Economic Liberalism

A definition

Economic liberalism is a doctrine before it is a policy. It affirms that the economic sphere possesses a rationality of its own — market exchange, the formation of prices by supply and demand, the pursuit of profit — and that this rationality, left to itself, leads to the optimal allocation of resources and to general enrichment.^[7] Outside intervention — by the State, by guilds, by the moral law, by custom — is regarded as a disturbance: it distorts market signals and impoverishes everyone.

From this follow the classic positions of economic liberalism: unhindered free competition, international free trade, deregulation, suspicion of trade unions and social regulation, and the reduction of the State to its sovereign functions (the “night-watchman State”). This is not the simple observation that markets exist and render services; it is the elevation of the market to the rank of ultimate regulating principle of society.

The doctrinal pillars

Four convictions uphold the edifice.

1. The autonomy of the economy. The economy is a separate order, obeying quasi-natural laws comparable to the laws of physics. Morality has nothing to say about it: to claim to subject prices, wages or profits to a demand of justice is to commit a category error. This is the point the Church will attack most directly.

2. Self-regulation and the “invisible hand”. Left free, the market balances itself. The sum of selfish actions produces, as if by an “invisible hand”, a result no one sought: the good of all.^[8] Social harmony arises spontaneously from competition, without any authority having to organise it.

3. Man reduced to homo economicus. The subject of economic liberalism is an abstract, calculating individual, driven by the maximisation of his interest. This fiction, convenient for theory, becomes — when taken for reality — a mutilation of man: it forgets that he is also a being of gift, gratuitousness, relationship and need.

4. Property and competition as quasi-absolute. The right of property and freedom of contract are posited as almost without limits or social duties. The labour contract in particular is treated as an exchange between equal parties, whereas the isolated worker does not hold the same power as the employer.

What economic liberalism is not

Three confusions must be set aside from the outset, for they distort the whole debate.

It is not the mere fact of the market. That markets, prices, competition and enterprises exist is a fact of economic life the Church has never condemned. Saint John Paul II recognises the market's role as “the most effective instrument for utilizing resources and effectively responding to needs” that are solvent.^[9] Liberalism begins where the market ceases to be a tool and becomes a supreme law.

It is not legitimate free enterprise. Economic initiative, creativity and entrepreneurial risk are goods that social doctrine honours as a participation in the creative work.^[10] Economic liberalism is not the freedom to undertake: it is the claim that this freedom need answer to no one.

Nor is it political or religious liberalism. The word liberalism covers distinct realities. Religious liberalism (the idea that all religions are equal, that truth has no rights) was condemned by Gregory XVI and Pius IX, and corrected by Leo XIII in Libertas (1888).^[11] The modern question of religious freedom and freedom of conscience belongs to other articles. The present article treats only economic liberalism, even if both share a common root: the absolute autonomy of the individual, cut off from any higher order.

Economic liberalism is not an eternal datum of history: it is an intellectual construction born in the 18th century, in the wake of the Enlightenment, against the regulated economy of the Ancien Régime (mercantilism, guilds, royal tariffs).

The physiocrats and “laissez faire”

In France, in the mid-18th century, the physiocrats (François Quesnay, Vincent de Gournay) posited the idea of a “natural order” in economics that the sovereign must not thwart. It is to this current that the formula which became the emblem of the whole doctrine is traced: “laissez faire, laissez passer”.^[12] The idea was new: government would do better to efface itself before the spontaneous movement of the economy.

Adam Smith and the “invisible hand”

The true father of economic liberalism is the Scotsman Adam Smith (1723-1790). In An Inquiry into the Nature and Causes of the Wealth of Nations (1776), he analyses the division of labour, the formation of prices and the virtues of free exchange. One image, used a single time in the work, would enjoy immense success: in seeking his own gain, the merchant is “led by an invisible hand to promote an end which was no part of his intention”, namely the interest of society.^[13]

One must be fair to Smith. He was first a moral philosopher — his Theory of Moral Sentiments (1759) makes sympathy the mainspring of social life — and he never advocated boundless selfishness or a State reduced to nothing.^[14] But his successors hardened his thought into a system: what Smith presented as a tendency, they turned into an iron law.

