The Poverty of Liberal Economics
by Adrian Walker
The poor, Jesus famously said, will always be with us. Jesus’ followers have often been accused of misusing these words of their Master as an excuse to ignore the systemic causes of poverty. Christians, the charge runs, have preached private benevolence as a substitute for the more arduous, and more courageous, task of fighting to change the unjust economic structures that are responsible for poverty in the first place. Among the many Christian responses to this oft-heard accusation, two more recent ones are particularly noteworthy. The first, represented by certain schools of Latin American liberation theology, attempts to enlist the Church in a socialist-inspired struggle for a more just society. The principal enemy in the struggle is capitalism, the supposedly exploitative nature of which this stream of liberation theology attacks as the root cause of poverty.
Towards an economics of gift
Rejecting the anti-capitalism of the liberation theologians, exponents of the second response point out socialism’s dismal record of economic ruin and repression of individual freedom. This second response, best known through the writings of “neoconservatives” like Michael Novak, is no less concerned with attacking the systemic roots of poverty than is liberation theology. But unlike the liberationists, the neoconservatives insist that the capitalist free market, not the socialist centrally planned economy, holds the key to eradicating poverty without violating individual freedom. Only the free market, the neoconservatives argue, has demonstrated the ability to raise society to unprecedented heights of material prosperity while at the same time creating unprecedented guarantees of, and opportunities for, the expression of individual freedom.
We do not have to look beyond our own shores to see that the neoconservative proposal highlights important truths. Our own welfare system, for instance, has turned out to be a colossal failure. Significantly, a major reason for this failure has been the policy of redistributing the wealth of responsible economic agents without expecting and enabling the beneficiaries of this redistribution to become responsible economic agents in their own right. Such a policy is unfair, not only to those who are already responsible economic agents, but also, and even more so, to those whom the redistributionist ethic, for all its much-touted “compassion,” essentially treats as objects of beneficence rather than as (potential) subjects of responsible economic agency themselves. That is, the welfare system has failed because it has not treated the poor as human persons having an innate dignity to be developed and expressed also in the economic sphere.
The neoconservatives are therefore right to insist that a sound economy must give ample scope to the self-expression of human dignity through economic creativity. They are also right to affirm that economic freedom is a sine qua non of such creativity. No less an authority than John Paul II has said so in his social encyclical Centesimus Annus (1991). Nevertheless, the neoconservatives go wrong by assuming that what I will call “liberal economics” is the best context for understanding what economic freedom is. By “liberal economics,” I mean the theory, going back in all essential respects to Adam Smith, according to which the market alone organizes the economic life of society, not by marshaling the coercive power of the state, but by maximizing individuals’ freedom to enter into informed, mutually beneficial contractual exchanges for specific economic purposes decided by “self-interest.” Milton Friedman gives eloquent expression to this claim:
The basic problem of social organization is how to coordinate the economic activities of large numbers of people…. In advanced societies, the scale on which co-ordination is needed, to take full advantage of the opportunities offered by modern science and technology, is enormously greater. Literally millions of people are involved in providing one another with their daily bread, let alone with their yearly automobiles. The challenge to the believer in liberty is to reconcile this widespread interdependence with individual freedom. Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion—the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals—the technique of the market-place. The possibility of coordination through voluntary cooperation rests on the elementary—yet frequently denied—proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed.” (emphasis in original)
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