Writing in the Sacramento Bee, Margaret A. Bengs cites Rev. Robert A. Sirico’s Heritage Foundation essay “The Moral Basis for Economic Liberty” in her column on faith communities and government budget battles.

As a priest, Sirico has met many entrepreneurs “who are disenfranchised and alienated from their churches,” with often little understanding by church leaders of the “vocation called entrepreneurship, of what it requires in the way of personal sacrifice, and of what it contributes to society.”

This lack of understanding, he believes, is due to the collection basket economic model which “tends to foster a view of the economic world as a pie that needs to be divided.” The entrepreneur, instead, engages in producing wealth, not redistributing it.

“Entrepreneurs create jobs, reduce human suffering, discover and apply new cures, bring food to those without, and help dreams become realities,” he says. In contrast, “the welfare state is too often thought of in morally favorable terms, but its social consequences, however well-intended, can be largely damaging.”

Read “Putting faith in economics to help the poor” in the Sacramento Bee.

Also see Acton’s Principles for Budget Reform and download the free “What Would Jesus Cut … from the Constitution” poster.


  • Ted Seeber

    Here’s why I have a hard time putting my faith in entrepreneurs under capitalism:
    I’ve seen too many entrepreneurs sell out to the stock market. And almost always, when that happens, the original dream of the business dies. It either gets sold to a larger business, putting all the workers out of work and merging the products with older, existing lines; or it gets sold to an investment group, who don’t get the concept and simply fire everybody and sell off the assets.

    EVERY TIME this happens.

    The solution is to mix entrepreneurship with distributism- create businesses that are co-ops and single proprietorships, not corporations.

  • http://thepolity.wordpress.com Hadley

    “EVERY TIME this happens.”

    And I don’t like it when people do things that I don’t approve of, and so I’m going to coerce them into running their business how I see fit.

  • http://www.acton.org John Couretas

    Ted says:

    The solution is to mix entrepreneurship with distributism- create businesses that are co-ops and single proprietorships, not corporations.

    Are you being serious, Ted? Small is beautiful (and better)? We’re going to depend on shopkeepers and voluntary associations that shun profit to build oil refineries, pharmaceutical plants, airliners, computer chips, coal mines, server farms, MRI machines and other advanced medical technologies? Etc., etc? We’re going to train people in distributist guilds to manage nuclear power plants?

  • http://thepolity.wordpress.com Hadley

    It’s easy! All we have to do is to outlaw the division of labor, that horrible evil which the Bourgeoisie use to alienate the Proletariat from their labor.

    A man ought to be able to be a simple farmer by day and a brain surgeon by night. You object?

    You’re obviously a Bourgeois.

  • http://www.acton.org John Couretas

    I will repent and learn how to handle a team of oxen.

  • http://www.wannabeprentious.wordpress.com Michael Chovanec

    Gentlemen:

    Ted’s point is worth some consideration.

    Remember, it was Milton Friedman in late 1989, echoing the ideas of a prescient Paul Weaver, who argued that corporations often act against their own best “long term” interests, to wit:

    “My complaint about the business community . . . . was recently expressed in a book by Paul Weaver called The Suicidal Corporation. That book . . . is devoted “to the corporation’s war against its own best interest,” and that’s exactly what I intend to discuss. I am going to argue that corporations, and especially large corporations, seeking to pursue through political means what they regard as their own interests, do not do a good job of evaluating their interest. The policies they pursue and promote are very often adverse to their own interests. That’s what I mean by my title [of his article/talk], The Suicidal Impulse of the Business Community.”

    The economic history of the last twenty years has proven the proposition that large corporations often act against their own interests. Giant corporations discounting the risks of dangerous profit seeking conduct because they conceive of themselves as too big to fail (AIG, etc.) are painful reminders that huge corporations are not typically entrepreneurial. And when they fail, so do the rest of us.

  • http://www.acton.org John Couretas

    Michael: If what you’re talking about is crony capitalism, then I couldn’t agree more with you. I would say, however, that crony capitalism seeks its own advantages rather than acting against its interests.

