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Monday, December 2, 2013

The Dismal Science of Papal Economics

The Catholic Church has much to offer but in the area of economic theory it has much to learn. It has spent the last 350 hundred years trying to escape from the bad arguments it created to justify its prohibition of the payment of interest. The Catholic Church was not the only institution to forbid usury; just the most influential. The subject of usury and the prohibition thereof appear in the Book of Deuteronomy, the Code of Hammurabi, and the Twelve Tables of Roman Law. Even the Reformation protagonists with the exception of John Calvin could not find a kind word to say about the practice. The Church indulged in a great deal legal trickery in canon law to allow a practice that it in theory  forbade. One way to promote commerce without condoning usury was importing Jewish money lenders who would then be taxed.
Martin Luther, who saw the world through the eyes of a peasant mystic, seemed to regard all commerce as evil. His most tenacious adversary, John Eck was a doctor of canon law. Eck wrote a treatise on the "triple contract" at the behest of the House of Fuggers, a Jewish banking concern. The "triple contract" was loophole in canon law that allowed for a guaranteed rate of return on the principle. So the Medieval Church like, Lord Byron's Julia, while protesting that she would never consent-consented.
Were the arguments put forth by the many medieval schoolman from Thomas Aquinas to Jon Dunn Scotus simply wrong? No, they were probably right for their time. They lived in an era in which the bulk of the population lived on the ragged edge of subsistence. Population size was dependent on recent harvests. Even economist John Maynard Keynes, no friend of the Church, conceded the Medieval Church was on the right track.
I was brought up to believe that the attitude of the Medieval Church to the rate of interest was inherently absurd, and that the subtle discussions aimed at distinguishing the return on money-loans from the return to active investment were merely Jesuitical attempts to find a practical escape from a foolish theory. But I now read these discussions as an honest intellectual effort to keep separate what the classical theory has inextricably confused together, namely, the rate of interest and the marginal efficiency of capital. For it now seems clear that the disquisitions of the schoolmen were directed towards the elucidation of a formula which should allow the schedule of the marginal efficiency of capital to be high, whilst using rule and custom and the moral law to keep down the rate of interest.
The charging of interest on a loan to sustain one's very existence would evoke outrage even today but as European civilization slowly advanced in economic growth the need for borrowing became apparent. If one wanted to outfit a caravan to trek the spice route to China one had to have capital and no prudent man would lend money without a return on his investment. In this era thinkers, both in the Church and out, were like Euclidean geometers suddenly cast into a non Euclidian world who could only curse the parallel lines when they saw them meeting.
The present Pope Francis has recently condemned "trickle down economics". It's interesting that he would use a pejorative term when trying to address a serious concern with a pretense of objectivity. How does one answer this? "The pope is a jackass and so are you", was Evelyn Waugh's response to a admirer of Pope Paul VI. Of course Waugh lived in an age not that long ago when gentleman were expected to act like men and repair there wounded egos in private instead of moaning about bullying and hate speech to all who would listen so he could be more direct in his criticism. There is nothing wrong with papal silliness per se but impressionable minds such as Elizabeth Warren and Bill de Blasio are apt to take such loose talk as approval of their socialist ideology. Pope Francis is given a pass by the liberal media but one doubts if that would be the case if he had noted that all the supposed bad actors on Wall Street had been extricated from their mess by an unwilling public vis a' vis a compliant congress and had been made whole 5 times over by the Federal Reserve's qualitative easing and rewarded with assurances of immortality by the "too big to fail" feature of Dodd-Frank while the middle class saw it income decline.
Capitalism has had its serious critics especially in its turbulent infancy. It endured the wrath of Marx, Dickens, Debs and silly Upton Sinclair to name a few. If the pope wishes to be taken seriously he should address the serious works of Von Hayek, Schumpeter, and Friedman rather than giving the impression that he gleaned his insights into capitalism from an MTV special. If not? Well, as Waugh said, the pope is a jackass.

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