Is Thomas Woods a Dissenter? A Further Reply, Pt. 3
Next we must look at another rhetorical device of Woods which serves to distract the attention of the reader from the point at issue and to prejudice him against what I actually wrote. Woods mentions the interventions of bishops’ conferences into economic matters. As a matter of fact I said absolutely nothing in my article about bishops nor do I want to go into the complicated question of their competence in the matter, except to say that it clearly is not the same as that of the popes. Now what does Woods say? "Now if a bishops’ conference proposes an intervention whose promised results cannot occur because it takes no heed of these restraints, we have precisely the problem I identified in my book The Church and the Market: A Catholic Defense of the Free Economy (2005) and that Storck either ignores or thinks cannot arise: a faulty grasp of economic theory . . . leads in turn to ill-considered economic proposals that will have the opposite of their intended effect. It is obviously within the realm of possibility that such a thing could occur, and in my own work I have suggested that it in fact has occurred: the advice of the American bishops on the economy has been distinctly unhelpful." Woods invokes the spectacle of the American bishops pronouncing on the economy because he knows that most of his readers will have a poor opinion of recent episcopal interventions on such matters. But this is nothing but an attempt to distract his readers’ attention from the question at issue which does not concern bishops conferences, but the right of the Church, through her supreme authority on earth, to teach in this area. As a matter of fact, one of the respondents in the symposium that Woods himself chose, Emil Berendt, finds it curious that Woods brings up bishops conferences, calling it “a bit of murkiness in this exchange” and noting that “Storck limits his observations to papal teaching” but “Woods extrapolates Storck’s comments to pronouncements of local conferences of bishops.” (In fact, I highly recommend Dr. Berendt’s reply as a perceptive and fair evaluation of my exchange with Dr. Woods from someone who was apparently Wood’s own choice.)
After several paragraphs in this vein, Woods comes to another point. He writes: “According to Storck, Catholic social teaching `must necessarily make use of some type of economic analysis.’ Presumably, though, Catholic social teaching could simply instruct the faithful in general moral principles that should guide them in the marketplace: simple honesty and generosity, for instance, and an insistence on mutual consent (i.e., the other partner in your transaction is also a human being with rights, not a resource to be exploited for your selfish benefit).” In doing so, Woods would reduce Catholic social teaching to mere platitudes. For example, what is “simple honesty and generosity”? Must one reveal a hidden defect in an item he is trying to sell? Does generosity require that one sell an item for less than it is worth? When does a lack of generosity become a mortal sin? None of these questions are answered in the type of social teaching that Woods apparently recommends. And can we imagine what Catholic teaching on sexuality would become if it recommended “simple honesty and generosity . . . and an insistence on mutual consent”? Make sure you tell your partner whether you’re on the pill or not, be generous in going along, and of course, whatever mutually consenting adults want is ok. The Catholic Church lives in the real world of men and is not afraid to apply her intellect to the genuine issues and problems that confront us. That is why her teaching on any moral subject cannot be easily reduced to the simple platitudes that Woods wants.
After this, Woods reverts to the question we have already touched on and asks “how can empirical judgments, which are far removed from faith and morals, be the legitimate province of the popes?” Of course, true empirical judgments in papal social teaching do not enjoy the same status as their moral judgments. For example, when Pope Pius XI wrote in Quadragesimo Anno that “'capital' has undoubtedly long been able to appropriate too much to itself,” this statement, as an historical judgment, cannot enjoy the same status as his subsequent dictum that capital ought not to appropriate too much to itself and that workers deserve a living wage. But if we were to take Woods’ approach to its logical conclusion, we would have to deny the right of popes to make any empirical statement, even about the most obvious things. When a pope denounces in an encyclical the persecution of the Church in some nation, for example, are we to reply that they have no business making such judgments: that is the province of political scientists and historians—or maybe of journalists! To Leo XIII, Pius XI, John Paul II and other popes it seemed obvious that in the nineteenth century the worker was oppressed. I suppose someone could deny that if he really wanted to without being a dissenter. But what one cannot deny without being a dissenter is that economic oppression is possible and is wrong and cannot be explained away as the inevitable workings of what pose as economic laws.
Then Woods turns to a favorite subject of his, the distinctiveness of Austrian economics and the unfairness of lumping it with mainstream neoclassical economics. He writes, “Storck never describes his own brand of economics in much detail, but we do learn that it 'does not approximate as much as some might like to the natural sciences.’” And yes, it is true that Austrian economists do not employ mathematics and other methodologies of the natural sciences as do mainstream economists. But what I was objecting to, and what I continue to object to, is primarily what I call the deductive nature of both schools of economics, i.e., the notion that we can create some kind of model from which we can deduce economic behavior, rather than primarily examining what particular economic behavior has actually occurred. And Woods, thankfully, provides me with a perfect example of the deductive approach in action in his discussion of CEO salaries. Incidentally this is another example of Woods’ attempt to snow the reader by his citation of many learned books and articles.
