The New Vatican Document on Finance: Right Diagnosis, Deadly Cure

Crisis Magazine ^ | 10/25/2011 | Jeffrey Tucker

[Brian Kopp DPM]

The New Vatican Document on Finance: Right Diagnosis, Deadly Cure

Jeffrey Tucker

Let’s say you go to the doctor with a pain in your gut, and the doctor very astutely discovers that you have been poisoned. He knows how and when it happened. He knows the precise kind of poison that victimized you. Then he gives your prescription: more poison in higher doses.

You would be at once grateful and alarmed.

This is roughly how I feel about the “Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority,” a document just issued by the Vatican’s Pontifical Council for Justice and Peace.

Reading from the top down gave me a real charge. Some people at the Vatican have gotten the message about the dangers of the fiat money system that generates unlimited amount of credit, and even traced it all to the monetary reforms of 40 years ago.

In recent decades, it was the banks that extended credit, which generated money, which in turn sought a further expansion of credit. In this way, the economic system was driven towards an inflationary spiral that inevitably encountered a limit in the risk that credit institutions could accept. They faced the ultimate danger of bankruptcy, with negative consequences for the entire economic and financial system.

Exactly. The dollar was once based in gold, which provides a physical limit to the expansion of credit. All bills had to be paid. The government was limited. The banking system was a real business, not a socialist enterprise that experienced unlimited bailouts. Credit went to the creditworthy. Those who issued fake money paid a price.

Under a gold standard, there can be no creation of money that is not redeemable in something real. This automatically provides a check on both banks and governments — and therefore producers and consumers as well. An over-expansion leads to gold outflows and a restriction on credit expansion at home, as inevitably as night follows day. Therefore you have to live within your means. The bills have to be paid by real stuff.

Then President Nixon decided one day that we weren’t sending our gold anywhere. With that move, he ended the basis of the monetary system that had ruled the governments and banking systems since the ancient world. Every problem we’ve had since — inflation, bubbles, credit addiction, bank racketeering – can be traced to this one act. (This is not to say that Bretton Woods was perfect; what we really need is a system of full, domestic convertibility on demand and in real coins.)

That the Vatican gets this, or seems to, is a very good sign.

 

What’s more, credit is as addictive as any drug:

After World War II, national economies made progress, albeit with enormous sacrifices for millions, indeed billions of people who, as producers and entrepreneurs on the one hand and as savers and consumers on the other, had put their confidence in a regular and progressive expansion of money supply and investment in line with opportunities for real growth of the economy.

Everyone is addicted to paper. Consumers love it. Producers live on it. Competition drives everyone to partake. The real world fades and the make-believe world of paper profits rules the day. This is a false hope. It is like a house built on sand.

Since the 1990s, we have seen that money and credit instruments worldwide have grown more rapidly than revenue, even adjusting for current prices. From this came the formation of pockets of excessive liquidity and speculative bubbles which later turned into a series of solvency and confidence crises that have spread and followed one another over the years.

So very true. The new money doesn’t enter the economy in a neutral way. It creates pockets and bubbles and benefits some at the expense of others. But it can’t last. Reality strikes back.

A first crisis took place in the 1970s until the early 1980s and was related to the sudden sharp rises in oil prices. Subsequently, there was a series of crises in the developing world, for example, the first crisis in Mexico in the 1980s and those in Brazil, Russia and Korea, and then again in Mexico in the 1990s as well as in Thailand and Argentina. The speculative bubble in real estate and the recent financial crisis have the very same origin in the excessive amount of money and the plethora of financial instruments globally.

Again, a short and cogent history of the finance of the last 40 years. It’s been one disaster after another ever since Nixon closed the gold window. The magic of paper was supposed to fix all things. The reverse happened. It sent the world economy into endless cycles of boom and bust.

And with the dollar as the world reserve currency, bad policy in the U.S. has had a contagion effect. Now every country suffers when the U.S. engages in a profligate expansion. It’s true in Europe too. The loose-money countries wreck the economies of tight-money economies, leading to terrible conflicts and tensions.

