A Giant Among Catholic Economists

Heinrich Pesch, 1854-1926, a German Jesuit priest and economist, is largely unknown in the U.S., but arguably he is one of the most important and influential Catholic thinkers of the past few centuries. It was to the thought of Pesch and his disciples that Pope Pius XI turned to in composing his monumental encyclical Quadragesimo Anno (1931), and it is from Pesch that John Paul II has taken many of the ideas of his own social encyclicals, including the idea of man as the subject of work, of man’s dominion over the world as founded on his exercise of work, and even the key term “solidarism” (solidarity). Indeed, it sometimes seems uncanny, after reading John Paul, to turn to Pesch and see the same ideas, sometimes presented in nearly the same words. Any thinker who has had such influence over more than one Supreme Pontiff is worth knowing better.

Since the publication of Adam Smith’s Wealth of Nations in 1776, the study of economics in the English-speaking world has largely moved in the direction of a deductive science, divorced from ethics and without an explicit philosophical basis in the nature of man, although in actual fact covertly accepting the hedonism of thinkers such as Thomas Hobbes and Jeremy Bentham. Almost every beginning student of economics today is initiated into a system of analysis which uses a few simple but powerful tools to examine the economic transactions of producing, buying and selling, saving, etc. These analytical tools tend to treat economic activity as basically mechanical in nature, with each economic actor seeking only to maximize his interests, which are conceived almost entirely as monetary. Man’s economic activity can thus be largely reduced to a mathematical expression, and articles in economic journals are full of graphs and equations. But in the 10 volumes of Heinrich Pesch, there is hardly any mathematics at all, though this is not due to ignorance or inability. Although he began the formal study of economics late in life (in 1901 at the University of Berlin), his decision to eschew the use of mathematics in economics was deliberate. Thus, Pesch begins his work with a consideration of the nature of man and his relation to the world around him, of the family, of society, and of property. He does not omit a discussion of what should be the proper methodology of economic science and its relations to the other social sciences, which is something today’s conventional economists rarely consider.

Anyone familiar with the atmosphere of contemporary economics texts will find the atmosphere of Pesch very different. Conventional economics seeks as much as possible to imitate physics — to be, as mentioned earlier, a deductive science whose contents can, in theory, be presented almost entirely mathematically. There is no careful development of subject matter based on the nature of man or the family or society, no consideration of what an economy is ultimately for. But Pesch is the antidote to this approach. He is aware that no subject can be divorced from its philosophy, that no one will understand something thoroughly if he does not see it in its larger setting. Thus, his work is characterized by the step-by-step development of theses, careful definition of terms, and constant reference to first principles.

But this is not to say that the Lehrbuch is not really an economics text. Although it includes philosophical discussions and continual reference to theological principles, it is not a philosophical or theological work. It is a full and technical examination of economic theories. Pesch examines and discusses all the important topics in economics, both technical and ethical; questions of wages and prices, land and farming, ownership and welfare; and such intricate subjects as banking and foreign exchange. While it is true that some of the subject matter has changed considerably since Pesch wrote, rarely are his observations without value or interest.

The amount of erudition contained in the Lehrbuch is amazing. The views of every important economic theorist, especially those writing in German, French, or English, are considered, including those whom Pesch rejects, such as Karl Marx and Adam Smith and Malthus. And whatever good can be found in these erring thinkers, Pesch finds, sifts, corrects, and places within his own framework. Often, as with his discussion of the principle of marginal utility, he neither wholly accepts nor wholly rejects the received theory, but qualifies and refines it. In all this he is very like Thomas Aquinas, who considered the views of the ancient pagans, earlier Catholic writers, and even Arab and Jewish philosophers contemporary to him in formulating his own philosophical and theological opinions. Speaking of St. Thomas, Pesch the modern Jesuit is like the medieval Dominican in more ways than one. For Pesch, unlike most writers on economics, is not afraid to acknowledge God, the God who created man with a certain determinate nature, and thus, from studying that nature, one can conclude what God’s intention was for how the human race should live.

Pesch has definitely written a Christian work. Those who ridicule the notion of a “Catholic economics” forget that for a Catholic, all truth, whether from reason or revelation, is valuable, and a Catholic thinker who neglects the truths of revelation does so at his own intellectual peril.

Pesch, as a Catholic economist, necessarily rejects socialism and all forms of collectivism. He places private property — along with the family and the state — as one of the three pillars of the social order. At the same time, he rejects free-market capitalism, for from his examination of the nature of man and society, he is led to the idea of the mutual interdependence of all members of society. Thus, his system is called Solidarism — or the Solidaristic System of Human Work — which in outline will be familiar to all readers of the papal social encyclicals. For example, as both Leo XIII and Pesch point out, because capital and labor depend on each other, or, more precisely, since owners and workers depend on each other, there should not be any fundamental conflict between these different economic agents. And there is no reason to suppose that society will flourish best when each member tries only to advance his own economic welfare, any more than that the family maximizes its own happiness when each member thinks solely of his own interests.

