly need a high amount of technical progress and international political and economic organization, but we also shall need values which transcend supply and demand.