Why the Bailout Will Fail According to St. Thomas Aquinas

“The earth is the Lord's and the fullness thereof: the world, and all they that dwell therein.” Psalm 23:1

Establishing Basic Principles

Christians must begin with Christ’s teachings when considering economic policy. So let’s start with first principles. According to St. Thomas Aquinas, “God has sovereign dominion over all things: and He, according to His providence, directed certain things to the sustenance of man's body. For this reason man has a natural dominion over things, as regards the power to make use of them.” - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66. We are not the owners, but the stewards of creation. We owe our being to God, yet this is not disempowering. Property can never actually be private because it is bounty of the earth in which all share. This definition of private property is far different than the one that currently reigns in the U.S. According to this definition, man has the power of use, but God is the ultimate owner. As with the Fathers of the Church, St. Thomas chides the wealthy for acquiescing in the illusion of absolute ownership, which is the source of false freedom, “The rich man is reproved for deeming external things to belong to him principally, as though he had not received them from another, namely from God.” - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66. Everything that we “own” is a loan from God meant to help bring about the Kingdom of God on earth.

According to the U.S. bishops, “Only active love of God and neighbor makes the fullness of community happen. Christians look forward in hope to a true communion among all persons with each other and with God. The Spirit of Christ labors in history to build up the bonds of solidarity among all persons until that day on which their union is brought to perfection in the Kingdom of God.” – “Economic Justice for All”. This principle needs to be kept carefully in mind as we examine the whether taxpayer money should be used to keep alive a system that does not respect or even acknowledge the common good.

However, before moving on to financial crisis, I want to spend more time building a solid Christian underpinning for economic issues. St. Thomas establishes the principle that according to natural law all things are owned in common, “Now according to the natural law all things are common property and the possession of property is contrary to this community of goods.” - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66. He then justifies private ownership in the following reply, “Community of goods is ascribed to the natural law, not that the natural law dictates that all things should be possessed in common and that nothing should be possessed as one's own: but because the division of possessions is not according to the natural law, but rather arose from human agreement which belongs to positive law…” In other words, property rights are not primordial, but the result of human agreement. Therefore, the common ownership of goods has dominion over property laws. God made the world to be shared, not divided up according to the dictates of greed and concupiscence.

St. Basil said, “The rich who deem as their own property the common goods they have seized upon, are like to those who by going beforehand to the play prevent others from coming, and appropriate to themselves what is intended for common use." - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66. The play in this case is the struggle for a sufficiency of goods to allow us to achieve a life of virtue. St. Thomas’ reply targets the sin in appropriating for private enjoyment the goods that are meant for common use, but defines the corresponding responsibility this way: “A man would not act unlawfully if by going beforehand to the play he prepared the way for others: but he acts unlawfully if by so doing he hinders others from going. In like manner a rich man does not act unlawfully if he anticipates someone in taking possession of something which at first was common property, and gives others a share: but he sins if he excludes others indiscriminately from using it.” - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66. So the sin which constantly lurks in the property system is that of indiscriminately excluding others from using the property which God intended for common usage. The justification of wealth is that it allows the wealthy to “prepare the way for others” to enjoy the goods of this world and so gain merit through the virtue of solidarity.

St. Thomas defines theft as follows: “Ambrose says [Serm. lxiv, de temp., 2, Objection 3, Can. Sicut hi.]: …‘It is no less a crime to take from him that has, than to refuse to succor the needy when you can and are well off.’ His reply to this objection is actually an affirmation, “To keep back what is due to another, inflicts the same kind of injury as taking a thing unjustly: wherefore an unjust detention is included in an unjust taking.” - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66. Note that to refuse the just due of those who have been defrauded by unscrupulous mortgage companies is considered theft as much as taking the goods of another unjustly. Far from being merely “the cost of doing business”, such theft is mortal sin: “But theft is a means of doing harm to our neighbor in his belongings; and if men were to rob one another habitually, human society would be undone. Therefore theft, as being opposed to charity, is a mortal sin.” - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66

