Capitalism, Free Market Economy, and the Common Good: The Role of the State in the Economy

Abstract

Martin Rhonheimer, professor of philosophy at the Pontifical University of the Holy Cross and well-known and prolific author on a wide range of general ethical questions as well as on political philosophy, in this remarkable essay poses the fundamental question: are free markets the best institutions for fostering the common good or is the common good something entrusted to the care of states and governments? After reviewing the alternative visions of Keynes and Eucken on this subject, he concludes that in general not the state but the free market is the solution, if it is allowed to function correctly. He points out that for this to occur, the state’s activity must aim at making the market mechanisms work in an undistorted way. When governments go beyond this limit, interfering in the business decisions of firms or in the price system, they actually damage the common good. In the line of ordoliberalism, he opts for a qualified rehabilitation of laissez-faire and of Adam Smith’s idea of the “invisible hand,” ideas which in the wake of Keynesian analysis of economic matters are often gravely misrepresented. Based on these convictions, Martin Rhonheimer shows why the logic of politics is different from the economic logic and how, therefore, democratic politics often leads to state solutions and subsequent state failures, falsely attributed to the market and its lack of state regulation. He also analyzes the history of the social teaching of the Catholic Church, pointing out that in the past, some official documents were not free of statist attitudes and did not fully comprehend the logic of capitalism and free market economies. With the encyclical Centesimus annus by John Paul II this has changed. Centesimus annus accepts the logic of modern free economy, of capitalism and democracy, whereas the subsequent encyclical Caritas in veritate by Benedict XVI, less clear on this subject, importantly introduces into the Social Doctrine of the Church the idea of institutional ethics, thus advocating a conception of the common good not in the first place as a predetermined social pattern of just distribution of wealth and opportunities but as the institutional framework for free cooperation of citizens from which social justice and the common good is a result. However, because not all human needs are marketable and sometimes weaker social groups must be protected from the immediately damaging effects of sound economic policy, Rhonheimer concludes, there will be always a trade-off between economic efficiency and equity. The role of the state, however necessary it may be, must be limited so as not to create in the name of social justice structural economic inefficiencies which in the end are unjust and damageable to the common good.