It is on this basis that the document first begins its attack on “liberalist policies.” Now, hold on a minute here. There is nothing in old-fashioned liberalism (i.e., the free market) that endorses the “freedom” to issue paper forever and call it money. On the contrary, the free market is heavily regulated by a sound money regime. The only freedom banks have here is to operate as normal businesses. Those who expand without limit are going to die and those who maintain sound finance will thrive.

Nonetheless, the document’s identification of loose credit with market liberty is the beginning of the end of the good sense here. From this point, we plunge straight away into a full endorsement of a world central bank, a world political authority, taxes on financial trading, and heavy regulations. The document doesn’t actually call for an end to the free market. On the contrary, it imagines that enlightened world planners will protect, guard, and even “create” what it calls “free and stable markets.”

 

This is beyond naive. It seems to illustrate a near total absence of clear thinking. Centralization of money and credit caused this problem. Centralization of political authority caused this problem. Why would anyone imagine that more centralization is therefore the answer? This approach takes a terrible situation and makes it much worse.

Probably this document had many authors, one of whom gets the Austrian theory of the business cycle. He prevailed in the first section. Another author seems to know nothing about politics and power or the history of the problems of centralized states and central banking. He prevailed in the second section. Tragically, this document is music to the ears of the very institutions that are responsible for our current plight. The document might as well announce to the world: “Give the power and financial elites more power!”

What is the alternative? Sound money needs to be restored. Business and finance need to be subject to profit and loss. The bailouts must stop. The liquidations must be allowed to take place. Governments must be disciplined and controlled, and devolved to the smallest, local units. In other words, we need real free markets and subsidiarity. This is the only path to a responsibly regulated world. Otherwise, we are going to end up creating even more problems down the line.

The Vatican seems to be growing in intellectual sophistication over worldly affairs. Now it gets economic matters half right. Sadly, being half right on something this important can lead to permanent calamity. To return to the original metaphor, the patient should thank the doctor for discovering the illness, but flee the poisonous “cure.”

 

Another view on this Vatican document, by Sean Dailey, editor of Gilbert Magazine, will appear tomorrow.

[Brian Kopp DPM]

Spare us from Vatican economic analysts

By Phil Lawler | October 25, 2011 8:28 AM

The Catholic Church does not claim teaching authority on matters of economics and finance. When the Pontifical Council for Justice and Peace issues a statement on the world’s financial markets, faithful Catholics are not bound to accept the economic analysis it contains.

However, it would be rash and wrong to say that the Church should remain silent about economic questions. Economic decisions have their moral dimensions, on which the Church does have expertise and teaching authority. There are many lessons that financiers could learn from Church teaching:

• that neither majority votes nor marketplace decisions can settle moral questions;
• that utilitarian standards are inadequate to define the common good;
• that private property carries a “social mortgage”—those who own goods have a moral obligation to use them wisely;
• that the affluent have a duty to care for their brothers in need.

Good points, all. Yes, the Church really does have lessons to teach the financial world. That’s why Catholic social teaching is important.

However, while economists are learning from the Vatican, perhaps the Vatican might learn a few lessons from economic analysts. Just for instance:

• that government does not create anything, and therefore does not have funds unless it obtains those funds from ordinary people: taxpayers;
• that the world’s financial system is currently endangered because of the soaring level of government debt;
• that regulatory agencies have an abysmal record of failure in protecting the public from market fluctuations, speculative bubbles, and even outright fraud—and it is only reasonable to expect that a worldwide authority would reproduce those failures on a global scale;
• that government interventions in the markets invariably produce unintended consequences, many of them deleterious;
• that government regulation invariably furnishes opportunities for powerful corporations to manipulate the market for their own purposes, to the detriment of the general welfare.

