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Angelo Matera | 10.07.08

Business

Thinking Catholic: European leaders blame crisis on “speculative capitalism”

Europe’s financiers were seduced by the lure of easy subprime mortgage profits, just like everyone else, and they’re suffering now, just like everyone else. But give Europe credit for one thing: Thanks to its Catholic roots, Europe’s leaders understand that the financial crisis wasn’t caused by some vague form of “greed”; it was caused by greed purposely channeled into useless financial speculation, rather than into productive investment.

This difference was clearly recognized by European leaders when they met Saturday to deal with the financial panic. They blamed the U.S., and its brand of “Speculative capitalism” for the crisis. French President Nicolas Sarkozy personalized the difference between real productivity and speculation when he said: “We want a capitalism of entrepreneurs. We don’t want speculators.”

This echoes what Pope John Paul II said, in his encyclical, Centesimus Annus

“…Ownership of the means of production, whether in industry or agriculture, is just and legitimate if it serves useful work. It becomes illegitimate, however, when it is not utilized or when it serves to impede the work of others, in an effort to gain a profit which is not the result of the overall expansion of work and the wealth of society, but rather is the result of curbing them or of illicit exploitation, speculation or the breaking of solidarity among working people. Ownership of this kind has no justification, and represents an abuse in the sight of God and humanity. [43]

As I’ve written before, the notion that money can be misused through speculation and usury (charging exorbitantly high interest rates) has always been an important part of Catholic moral teaching, which is why it’s so much a part of the European mentality. Here in the U.S., it’s different. Because of our Calvinist roots, we’ve never had a strong sense that there is a moral basis to wealth creation, that there is a connection between money and its underlying reality. As a result, we’ve had distortions of Christianity, such as the Prosperity Gospel.

Like sex for pleasure alone, rather than within the generative context of marriage, making money through speculation—gambling on price increases caused by luck, mass psychology, or some other arbitrary reason—is a form of mutual exploitation, a zero-sum game where winners gain at the expense of losers. In real business, profit is the result of something else; of “creating a customer,” in the words of the late, great management guru, Peter Drucker.

When we consider our falling standard of living—or, more important, our declining sense of well-being—we should consider Drucker’s prescient observation about Wall Street, cited in a 1999 New York Times article, during the height of the internet stock market “bubble”:

“Typically, Dr. Drucker gave the global bankers the back of his hand: They have introduced not ‘a single major innovation in 30 years,’ he said. Rather, the financial industry has turned inward to perfecting ‘supposedly scientific derivatives,’ in a shortsighted hope of wringing the risk out of financial speculation, like Las Vegas gamblers who futilely try to devise ‘systems’ to beat the house.

Ironically, like “safe sex,” safe speculation has proved to be an illusion.

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(17) COMMENTS

By RickCross AT 10.07.08 08:44AM Not Rated

RickCross

Angelo:  It is unfortunate that you focus on one part of the current crisis and ignore the other equally important part. There are two in this tango, speculators and liberal Democrats in government. The “speculative capitalist” did not create the mechanism to produce a several trillion dollar non-serviceable mortgage bundle. It was rather, liberal Democrat politicians who were exploiting politically the US underclasses, and who insisted that banks make loans to borrowers who had no means to repay. And it was these same liberal Democrats who insisted that regulations and oversight of these payouts be eliminated to conceal the fact the these loans were problematic. Indeed, the speculators did take advantage of a situation immorally so, but it was handed to them on a silver platter by liberal Democrat government policy designed to exploit the ignorance of the underclass, in order to expand Democrat political power. It has worked remarkably well… to expand their political powers. And who is now paying the bill? The Calvinist taxpayer.


By chassup AT 10.07.08 12:05PM Not Rated

chassup

“Europe’s financiers were seduced by the lure of easy subprime mortgage profits, just like everyone else.”  The devil made’em do it! 

Unfortunately not included in Nicolas Sarkozy’s quote was this nugget—“We want a new world to come out of this.”  He went on to say “We want a capitalism of entrepreneurs. We don’t want speculators.”  But speculation is what every entrepreneurs does when he opens his doors, we all do when we buy something on sale, or invest in something we think undervalued, or buy today because the price might go up tomorrow, you know, when we’re free to act with common sense.  What “new world” could he be talking about?

The market is self-leveling, like nature, it seeks the path of least resistance.  The only reason for government involvement is to protect people from illegal activity, and those laws are already in place.  As for usury, who allows that to exist?  There is a tremendous amount of ignorance among most people who are now opining about global or even personal finance. 

The mistake Angelo makes, besides selective outrage, is that he refuses to make a dynamic analysis. 