The classical school: Ricardo, Malthus and the “iron law of wages”

At the beginning of the 19th century, classical political economy radicalised this inheritance. David Ricardo (1772-1823) formulated a thesis with terrible consequences: the “iron law of wages”, according to which the worker's wage tends mechanically towards the subsistence minimum, just enough to keep him alive and reproduce his labour power.^[15] Thomas Malthus (1766-1834), for his part, saw in popular misery an almost natural effect of demographic pressure, against which aid to the poor would be vain, even harmful.^[16] The practical conclusion is chilling: working-class misery is not an injustice to be corrected, but a law of nature to be left to operate.

Manchester liberalism and free trade

In England, the movement crystallised around the Manchester School (Richard Cobden, John Bright) which, in the 1840s, led the campaign for free trade and the repeal of the Corn Laws (protectionist laws on wheat).^[17] “Manchesterism” became the very name of full economic liberalism: free competition, free trade, non-intervention by the State. On the continent, the Frenchman Frédéric Bastiat (1801-1850) would be its brilliant propagandist.

From liberalism to social Darwinism

At the end of the 19th century, a shift occurred. Herbert Spencer (1820-1903) and the current of “social Darwinism” transposed to society the “survival of the fittest”: economic competition was presented as a beneficent natural selection, in which the elimination of the weak would be the price of progress.^[18] Here liberalism pushed to its limit purely and simply dismisses charity. It is against this climate that the voice of Leo XIII would rise in 1891.

Doctrine did not remain on paper. Applied to the Europe of the Industrial Revolution, it produced a concrete world: that of the “labour question”.

The clean sweep of intermediate bodies

Economic liberalism first destroyed the old protections. In France, the Le Chapelier law (1791) abolished the guilds and forbade professional associations, in the name of a direct face-to-face between the individual and the State.^[19] The worker found himself alone, without confraternity, without relief fund, without any body to defend him, facing the employer. Subsidiarity would later teach that this destruction of the intermediate fabric is the opposite of a healthy society.

19th-century working-class misery

The result, Leo XIII described in a few words that have remained famous. The old guilds having been abolished without anything replacing them, “working men have been surrendered, isolated and helpless, to the hardheartedness of employers and the greed of unchecked competition”.^[20] The pope denounced the concentration of wealth in the hands of “a small number of very rich men” who imposed “a yoke little better than that of slavery itself upon the teeming masses of the poor”.^[21]

“Working men have been surrendered, isolated and helpless, to the hardheartedness of employers and the greed of unchecked competition.” — Leo XIII, Rerum novarum (1891)^[22]

Twelve- to fifteen-hour days, child labour, starvation wages, insanitary housing, no recourse of any kind: such was, in fact, the face of full “laissez-faire”. It is this reality — not an abstraction — that social doctrine came to judge.

From Rerum novarum to Fratelli tutti, the magisterium has held a line of remarkable continuity on economic liberalism: recognising freedom and property, but refusing the absolutization of the market and of profit. The table below summarises its stages; the following sections detail them.

Leo XIII: Rerum novarum and the first indictment (1891)

The birth certificate of modern social doctrine is also the first great indictment of economic liberalism. Rerum novarum (1891) rejects at once two false answers to the labour question: socialism, which would abolish private property, and liberalism, which abandons the worker “to the mercy of inhuman masters”.^[38] Leo XIII defends the right of property against socialism, but immediately attaches a duty to it: superfluous goods must serve others, and the just wage cannot be reduced to the price freely set by the market.^[39] Against the liberal fiction of a contract between equals, he posits that a justice exists which is prior to the market.

Pius XI: Quadragesimo anno and “free competition destroyed” (1931)

Forty years later — hence the title, “the fortieth year” — Pius XI draws up the balance sheet. Free competition, erected into a sole principle, did not keep its promise of harmony: it produced its opposite.