Pesch was, above all, concerned with the human beings for whom Christ died. In discussing the business cycle, for example, he writes, “To be sure, it is said that while business cycles open wounds they also heal them again. Today they cause loss, tomorrow, profit! But what about those cases where loss and profit do not recur to the same people or the same classes of people, so that some are carried to the dizzying heights of wealth, while others are reduced to economic ruin?”

These kinds of thoughts occur to many of us only during economic downturns. But they ought to be the thoughts that Catholic thinkers constantly keep before their eyes. In our own country, the ratio of pay between a CEO and a factory worker has gone from 25 to 1 in the late 1960s, to 42 to 1 in 1980, to 419 to 1 in 2002. Pesch considered such extreme discrepancies in income an evil, and he quotes approvingly the statement that the “differences in society should not reach a point where a nation ends up divided into two halves: one half too rich, the other half too poor.”

Pesch proposes and argues for several features as part of his system, which those familiar with the tradition of Catholic social thought will immediately recognize. One is the occupational group or “guild,” sometimes called an industry council in the U.S. This type of organization, strongly championed by Pius XI and Pius XII, and mentioned at least in passing by nearly every subsequent pope, is one of the key institutions in Pesch’s economic program. Its abandonment by most Catholic thinkers since the 1950s is simply another example of how we have thrown out important elements of our Catholic intellectual tradition with hardly any advertence. Other aspects of the Catholic tradition in economics that Pesch discusses and supports include the importance of farming and rural life, the just price, and the just wage. Pesch notes that a just price can best be determined within the occupational groups mentioned above. “In order that a general consensus [on prices] may establish itself in the most concrete and objective terms, it is advisable to set up organizations within which producers, merchants, and buyers can express their views.” Herewith, the common retort of supporters of free-market capitalism, “But who is going to determine the just price?” is rendered nugatory in Pesch’s system, for when occupational groups have been established, such questions largely take care of themselves.

Pesch’s discussion of the just wage is surely one of his most original contributions to economic and moral theory, for he speaks of the concept of the “just wage as the economically correct wage.” After noting that a man’s labor is ordinarily capable of producing enough to provide for himself and his family, Pesch goes on to say, “The employer who, by his own ineptitude, uses labor in such a way that it does not come up to doing what it is capable of doing, would nevertheless be required to pay the kind of wage which labor is intended to provide. However, if labor is utilized properly in accordance with its natural purpose, and the employer pays a wage which does not provide for labor’s livelihood, then he violates commutative justice. Finally, an industry which, even under normal circumstances is not in a position to pay wages corresponding to what wages are supposed to accomplish, is lacking in economic justification. This means that the requisite consumer demand is lacking, and such an industry no longer has a place in the pattern of satisfying normal human wants.”

In other words, if the only way in which an employer can afford to sell his product is to set his prices so low that he cannot afford to pay his workers a living wage, then clearly his product lacks sufficient consumer demand. It is as if he had to bribe the public to buy his product by charging less than its genuine production cost. Today we are inundated with cheap goods produced abroad, sometimes, as with those produced in China, in conditions little better than slavery. This is a distortion of the economic process. If the item is worth buying, it is worth paying a price that fully compensates all who are involved in its production. If someone revived chattel slavery today and boasted that he could undersell his competitors, who would doubt but that his entire enterprise was an economic as well as a moral evil, no matter how cheaply he could produce? The same logic must be applied to any enterprise that cannot afford to pay its workers a just wage. This kind of analysis, which respects both real economic facts as well as ethical principles, is characteristic of Pesch and of the Catholic tradition at its best.

Pesch’s translator, Rupert Ederer, Professor Emeritus of Economics at the State University of New York at Buffalo and himself born in Germany, has devoted much of his life to translating and popularizing Pesch’s work in the English-speaking world. In addition to the Lehrbuch, Ederer has translated several of Pesch’s other works, including an earlier book of selections from the Lehrbuch. This present effort crowns a life dedicated to the Church’s social apostolate. It would be difficult to overstate the importance of this book now appearing in English for the first time. Since Pesch’s magnum opus is both long and expensive, I would suggest that for most readers the last four or five volumes will hold the most interest. It is in those that Pesch most directly confronts capitalist thought and argues for a Catholic position. But academic libraries, and anyone else with sufficient time and money, ought to purchase the entire set. For a Catholic who intends to be a serious student of economics, who wishes to promote the Social Reign of Jesus Christ, it is an essential starting point. For to read Pesch is to begin to think scientifically about economics from a Catholic point of view. Those who have studied conventional economics will find in Pesch a new starting point for thinking about economics, a starting point that is faithful both to economic facts and to the Church’s teaching. Pesch is a writer and thinker of first rank, whose work is simply too important to ignore.