In my paper, then, I criticize Paul Samuelson’s discussion of wage determination solely by the forces of supply and demand, pointing how that in recent years CEOs of failing corporations have received large salaries, bonuses and other rewards even as their companies were going into bankruptcy or otherwise performing poorly. In support of this I cite among other sources a Business Week article, which explains that the compensation of such CEOs is set by colleagues on the board of directors and has nothing to do with market forces. Now how does Woods respond to this? He writes, “Here Storck relies on the old Berle-Means thesis from 1932, which referred to a supposed problem—separation of ownership and control (what we now call a principal-agent problem)—in corporate governance. The argument is that while the owners, or stockholders, want the firm to be as profitable as possible, management is more interested in posh benefits, perks, and other such rewards that benefit them but hurt the firm. . . . A difficulty for Storck’s argument is that much work has been done on the subject of corporate control since 1932, when Adolph Berle and Gardiner Means articulated Storck’s point in The Modern Corporation and Private Property. Storck makes no reference to the important work of Henry Manne, whose 1965 article 'Mergers and the Market for Corporate Control' began a sustained reconsideration of the Berle-Means thesis.” I do indeed plead guilty. I have not read the important 1965 article by Henry Manne. But I simply ask the question: can a 1965 article somehow show that certain behavior that occurred in the last ten or fifteen years really did not occur? The CEOs either behaved in a certain way or they did not. It is no good to claim that they could not have behaved that way because Henry Manne, thirty or more years ago, made an argument that they couldn’t. Did Woods really read what I, or rather the news articles I quoted, said? For example, about Michael Eisner of Disney who “after he failed to clear his bonus hurdle two years running, his board lowered the performance bar, and then . . . he finally cleared it. An Olympian effort worth $5 million.” Woods might want to explain this away based on some theory he has read somewhere, but most people look at it and can recognize the truth: This is nothing but crony capitalism at its worst and puts in question the ability of the law of supply and demand to explain all economic behavior, and in particular the setting of wages and salaries.
But this brings up the larger topic of the place of power in economic relations. In my article I make the point that Leo XIII and Pius XI assume that those with economic power often oppress those without economic power and that this oppression shows up in particular in determination of wages. Woods begins, “Storck is correct to observe that what he calls a power relationship in differential bargaining positions can affect the price of something, but he is not saying anything economists do not already know. . . . In the case of bilateral monopoly, for instance, the price is necessarily determined by bargaining, and where the price ultimately comes to rest depends on a variety of factors, including the actors’ respective bargaining skills, the strength of their bargaining positions, and so on.” But if this is so well-known among economists, then why does their analysis of wages seem to ignore this? Pope Leo, for example, recognized that if “through necessity or fear of a worse evil the workman accept harder conditions [than a just wage] because an employer or contractor will afford him no better, he is made the victim of force and injustice.” So does Dr. Woods now accept this? Does he recognize that unequal bargaining positions can cause outcomes contrary to justice and that someone, either a union or some other kind of subsidiary body or even the state itself (as Pope Leo in some cases allowed) must step in to correct that lack of bargaining balance? Or is the unequal “strength of their bargaining positions” simply a fact of life that we must live with? And what about their probably unequal “bargaining skills?” Such inequality is probably present in most cases of bargaining, given the vast differences among human beings in their intellects and skills. Were we not exhorted previously to observe “simple honesty and generosity . . . and an insistence on mutual consent”? But if bargainers are unequal, their consent is not necessarily really mutual, despite appearances. But no, Thomas Woods does not think workers are exploited. For he continues. “Non-economists have often made the more general claim that business, because it is said to be in a stronger bargaining position than labor, can negotiate unjustly low wages, and that wages can be determined anywhere along a lengthy zone of indeterminacy. Labor economist Charles Baird describes this common view as 'a hoary myth.' For one thing, ever since the introduction of the automobile the average worker has had countless employment choices, and the more choices laborers have, the less 'power' potential employers exercise over them, since the narrower is the zone of indeterminacy. Second, if business really could bring about abnormally low wages, then labor-intensive businesses, where this wicked exploitation should yield additional profit, should be more profitable than more capital-intensive businesses—but no evidence exists to support this contention. And if wage determination really were this arbitrary, there would be no reason for skilled workers to earn a premium over unskilled workers. Firms could pay them both the same pittance.” Again we have theory over practice and again irrelevancies designed to distract the reader. Has Woods bothered to check on what wages are actually being paid? Do the figures largely showing wage stagnation accompanied by productivity increases mean anything to him? But no, he read an article or a book somewhere that shows how such things are not possible—therefore they are not possible. There is no exploitation, it is surely an impossibility. No sensible critic of free-market capitalism, even if he is a “non-economist,” thinks “that wages can be determined anywhere along a lengthy zone of indeterminacy” by businesses. Of course there are constraints on the behavior of every economic actor. But to anyone who thinks that businesses do not often succeed in driving wages down, all I can suggest is to spend less time looking at deductive economic arguments and more time looking at wage statistics.