“Free competition has destroyed itself; economic dictatorship has supplanted the free market.” — Pius XI, Quadragesimo anno (1931), n. 88^[40]

From unregulated competition came concentration: a few seized economic power, then through it political power, down to that “international imperialism of money” which Pius XI denounces.^[41] The encyclical names the root of the evil: economic “individualism”, which denies that the economy has a social function and makes private interest the sole rule.^[42] Pius XI does not for all that fall into collectivism: he traces a third way, that of an economic order subjected to justice and the common good.

Saint Paul VI: Populorum progressio and “unbridled liberalism” (1967)

With Saint Paul VI, the gaze widens to relations between rich and poor nations. Populorum progressio (1967) passes one of the magisterium's sharpest judgments on economic liberalism:

“A system has been constructed which considers profit as the key motive for economic progress, competition as the supreme law of economics, and private ownership of the means of production as an absolute right that has no limits and carries no corresponding social obligation. This unchecked liberalism leads to dictatorship rightly denounced by Pius XI as producing ‘the international imperialism of money’.” — Saint Paul VI, Populorum progressio (1967), n. 26^[43]

Saint Paul VI adds that “such abuses cannot be too strongly condemned”, and recalls that the economy is at the service of man, not the reverse.^[44] In the same encyclical, he calls into question “the fundamental principle of liberalism as the rule for commercial exchange”: between economically unequal partners, prices formed “freely” can lead to unjust results.^[45] Free trade is just only between comparable forces; between the strong and the weak, in the formula taken up by Saint Paul VI, “freedom oppresses and law liberates”.^[46]

Saint John Paul II: Centesimus annus and the decisive distinction (1991)

It is to Saint John Paul II that we owe the most precise and most balanced formulation. Written after the collapse of communism, Centesimus annus (1991) refuses to let the failure of collectivism serve as a blank cheque for liberalism. The pope poses the question head-on: should capitalism be proposed to the world, and to the countries emerging from communism, as a model? His answer is twofold and must never be cut in half:

“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 […]. 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 […], then the answer is certainly negative.” — Saint John Paul II, Centesimus annus (1991), n. 42^[47]

Everything is there. The market, enterprise, property, initiative: yes. But on one non-negotiable condition — that they be “circumscribed within a strong juridical framework” at the service of “human freedom in its totality”. Economic liberalism refuses precisely this framework: that is why it falls under the “no”. Saint John Paul II specifies elsewhere that the market cannot do everything: “there are many human needs which find no place on the market”,^[48] and there exists something “due to man” prior to all logic of exchange. A society of free work “is not directed against the market, but demands that the market be appropriately controlled” by the State and by society.^[49]

The Catechism: refusing the “absolute primacy of the law of the marketplace”

The Catechism of the Catholic Church (1992) fixes this teaching in a formula that has become the reference. With deliberate symmetry, it condemns in a single movement the two twin errors of the century:

“The Church has rejected the totalitarian and atheistic ideologies associated in modern times with ‘communism’ or ‘socialism.’ She has likewise refused to accept, in the practice of ‘capitalism,’ individualism and the absolute primacy of the law of the marketplace over human labour.” — Catechism of the Catholic Church, § 2425^[50]

The right word is “absolute primacy”. The Church does not refuse the law of the marketplace; it refuses that it be absolute, that is, that it prevail over human labour, over the dignity of the person and over the common good. That is exactly the definition of economic liberalism: the market made the law of last resort.

