Pope Francis Owes It to the Poor to Be More Informed about Markets

Antony Davies, James R. Harrigan – January 28, 2020

Galileo ran afoul of the Inquisition in 1633 when he was found “vehemently suspect of heresy.” His heresy? Declaring the heliocentric view of the solar system: that the earth revolves around the sun. His punishment was lighter than many others who faced the Inquisition. He was “only” sentenced to house arrest until his death in 1642.

As is occasionally the case, the Roman Catholic Church’s pronouncements did not age well, and it matters little whether Pope Paul V or Cardinal Bellarmine shoulders the blame. The Church ordered Galileo “to abstain completely from teaching or defending this doctrine and opinion…the opinion that the sun stands still at the center of the world and the earth moves, and henceforth not to hold, teach, or defend it in any way whatever, either orally or in writing.”

One might think that being this profoundly wrong about something well outside the realm of theology would cause the magisterium, and the pope specifically, to tread very carefully even 386 years later. But one would be wrong. Because here comes Pope Francis yet again, offering economic opinions from the bulliest of pulpits about something he understands no better than a garden-variety college freshman.

Mutually Beneficial Trade

Pope Francis’s most recent ill-advised foray into economics occurred during his commemoration of United Nations World Day. Speaking on the problems of global nutrition, the pope said,

The battle against hunger and malnutrition will not end as long as the logic of the market prevails and profit is sought at any cost, with the result that food is relegated to a mere commercial product subject to financial speculation and with little regard for its cultural, social and indeed symbolic importance.

According to the pontiff, “the logic of the market” keeps people hungry. But “the market” has no logic. The market isn’t a thing, let alone a sentient thing. “The market” is the sum total of individual interactions among billions of people. The market is the world community, the coming together of billions of people who both offer and want things that billions of others both want and offer.

The market is the metaphorical space in which people come together to trade. And they trade all kinds of things, including food. While there is no “logic of the market,” the logic of the people in the market is that they trade when it is to their mutual advantage to do so. And this is something anyone concerned with world hunger, indeed even world peace, should applaud. Until the maturation of markets—and capital—the way people gained riches was by looting and pillaging. They took riches from others. People developed markets as a way to create riches through cooperation with others.

Whenever a trade occurs, both sides are better off for having made it. We know this because if they weren’t, the trade wouldn’t occur. This is the logic of the people who occupy markets.

Not surprisingly to anyone but perhaps Pope Francis, some of the first financial speculation in which humans ever engaged involved food. Financial speculation and its more evolved cousins, options and futures contracts, evolved precisely as a means to fight hunger. Centuries ago, farmers incurred significant risk because they had to choose what crops to plant and in what quantities months before they could know what crop prices would be. The more land a farmer planted, the more risk he incurred.

If there were a way to transfer this risk to someone else, farmers could afford to plant more food. Financial speculation solved this problem by giving monied investors — today we’d call them capitalists — the ability to purchase crops before the crops were planted. If crop prices went up, the speculators made profits. If crop prices fell, speculators lost money. Importantly, the speculators took some of the risk of price fluctuations off the backs of farmers, and this made it possible for farmers to plant more food.

Profits and Risk

Profits, be they in the form of piles of gold or wallets of dollars, are tangible and directly measurable. Risk is not. Anyone who doesn’t look below the thin surface of economic transactions will see only the dollars and conclude that speculators are merely parasites who siphon the lifeblood from hardworking farmers. That someone would not see below the surface is understandable. That that someone would be a pope who draws moral conclusions on the basis of this myopia is not.

If these arguments are too esoteric for Francis, there is also overwhelming evidence. Economic freedom measures the degree to which a country’s government permits and supports the very sorts of markets against which Francis rails. A government permits markets by refraining from burdensome taxation and unnecessary regulation. A government supports markets by preventing people from harming each other and by holding them to their contractual word.

If we list societies according to their economic freedom, the same pattern emerges again and again and again. Whether comparing countries, states, or cities, societies that are more economically free exhibit better social and economic outcomes than those that are less economically free. The pattern doesn’t hold in every instance, but it holds so often that even Francis should be able to see it quite clearly from his Vatican perch.

The United Nations defines extreme poverty as living on less than $1.90 (adjusted for differences in costs of living) per day. Extreme poverty rates for the half of countries that are less economically free are around seven times the extreme poverty rates for the half of countries that are more economically free. 

Data sources: World Bank, Economic Freedom of the World, Fraser Institute. Data are for 154 reporting countries in 2011.

Simple poverty, according to the UN, is living on less than $5.50 (adjusted for differences in costs of living) per day. Simple poverty rates for the half of countries that are less economically free are around three times the simple poverty rates for the half of countries that are more economically free. 

Data sources: World Bank, Economic Freedom of the World, Fraser Institute. Data are for 154 reporting countries in 2011.

Where is this “logic of the market” that has given us hunger and malnutrition? According to the data, hunger and malnutrition reside most surely among the countries that have rejected markets. The very markets Francis decries are the mechanisms that lift people out of poverty.

Are Markets Dangerous? 

And if the world around Francis doesn’t provide enough compelling evidence, the world prior to Francis certainly does. At the turn of the 18th century, around 95 percent of humans lived in extreme poverty. That was at the advent of the Industrial Revolution and of capitalism. As both took hold—and neither could have taken hold without the other—the world population exploded. The number of humans on the planet grew exponentially from 0.8 billion in 1800 to nearly 8 billion people today. Meanwhile, the extreme poverty rate fell from 95 percent to below ten percent. With the flourishing of capitalism, the extreme poverty rate fell tenfold at the same time that the number of humans grew tenfold.

But not everyone has shared in this bounty. Where are the people who have been left behind? North Korea, Cuba, and Venezuela come to mind — exactly those places that share Francis’s view that markets are dangerous things to be feared and restricted.

Data source: World Bank.

The pope’s repeated statements on the evils of capitalism and markets are more than wrong. They are sinful. 

Countries that follow Francis’s economic prescriptions will directly and definitely harm the poorest and most vulnerable among them. We do not fault Francis for not understanding economics, but we absolutely fault him for the hubris of using his moral authority to spread his ignorance.

It took the Catholic Church 350 years to recognize and recant its demonization of Galileo. The poor cannot afford to wait centuries for the Church to recant its demonization of capitalism and markets. Functioning markets have lifted billions of people out of poverty. Perhaps it’s so obvious that only a pope cannot see it. But then, the pope lives in the splendor of one of the greatest concentrations of wealth in human history. He owes it to those suffering in poverty to do better. To be better.

He can start by realizing that his opinions on economics are woefully uninformed. It’s what every garden-variety college freshman learns. For the sake of the poor, it’s time Pope Francis took a lesson.

Originally published at Fee.org.  

Photo by Ashwin Vaswani on Unsplash

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