After this Woods looks at one of the historical examples of actual economic activity I discuss in my paper, the efforts of two Catholic priests in Nova Scotia in the 1930's to free the poverty-stricken fishermen from the control of middlemen who were absorbing most of the profits from the sale of the fish and leaving a pittance for the actual fishermen. Briefly, the priests formed study groups and helped set up cooperatives so that the fishermen themselves learned to send their product directly to market and avoid the middlemen altogether. This shows, I argued, that those who hold the determining position of economic power reap the rewards and that there is no economic law which dictates who must be in that position of power. Woods’ response to this is simply bizarre. “The truth is exactly the opposite. This is precisely how the market works: such differences in prices are arbitraged away. This isn’t so much a case of cutting out the middleman as it is an example of people’s natural inclination to arbitrage.” But there was absolutely nothing of the market in this: Two priests who had studied and attempted to implement the papal social doctrine that Dr. Woods belittles managed to organize fishermen to take control of their economic situation. This is not market activity, unless you would want to call things such as union organizing a form of market activity. This is an example of the solidarity that John Paul II often spoke of and which applies to the realm of economics just as it does in other areas of life and incidentally is a further confirmation of the important role that power plays in determining economic outcomes. No automatic economic law drove the priests to study papal social teaching or the fishermen to form study groups and cooperatives. And the laws of economics functioned just as well with the fishermen in control of their product as they had with the middlemen holding the reins of power. This is how economies work in the real world.
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Perhaps I'm Pollyanna, but there may be some room for common ground here in finding ways priests and bishops -- along with Austrian economists -- can help the common working man. In the 1960s, as others have noted, America was fairly close to having a "living wage" for any man who wanted to work hard.
Then, as I've noted in other posts on Chronicles, in 1971 Nixon took us off the gold standard, famously declaring, "We're all Keynesians now," and record dollar inflation ensued over the next decade. The dollar dropped in value from $35 an ounce of gold (1935-1971) to $350 (average of 1981-2001), to $1091.50 as I write today -- pushing the middle-class into upper-income tax brackets, where they remain. (Reagan finally indexed it to inflation in 1984, but didn't make it retroactive.)
A large reason for the decline in middle-class living standards was that the tax deduction for individuals quickly eroded. One Web site notes, "Had the personal exemption been indexed to personal income per capita since 1948, it would have been $16,522 in 2009, more than four times what it actually is...." That's the real reason our incomes have eroded -- our money has been sucked out of us and sent to D.C. for spending on the politicians' and lobbyists' luxuries, unjust wars, and Planned Parenthood subsidies.
If we still had the old "living wage" income tax deduction, for a family of 5, the first $82,610 would be exempt from income tax. Restoring a "living wage" personal deduction is something everyone -- American bishops, laity, and Austrian economists -- all can rally around. That, and a return to the gold standard.
Mr. Seiler's point is well taken. Restoring the personal exemption to what it should be would go a long way toward restoring something like a living or family wage, and it would do so without requiring a new government program or a hike in the minimum wage law.
Mr. Storck's point in his final paragraph is spot on.
I am not a Roman Catholic; however, I have followed the discussion on this and two other closely related threads of these fora with great interest and have learned much.
What I do know as a Christian is that all that I hold is held in stewardship - my life, my children, my sexual nature, my talents and what wealth with which I may have been graced. Our Lord is the ultimate "owner" of all of these things and we are held quite accountable for what we do with them.
God gets glory when we bear, as branches of the True Vine, much fruit, whether that be having children, making five talents into ten, or exercising in His providence our gifts.
God also gets glory when the fruit that we bear is increased in charity and invested in charity, investing being through or tithes, our offerings, our prudent spending and prudent actions in all things of which we are stewards.
It is also clear that envy - the sin of the left - and greed - the sin of the right are exactly that - are sins.