Francis: “such an economy kills”

Pope Francis takes up this critique with prophetic vigour, in the context of financial globalisation. Evangelii gaudium (2013) launches a “no” to “an economy of exclusion and inequality”:

“Just as the commandment ‘Thou shalt not kill’ sets a clear limit in order to safeguard the value of human life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality. Such an economy kills.” — Francis, Evangelii gaudium (2013), n. 53^[51]

He targets by name the “trickle-down theories”, which assume that all growth would by itself produce greater equity: an opinion “which has never been confirmed by the facts”, expressing “a crude and naïve trust in the goodness of those wielding economic power”.^[52] He denounces “a new idolatry of money”, “the worship of money” succeeding the golden calf.^[53] Fratelli tutti (2020) completes the demonstration:

“The marketplace, by itself, cannot resolve every problem, however much we are asked to believe this dogma of neoliberal faith.” — Francis, Fratelli tutti (2020), n. 168^[54]

Neoliberalism, he adds, merely reproduces itself, resorting to the “magical” notions of “trickle-down” or “spillover”, without ever confronting the underlying problems.^[55] The continuity with Leo XIII is perfect: the same refusal of the market erected into providence.

Beyond historical assessments, the Church has identified the errors of principle that make economic liberalism unacceptable. They lie not in this or that abuse, but in the very structure of the doctrine.

The absolute autonomy of the economy

The first error is to remove the economy from morality. For liberalism, the laws of the market are neutral, like those of physics: to apply a judgment of justice to them would make no more sense than judging gravity. The Church answers that there is no sphere of human action that escapes morality. The economy is the work of free, hence responsible, men; it has an end — serving the person and the common good — and whatever runs counter to that end is unjust, even if “efficient”. Benedict XVI sums it up: the economy needs ethics “not just any kind of ethics, but an ethics which is people-centred”.^[56]

The myth of self-regulation

The second error is to believe that the sum of private interests automatically produces the common good, through the sole play of the “invisible hand”. History refutes this immanent providence: free competition, says Pius XI, “has destroyed itself” and engendered concentration and “economic dictatorship”.^[57] The common good is not a mechanical by-product of selfishness: it must be willed and organised. The market coordinates solvent interests efficiently; it is blind to all the rest — the poor without purchasing power, non-market goods, future generations.^[58]

Man reduced to homo economicus

The third error is anthropological. By reducing man to a calculator of interest, economic liberalism amputates the person of what makes his greatness: gratuitousness, gift, fraternity. Yet man is not first a consumer; he is “the principle, the subject and the end of all social institutions”.^[59] An economy that treats persons as mere factors of production “sacrifices” man to profit, which the Catechism counts among things “morally unacceptable”.^[60]

Property without social mortgage

The fourth error concerns property. Liberalism makes it an absolute right, without duty. Catholic doctrine teaches on the contrary that private property is a real but secondary right, subordinated to the universal destination of goods: the earth was given to all men, and all property is burdened with a “social mortgage”.^[61] One may possess, but the use of goods must remain ordered to the good of all. All this is developed in the article Private Property according to the Church.

Labour treated as a commodity

The fifth error is to treat labour as a commodity whose price is freely set on a market. Leo XIII broke it in advance: wages cannot be abandoned to the sole play of supply and demand, for the consent of the worker cornered by necessity “suffers violence against which justice cries out”.^[62] Labour engages the very person of the worker; it calls for a just wage, rest, protection, and the right to associate in trade unions — all realities that full liberalism rejected.

It would be unfaithful to present social doctrine as a condemnation of the market as such, or as a hidden sympathy for collectivism. The Church rejects as much socialism as liberalism: they are two opposite ways of missing the truth about man.

The legitimate market economy

The market, in its place, is a good. It decentralises decisions, rewards effort and invention, puts resources where they are useful, and preserves a space of freedom that the planned economy crushes. Saint John Paul II recognises a “positive” role for “the business economy, the market economy or simply the ‘free economy’”, provided it remains at the service of human freedom in its totality.^[63] What the Church blesses is not the market-idol, but the market servant.

Free enterprise, initiative, creativity

Social doctrine honours economic initiative as an expression of the dignity of the person and a participation in the creative work. Centesimus annus praises “free human creativity in the economic sector”.^[64] To undertake, to take risks, to create wealth and jobs, is not suspect: it is a service rendered to the community, when ordered to the common good.