    Read “Why CEOs Avoided Getting Busted in Meltdown” by William K. Black, an econ and law prof at at the University of Missouri-Kansas City. He writes that “the defining characteristic of crony capitalism is the ability of favored elites to loot with impunity and the failure of regulators to do their jobs.” Black looks at past banking scandals and how the recent economic crisis gave us more “fraud with impunity” and taxpayer-funded bailouts:

    The Office of Thrift Supervision, the successor to the S&L regulator where I worked, made no criminal referrals in the latest crisis. The Office of the Comptroller of the Currency and the Federal Reserve made less than a handful. Mortgage and investment banks also made very few referrals — and never against their senior officers.

    Now it is true that banks made thousands of criminal referrals, but almost all involved low-level figures. The volume overwhelmed the Federal Bureau of Investigation, which failed to devote adequate resources. As late as 2007, the agency assigned only 120 investigators spread among 56 field offices to probe thousands of cases. More than eight times that number probed the S&L frauds, a far smaller epidemic.

    Unlike the S&L debacle, there was no national task force and no comprehensive prioritization. This made it difficult to investigate the huge, fraudulent subprime lenders. And since there were no criminal referrals of these firms, the FBI wasn’t even attempting to pursue them.

    We’re talking about Major League Crony Capitalism here, and it’s a major problem. But to describe this as characteristic of a market economy, a culture really, where we all live is a stretch, to say the least. And the remedy I don’t think is to somehow (how exactly?) smash up the business sector into a hundred million sole proprietorships.

  • Roger McKinney

    Ted makes over generalizes with “EVERY TIME this happens.” If it happened every time we would have made no progress over the past 250 years.

    At the same time, Ted makes a good point that business people in general are not friendly to free markets. Most business people will gladly take a state-issued monopoly over competition. Businessmen give to political campaigns for only one reason – to get some favor from the state.

    Buchanan’s public choice theory demonstrates that large corporations capture government regulatory agencies and use them to reduce competition.

    Adam Smith’s message was not to put faith in businessmen, or government or any group of men, but to understand how economies work. If the government doesn’t reduce competition, competition will force businessmen to work for the common good against their will.

  • Roger McKinney

    PS, Ted and the distributists like him hate anything big. But as Mises pointed out producing things at lower costs requires mass production and mass production requires big businesses. You can’t have a nation of mom-and-pop shops and have a high standard of living. It’s simply impossible.

    At the same time, large corporations are running into the brick wall of knowledge that Hayek warned about. Important knowledge is highly dispersed. Just as it is impossible for a government central planner to know all that he needs to know, a corporate central planner has the same problem and it makes them inefficient. But let the marketplace, free people making free decisions, determine the size of corporation, not the state.

  • http://www.wannabeprentious.wordpress.com Michael Chovanec

    John and Roger:

    Yes. I believe Friedman and Weaver were talking largely about large corporations engaging in governmental deal-making as a substitute for economic competition. But I would go a bit farther than that in my own criticism.

    You will recall Maestro Greenspan’s admission in October of 2008 concerning corporations when he said he’d found a flaw in his ‘ideology’ “. . . [concerning the] critical functioning structure that defines how the world works”.

    “I don’t know how significant or permanent it is but I have been very distressed by that fact,” he continued.

    “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”

    Unlike Ted I am not utopian and won’t argue for a top down imposition of the atomistic model for our economy. Perhaps large corporations can be brought into line by disappointed shareholders through existing governance mechanisms. Or perhaps the economic problems presented by large and powerful corporations in a market economy are part of the price we pay for the tremendous benefits of scale they bring.

    For my own part, however, I do not know beyond question that the current legal framework surrounding corporations is the only possible structure available for organizing large amounts of capital and large numbers of people in a productive way. Some of the issues which could be considered, for instance, would be whether complete limited liability is necessary? What liability should corporate officers have for ‘mere’ negligence in management? Is corporate immortality necessary in corporations entering all lines of business? Are the current limits on stockholder derivative suits sufficient or perhaps even overly burdensome? I am open to a critical re-evaluation of the legal construction and operation of the corporate model in order to try to reduce the problems we have all lately observed and continue to suffer. After all, the corporation is not a creature of God but of man and is therefore subject to man’s prudential judgement as to what is best for him.