Any system of economics - Keynesian or Austrian - which does not acknowledge God's absolute authority in such matters, does not understand that men are mere stewards with great accountability and that God's expectation of growth, which brings glory to Him, is properly balanced with His expectation of Charity which He alone endows and which brings glory to Him, and does not see envy and greed as great sins - is outside God's order.
I agree with Mr. Seiler's comment above about the personal exemption not keeping pace with inflation. Another important factor in the decline of wages since the 1950s and 60s is the decline of labor unions. These raised wages not just for their members but for others as well, since they tended to raise the entire wage structure. This is not any unwarranted interference with market forces, as some would say, unless one wants to make the desire to sell dear and buy cheap the summum bonum of social organization. You might as well say that restraints on sexual behavior interfere with the natural workings of human sexuality. Both lust and greed are the results of the Fall and in neither case ought we to organize society around such vices.
At the end of the comments on part 2, Mr. Chan asked me about property rights. If you look in my original paper in the CSSR I do have a short section in which I quote Pius XI on the fact that property rights are culturally conditioned within rather wide limits of justice.
I think to understand Austrian economics and similar theories thereof to assert that individuals freely involved in millions of transactions in pursuit of their own self-interests ultimately produce for us all a greater common good.
The fallacy of this position, if I have correctly understood it, is that fallen and therefore flawed and sinful man, in pursuit of his own self-interest at the micro-level which must, given his nature, include envy and greed, thereby produces as the macro-level, the gestalt aggregate of all of his doings a great and common good. This cannot be in a moral universe. It is also a presumption on God's grace to simply say that God will take our evil and make it good.
Mr. Storck is right about the decline of labor unions being a factor in the decline of wages. In their early years, unions helped workers in their struggles with large companies that had immense political clout with the government. After expelling communists, unions also helped in the struggle against the Soviet Union, such as by supporting Solidarity in Poland.
Unfortunately, the unions themselves helped ruin a good thing. During the 1950s-1971 prosperity, they extracted too many concessions from the large companies, resulting in the immense pension and medical costs to the auto companies and others firms today.
Second, the unions long had connections to the Catholic Church and supported Christian morality. I'm not a fan of FDR's New Deal, but Catholic-influenced unions made sure it was pro-family, not anti-family like LBJ's 1960s Great Society (see the "Moynihan Report" of 1965). Then the unions' pro-Catholic, pro-family emphasis broke down in the 1970s; since then unions have supported, almost exclusively, pro-abortion candidates. Out here in California, 50 labor unions joined to oppose Proposition 8, which barred the farce of same-sex "marriage," and now are joining the challenges to it in court. What would Walter Reuther and George Meany say?
Finally, private unions once strongly opposed unionizing the government sector. They understood that such a change would put unions on both sides of the negotiating table -- representing the workers, but also, as the supporters of pro-union political candidates, representing management. That opposition broke down under President Kennedy at the national level, then throughout the state governments. In California, by far the most powerful political forces are the teachers' unions, the prison guards' unions, and the police and fire unions.
No wonder a recent Bureau of Economic Analysis study showed federal workers' pay double that in the private sector, up from 66% higher in 2000 (another thing we can blame on Bush and the Republican Congress). State and local government workers' salaries are almost as lucrative. (See the recent book by occasional Chronicles writer Steven Greenhut, "Plunder: How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation." It has many shocking stories.)
And a study just out from the Bureau of Labor Statistics shows that, for the first time, the majority of union workers now are in the government sector. It's only going to get worse.
Alas, there's little hope that a private-sector, pro-life, pro-family union movement could be revived.
I'm happy to be able to agree with Mr. Seiler on something. Yes, sometimes unions did exceed fairness in their demands. They learned this approach to business from the corporations and from economists who said there was no such thing as a "just" wage, only what the laws of supply and demand would grant or what either party could get by tough negotiations. So, if there's no such thing as a just wage, why not try to get as much as you can? As soon as we eliminate the concept of justice from our economic thinking we return to the law of the jungle.
Unions did at one time all the good things mentioned above. Theoretically they could do so again, but for the reasons mentioned above that is not likely. Still, unions as we have known them (for good and ill) are not the ultimate answer. The union-management conflict generally invokes the class war concept and does not reach the level of "solidarity" of owners and workers that Catholic teaching contemplates. Still, they were needed at one time and COULD be helpful again. I still maintain that cooperatives (e.g., Mondragon) can go a long way toward establishing a more just economic system, provide long term and relatively steady employment, and revitalize local and regional communities that have been devastated by the abandonment of large scale corporations to lower wage states/countries. I have written a letter to the would-be governor of Ohio to that effect. I have had no response as yet.