The regulated market: law, subsidiary State, common good

The difference between the legitimate market economy and liberalism comes down to one word: framework. The market needs a “strong juridical framework” — rules of the game, protection of the weakest, public goods, justice in contracts — lest it devour what it claims to serve.^[65] This framework is not statism: according to subsidiarity, authority intervenes only to support and supplement, never to absorb. The following table contrasts the two logics.

It is this third way — neither the king-individual of liberalism, nor the all-State of collectivism — that the whole of social doctrine strives to trace.

“The free market has lifted billions of people out of poverty”

Objection. The opening of markets and globalisation have reduced extreme poverty more than any other policy. Would condemning liberalism not mean despising that result?

Answer. The Church does not deny that the market, exchange and initiative create wealth — it affirms it.^[66] But two things must be distinguished. First, real progress has almost always been achieved by regulated market economies (law, institutions, social protection), not by full “laissez-faire”. Second, overall growth is not automatic justification: Francis recalls that “trickle-down” — the idea that wealth by itself trickles down to all — has “never been confirmed by the facts” and leaves the excluded aside.^[67] The right question is not “does the market create wealth?”, but “does the wealth created serve every man and the whole man?”.

“Without economic freedom, no freedom at all”

Objection. According to Hayek or Friedman, economic freedom is the condition of all others: to limit the market is to open the road to totalitarianism.^[68]

Answer. The Church grants this argument a share of truth: full planned economy, which abolishes property and initiative, does indeed destroy freedom — that is why it condemned communism.^[69] But it does not follow that every regulation threatens freedom. Human freedom is “total”: it includes the freedom not to starve, to be treated, to rest, to found a family. An economic “freedom” that crushes those freedoms is not freedom, but its caricature. Law that frames the market does not abolish freedom: it makes it real for all, not only for the strong.

“The Church is anti-economic, even socialist”

Objection. By constantly criticising the market, the Church would side with socialism and betray its hostility to economics.

Answer. This is doubly false. The Church condemned socialism and communism with a firmness at least equal to its critique of liberalism: Rerum novarum defends private property against the collectivists,^[70] and the Catechism explicitly rejects socialist ideologies.^[71] Its position is not a timid “middle ground”, but a doctrine of its own, older than the left-right divide: the economy is made for man, ordered to the common good, subjected to justice. Neither the idol of the market, nor the idol of the State.

Beneath the economic debate, the Gospel raises a deeper and older question. Economic liberalism is not only a debatable theory: it carries the risk of an idolatry.

The market-idol and the golden calf

When the market becomes the ultimate measure, profit the final law, and money the supreme good, we have changed God without saying so. Francis names it: “the worship of the ancient golden calf has found a new and heartless image in the cult of money”.^[72] This is the return, in modern dress, of the oldest of temptations: making a creature — here wealth — the absolute to which all is sacrificed.

“No one can serve two masters […]. You cannot serve God and mammon.” — Jesus Christ, Gospel according to Saint Matthew 6:24^[73]

Gratuitousness at the heart of the economy

To the homo economicus who knows only interested exchange, the Gospel opposes a man capable of gratuitous gift. Social doctrine does not only ask that the market be framed by laws: it calls for introducing into the very heart of economic life the logic of gift, of fraternity, of solidarity and of political charity.^[74] Here lies the true surpassing of liberalism: not a market merely corrected from outside, but an economy inhabited from within by love of man — because, in the words of Saint Paul VI, “development is the new name for peace”, and the economy has meaning only for the person, created in the image of God.

On the economic systems judged by the Church:

• Capitalism and its limits
• Socialism and its limits
• Communism

On the principles liberalism disregards:

• Private Property according to the Church
• The Universal Destination of Goods
• The Just Wage
• The Common Good
• Solidarity
• Subsidiarity

On the actors and institutions of economic life:

• Trade Unions and Social Doctrine
• The Dignity of the Human Person
• Political Charity