Those are the economic lessons. There are some political realities that the Vatican might eventually recognize, too. Say:

• that the UN, the World Bank, the European Union, and other international organizations are not friends of the Catholic Church, and probably never will be;
• that any international agency empowered to regulate financial markets will—following a pattern that is now well established—be exploited by social engineers to promote contraception, legal abortion, and legal recognition of same-sex marriage;
• that liberal politicians will gladly accept and exploit the Vatican’s statements on economic affairs, while continuing to work assiduously to promote the culture of death;

Oh, yes, and most important of all:

• When an obscure Vatican agency issues a statement that contains 50% solid Catholic social teaching, and 50% flaky leftist theory, the world’s media will ignore the distinctively Catholic content—what the Church should say, what the world should learn—and concentrate exclusively on the leftist theory. So for the great mass of ordinary readers, who will never read the full document, but only scan the headlines, the important message will be lost. What will register, instead, is that the Vatican has not learned its lessons about economic affairs and political realities.

When people reach the conclusion that the Vatican is talking nonsense, they do not ordinarily distinguish between the sound fundamental principles of Church teaching and the questionable economic analysis that follows. Nor do they make fine distinctions on the different levels of Church teaching authority. They conclude simply that the Vatican talks nonsense. So by reaching beyond their field of expertise, Vatican officials undermine their own teaching authority.

Does anyone seriously believe that when the leaders of the G-20 economic powers gather next week in Cannes, whey will spend their time examining the Vatican’s plans for the recapitalization of troubled banks? Of course not. The world’s leaders have plenty of their own expert economists; they need not rely on analysis from Vatican dicasteries. If they think that the new Vatican document is just one more call for international economic regulation—along the lines of many other proposals they have already seen—they are likely to ignore the statement entirely, and thus miss the important messages that a terse Vatican document might have conveyed.

The moral of the story: If you want to promote Catholic social teaching, don’t wander beyond your expertise. Stick to moral principles, and leave economic analysis to the economists.

[Brian Kopp DPM]

Right Diagnosis, Deadly Cure – Jeffrey Tucker, Crisis Magazine

Spare Us from Vatican Economic Analysts – Phil Lawler, Catholic Culture/On the News

Who Owns Our Jobs Anyway – Jared Dale Combista, VirtuousPla.net

Why Catholics Who Disagree Aren’t “Cafeteria Catholics” – Thomas Peters, Cth Vote/AmP

Vatican Reform Note Cause for Conservative Face-Palms – Tony Layne, Outside the Asylum

Vatican’s Call for Central World Bank: What the Left Misses – Kenneth Spence, Acton Ins.

Church, Economic Reform and Consolation – Elizabeth Scalia, Patheos/The Anchoress

A Towering Conclusion – Disputations

What the Vatican Document Says, and Doesn’t Say – Rod Dreher, AmC

The Pope, Chaplain to OWS? Rubbish – George Weigel, The Corner

Yesterday’s Round-Up – ThePulp.it

[D-fendr]

I’m thinking subsidiarity trumps this and knocks it off the table.

[dfwgator]

The person who wrote this has about as much influence in the Vatican, as Father Guido Sarducci.

[Brian Kopp DPM]

Unfortunately this is true. I despise the uber liberal National Catholic Reporter, but they have an analysis that is frighteningly plausible: Vatican note on economy the first ripple of a southern wave

...Focusing on how much papal muscle the note can flex, however, risks ignoring what is at least an equally revealing question: Whatever you make of it, does the note seem to reflect important currents in Catholic social and political thought anywhere in the world?

The answer is yes, and it happens to be where two-thirds of the Catholics on the planet today live: the southern hemisphere, also known as the developing world.

It's fitting that the Vatican official responsible for the document is an African, Cardinal Peter Turkson of Ghana, because it articulates key elements of what almost might be called a "southern consensus." One way of sizing up the note's significance, therefore, is as an indication that the demographic transition long under way in Catholicism, with the center of gravity shifting from north to south, is being felt in Rome.

There are almost 750 million Catholics scattered across Africa, Asia and Latin America, and generalizations about such a vast pool of people are always hazardous. Nonetheless, on matters of sexual morality and the "culture wars," Catholics in the south generally strike Europeans and Americans as remarkably conservative -- opposed to gay marriage, anti-abortion, devoted to the traditional family. When the conversation shifts to economic policy and geopolitics, however, Catholic opinion in the developing world often comes off in the West as strikingly progressive.