Great points by Mr. Seiler and Mr. Storck @ 1 & 4. I would also point out that the failure of the personal exemption to keep pace with inflation also contributed to mothers entering the work force in large numbers, resulting in a further stagnation of wages for heads of households. On this point and others germane to this discussion, I would highly recommend Brian Robertson's "There's No Place Like Work."
I agree largely with what Mr. Flinn wrote above. Capitalism, as defined by Pius XI in Quadragesimo Anno #100 - "that economic system, wherein, generally, some provide capital while others provide labor for a joint economic activity" - requires unions in order to protect the worker, since capitalism presupposes and actually usually exacerbates class conflict. Distributism pretty much eliminates this class divide, and other Catholic approaches, such as solidarism or what was once called corporatism, also seek to mitigate class conflict.
#10. Are you saying that the Church should ultimately be the one that sets the wages or redistributes the income? I am starting to understand why Mr. Woods is having trouble with your arguments.
Mr. Bailey,
No to both your questions. If you're seriously interested in understanding the traditional Catholic approach to these questions, I can recommend quite a bit of reading.
I will be happy to accept your recommendations.
Mr. Bailey,
Here are some suggested things to read.
For the medieval background, I'd suggest Fanfani's Catholicism, Protestantism and Capitalism. Also Tawney's Religion and the Rise of Capitalism (Tawney was an Anglican not a Catholic, but the book is still very useful.) Bede Jarrett's Social Theories of the Middle Ages.
On Catholic teaching. First the social encyclicals, beginning with Rerum Novarum of Leo XIII. Pius XI, Quadragesimo Anno and Divini Redemptoris.
John XXIII, Mater et Magistra. Paul VI, Populorum Progressio, and his apostolic letter Octogesima Adveniens.
John Paul II, Laborem Exercens, Sollicitudo Rei Socialis and Centesimus Annus.
Benedict XVI, Caritas in Veritate.
A good and careful summary of the state of Catholic social teaching in 1950 is Fr. John Cronin's Catholic Social Principles.
On distributism specifically, G. K. Chesterton's The Outline of Sanity and Hilaire Belloc's Restoration of Property.
IHS Press in Norfolk, Va., has many of these titles and other good ones too.
There are many other titles too, but if you want to learn more, these are certainly good places to begin.
First, of course, the papal encyclicals, beg
thank you very much for such an extensive list.
Mr. Bailey, as if Mr. Storck didn't give you enough to keep you busy, I would also suggest Belloc's "Servile State."
thank you Mr. Flinn. That was the one work I has some superficial knowledge of, kind of basic, which I assume is why it was not on the list.
Actually, I didn't put The Servile State on the list because I think The Restoration of Property is a better book. The former is easily misunderstood, as witness the fact that libertarians have reprinted it! But if you read it carefully, it's a very fine work.
Tom,
Belloc was asked to teach the fundamental principles of economics to one of his friend's daughters (or perhaps it was his very own niece?) and the result was a little book entitled, Economics for Helen. It is somewhat similar to Tom Fleming's little book, Socialism, as both are geared toward High School or young college students as a survey of the fundamental terms and principles of their respective subject. Econ. for Helen is really quite good and like so many other good things, not always easy to find unless one is looking.
Another book that should be read by more conservatives, but is largely ignored as a forbidden book of cummunist clap-trap, is Small Is Beautiful by the old former libertarian, London based capitalist and international money-mover turned realist, Dr. E.F. Schumacker.
As I move along in years amidst this old tired world of ours, the more I am delighted by the simple and local things I find right around me. I have heard, I do not know, that this was true of Russell Kirk as well but I must defer to Scott Reichert in this. In any case, thank you for holding this conversation. I have quite enjoyed reading the various posts and responses. I am looking forward to planting a garden and selling fresh honey and vegetables this summer at our local farmers market.
Yes, Small is Beautiful is an excellent work. Schumacker quotes Pius XI in it, as you probably know. I liked even more his book, Good Work.
I've only skimmed Economics for Helen. As I recall, he advocates the gold standard, which I think is a mistake.
BTW, I don't consider myself a conservative, of any variety, or a liberal or a moderate. As far as I am concerned, Catholic approaches to socio-political questions don't fit onto the Lockean spectrum at any point.
Thomas Storck writes:"BTW, I don’t consider myself a conservative, of any variety, or a liberal or a moderate. As far as I am concerned, Catholic approaches to socio-political questions don’t fit onto the Lockean spectrum at any point."
