Since the first papal encyclical on modern economic questions, Rerum Novarum, was promulgated in 1891, Catholic pontiffs have had harsh words for "unbridled capitalism" and "philosophical liberalism." In Quadragesimo Anno (1931), Pope Pius XI wrote that "the right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching." In Octogesima Adveniens (1971), Pope Paul VI argued that "structures" should be set up "in which the rhythm of progress would be regulated with a view to greater justice."
The upshot—that a capitalist system cannot be trusted automatically to produce what the Church views as morally acceptable outcomes—may seem to require Christians to support a robust central government. If society is to be oriented to the common good, surely some person or body needs to have enough power to do the orienting. What, besides the state, can regulate the market?
But when Pope John Paul II gave an audience to the board of the European Automobile Manufacturers Association in 2001, he offered a different, orthogonal answer: "As presidents of the major automobile companies of Europe," he told them, "you have important responsibilities, not only in guiding the growth of your own industry, but also in ensuring the right development of an increasingly globalized economy. The process of globalization, while opening up new possibilities for progress, poses urgent questions regarding the very nature and purpose of economic activity. It calls for ethical discernment aimed at protecting the environment and promoting the full human development of millions of men and women."
The Church's surprising lesson for partisans of big government is that the best tools for correctly ordering economic life are found in the choices of individual market actors. Because those choices are based not only on their preferences but also on their convictions, people's moral sensibilities—the extent to which they believe they have ethical obligations to each other—have a powerful and unavoidable effect on the shape of the economy. Contrary to what you might expect, Catholic social teaching suggests that this, not public policy, performs the first and most important regulatory function in a free society.
The popes of the last century have been clear that when they speak out against unregulated liberal capitalism, they're referring to a system in which all involved are concerned solely with their own material advantage and will happily sacrifice others in the pursuit thereof. Per the Catechism of the Catholic Church, "A theory that makes profit the exclusive norm and ultimate end of economic activity is morally unacceptable."
The encyclicals paint a grim hypothetical picture in which our moral obligations are subordinated to, if not obliterated by, a dictum of wealth and power uber alles. Blessedly, that picture bears little resemblance to how modern market economies actually function. All around us, thousands of times a day, human beings act in ways that confound simple self-interest.
Sometimes that involves charitable giving and other explicit do-goodery: When you drop a few dollars into the Salvation Army's red kettle, you're altering, however slightly, the level of poverty produced in the market. But consider as well the young father who turns down a promotion because it would involve weekend travel and he wants to spend that time with his kids. Consider the employer who accepts a lower salary for herself in order to afford more generous health insurance for her staff. Consider both the activists who organized a boycott of Chick-fil-A upon learning the company's owner had spoken out against same-sex marriage and the Colorado baker who turns away business if it would require him to decorate a cake with a message that runs against his religious convictions. Consider everyone who's ever paid extra for fair-trade coffee.
In all these cases and countless others, individuals and groups make choices that reflect their values. But if unregulated capitalism is defined as a system in which men and women are profit-maximizing automata, then every time people depart from the Homo economicus script, they're behaving as a check on the system.
Given this reality, the idea of "unregulated" capitalism begins to seem nonsensical. The choice is never between markets that are constrained and those that aren't; it's between markets shaped by participants with this and that set of beliefs and commitments. The British political philosopher H.B. Acton put it well in 1972, when he observed that "moral standards come into operation mainly at the level of demand, so that a drunken and profligate population will demand one type of thing and a sober and chaste population another."
Here is where libertarians—and other opponents of excessive government regulation—have something to learn. Because the free market is a marvelously efficient method of allocating finite resources, it can be tempting to insist that any and every outcome produced by a free market is equally good. Yet it's clear that a capitalist system in which people care deeply about their neighbors' well-being will look different from a capitalist system featuring all the same legal rules but a cultural norm of selfish disregard for others.
The distinction may manifest itself in whether soup kitchens are well-stocked or in the rate of suicide in a community. There's no reason we can't look at such outcomes, no reason we can't make a judgment about which type of society is morally preferable, and no reason we can't work to shape the underlying culture accordingly.
That's not to say that less-than-ideal outcomes justify top-down intervention. As Acton pointed out, "Moral principles are inculcated through their upbringing under the influence of parents, schools and churches. If in a democratic society these agencies fail, there is nothing to be gained by transferring the function of education to government, since this will be elected by the same people who have failed to inculcate the right moral principles or have not been brought up to act on and respect them."
Trying to impose our vision of morality on others through force of law, then, is nearly always a futile endeavor. Fortunately, the free market leaves open to us a better option: Nurture good habits and beliefs, and then use social pressure and persuasion to transmit them to others. Work to solve problems through private institutions such as churches, charities, and labor unions. Learn from the wisdom of the ages, and hold fast to truth when you find it.
For more than 100 years, Roman pontiffs have held that individuals voluntarily working together have primary responsibility for solving social problems. Government may be necessary as a backstop—but only when all other options for addressing grave injustices have failed.
"Employers and workmen may of themselves effect much…by means of such associations and organizations as afford opportune aid to those who are in distress," Pope Leo XIII wrote in Rerum Novarum. "Among these may be enumerated societies for mutual help; various benevolent foundations established by private persons…; and institutions for the welfare of boys and girls, young people, and those more advanced in years."
Future encyclicals went further, fleshing out the concept of subsidiarity: the proposition that decisions should be made and problems solved as close to the individual person as possible. Or as Pope John XXIII put it in Mater et Magistra (1961), "it is wrong to withdraw from the individual and commit to a community what private enterprise and industry can accomplish."