The Nature of the Crime: The Refusal of the Common Good

The basic factor behind the current crisis is stagnant wages for workers accompanied by remarkable increases in productivity enabled by those same workers. In turn, the consequent increased profits were redirected to the owners of the enterprises rather than to the workers who actually produced them. Next, in order to maintain the lifestyle promoted by advertising campaigns, workers borrowed against their houses. Wall Street, in turn, bought up these mortgages and packaged them as securities, to be sold to big investors. The scheme imploded when housing prices stopped climbing. At that point, many workers could no longer pay off their mortgages and the value of the mortgage-based securities declined drastically. This set off a chain reaction among the major banks that were gradually forced to expose the extent of their reliance on bad mortgage debt. Unable to meet their financial obligations, the bankers have no choice but to run to the federal government for relief.

The principle which this arrangement has violated is well stated by the U.S. Bishops, “Business and finance have the duty to be faithful trustees of the resources at their disposal. No one can ever own capital resources absolutely or control their use without regard for others and society as a whole” - “Economic Justice for All”. The major corporations disregarded the good of the workers who actually produced the wealth, preferring to gain illusory riches by creating financial instruments which encapsulated leveraged gains. Again, the bishops, “Resources created by human industry are also held in trust. Owners and managers have not created this capital on their own. They have benefited from the work of many others and from the local communities that support their endeavors. They are accountable to these workers and communities when making decisions” - “Economic Justice for All”. Standing behind this is the universal belief of the Fathers of the Church, as summarized by St. Basil, “The rich who deem as their own property the common goods they have seized upon, are like to those who by going beforehand to the play prevent others from coming, and appropriate to themselves what is intended for common use”, as quoted by St. Thomas above. Justice would seem to dictate that the workers whose increased productivity led to the increased profits should share in those profits. If that had been the case, then the unsustainable borrowing that brought on the crisis would not have been necessary and the housing bubble, based largely on fraudulent claims by mortgage lenders, would not have taken place. The investment bankers will no doubt argue that according to U.S. law they can dispose of their property in whatever way seems best to them. If they choose to invest increased profits in derivative investments or casinos in Bermuda rather than raising wages, that is their right.

But what does St. Thomas say about such rights? “Things which are of human right cannot derogate from natural right or Divine right. Now according to the natural order established by Divine Providence, inferior things are ordained for the purpose of succoring man's needs by their means. Wherefore the division and appropriation of things which are based on human law do not preclude the fact that man's needs have to be remedied by means of these very things. ” - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66.

According to Pope Paul VI, “… private property does not constitute for anyone an absolute and unconditioned right. No one is justified in keeping for his exclusive use what he does not need, when others lack necessities. In a word, according to the traditional doctrine as found in the Fathers of the Church and the great theologians, the right to property must never be exercised to the detriment of the common good’” – “On the Development of Peoples”, 13. Be that as it may, the investment bankers were simply obeying the laws of their world when they tried to grasp as much profit for themselves as possible since that is the condition for success in the current economic system. But, as the wisdom of the Church demonstrates forcefully, this behavior contains the seeds of its own destruction.

If the investment bankers had chosen to share the rewards of increased productivity with working people, even to a small extent, rather than retaining all the profits for themselves, the resulting wealth distribution would have seeded much economic growth and avoided the crisis in which we now find ourselves. “The second thing that is competent to man with regard to external things is their use. On this respect man ought to possess external things, not as his own, but as common, so that, to wit, he is ready to communicate them to others in their need. “- Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66.

Finally, we must face the fact that what these bankers and other investors have done is mortally sinful. Therefore the issue of how to restructure this economic system is of the gravest possible importance. According to St. Thomas, “…a mortal sin is one that is contrary to charity as the spiritual life of the soul. Now charity consists principally in the love of God, and secondarily in the love of our neighbor, which is shown in our wishing and doing him well…Therefore theft, as being opposed to charity, is a mortal sin.” - Thomas Aquinas, Summa Theologiae, IIa, IIae, q. 66. The life of our souls is charity. What I have tried to do above is demonstrate that what the Wall Street elite have done is a grave violation of charity towards the working people of this country. They have severely damaged the life of their souls and we are obligated, on pain of mortal sin if we perceive the truth of this argument, not to further participate in their sin by providing funds to continue their depredations.

