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Religion & Liberty: Volume 3, Number 3

Natural Law and Economics

    If we accept the fact that economics is a human discipline designed, in its original sense, to provide for the acquisition and management of household goods, we can perhaps admit that economics is not a wholly “autonomous” discipline that has no relation to other considerations about human life. The fact that economies are nation- and world-wide, themselves highly mathematicized, does not change the principle behind this observation.

    Aristotle was quite sure that a household, as well as the polis, needs a certain amount of material goods if other ends like the practice of virtue were to be achieved. On the one hand, human life was not exclusively about such goods, but it still needed them and had to devote vast amounts of time and effort to produce them. On the other hand, there was a situation of too much and too little possible in household and political material goods, just like other areas. That is, any household or economic unit could make money or material goods its sole end, the result of which would be to distort or corrupt the higher ends that both material goods and the households themselves were designed to achieve.

    Yet, if we were to have a sufficiency, or better, an abundance of material goods, they first had to come into existence and find their proper purposes in some sort of equitable exchange whereby not everyone had to do everything. The principle of specialization had already existed in Plato’s discussion of economics in the latter part of Book II of The Republic. This specialization meant that if everyone was to have more, everyone had to do what he was good at. Plato was very conscious of a tendency to excess here and recognized that a political judgment would somehow be necessary in order that the specialization-exchange would work for the benefit of everyone. A specialist unaware of the limits of his specialty ended up by destroying the purpose of what he was doing. Many want to see this position in Plato as a kind of grab for absolutist control of the economy, but it need not have this pejorative aspect. Plato was noticing something that was very true, namely, the time it takes to specialize makes one inattentive to its limits and overall purpose.

    The great invention of the modern economic world, that of the free market of goods, is no doubt the grounds for the perennial hope to provide sufficient amounts of goods and services to increasing numbers of mankind. If there is some overall purpose and ethic to economics and its claims to be a legitimate “science,” it is based on this principle: The market works because things are rightly needed and wanted. This need and want, this demand, had to be translated into production and exchange. Thus, exchange, taking from someone by paying, is not an unjust taking away from someone else but a fair transaction of things that otherwise would not have existed. This free-market system has been one of the greatest contributing factors to prosperity and optimism in the world. The collapse of Marxism and the threat of those systems of rule, including the newer ones on the horizon like those stemming from ecology, that want to substitute the state for the free market, was due more than anything to evidence that this purpose of abundant goods could only be achieved in a certain way, with certain principles and moral habits. An individual or nation unwilling to learn them was doomed to failure, to continued poverty, and usually to absolute state control.

    The modern world began not with everyone rich and some becoming poor but with almost everyone poor and rather rapidly, should the proper political, economic, and moral means be embraced, becoming rich. This sudden richness did not necessarily come at someone else’s expense. Rather, it was produced because of the abundance that exists on this earth and its relation to the human creative mind. As this century has progressed, we have understood that riches and wealth are not questions of property, goods, or even land, but of developed intelligence. The rich nations are not necessarily the ones with abundant resources but those with high levels of intelligence and the enterprise to use it.

    What does this have to do with natural law? The natural law, in its briefest statement, is acting reasonably, is the “normalcy of functioning” of a thing. The natural law of a market, so to speak, is its normal functioning, its ability to concentrate reason and good judgment on the production and distribution of goods. The medieval theologians talked of a “just price.” At its best, the market price of a thing is the just price of a thing. This conclusion does not mean that there is no such thing as gouging or cheating or any of the other distortions we might find in an actual exchange. It means rather that we do recognize that something is wrong with the system when such things occur. Our reason, our judgment, our natural sense of equity operate in all of our exchanges if we are free to compare, to withhold our purchases, and find alternatives.

    In one sense, the fair or just price is related to the origins of Roman law. As the Empire grew, there came to Rome many sorts of products from all over the world. These products were wanted and were offered to be exchanged, but often there was no uniformity of weight, measure, money, or quality. Needless to say, this would cause a great deal of argument and injustice. The wise Romans, needing to come to terms with what at first sight appeared to be a mere civil disorder, appointed a praetor for this situation. He was to deal with the nations, with all those who did not fall under the law of the city itself.

    This judge over the years was confronted with thousands of cases of justice in exchange. How does one resolve an argument about what is fair when there are conflicting standards and estimations? As these judges proceeded, they would establish a certain estimate, not apart from the self-interested opinion of the parties involved, for what is just in certain kinds of cases. What the producers, sellers, buyers, and praetors were all trying to do was to establish what is reasonable in such complicated cases. Notice that it was assumed that such exchange was in fact a good thing and that it should go on. But the confusion of language, monies, weights, and estimates made it difficult for the people themselves to come to a clear resolution about what anything might be worth.

    The Roman law, in its codification, sought to establish a criterion and a procedure whereby disputes about what is or is not fair could be resolved. This process seems to suggest not that the best form of justice is what the civil judges decide but rather that the freely coming into existence of goods and their exchange require some institutional structure whereby disputes can be resolved so that the market can be what it is. The judges were to stand for what was fair, which is really what the sellers and buyers wanted. The market itself could resolve this by itself were there adequate communication and were human virtue held to some minimum standard. The free market is that market that least needs judges; that is, the one that is already by its normal functioning arriving at a fair price in exchange.