To be specific, Southern bishops, priests, religious and laity often are:

• Skeptical of free-market capitalism and unregulated globalization;
• Wary about the global influence of the United States;
• Pro-United Nations and pro-global governance;
• In favor of a robust role for the state in the economy.

A few examples flesh out that picture.

In a 2002 issue of Theological Studies, the late Dean Brackley and Thomas Schubeck outlined a "Latin consensus" on the economy, expressed not just by avant-garde theologians in Latin America but in official church documents. They described it this way: "The market is a useful, even necessary means for stimulating production and allocating resources. However, in the 'new economy,' overreliance on the market has aggravated social inequality, further concentrated wealth and income, and left millions mired in misery."

Catholic leaders in other parts of the global south hold similar views. For instance, in a 127-page report issued in 2004, the Catholic bishops of Asia declared that "neoliberal economic globalization" destroys Asian families and is the primary cause of poverty on the continent.

In June 2005, a group of Catholic bishops from Eritrea, Ethiopia, Kenya, Malawi, Tanzania, Sudan, Uganda, Zambia, Somalia and Djibouti declared, "We are particularly horrified by the ravages of unbridled capitalism, which has taken away and stifled local ownership of economic initiatives and is leading to a dangerous gap between the rich few and the poor majority."

Now consider the language of the Vatican note, which breathes much the same air: "What has driven the world in such a problematic direction for its economy and also for peace? First and foremost, an economic liberalism that spurns rules and controls ... an economic system of thought that sets down a priori the laws of market functioning and economic development, without measuring them against reality, runs the risk of becoming an instrument subordinated to the interests of the countries that effectively enjoy a position of economic and financial advantage."

One can certainly debate the merits of those perceptions, or the policy moves that might flow from them. Yet to dismiss all this as nothing more than the rogue perceptions of an isolated Vatican department ignores the demographic and cultural realities of the church in the 21st century.

This is not the dying echo of warmed-over European socialism. For better or worse, it's the first ripple of a southern wave.

[D-fendr]

Interesting analysis.

If I have to pick, i’d rather share the conservative social values and fight the economic/political ones, that have to fight on both fronts. And with a billion Catholics coming from all different backgrounds, there’s always gonna be a struggle on some issues - in this world.

[stanne]

Ah! Wit...

Such a relief from all this Vatican pouncing- first from the media, then from Free Republic.

[NVDave]

This:

“When people reach the conclusion that the Vatican is talking nonsense, they do not ordinarily distinguish between the sound fundamental principles of Church teaching and the questionable economic analysis that follows. Nor do they make fine distinctions on the different levels of Church teaching authority. They conclude simply that the Vatican talks nonsense. So by reaching beyond their field of expertise, Vatican officials undermine their own teaching authority.”

Exactly so. Coming from the Protestant perspective, I read such “analysis” by the Pontifical Council and I don’t give a fig for any of the encyclicals, bulls, church hierarchy or other “inside Catholic baseball” that forms the epistemology of Catholicism on matters economic. I don’t care to study or understand it. If I did, I’d be a Catholic.

I just start projecting their pronouncement into dollars, cents, taxation, spending and other trajectories and conclude that they’re seeking to pick my pockets for their social agendas.

Again.

[sklar]

pro-global governance;

I'd be interested in your definition of the difference between "global governance" and "global government". Thanks

[Brian Kopp DPM]

One and the same, unfortunately. Despite the "growth" of the Church in the southern hemisphere, they don't appear to be growing in wisdom or orthodoxy.

On the other hand, they have been the target of demographic warfare by northern/western countries for so long, who can blame them for seeking an alternative to the reigning global political and financial regime? Its just too bad there's no hope in this current alternative being offered.

[Brian Kopp DPM]

The “Vatican pouncing” is also coming from conservative lay Catholics fed up with seeing this kind of BS being promoted anywhere in the bowels of the Vatican, forcing us once again on the defensive when we would prefer to be doing simple Catholic and pro-life, pro-family apologetics. What idiots let this see the light of day over there?!? What were they thinking?!?

[Scotswife]

Yes! You just read my mind.

Certainly - they are aware of the “pope is the anti-christ” meme that has been circulating for a few centuries now?