  • Ted Seeber

    “Are you being serious, Ted? Small is beautiful (and better)? We’re going to depend on shopkeepers and voluntary associations that shun profit to build oil refineries, pharmaceutical plants, airliners, computer chips, coal mines, server farms, MRI machines and other advanced medical technologies? Etc., etc? We’re going to train people in distributist guilds to manage nuclear power plants?”

    Maybe we need to rethink whether we *NEED* all of that, or if that is just luxury that is taking resources away from the majority of humanity that doesn’t have it?

  • Ted Seeber

    “PS, Ted and the distributists like him hate anything big. But as Mises pointed out producing things at lower costs requires mass production and mass production requires big businesses. You can’t have a nation of mom-and-pop shops and have a high standard of living. It’s simply impossible.”

    Lower cost= treating your labor like slaves. Great economically, but ethically a really bad idea.

  • Ted Seeber

    “Ted makes over generalizes with “EVERY TIME this happens.” If it happened every time we would have made no progress over the past 250 years.”

    As far as I’m concerned, the only thing we’ve made progress against in the last 250 years is material wealth. We have made NO progress ethically, and have even backslid quite a bit from the time when a man, seeing his neighbor’s barn on fire, would gladly stand in line for hours in a bucket brigade to put it out.

    Yes, the failures I have pointed out are particularly failures of *crony capitalism* not the market itself, but on the flip side, isn’t the only difference between a free market libertarian and a crony capitalist if they can free enough profit to hire a lobbyist?

  • http://www.acton.org John Couretas

    Ted says: “We have made NO progress ethically, and have even backslid quite a bit from the time when a man, seeing his neighbor’s barn on fire, would gladly stand in line for hours in a bucket brigade to put it out.”

    What do you make of this, Ted?

    MONTGOMERY, Ala. (BP)–Southern Baptist Disaster Relief has mobilized nearly 5,900 trained volunteers from 10 state conventions since deadly tornadoes ripped across Alabama — killing more than 250 on April 27.

    In addition to the large-scale tornado response in Alabama, state DR coordinators in Tennessee, Missouri, Louisiana, Kentucky, Illinois and Arkansas are bracing for the serious flooding expected along the swollen Mississippi River.

  • Louie Glinzak

    Ted,

    Property rights and liberty are violated when entrepreneurship is mixed with distributionism, and to accomplish such a goal would be through a coercive government. The removal of property rights interferes with an individual’s ability to freely act. Furthermore, as Rev. Sirico states in the article published by Heritage Foundation:

    The relevant question is whether virtue itself can be the product of force. In the authentic sense, it cannot. When freedom is absent from the context of ideals like morality, nobility, compassion, or heroism, the result is to strip the action of its meritorious component. A morality that is not chosen is no morality at all. Only human beings with volition can be said to be moral, and in order to act in a moral way, one must have liberty. Liberty is not so much a virtue by definition, but the essential social condition which makes virtue possible.

    Rev. Sirico also explains in the same article that “The right to own and control justly acquired property is an extension and exercise of authentic human rights.” Furthermore, the virtue of charity loses its meaning when redistributionism occurs, or in the matter of the context in your comments, distributionism through government coercion.

    Rev. Sirico further explains how the respect for property rights has historically fostered well respected institutions:

    But as Wilhelm Roepke has argued, institutional virtue and public virtue are codependent. Societies that have a deep and unyielding respect for the sanctity of private property have traditionally fostered institutions that we associate with a vibrant social and cultural life: for example, intact families, savings and deferred gratification, cooperative social norms, and high standards of morality. Similarly, cultural decadence, family collapse, and widespread secularization have corresponded with statism and socialism more times than an essay of this length could name.

