Can Aquinas Shed Light on Our Current Economic Predicament?

When the House of Representatives first voted on the bill proposing $700 billion dollars to bail out corporations about to sink into the abyss following the decline in value in mortgage-backed securities, I crossed my fingers that it wouldn’t pass.  In the wake of impending financial doom and Hank Paulson’s strangely monotone yet panicked demand that Congress “do something,” I withheld my confidence in the potential success of this plan.  I am no economist and I certainly don’t understand every element of the current economic fiasco, but I was pretty sure Congress didn’t know what they were doing either.  My first clue was that Nancy Pelosi and George Bush actually agreed that the bill should pass.  Clearly, this is a confused bunch of legislators.

It may seem odd in light of my distrust of Congress and my skepticism regarding the prevailing opinion that this $700 billion is a good idea that I would turn to a 13th century thinker for guidance.  But Aquinas lays out some principles of justice that I think do, in fact, shed light on why we are in the economic situation we are in, and what can be done about it.

I. Justice

Aquinas’ treatise on justice is in the “Second Part of the Second Part” (the Secundae Secundae) of his magnum opus, the Summa Theologica.  It is a large treatise, consisting of 79 questions.  As with every virtue in the Secundae Secundae, he defines the object, the subject, the parts, the vices against, and the precepts of justice.  The object of justice is the right, the ius, which Aquinas says is a “work adjusted to another person according to some kind of equality” (II-II, Q. 57, art. 2).  The subject of the virtue, that is, the power of the soul that the virtue perfects, is the will.  So Aquinas defines the virtue of justice as the “habit whereby a man renders to each one his due by constant and perpetual will” (II-II, Q. 58, art. 1).

The general parts of justice are distributive justice, which deals with the just distribution of goods according to some sort of proportionality, and commutative justice, which deals with just actions in exchange and agreement.  There are lots of vices against commutative justice, some of which we will address below, but against distributive justice, there is only one vice which Aquinas calls “respect for persons.”  This vice is characterized by giving to people goods not because they deserve them, but because they are a certain person, such as a person of prominence or a person of wealth.  I am inclined to think that the current bailout is in part a manifestation of this specific vice of respect of persons.  Congress does not bail out Joe Smith when he gambles away his savings at a Las Vegas casino, or Sally Jones when she borrows more than she can pay back.  But the people and corporations currently benefiting from the bailout, even though essentially guilty of the same actions, get special treatment. 

Aquinas says that respect of persons involves a certain inequality contrary to justice “in so far as something is allotted to a person out of that proportion to him in which the equality of justice consists” (Q. 63, art. 4).   Moreover, he says in the objections in that same article that crimes committed against a greater person, and presumably, crimes that severely endanger the common good would be included, deserve a greater punishment.  Distributive justice demands that these bankers, and similarly, these banks, get the punishment they deserve, not the succor that belongs to the vice of “respect of persons.”  The argument that these companies are “too big to fail” is partially a consequentialist argument (i.e. if these companies went under it would be really, really bad) but I think it is also an argument based on the fact that those running these companies are very wealthy, very high-powered individuals with a lot of political leverage that they use in sticky situations like this one. 

II. Question 77: Of Cheating

 The “respect of persons” issue is interesting, but it doesn’t really address the principal reasons why we might be in this mess and what we can do about it.  In order to address these questions, I turn now to Aquinas’ treatment of cheating.

Aquinas asks first whether it is lawful to sell a thing for more than its worth.  This might strike us as odd if we think that things don’t have any inherent value outside of the value the market assigns.  Aquinas thinks the value of something depends on their usefulness to a person and that just exchange serves both parties equally.  Now, if the thing being exchanged is faulty, either because it is broken or because it is not worth as much as may be claimed or because it is of lower quality than may appear, the sale or exchange of that thing is unlawful.  Aquinas says that in all these cases, “not only is the man guilty of a fraudulent sale, but he is also bound to restitution.”  Even if the person selling the faulty good is ignorant of the fault, he is still bound to restitution.  This ensures that the common good is protected by restoring equality where inequality exists.  This means that houses that were sold for more than they were worth were fraudulent sales, even if the real estate agents and lenders and home owners didn’t know that the homes they were selling were overvalued.  It also means that the people who profited on these sales are bound to restitution.  Banks and companies that profited off of mortgage-backed securities that were bought and sold for more than they were worth rightfully should pay to restore equality.

But somebody may respond that it is perfectly reasonable to sell something like a home for more than it is worth, if a buyer exists who will pay the price.  Aquinas disagrees.  First, he distinguishes between two types of exchange.  The first is natural, as when one thing is exchanged for another, or for money equal to the value of the good exchanged.  The second type of exchange is the exchange of money for money or money for a commodity not on account of the necessities of life, but rather for profit.  This kind of exchange “is justly deserving of blame, because considered in itself, it satisfies the greed for gain, which knows no limit and tends to infinity” (Q. 77, art. 4).