    Thus, should we say that natural law has nothing to do with economics? We might reply, rather, that it has everything to do with economics, with the production, exchange, and use of those goods that need not exist but are brought into being by human specialization and enterprise. The market is trying to provide some service or goods in a peaceful way, a way that would include the judgment of justice as reflected in the price, provided that nothing untoward interfered with it.

    How many shoes are worth a haircut? This is not at first sight an easy question to answer. Yet, when the market works this relationship out, it will only approach a more or less exact fairness. The equitable price will constantly vary, of course, because in some societies no one wears shoes and in others no one cuts his hair. But there is a kind of reasonable input and equilibrium in most free societies that understands and judges that the relation between the haircut and the shoes is measured by the price that each is willing to pay for the other’s specialization. There is an effort to judge the relative worth of a thing. Both shoes and haircuts are needed, and it is well that the world is improved by their mutual coming to be. Of course, if for religious or philosophical reasons, we decide always to go barefoot or let our hair grow, two industries will disappear. But should this happen, then, like the Sikhs, it will be good for the bandanna-on-the-head industry and presumably good for the podiatrist who deals with cut and bruised feet.

    These are homey remarks, no doubt, but let us see what we have established. First, some things that do not exist can come into existence because the earth is open to the work of man’s hand and labor. Moreover, certain things are needed and wanted for human purposes. The improved things that do come into existence can be made available to someone other than the person who made or transformed the earth into a particular object of use so that someone would want it or demand it. By the principle of specialization, various other things come into existence and are exchanged. There is some effort to decide what is the relative worth of a thing, how many of this equals how many of that.

    For everyone to attempt to do everything, moreover, becomes a formula for abiding poverty. A general agreement about this relative worth is measured by a price. Where there are disputes among buyers, makers, and sellers, these disputes can be resolved more or less. The assurance that a mechanism exists whereby disputes can be resolved is one of the primary factors contributing to the willingness of men to produce anything at all. It is also a cause for a sense of fairness in the relations existing among people who have entered into exchange relationships with each other.

    But not only are there honest disputes about the relative worth of things, there are also crimes over goods. Robberies and petty theft and fraud exist in all times and places, evidently because there is something disordered in human nature in every economy. The free economy as such neither causes nor cures these things, though it can suggest their dangers. For example, when most stores experience a steady two percent rate of thievery of their goods, this loss is reflected in a two percent increase in the average cost of merchandise the public buys. But some mechanism must account for graver disorders and provide against them. This is the normal function of the civil power. There are indeed certain conditions of a moral nature that ought to be considered before an exchange is legitimate in any free market. The human race is now generally agreed that goods ought not to be produced by slaves, for example, though the topic of the economic effect of Soviet Gulag slave labor did come up not too long ago.

    Indeed, the great Aristotle had already remarked that if someone could invent moving statues that could automatically weave cloth, much of slavery would not be necessary. In some way, the Industrial Revolution in all its phases from steam to the computer is contained in this shrewd observation. The natural law would suggest that for the free market to work, some order of polity and court system should itself be set up to provide that the normal workings of the market be not interfered with by the human tendencies to injustice and fraud. In this sense, polity need not be opposed to the economy. When the polity reaches out for more than is natural to its own purpose, it also makes the economy unworkable. When the free market finds no limits, no place to resolve its disputes, no outside judgment on what is bought or sold–say, slaves or fetuses, opium or prescription drugs–it undermines the purpose for which it exists; it becomes, as it were, unnatural.

    Implicit in the discussion of the fair or just price is the unjust price. A high price is not necessarily an unjust price and a low price is not necessarily an unfair price. Things that no one wants gradually become unwanted; that is, they become free. Things that attract a high price incite others to imitate them and offer them for a lesser price or a better quality. Moreover, we are familiar with the notions of “underground” economies or “black markets.” Often, these markets are signs of a kind of compensatory natural law at work against an over-regulated or inefficient economy. They are testimonies to the fact that there is a right order of production and distribution that is not working properly, either on the moral side of things, that some things ought not to be bought or sold, or on the economic side when markets are not working freely or efficiently.

    The natural law, to conclude, is the insistence that everything in exchange, polity, and life stands under the test of a reason grounded in what is. Thus, it is a guarantee that a free market not only has its proper place but it itself, when it does what it should do, is a place where natural reasoning works itself out. This working out must reach to the particulars of what is needed, wanted, and hoped for–of what is right, in the production, distribution, and rewarding of goods and services. Natural law guarantees that something is good and legitimate by providing for a check and a reasoning about what is not good. In this sense, in both politics and economics, it allows each to be what it ought to be when it is left free to act as it should to achieve its own proper end and purpose.

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    The Reverend James V. Schall, SJ, was Professor Emeritus of Politics at Georgetown University. Among his many books are Political Philosophy and Revelation, At the Limits of Political Philosophy, Reasonable Pleasures, and The Order of Things