And for those types, this is a big ‘ole early christmas gift...well then! see! we knew it! now he’s pushing for that one world nonsense right out of revelations!

ugggh.
The degree of tone-deaf is really something.

[boatbums]

How much of its own money did the Roman Catholic Church spend to come to conclusions and plans it has no business making in the first place? Could not that money and time be put to better use helping the disadvantaged of the world and thereby accomplishing what the church is supposed to be doing?

[stanne]

. . . faithful Catholics are not bound to accept the economic analysis it contains.

The above is quoted from the article.

[Brian Kopp DPM]

Unfortunately, that’s not how the media or most casual observers will see this. All they will know is that “The Vatican calls for a one world bank” and assume the worst, and no matter how much effort we expend trying to clarify to the contrary, 99% will believe the headlines and not the orthodox Catholic apologists who know better.

In the current world political climate, there is simply no excuse for letting this white paper see the light of day.

[GladesGuru]

If the “southern wave” does believe such commie crap, they will remain the Turd World pools of unending cess which they now are.

Gubbament is no more the friend of the Turd World peasant than it is the friend of the average American.

If pro UN, let them pay for it and the UNESCO “No Child Left Unmolested” Program.

[Brian Kopp DPM]

How much of its own money did the Roman Catholic Church spend to come to conclusions and plans it has no business making in the first place?

Did anyone notice, in the midst of all their righteous indignation, that the document actually recommends a return to the gold standard?

Reading from the top down gave me a real charge. Some people at the Vatican have gotten the message about the dangers of the fiat money system that generates unlimited amount of credit, and even traced it all to the monetary reforms of 40 years ago.

In recent decades, it was the banks that extended credit, which generated money, which in turn sought a further expansion of credit. In this way, the economic system was driven towards an inflationary spiral that inevitably encountered a limit in the risk that credit institutions could accept. They faced the ultimate danger of bankruptcy, with negative consequences for the entire economic and financial system.

Exactly. The dollar was once based in gold, which provides a physical limit to the expansion of credit. All bills had to be paid. The government was limited. The banking system was a real business, not a socialist enterprise that experienced unlimited bailouts. Credit went to the creditworthy. Those who issued fake money paid a price.

I don't have a problem with them pointing out the obvious, but they should have stopped while they were ahead.

The Church does have the right to comment on injustice. They might even think they're "helping the disadvantaged of the world and thereby accomplishing what the church is supposed to be doing?" with this document, though their recommendations cannot possibly do so in the current human reality of this world.

[Talisker]

In the current world political climate, there is simply no excuse for letting this white paper see the light of day.

Exactly. And so, unless you believe the Vatican is inept, you must accept that they released this report in order to have exactly the effect they're having.

But why?

Well, one thing I noticed in reading through all of these apologetics is the lack of any mention of the billions of dollars of investment links to the City of London, Wall Street, and elsewhere, with the Vatican Bank.

But of course, the reason that the Vatican Bank is not mentioned is because it wasn't mentioned in this publication and has nothing to do with Catholic religious teachings.

Therefore, despite it's significant involvement in the world banking system, it's influence (both financially and politically) is, and must be considered, for the purposes of this particular issue (despite its considerable global power)...irrelevant.

Which means the intended purpose behind the Vatican's release of this paper is, and must be, devoid of any influencial design or intended influence upon world politics, and can only be explained as a Divine Mystery.

[livius]

Sadly, the Vatican is inept.

Furthermore, this “Peace and Justice Council” has long been a resting place for outdated leftists, and has recently gotten a new infusion of Third World bishops who are steeped in post-colonial resentment theory.

All of these “councils” and “commissions” take on a life of their own and their pronouncements do nothing but confuse.

[Wonder Warthog]

"For instance, in a 127-page report issued in 2004, the Catholic bishops of Asia declared that "neoliberal economic globalization" destroys Asian families and is the primary cause of poverty on the continent."

Well, I don't know about globalization "destroying Asian familes", but have these people looked at the growing economies of the non-Muslim "Far East" countries? Far from being the "primary cause of poverty", it appears to be a major cause of rapidly growing prosperity. I'm certain this causes dislocations, but cheez........