 We have been hearing a lot about predatory lending in the subprime community.  What we don’t hear enough about is predatory exchange.  Houses have been greatly overvalued, but so have lots of other things.  Think about how much people spend for food at Whole Foods, for clothing from Neiman Marcus, or for luxury cars.  Obviously, lots of people willfully choose to overpay for these commodities but for Aquinas, that does not matter.  Exchange serves the purpose of supplying for natural needs and the necessities of life.  Profit may be a secondary consequence, but cannot be a primary purpose for exchange.

III. Of the Sin of Usury

Aquinas says that to make money on money lent is unjust in itself, “because it is to sell what does not exist, and this evidently leads to inequality which is contrary to justice.” Aquinas compares money to wine or wheat whose use consists in their consumption.  It would be wrong, Aquinas says, to sell wine and then to charge for drinking the wine.  Money is like wine in the sense that its use is to be consumed.  Lending money in itself is not wrong, but lending money for the sole purpose of making money off that loan is, as the Philosopher says, exceedingly unnatural.

Now, banks and companies involved in lending to the subprime community have lent money not primarily for the purpose of just exchange, but rather to make profit.  And many people have made extraordinary profits on these loans, especially in light of variable interest rates that forced poor and middle class people to make house payments that were mainly just paying off interest, not paying off the house.  Is it any wonder that these people have to default on their loans and the banks have to repossess their houses?  Aquinas says that if a person by usury extorts a person house or land, they are bound by the demands of justice to restitution.  This means that the banks who profited so much in the good years cannot repossess these houses simply because the people living in them can’t make the high monthly payments due to the high interest rates.

Now, I understand why people might bristle when reading this, but what I want to emphasize is the fundamental difference with the way we think of economics and the way Aquinas thought of economics.  We think of exchange as serving first and foremost the goal of profit; Aquinas thought of exchange as serving first and foremost natural human needs and the good of the community.  We think the market determines price; Aquinas thought that there were fair prices due to the inherent worth of a thing.  We cringe at making the rich, who profited for so long on practices of unjust exchange and usury, to make restitution to the poor; Aquinas saw this as a fundamental demand of justice.

IV. What should be done?

The reason Aquinas makes all these claims is that for him, justice is fundamentally about establishing equality.  When exchange is unequal, even if inadvertently so, restitution must be made.  So what does that mean for the bailout?  First of all, there is no way that the bailout can be considered just.  Nor do I buy the argument that we have to let some unjust people benefit in order to save our economy.  Justice can only be reestablished by restoring equality.  The bailout increases inequality for the sake of alleged good consequences, namely, saving the economy.  But saving an economy where injustice abounds and which is powered by usurious practices strikes me as ridiculous.  Here are some things we should do:

First, if the government is going to help anybody, it should be homeowners that are the victims of predatory lending practices, especially the elderly, the uneducated, and the handicapped.  How to finance this?  Liquidate the assets of Freddie, Fannie, and every other corporation that profited off of mortgage-backed securities.  Liquidate the assets of the executive members of these companies.  Take their homes, their cars, and every last dime in their bank accounts.  And do the same for every politician that profited either politically or personally from mortgage-backed securities.

Second, we need to challenge the way we think of money and the right we consider ourselves to have to spend our money on whatever we want.  We live in a society where, through unequal exchange, the rich get richer and the poor get poorer.  And we all participate in perpetuating this system when we spend $6.00/gallon for milk at Whole Foods, while children in our own community have no milk at all.  Whole Foods only gets away with charging such exorbitant prices because people are willing to pay, but that willingness does not remove the fundamental injustice of this exchange.  We need to stop paying, but more fundamentally, we need to stop thinking that a just price is whatever the market will allow for.  Aquinas recognizes that we can’t make it totally illegal to sell a thing for more than it is worth because human law is designed for the virtuous and unvirtuous, so if something is oversold without deceit, like our $6.00/gallon milk, the law looks upon this as licit by not punishing it unless “the excess be too great, because then even human law demands restitution to be made, for instance if a man be deceived in regard to more than half the amount of the just price of a thing.”  I don’t think we use the law to make places like Whole Foods pay restitution, but we can cease our spending of things that cost much, much more than they are worth simply because we can.

Finally, we need to start thinking of money as a means of exchange and not a good in itself.  We need to stop sinking our money into stocks, corporate bonds, and hedge funds in order to make more money from our investments.  We need to stop building up credit card debt and paying huge interest rates for the privilege to do so.  Rather, we need to start investing in our community and spending our money in exchange for goods and services, which not only distributes wealth more fairly, but also uses money in the way it was meant to be used.  Money is a means of exchange, meant to serve other ends, and not be an end in itself. 

The $700 billion bailout bill has passed and still, stocks are on the decline, inflation is rising, and the Fed had to once again cut interest rates to keep people from assuming the sky was falling.  I think it is very possible that we will have hard times ahead.  People will lose their homes, people will lose their savings, people will lose their luxurious lifestyles.  I think we need to make sure that we who have much are providing for those hardest hit, opening our homes to the homeless, our tables to the hungry, and our wallets to the destitute.  I also think that we need to courageously challenge the economic status quo, realizing its inherent injustices, and allowing those unjust sectors of the economy to fail, rather than artificially propping them up with yet another Congressional bailout.

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