We see the same cause and effect going on all around us.  Dems cry about jobs being outsourced, but the cause is taxation on the means of production here at home.  Classic Marxist socialism.  You can call it greed to escape oppressive taxation, but I call it smart business.  The government drives jobs overseas and costs American’s their jobs. 

Obama is promising relief for working Americans, but ma and pa are going to get double-whammy income “reduction” when he raises taxes on their fixed retirement income from capital gains while at the same time Congress is printing money for the bailout directly reducing the buying power of the dollars he lets them keep.

30-40% of Americans who work pay no federal income tax, guess who they regularly support in elections?  This loyal and dependable voting bloc is solidly behind Obama and tax and spend liberals.  The vision the left has for America looks just like Europe, and Europe is a mess.

Europe’s “socialist roots” are behind their thinking.


By Dave AT 10.07.08 03:53PM Not Rated

Dave

If you don’t think that this economic crises has to do with either economic system (both of which are materialistic in their philosophy), then you can’t even acknowledge that “free-market” capitalism had anything to do with this mess.


By chassup AT 10.08.08 09:58AM Not Rated

chassup

No, no, no, you miss my point.  The crisis has to do with human behavior. 

One may argue that a purely collectivist system could run very smoothly, but I know it won’t because human behavior makes it about impossible.  History is clear on that point.

A purely capitalistic, or free market system could also run very smoothly, but human behavior will ruin it.  And the motivation behind the human behavior in both cases is vice, not virtue. 

You and I have to temper our selfish impulses all the time, our families and local communities, national… even global systems must do the same, or nothing works.  The tempering, or “bridles” to the market as another put it, should only be laws that protect us from each other’s vice, and allow the market to generate prosperity.  What I fight against are laws and policies that try to force the market to create outcomes.  You can’t do that, it won’t work.  History is also very clear on that point.


By Dave AT 10.08.08 04:15PM Not Rated

Dave

Yes, but Subsidiarity (Catholic social teaching) holds that government should undertake only those initiatives which exceed the capacity of individuals or private groups acting independently.

Functions of government, business, and other secular activities should be as local as possible.

If a complex function is carried out at a local level just as effectively as on the national level, the local level should be the one to carry out the specified function.


By chassup AT 10.08.08 05:47PM Not Rated

chassup

You are right!  Put another way, less government is always best.  A large centralized government, like we currently have in Washington, is not only what we don’t need, the Catholic Church says we shouldn’t have unless absolutely necessary.


By Dave AT 10.08.08 06:16PM Not Rated

Dave

Local government is the absolute best.

Big government and big business fail miserably.

It’s the local shops and co-ops that we should start and support where we happen to live. That’s what Distributism and the Social Doctrine of the Church is all about.


By chassup AT 10.09.08 09:18AM Not Rated

chassup

Now you and I have found very solid common ground! 

You need to be careful when you say “big business” though, a large company is no different from a small one, except for zeroes and commas, the bad big businesses are those that “cheat” by getting into bed with government to lock out competition in return for accepting government social engineering which denies individual liberty.

I have been a big proponent of coops all my life.  My family has been involved, over the years, with several local food coops, Catholic homeschool coops, and we go out of our way to patronize small businesses over large retailers if that is the only difference.  Not because I hate BushCheyneyHalliburtonBigOilBigPharmaBigBanking, but because my Catholic faith enlightens my actions.

Distributism is a very promising system that seems to balance respect for individual liberty and our duty to our brothers and sisters.  I don’t claim to understand completely how it might apply on a large scale, however.

Whatever system we end up with, it will only succeed if it grows organically and with virtue from the bottom up—personal holiness >family holiness >community holiness >national holiness >global holiness.


By jmedaille AT 10.10.08 12:46AM Not Rated

jmedaille

Actually, we know very well how distributism would work on a large scale, because we have the example of the Mondragon Cooperative, which has 90,000 worker-owners, does $24Billion/year in sales, and has a 50-year track record. It works very well.

We also have the example of Emilia-Romagna (Bologna), were 40% of the GDP is from worker coops. Bologna has one of the highest living standards in Europe.

Distributism has a track record, not only in the dim past, but in the current moment. And it seems to function much better than the capitalist system. Indeed, the only thing surprising about the current moment is that anybody is surprised. This has always been the history of capitalism; despite its anti-gov’t rhetoric, it always depends on gov’t privileges, hand-outs, and bailouts. 3/4th of Adam Smith’s The Wealth of Nations was devoted to documenting how gov’t favored the mercantilists.

Distributism goes from success to success; capitalism goes from bailout to bailout.


By chassup AT 10.10.08 09:58AM Not Rated

chassup

“Gov’t privileges, hand-outs, and bailouts” aren’t inherent to capitalism, as you insinuate, they are symptoms of corruption.  Do you think distributism is inherently insulated from corruption?

Is it possible to protect cooperative principles at very large scale, especially while competing in the capitalist global market? 

