When Pope Francis visited with a group of workers and business people in Genoa last month, he praised their entrepreneurial spirit.  Praises flowing from the mouth of someone who has been so critical of Capitalism came as a shock for many people, including those in the media.  Someone who criticizes Capitalism must be a Socialist, or so the reasoning goes.  The Holy Father must be a closeted Capitalist or a secret Socialist.  While his criticisms of Capitalism receive more airtime in the West because it the predominant economic model, that he might be neither a Socialist nor a Capitalist is a priori eliminated.  The problem of hearing the Pope is that many of us are stuck in what I would call an either/or fallacy.  We assume that there are only two mutually exclusive players in the economic game and we must choose one or the other.

The Church for her part has chosen neither Socialism nor Capitalism.  Pope Leo XII’s Encyclical Rerum Novarum is considered the foundational document for the modern day corpus of what would become the Church’s Social teaching.  In it condemns Socialism for its exploitation of the “poor man’s envy of the rich” and says it is clear that socialism “must be utterly rejected” (RN, 15).  Expanding on the same thing, forty years later, after Socialism had bound its test subjects, Pius XI said Socialism “cannot be reconciled with the teachings of the Catholic Church” (Quadragesimo Anno, 117).  This criticism has continued down to our own time with St. John Paul II, in Centesimus Annus, his encyclical marking the 100^th Anniversary of Rerum Novarum, says Socialism in all its forms is doomed to fail because it makes a fundamental error in anthropology by denying that man is a free being that exercises his freedom in the world through the acquisition and use of private property (CA, 13).

With such a clear condemnation of Socialism, many would conclude that the Church is pro-Capitalism.  Scouring the Magisterial documents however, one would be hard pressed to find a single endorsement of Capitalism in the form that it takes in the West.  At best the Church is cautiously Capitalistic, a stance which best finds expression in Pope St. John Paul’s aforementioned encyclical Centesimus Annus:

“If by ‘capitalism’ is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a “business economy”, “market economy” or simply “free economy”. But if by ‘capitalism’ is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative.” (John Paul II, Centesimus Annus, 42)

This short history lesson is not so much meant to trace the development of the Church’s teachings on modern economic models, but to show that the Church supports neither Socialism nor Capitalism directly.  John Paul II’s definition quoted above is a far cry from what most of us would label as true capitalism and explains why he is tempted to give it a different name.  He will not fall into the either/or trap and is inviting us to do the same.  But in order to see that there might be a third option, we must look more closely at the two in terms of strengths and weaknesses.

The Centrality of Private Property

Notice that the condemnation of Socialism and the caution of Capitalism both make reference to the central moral ideal of all valid economic models, private property.  Grasping this concept and its importance helps us to more objectively evaluate the competing economic models.  This term remains elusive for many of us, stymying any real discussion.  Private property does not refer so much to having a lot of money (just a medium of exchange) or to owning your own home, but has to do with the control of wealth.

When we speak of “property” we are referring to those things that have economic value attached to them.   Property is the collection of things that can be used and exchanged for other things of economic value.  Of critical importance on the question of property is who controls that property.  Private property simply means that wealth is in the hands of private individuals.

The Church praises those models that protect and promote private property and condemns those that don’t because private property is bound up closely with man as a free creature.  In fact, private property is how man exercises his freedom in the economic realm.  Private property keeps man free from the control of others and enables him to do those things that are both needed and wanted for his and his family’s fulfillment.  But freedom in the economic realm is not just freedom from restriction, but the best system would be one in which his economic activity contributes to his freedom for his own perfection.  Freedom actually increases when virtue grows.  With this in mind we should not just look at the system that has the least amount of restrictions but also that which is best suited to increase the man’s virtue.

A concrete example might help to see why private property is pivotal.  Suppose a man needs food for his family.  In which of these three systems is the man best able to exercise his own personal freedom?

The Three Economic Ways

First we have the system in which the man waits in a bread line so that those in authority can give it to him.  The State, or more accurately a group of men acting in the name of the State, determine how and how much bread the man will consume because they own all the means of making the bread.  The man is assigned some task to contribute to society, although there is no proportion in the amount of work or energy the man himself expends to obtain that bread.  Each person receives strictly according to need.  Lacking such an incentive, he will do the minimum amount of work.  In this system, which is called Socialism, man is obviously not free to accumulate wealth, but he also has no incentive to grow in virtue and thus his growth in freedom.  The man trades security for freedom.

Second, we have the system in which the man works for another man or, as is usually the case, group of men, who give him a wage in exchange for his labor on the capital they provide.  He can exchange some portion of this wage in a grocery store for the food he needs.  The man is free in the sense that he is not compelled to work for another.  He is compensated for his work and thus has an incentive to work well.  But he also works at the service of another man’s capital and lives perpetually under the fear of losing his job and his family starving.  Without any capital of his own to generate wealth, this fear greatly limits his freedom and he will submit to greater and greater demands from the capitalist, who acts solely based on the profit motive.  We call this system Capitalism.

Certainly if one had to choose between the first and the second, the second is far superior.  But is there another option, perhaps a middle-ground of sorts?  Imagine the system in which the man has sufficient private property and capital where he is able to work as say a craftsman of some sort  and trades some of the wealth he generates from the fruit of his labor (either directly or through the exchange of money) for food.  This man is not merely a “small business owner” in the second system, but works within a system of nothing but “small business owners.”  He lives more freely than in the second system as well.  He no longer depends on the Capitalist for an allowance, but depends only (or at least mostly) on his own hard work and use of his allotment of capital.   This will motivate him towards excellence, increasing his freedom, especially knowing that those “who don’t work, don’t eat.”  He is also more secure than in the first case without any tradeoff of his freedom.  This system has been dubbed Distributism because it assures the diffusion of private property into the greatest number of hands.

Notice how this third option closely parallels what John Paul II described as the ideal, although he does not use the term “Distributism.”  When people first hear this name, they assume it is essentially like Socialism, which properly understood is Re-distributism.  Distributism consists in a free market and does not involuntarily take from the rich to give to the poor.  The State owns no property and produces nothing (except where necessary for public works, defense, etc.) but does help to limit the amount of private property an individual might own, especially when it encroaches on the ownership and use of others.

For example, suppose a town might not have a butcher and the people must visit the butcher in the town over.  Sam the Butcher could open a second butcher shop in that town or he could help train a new butcher (or help an existing butcher) so that he might meet the demand and make a profit.  The State could heavily tax Sam for the new butcher shop to the point where it does not make it worth it and it could incentivize Sam to help by way of tax cuts.  Notice that the State in such a system actually helps to form the virtue of its citizens by punishing vice (greed) and rewarding virtue (love of neighbor).  Just like a good government is one in which the people are (morally good), so too a good economic system is one in which the people are good.

By its fruit, you shall know it—this is at the heart of the current Pope’s criticism of Capitalism.  He looks at the fruit and questions the tree.  Does this mean he is a Socialist?  I don’t know.  But I do know that it doesn’t mean he has to be.  There is a Third Way.