Yes, I have heard others say this and so far as it goes, believe it to be true. But I do tend to embrace the traditionalist label as the Church has already condemned much of the ideology and principles of modernism, neo- modernism, socialism, liberalism and americanism along with its close cousins, conservatism and neo-conservatism which most popular Catholic writers today defend, even if they don't embrace its principles. Also I always find a rather bold arrogance, or perhaps its an insidious pride, in someone telling me they believe nothing about the political life which surrounds them except the need to be a good Catholic. I always hasten to add, "well thank you for telling me, because otherwise I would never have guessed it."
@ Mr. Storck (#20)
Your remark about not considering yourself a conservative reminds me of a priest who once said of his politics, when people ask what he is, "I'm not a liberal. I'm not a conservative. I'm a Catholic."
Mr. Storck @20. I'm curious about why you don't back the gold standard, whose benefit I detailed in some earlier posts. The 1971-present period is the first time in world history in which no major country is on a gold (or silver) standard. (Today, silver is impracticable.)
Gold's utility -- low interest rates (today about 2% if gold were used as a currency), and resistance to manipulation by governments -- is unsurpassed. It's the only honest money. The Byzantine Empire's long reign was built on the solidus, a gold coin that held its value during almost the whole of the empire's duration.
The great Catholic kings and emperors based their money on gold or silver. Even the U.S. Constitution gives Congress only the power to "coin" money. The secretive Fed and paper money are unconstitutional.
Since America -- and the world -- went off gold in 1971, the dollar has vastly depreciated, benefiting only bankers and speculators.
Gold is so useful that the world eventually will return to it, led, I suspect, by the practical Chinese. Then they can loan our bankrupt country money based on a gold-backed yuan, rather paper dollars that erode in value.
I figured I'd have to explain myself if I said anything against the gold standard. First of all, I'm not defending the present order, either the Federal Reserve or fractional reserve banking with the money supply created as debt by the banking system.
Briefly, if money is seen as a means for facilitating exchange and a claim on future real economic goods, then to have some commodity serve as that medium is unnecessary. The government should simply issue money in rough proportion to the level of economic activity. I realize that there is a constant temptation for governments to inflate, but there's constant temptation for all kinds of things in this world. The fact that something can be abused is not a sufficient reason not to do it. With gold we would be subject to the entirely arbitrary amount of gold in the world. The discovery of large amounts of gold and silver in thee New World led to inflation because the money supply increased without any relation to the underlying economic activity.
Someone above seemed to think that it was somehow arrogant when I said that I didn't think that Catholics fit into the Lockean political spectrum. Whoever that was might want to read the following for some background on how I came to think that. This was originally published on TCRNews.com a few years ago.
http://www.cathinfo.com/index.php?a=topic&t=9539
Mr. Storck @24. Thank you for your comments on the gold standard, which are the best explanation against it that I've heard. Please permit me a couple of replies:
"The government should simply issue money in rough proportion to the level of economic activity." This is, basically, Milton Friedman's Monetarism, in which the money supply increased each year at the level of increase in economic activity, which he figured to be about 2%-3%. When tried in the 1970s, it caused the stagflation because economic growth was below those levels. Friedman himself actually repudiated his own theory. In the Financial Times, June 6, 2003, he admitted, "The use of quantity of money as a target has not been a success.... I'm not sure I would as of today push it as hard as I once did."
Mr. Storck: "I realize that there is a constant temptation for governments to inflate, but there’s constant temptation for all kinds of things in this world. The fact that something can be abused is not a sufficient reason not to do it."
No, but the inflation of the dollar since 1913 -- from $20/ounce to $1084 as I write -- is a pretty severe case of abuse. By contrast, before the Fed, gold's price was fixed at $22 an ounce, providing stability from 1789 to 1913 (excepting only the brief period of the Civil War). Then there are the examples of Weimar Germany and recent Zimbabwe.
"With gold we would be subject to the entirely arbitrary amount of gold in the world." Actually, gold's volume grows just about exactly at the level of global economic growth, 2%. When demand increases, as during a boom, so does the search for gold. When demand slackens, as during a during a recession, the search for gold slows (unlike money under Monetarism, which keeps growing). Gold has little value in industry; its value is almost solely as a store of value.
"The discovery of large amounts of gold and silver in the New World led to inflation because the money supply increased without any relation to the underlying economic activity." True enough, and the ensuing inflation first ruined the Spanish Empire, then much of Europe. It could happen again, in which case the gold standard could be suspend, or replaced with something else. However, it's been centuries since such a discovery happened, and the world gold industry now is mature, making such a new discovery unlikely, although not impossible.