    If we are to foster a truly free society we most also accept the bi-product of certain freedoms. Furthermore, true capitalism respects one’s rights and liberties while also creating equal and fair rules for all. This is articulated by Rev. Sirico:

    Freedom of contract must include the freedom not to contract. Freedom of association must include the freedom not to associate. Toleration of individual differences must include tolerances for the inequality in wealth that will be the unavoidable result. And a morality that favors virtue in the context of liberty must allow room for personal moral failure and an understanding of the difference between vice and crime.

    It is sometimes said that no one dreams of capitalism. This too must change. Rightly understood, capitalism is simply the name for the economic component of the natural order of liberty. It means expansive ownership of property, fair and equal rules for all, economic security through prosperity, strict adherence to the boundaries of ownership, opportunity for charity, wise resource use, creativity, growth, development, prosperity, abundance. Most of all, it means the economic application of the principle that every human person has dignity and should have that dignity respected. It is a dream worthy of our spiritual imaginations.

    In his article, Beyond Distributionism, Thomas E. Woods articulates many of the problems caused by distributionism and why a true free market economy promotes freedom, liberty, and equality:

    In a true market system, no one may employ state coercion to gain an advantage at his neighbor’s expense. No transaction can take place without the willing consent of both parties. The market economy thus treats human beings as ends in themselves, a moral principle on which Catholic social teaching insists.

    An interview with John C. Shiely of Briggs & Stratton is also a great reference of how one entrepreneur views his career with a moral obligation and also is supportive of the statements made by Rev. Sirico.

    Anthony Bradley, in his article “Let the Hustlers Hustle” articulates how too much regulation and intervention ruins and stifles entrepreneurship.

    The Acton Institute seeks to instill and promote “The Call of the Entrepreneur” where individuals are called to business and base their careers in morals.

    In regards to the worker I would like to point you to the Social Agenda which compiles works of social thought produced by the Catholic Church in support of the Acton Institute’s beliefs. Furthermore, a blog post on unions and Catholic social teaching reviews a monograph that discusses the role of unions and laborers.

  • Roger McKinney

    Michael: “You will recall Maestro Greenspan’s admission in October of 2008 concerning corporations when he said he’d found a flaw in his ‘ideology’ “. . . [concerning the] critical functioning structure that defines how the world works”.
    There was a flaw in Greenspan’s ideology and economics, but it had nothing to do with the failure of corporations or the market. Read Gorton’s “Slapped by the Invisible Hand”, a book about investment banking at the center of the crisis. Gorton shows that the investment banks in now way defrauded or intended to defraud anyone.

    The banks failed because their Mortgage Backed Securities (MBS’s) lost value. Ratings agencies had rated MBS’s as AAA and AA, the safest you can buy outside of government debt.

    The MBS’s lost value because housing prices collapsed. Housing prices collapsed because they have risen on a flood of new credit issued by Greenspan’s Federal Reserve. Greenspan refused to take credit for the bubble and the crash that he created.

    Michael: “Perhaps large corporations can be brought into line by disappointed shareholders through existing governance mechanisms.”

    The only problem with corporations is their ability to bribe politicians through campaign contributions. Take control of the economy away from politicians and corps will have no incentive to bribe them.

    Michael: “…whether complete limited liability is necessary?”

    Stock owners give up control of the corporation in exchange for limited liability and liquidity. Get rid of limited liability and you kill the incentive to invest in corporations. All that means is that companies would be forced to seek funds in the bond market and you would kill the stock market.

    Management already has liability for negligence, fraud, etc. No banker has been indicted because the facts show they weren’t negligent. They simply followed mainstream economic advise and mainstream econ theory is wrong.

    Ted: “Lower cost= treating your labor like slaves.”

    Not even close to the truth. Lowe costs come from more capital intensive production, that is, using better and bigger and more equipment, in other words, big.

    Ted: “As far as I’m concerned, the only thing we’ve made progress against in the last 250 years is material wealth.”

    I agree completely. But the market’s job is to create material wealth. The Church’s job is to improve morality.

    Ted: “isn’t the only difference between a free market libertarian and a crony capitalist if they can free enough profit to hire a lobbyist?”

