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Editor’s Note: Rocco Buttiglione is a professor at the International Academy of Philosophy in Liechtenstein and the author of many books and articles on Catholic social thought and the life and thought of Pope John Paul II. He has been a philosophical collaborator with the pope for many years.

It seems that one of the many merits of the new encyclical Centesimus Annus is that it has fostered a much needed step forward in the dialogue between the Catholic Church and the American spirit. This step forward is the consequence of carefully drawn distinctions which make some of the usual misunderstandings of the Holy Father’s intentions difficult or impossible and which compel those willing to criticize the Church’s social doctrine to come to grips with the encyclical’s contents rather than battling over words whose meaning is often different and which are charged with different emotions on this or that side of the Atlantic, in the northern or in the southern hemisphere.

One of these often misunderstood words is capitalism.

In the United States capitalism is a thoroughly positive and respectable word. It implies free enterprise, free initiative, the right to work out one’s own destiny through one’s own efforts. In short: it is a bastion of the American liberty.

In Europe, as a rule, we have a different perception of the same word. Here capitalism implies rather the exploitation of large masses through an elite of tycoons who dispose of the natural and historical resources of the land and expropriate and reduce to poverty large masses of peasants and artisans.

In Latin America the situation is even darker: here, at least among the intellectuals and a large section of the masses, capitalism is simply synonymous with social injustice.

A detailed analysis is needed in order to understand why the same word resounds with so different, even contradictory meanings. In the Anglo-Saxon countries, the free market economy experienced an organic growth. On the European continent, however, the industrial revolution was often the result of the activity of small groups, organized and led by banking rather then by industrial entrepreneurs, and possessing the decisive support of the state. This means that freedom of enterprise was restricted to a privileged social group and capitalism, from the beginning, was a monopoly capitalism. Even worse was the situation in many Third World countries, where control over all the resources of the country was concentrated in the hands of foreign companies and of corrupted local power elites.

Shall we speak, then, of different models of capitalism? In part the formal rules of the system were (and are) the same in all these continents. The concentration of real power in the hands of a privileged group, however, causes the rules to produce different effects. In Italy, for instance, only in recent years have we had the significant development of a large class of small entrepreneurs, which has resulted in the social acceptance of freedom of enterprise and in a growing legitimation of the market. We may perhaps say that, in a certain measure, it is always possible that power groups possessing a monopoly of natural or cultural or political or economic resources try to close the market, to make it impossible for other men to acquire the means necessary to enter into the market which they dominate.

It is not so important whether we say that this monopoly really deserves the name of capitalism or whether we are convinced that this is a form of badly concealed socialism (as perhaps Michael Novak would say). What is important is that we share the same positive judgments on “capitalism” in the first sense and the same negative judgment on “capitalism” in the second sense.

This leads us to a second, equally important point. The market is not a natural state of affairs; it is a social institution. As such, it must be created and it must be defended; it may be enlarged and it may be restricted. In order to enter into the market, to be able to sell and buy in the market place, there are many necessary assumptions. Some of these assumptions are of a legal and objective nature. For example, we need laws defending the freedom of individuals and their property, and we need a law of contracts. It is impossible to buy and sell if somebody can take forcefully what he wants. We need efficient communications and transportation systems, in order to take our commodities to market. We need information concerning the kinds of commodities in demand; we need educational and technical skills in order to produce them. Those who will take the responsibility of production need a minimum of capital to allow them the chance to expose their good ideas to an intelligent and active banker who can provide them with needed capital.

In some countries these market prerequisites are available, in other countries only a small minority of persons stand within the market, while the great majority have no access to these prerequisites. Here the market does not exist, or at least is severely restricted. Large masses have no choice but to accept whatever conditions are offered them by those who have a monopoly of access to the market. Under such circumstances, something just short of a social revolution is required to create a market: a peaceful revolution of freedom.

We reach here a third point that is equally important.

Even in countries where the market works, many persons remain out of the market because of natural and social handicaps. It is a moral duty of solidarity to supply these persons with the material help needed to rehabilitate them, if possible, or otherwise to preserve their life and their human dignity. This duty does not fall, however, only upon the state. The new encyclical defends the necessity of welfare politics but warns against the deviations and the bureaucratization of the welfare state. The state should rather, in so far as it is possible, enhance the activity of society, allocating resources in order to help families and other social institutions to meet social needs. Money channeled through such agencies is as a rule more effective than money channeled through bureaucratic institutions, and different social groups are thereby encouraged to meet social needs by satisfying their social responsibilities. The expansion of large bureaucratic state agencies, which have a tendency to expansion without corresponding to the needs and the satisfactions of the needy, is to be restricted.

A fourth point, strongly stressed in the encyclical, regards the connection between market and culture. If the market is a social institution which needs to be constituted and enhanced through a corresponding institutional framework, then the market cannot exist and function alone. The market has legal, cultural and social presuppositions: it enters into a necessary alliance with different cultural and philosophical positions. In our societies there is a certain alliance between markets and libertinism. This alliance is called in the encyclical consumerism: market values are the only values which are socially considered and everything is considered as a commodity, even things (like sex, the human body, human dignity, truth, culture, and religion) which according to their very essence are not and may not become merchandise.

In criticizing consumerism the encyclical makes it clear that this connection between market and libertinism is not essential. It does not arise necessarily out of the nature of the market: it is rather a consequence of a certain historical development. For this reason it is possible to work to substitute this alliance with another one: between free markets and an adequate philosophy of man.

The encyclical even goes so far as to suggest that the alliance between the market and libertinism cannot, in the long run, work. Free market society needs not only consumers but also responsible individuals, capable of hard work and creative action. It does not need consumers who are willing to consume without working. Strong, responsible, and reliable individuals are not produced, for example, by sexual revolution, but rather are born and educated in morally healthy families. It seems, then, that the alliance between an adequate philosophy of man and a free market economy corresponds more to the true essence of a market economy than does an alliance with libertinism.

These considerations lead us to a final point, which should perhaps have been the first, since it is the most important point, namely, the extraordinary positive evaluation of human freedom in the economic field and the function of the entrepreneur.

The free economy presupposes the free man. In order to have a market we need two free individuals, whose wills meet on the conditions of a contract. In a slave society we cannot have a market economy but must rather have a command economy. Already this simple fact shows us that there is a certain specific value to a free economy. Our perception of this value grows if we consider that the principal cause of the wealth of nations is human intelligence and human will seeing the needs of other men, seeing the natural resources and human skills that could satisfy them, organizing them, and taking the risks involved in the enterprise of bringing resources in contact with needs. Very seldom has the role of entrepreneurship as the creative side of human work been so clearly seen and so highly evaluated as in this encyclical. It is even qualified as a particular human virtue, which of course implies a particular responsibility to the common good.

This corresponds, however, to a general principle which underlies not only this encyclical but also the whole teaching of this pope: nothing good can be done without freedom, but freedom is not the highest value in itself. Freedom is given to man in order to make possible the free obedience to truth and the free gift of oneself in love. Truth and love are the measure of freedom and of the rules of the self-realization of freedom, in the field of economics as well as in all others.