For now, at least, gold is by far the best selection for a currency. Indeed, it still is the only real money. For example, I just saw a news report that said increased economic activity is leading to higher oil and gasoline prices. Not true. Since World War II, when the global oil industry became mature, the price of a barrel of oil has averaged 15 barrels to an ounce of gold. Sometimes the ratio briefly goes up, as in the summer of 2008, but then it quickly comes down. Today as I write, the price was $72.89/barrel. Divide that into our gold price of $1083 and you get -- 14.87.
Another point is that Catholics are supposed to follow the law of the land, provided the law is moral. The U.S. Constitution, as I pointed out, stipulates only "coining" money, not printing it. Nuff said.
Finally, how about allowing us a choice? Allow gold -- or any currency, not just the dollar -- as legal tender. Don't you wish that, in 2001, you had negotiated a 10-year salary agreement to be paid in gold?
Mr. Seiler, thanks for your kind remark about my previous comments.
There are, it seems to me, basically two different sorts of reasons for favoring a gold-backed currency, although certainly many individuals hold both sorts.
First, there are some who think that gold is inherently fitting for money. I think this exhibits a profound misunderstanding of what money is.
Secondly, there are those who argue that as a matter of fact, gold works better, prescinding from any argument that it is somehow inherently the best money. I don't know if it could be demonstrated historically that gold would work better or not. The fact that gold has risen in value against the dollar I'm not sure means much. It's real economic goods that have to be measured against the dollar, not gold, whose role as a real economic good is quite limited, as you without doubt are aware. It would be interesting to contrast gold with some "base" metal, tin or magnesium or whatever - one of them might come off better as money!
But if it could be conclusively demonstrated historically that gold is the best means for warding off both inflation and deflation, I'd be willing to give a gold standard more of a hearing.
Concerning Milton Friedman's comment, yes, I was aware that he did advocate something similar to what I said (mirabile dictu that he and I agree on anything. Fr. Charles Coughlin did also, by the way.) But of course if we decide a priori that economic activity will always increase by 2 or 3% we might err. We should instead carefully monitor it and increase the money supply as needed.
Mr. Storck: Before I enter internet addiction rehab for a few days with a pile of old Rex Stout novels, I found at the library, I thought I would make a few comments. The bishops are in locus parenti for the Church. Must I agree with their crazy demands that we have a socialized national healthcare system, if only we can find the right wording on abortion? I believe such a demand is against the whole Catholic doctrine of Subsidiarity. I think the social thought of most of the American Catholic clergy is stuck in the thirties. That is why we have so much disention in the Church on these matters. We need to get away from the New Deal. That model has failed.
I remember the fifties well. My uncles who worked factory jobs all had second jobs to keep their families above water. So did my uncle who was a policeman. There were 3 recessions in the fifties. It was not all easy for a family to make a go of it. Most of what I remember about unions was the strikes and bitterness. The Union almost put a finish to the Schlitz brewery, with along strike. It eventually led to the company's demise. I remember Hoffa and all the other crooked union officials holding up the rest of the country. This in my opinion was no golden age. I wish I had more time but family fun comes first. I wish you well and think you should look a little closer at the virtue of charity in your writtings.
Tom,
That was my bold and arrogant comment about Catholics and it was not directed toward you but to the idea that there exists in the world folks who are "just Catholics." It is like being just a sinner,or just doing the Lord's work,or just a fetus, or just a man,or woman,or plant,or animal--Or conservative, liberal, moderate. etc.. Creatures made in the image of God are not just any one thing. When we aspire to be just Catholics, I always think we are aspiring to be just another ism as in Catholicicism.
If one man volunteers to me he is not a crook, while another mentions he has been a crook before and may turn crooked again; I always think my belongings would be safer with the Jesse James character than the banker. Similarly the catholics I have most admired in my life or would want to imitate if I could immitate any of the great ones, are those obscure souls who the world has little good to report about or even mention. Those you describe as souls who search for and are delighted by the truth, "for the careful storing up of what may be used by future generations. Our task (except for a few narrow areas, such as abortion) seems to me less one of action than of contemplation, a contemplation of the always fruitful sources of our Catholic tradition."
Folks doing that type of work today are extraordinary souls and we don't always know exactly who and where they are but God knows, and that is what is most important --- for them and for ourselves as well.
I don't doubt American bishops are stuck in 1930, but I think we run into trouble if we confute their views and actions with actual papal teachings and writings (which is the topic being discussed here). Bishops ignore popes all the time; especially American bishops. (For example in 1968, after Humanae Vitae).
Mr. Marino: I've read every word Mr. Storck has written in the past week or so and there is nothing - I repeat, nothing - uncharitable in what he has written.
If you want to be a Catholic dissenter, you'll need a heck of a lot better reason for it than your memories of the '50s.