For now, I see small or niche cooperatives as an attractive alternative for local communities who are willing to make less individual income in return for stability and pride in producing a very good product.  It is also important that a loyal customer base is cultivated and rewarded.


By jmedaille AT 10.10.08 03:23PM Not Rated

jmedaille

Well, you say its corruption, and I say its inherent. But there need not be a contradiction here; each system rewards certain behaviors and punishes others. Capitalism rewards the corruption, so it is both.

As for distributism, you can simply look at distributist systems and judge for yourself.

The plain facts of history are these: Distributism goes from success to success; capitalism goes from bailout to bailout.


By chassup AT 10.10.08 05:38PM Not Rated

chassup

“Capitalism rewards the corruption”

Only if you are a corrupt individual.  If you believe all men incapable of overcoming all temptation, you will find no solution to your problem… one corrupt individual will ruin a nice coop.  That hardly proves coops to be inherently corrupt.

Distributism goes from success to success—except when individuals running the system become corrupt and deviate from the plan and centralize… like they did in Spain.


By jmedaille AT 10.10.08 05:53PM Not Rated

jmedaille

No, capitalism MUST reward the corruption or collapse; that is what is happening today. We must bail them out because they are “too big to fail”; in other words, we are held hostage by their very size.

You’ll have to tell me about what corruption you’ve found in Spain. I am sure there are corrupt individuals, as everywhere. But Mondragon operates without gov’t support; they run their own schools, their own social support systems, their own training institute, their own university, their own retirement systems, all with money they generate from their own work. That is a system that rewards work and is independent of the gov’t. Its precisely the kind of system a person like yourself ought to support.


By chassup AT 10.10.08 06:11PM Not Rated

chassup

You are mistakenly defining capitalism, our system is closer to fascism, and all that talk of “too big to fail” has nothing to do with free markets.  We are only held hostage because we allow it to happen, it is a deception.  The current crisis is a report card on socialism, not capitalism.

What we are now witnessing is reminiscent of the new deal which finished the work begun by Wilson.  Now that large sections of our financial industries have been nationalized, look for transportation, energy, healthcare and agriculture to be next.  Chaos creates the kind of vacuum Marxists need to sell hope and change.


By jmedaille AT 10.10.08 07:47PM Not Rated

jmedaille

The problem with that explanation is that it ignores history. You are quite correct that the gov’t is heavily involved in the economy. But there was a time when this was not so, a time when the gov’t had very little involvement, by today’s standards.

What were the results? In the period from 1853 to 1953, the economy was in recession or depression 40% of the time. At other times, it suffered from severe deflation, which is a much worse problem than inflation. Since 1953, since, that is, the gov’t took full charge of the economy, we have been in recession only 15% of the time, and most of these recessions have been mild, and mildly inflationary. Further, the pre-war recessions were twice as deep and twice as long as the post-war downturns. Indeed, our grandfathers would hardly have noticed what we call a recession as such; they really knew how to suffer.

Gov’ts around the world, whether left-wing or right, whether conservative or liberal, took command of the economy because it was the only way to avoid social collapse.

Libertarians do not like to look at history, because history is not kind to their ideology. The truth is that Austrianism and Social Chaos share a common border, and you cannot draw close to one without being near the other.

Roosevelt gets the blame for “socializing” the economy, but in fact, he saved capitalism for the capitalists. Nations without a “Roosevelt” went Fascist or Socialist.

Further, we see in this country the odd phenomenon that the more “conservative” a regime claims to be, the more keynesian its policies. Wall Street denouced Carter for running a $50 Billion dollar deficit, but didn’t bat an eyelash when Reagan, year after year, ran deficits that averaged $210 billion. Indeed, the national debt was $700 billion when Reagan took office. At the end of the term of Bush I, it tripled to $2.1 Trillion. That’s “Trillion” with “T”. Then it doubled, and more, so that when Cheney took office, it was five trillion. Now it has more than doubled under Cheney-Bush, and continues to rise at an alarming rate, especially in the last few weeks.

The plain historical fact is that capitalism has always been an unstable system, unable to manage itself without gov’t rescues. And those who will not look at the history are doomed to re-live it.

Welcome to 1929!


By Dave AT 10.11.08 12:30AM Not Rated

Dave

JMEDAILLE - Thank you so much for weighing in on this conversation. I really enjoy ‘The Distributist Review’ blog and read it often. Also, I just bought ‘The Outline of Sanity’ and ‘What’s Wrong with the World’ by G.K. Chesterton (which Dorothy Day recommended often!) Really good read so far.


By jmedaille AT 10.11.08 11:53AM Not Rated

jmedaille

Thank-you, Robert. Chesterton is a great read. Most of my work is devoted to bringing out the economic implications of his work.


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