    No. Crony capitalism doesn’t exist. It’s a figment of the mainstream media’s fevered imagination. What they call crony capitalism is actually socialism. What the US has is a long ways from capitalism. We are almost as socialist as Europeans.

  • http://www.wannabeprentious.wordpress.com Michael Chovanec

    Roger:

    1. You misunderstood Greenspan’s point. It had nothing to do with fraud. It had to do with the last section of the quotation I gave, to wit:

    “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”

    That is significant. Perhaps he was trying to scapegoat someone else but it seems to me that he was concerned with the subprime loans being accepted as if they were actually AA and AAA rated securities. The people in charge of our financial corporations simply closed their eyes to what was on their books and they did that because they had “cover” in the form of Credit Default Swaps on the issues as well as “made as instructed” ratings from agencies which had a screwed up incentive structure. There was nothing about Greenspan’s bubble which required that loans be made to unqualified borrowers. There was nothing about Greenspan’s bubble which required CDS’s to substitute for due diligence in vetting the securities they were buying. Corporate incentives and corporate behavior was skewed. The securities which they purchased were not worth what they paid even though they were ‘covered’ by the rating agencies and CDS’s. You are not seriously suggesting that this entire house of cards was built on only Greenspan’s monetary policy are you? You don’t consider subprimes and the incentive system which led to their widespread acceptance to be a part of the problem? You don’t consider the huge increase in the market for CDS’s between 1999 and 2005 to have been a red flag waving in the breeze which should have nudged the wary corporate officer to at least inquire as to the value of his portfolio? You don’t consider the fact that Executive Suite’s comp packages were based to a great extent on short term profitability of the corporations to have been at all implicated in this matter?

    2. Do you honestly think that corporations were innocent sheep led to the slaughter by Greenspan? Do you think that these supposedly experienced and talented officers were hoodwinked by what was going on in Open Market Committee and were caught un-hedged?

    3. Power will not be taken away from the government. We need to accommodate to it and corporate governance changes may one of the ways we can get to that point.

    4. You are wrong about liability for negligence. Negligence is not punishable either criminally or actionable civilly. It must be Gross Negligence. They are insulated from that level of culpability at the courthouse because they relied upon the existence of the CDS’s and the ratings given by the agencies. That’s why ‘cover’ was so important. They should have known better than to do this but their avariciousness overcame their good sense.

    5. As to limited liability I am unsure of the viability of making modifications to this aspect of our modern capital markets. It was only a suggestion of a suggestion and goes far beyond the limits of this blog post to fully suss it out. I am no neophyte and I assume you are not one either.

  • Roger McKinney

    Michael, I realize the fury that sub prime has caused, but it is a red herring. The default rate on sub prime is about twice that of prime lending, but not enough to bring on the crisis. The crisis happened because of the collapse in housing prices. Had housing prices not collapsed, there would have been no crisis and no one blaming sub prime.

    As for the increased appetite for sub prime, Greenspan was also at fault. He, along with the IMF, and every mainstream economist in the world praised MBS’s as a means of spreading the risk around so that no one group would suffer from sub prime losses.

    And keep in mind that sub prime default rates were somewhere in the neighborhood of 6%.

    “Do you honestly think that corporations were innocent sheep led to the slaughter by Greenspan?”

    Yes, I do. It’s called the Austrian business cycle theory.

    “Do you think that these supposedly experienced and talented officers were hoodwinked by what was going on in Open Market Committee and were caught un-hedged?”

    Yes. It’s actually a little more complicated than you put it, but that is the essence of the Austrian theory. Businessmen make decisions based on prices. When the government distorts prices businessmen make mistakes. Add to that fact that mainstream econ theory deludes businessmen into thinking that the Fed doesn’t distort prices and can do no wrong.

    “They should have known better than to do this but their avariciousness overcame their good sense.”

    You’re judging with 20/20 hind sight. Remember that at the time Greenspan, the IMF, and every economist in the world were praising their actions and the role of derivatives in reducing risk.