One should be skeptical of any moral or intellectual current with origins in Anglo-America. There is a reason why the Popes condemned a heresy known as "Americanism."
For Robert (#29). What I meant by saying that I didn't think that Catholics fit into the spectrum of right/center/left is that all the positions on that spectrum presuppose a Lockean conception of government, i.e., that the government is concerned only with this-worldly affairs and has no concern with virtue or with establishing conditions that will help people get to heaven. That's why conservatives and liberals basically are quarreling about which of them has the better idea of how to make people rich, or at least well enough off. But surely if you've read much in the rich Catholic literature of the first half of the 20th century, you've seen that Catholics don't fit into our political spectrum. Chesterton is an excellent example, but almost any other writer would do also.
Mr. Storck,
I have read only a scant amount from that period and understand even less of what little I have read, but I think you are correct in your observations about the current debate between socialists and capitalists. The fact that there are Catholics who lean to one side or the other of the duopoly debate, points to a third way which is totally lost from the conversation. In this regard, I find writers such as Clyde Wilson, Wendell Berry, Southern Agrarians and several others from the reform tradition with their emphasis on the local and communitarian aspect of economics, rather than the global and international aspect, to be better defenders of the social encyclicals than the current crop of populist catholics such as George Weigel,Mr. Novak, Mr. Woods,Nancy Pelosi, Senator Kennedy or Vice President Biden. All of these people brandish their catholic credentials on social issues when the timing is opportune but only rarely do they actually represent it. It would be more to the point to describe them as "paid Catholic handlers" -- to handle the catholic vote, i.e. popularize it, package it and provide it. As I have said before, I prefer the wolves dressed in sheep skin to the wolves hiding under shepherd skin.
Mr. Storck, while I cannot fault you for wanting to heed papal teachings and develop Catholic positions in economics, the whole concept of third way is reminiscent to me of Yugoslavia's self management which was also supposed to be the third way, but it ended up as a delusion. Likewise it appears that your ideas would appeal to Catholic run labor unions (certainly preferable to communist ones) but that is not what we have to worry about. The concepts you are proposing were much more applicable at an earlier age. The challenges of today are very different. We are facing a president that is bent on destroying this society by collapsing the economy for his own pernicious reasons. We can see this every day as he never stops talking and instituting policies that bring harm to yet another group of citizens. This will go on until we are all destroyed. Furthermore, in this climate your paradigm can be used by Obama as another cynical way to increase his own power and get the Catholics to root for him. For example your paradigm appeals to Catholics but can also be used a basis for the apologetics of the GM bailout. This is where we are and why Mr. Woods is alarmed by your rejection of capitalism as the best way to maximize individual liberty and wealth.
Mr. Bailey (#35). I don't think that Thomas Woods' opposition to what I say has anything to do with President Obama's ridiculous policies (more or less the same policies that President Bush maintained, by the way). Woods has been promoting what he says for years and the differences run much deeper than anything you say.
And sure, people can misuse Catholic thought to promote bad ideas - they do it all the time. So therefore we should stop promoting Catholic ideas?
Mr Stork (#36), why do you call the President's economic policies "ridiculous" (which they most certainly are) when they match up far more closely with your own than those of free market-types like Tom Woods?
Like Obama, you oppose small government, free trade and the gold standard while supporting minimum and "living" wage laws, labor unions and increased regulations like the awful Glass-Steagall Act. You also support the Left in their preposterous crusade against the phantom menace of man-made global warming.
Oh come on Oil Can!!! If the only thing we can compare economic reality to is the duopoly policies of the current regime we will never ever get to a level of a conversation. Mr Storck is simply reminding us of our real economic history and is not taking sides in the chimera or what we call "current political debate." Let us read something and ponder it, The Restoration of Property for instance, and then comment on what it says instead of reading this mornings newspaper and slinging political diatribe. Please, let us converse as if there are truths about human beings that we can know instead of this blind and stupid faith in invisible hands that hate us!! What in the heck is a free market if it were not present at some point in our cultural past or is not now saving us as we speak?
Thanks, Robert.
Oil can - why do you imagine I support Bush or Obama giving money to crooked banks while refusing to regulate them. I'm not a socialist, but Obama certainly isn't either. His policies are pretty much those of the previous administration.
Mr. Storck, I didn't think you were a supporter of Obama. However, as I stated, your economic views seem a lot closer to his than to those of Tom Woods.
Only God know what Obama's economic views really are. I'm not sure even he does. Occasionally he speaks in support of some kinds of economic justice but usually acts like a supporter of corporate capitalism.
But discussing Obama is not very interesting, is it?
In post #42, the "he" in the second sentence refers to Obama, not God.