Why the Bailout Will Fail

Simply put, the bailout can’t succeed because it doesn’t address the root of the problem. Thus the conditions that led to current crisis will be repeated in another form a few years from now requiring yet another bailout. The root of the problem is an economic system that does not respect or even recognize the common good, but instead rewards those who most flagrantly violate it.

If no thought is given to a fundamental economic restructuring towards promoting solidarity and the common good, we will endlessly repeat the scenario in which the few use whatever means are necessary to create massive concentrations of wealth and power. Since such concentrations can’t be made without gross violations of charity, the habit of inflicting massive violations on the economic rights of the majority will become ingrained. Such violations will become the unquestioned norm to such an extent that we will no longer be capable of envisioning realistic alternatives. Thus the process becomes a self-perpetuating cycle.

The fundamental economic argument against the bailout is well described by Michael Hudson, “For the government to even begin to recover some of the value of the $700 billion in junk mortgages it has bought would force new homebuyers to pay even more of their income to the banks. And if they do that, they will have less income to spend on goods and services. The domestic market will shrink, and tax revenues will fall at the state, local and federal levels. The debt overhead will deflate the economy, causing shrinkage all down the line.” – Michael Hudson, “The Insanity of the $700 Billion Giveaway”, Sept. 25, 2008. This analysis points to the fundamental cause identified previously – the failure to share the prosperity resulting from productivity increases and spread the wealth among a wider share of the population. The bailout plan fails because it depends on even more pressure on the most exploited for its success.

In fact, the bailout will prevent the necessary debt write down that the economy needs in order to recover. To put it in religious terms, the investment bankers should accept repentance and punishment in order to regain moral balance. By artificially inflating the value of worthless investments, the necessary healing which would result from failure will be averted. Rather than preventing crisis, this guarantees that the crisis will be deeper and longer lasting, but with additional pain transferred from the investors to taxpayers, who play the sacrificial lamb in this drama.

Conclusion and a Look Ahead

Rather than simply indulging in Wall Street bashing, I prefer to point to a vision of human solidarity. Hopefully, I can be indulged one more quote from St. Thomas, where he lays the foundation of Christian economics: “For the well-being of the individual two things are necessary: the first and most essential is to act virtuously (it is through virtue, in fact, that we live a good life); the other, and secondary, requirement is rather a means, and lies in a sufficiency of material goods, such as are necessary to virtuous action." St. Thomas Aquinas, De Regimine Principum, chap. XV. Thus economic activity should contribute to a world where each has sufficient material goods to ensure the groundwork for a life of virtue. In a Christian economy, the production of goods and services aims not at accumulating the greatest amount possible, but finding ways in which mutual interests and empathy can be promoted. Economic structures must be found which enhance ties among people, rather than proliferating destructive competition. Thus, we can achieve a mutually beneficial economy in which all advance in concert with one another. Put simply, for me to do well, I have to be concerned with others doing well.

What must happen in order to bring this vision about? First, we must challenge the absolute right to property. As I illustrated above, property rights must cede to the universal destination of goods which God intended so that we can more easily grow in charity. Property is a conditional, not an absolute right, allowed only to the extent that its holders respect the common good. When a tiny minority owns the means of livelihood for the vast majority, solidarity becomes impossible because the interests of the minority and majority inherently conflict. The lower the wages of workers, the more the profit can be kept by the owners. The fewer the benefits owed to workers, the greater the slice of the pie for stockholders. The more intensely and longer workers work, the higher the rate of accumulation. These facts are built into the current economic system and cannot be reformed away.

I end with Hildegard of Bingen who said, "Greed says: 'I snatch all things to myself. I hug all things to my breast; the more I have gathered the more I have … When I have whatever I need, I have no worries about needing anything from someone else.' Simple sufficiency replies: 'You are harsh and devoid of mercy because you do not care for the advancement of others. Nothing is sufficient to satisfy you. I, however, sit above the stars, for all of God's good things are sufficient for me … Why should I desire more than I need?'" - Hildegard of Bingen.