  • Dennis

    Yup, something the Taoists already got somewhere between the 3rd and 6th century BC, the Christian based world never really seemed to get.

    “Give a man a fish, and you fed him for a day, teach a man to fish, and you feed him for a lifetime.”

  • http://www.wannabeprentious.wordpress.com Michael Chovanec

    Roger: “The MBS’s lost value because housing prices collapsed. Housing prices collapsed because they have risen on a flood of new credit issued by Greenspan’s Federal Reserve. Greenspan refused to take credit for the bubble and the crash that he created.”

    Were the assets of the MBS’s investment in the value of real estate or in the credit of the borrowers who purchased the real estate? If debtors can repay as agreed what is the relevance of the value of the collateral? The market value of the housing is only relevant after a foreclosure or deed in lieu. Hence sub-prime loans, loans to people who lack demonstrated ability to repay, is the first cause of any problem with mortgages (either singly or after being packaged). You know that even in relatively good markets foreclosures seldom sell for a price near their market value. You cannot be consistent in assigning sole blame to a loss of market value by the collateral housing and then at the same time say, by way of poo pooing the causation assigned to the sub-prime lending, that, “And keep in mind that sub prime default rates were somewhere in the neighborhood of 6%.”

    “You’re judging with 20/20 hind sight. Remember that at the time Greenspan, the IMF, and every economist in the world were praising their actions and the role of derivatives in reducing risk.”

    I admit that there may be some hindsight involved. On the other hand, it seems clear to me that when financial corporations are “borrowing short and lending long” that they need to be exceedingly careful when relying upon anything other than their own hard headed analysis of the future risks involved. Cheerleaders are loud and for this reason dangerous. This ability to analyze and a sense of personal discipline is supposed to be why the folks in the Executive Suite are paid the big money, not because they go along with the herd. They should have more experience and knowledge than we do or we should be drawing down their eight and sometimes nine figured compensations packages. And the need to analyze and be disciplined is particularly true when their own bread is buttered (because of short termed performance bonuses) on the side of going along with the wisdom of the herd. No adage has been more consistently proven true than, ‘when something sounds too good to be true, it’s because it is.’ And it doesn’t matter the pedigree of who’s saying it either, i.e. Bernie Madoff.

    Thanks to you Roger for your thoughts and willingness to engage and to you John for your interesting blog post.

  • Roger McKinney

    Michael: “If debtors can repay as agreed what is the relevance of the value of the collateral?”

    That would be the case in good banking. But in our case we had the Federal government pressuring banks to loan to people with bad credit. Bankers saw some justification in doing so with the prices of houses rising consistently.

    At the same time, the banks issuing the loans didn’t keep them, so they wouldn’t be stuck with the foreclosure. They sold the loan to groups like Fanny, who packaged the loans into MBS’s.

    All loans rely on the quality of the collateral as well as the borrower’s ability to repay. If the value of the collateral has been rising for many years, bankers will expect it to continue to rise and that will justify loans that they wouldn’t make if they thought the value of the collateral would fall.

    Michael: “‘when something sounds too good to be true, it’s because it is.’”

    That’s the point. It didn’t seem to be too good to be true. Bankers thought they were being prudent. This wisdom of following the herd depends upon the quality of the herd. Bankers weren’t following other bankers. They were following the top economists in the world.

    When the world’s top economists are telling the same story, it takes a very confident and stubborn CEO to go against them. And that would be especially true when competitor banks are making much better profits by following the advice of the world’s top economists. How will you explain to your board and share holders that you think the world’s top economists are crazy?

    In hind sight, everyone can see that bankers made a big mistake. But who do you blame? In my book it all comes back to 1) state intervention in the market by pressuring banks to make sub-prime loans and 2) very bad economic theory supporting the securitization of home mortgages.

  • http://www.acton.org/ John Couretas

    Fr. C.J. McCloskey III’s Crisis Magazine article “Private Charity Versus Government Welfare” is well worth a read. Link: http://www.crisismagazine.com/2011/private-charity-versus-government-welfare