Pope Paul VI’s Populorum Progressio (1967), for example, went beyond the moral observations one might make about Third World development to actually offering policy prescriptions, thereby putting Catholics in the unfair position of appearing to “€œdissent”€ from the Pope when proposing alternatives. Peter Bauer, the prophetic development economist who warned for decades about the harmful effects that Western aid programs would have, noted that there was nothing particularly Catholic or even Christian about the document, and that it merely repeated, with some religious overtones, the conventional wisdom.

We now know how disastrous Populorum‘s advice was: the aid entrenched the worst regimes and indefinitely delayed necessary reforms, and it tore a dozen countries apart as various ethnic and racial groups descended into violence as they tried to grab hold of a share of the grant money. The very idea of foreign aid introduced perverse incentives into these societies; it now made less sense to create things that please your fellow man and more sense to devote unproductive effort to campaigns to get aid money for yourself. (I review the subject in more detail in The Church and the Market and cover the literature in 33 Questions About American History You’re Not Supposed to Ask.) Hong Kong, Chile, and South Korea, on the other hand, became prosperous after aid was discontinued and they were forced to adopt sensible and sane economic policies.

Paul VI also adopted the fashionable Prebisch/Singer thesis that a secular deterioration in the terms of trade between the developed and the developing world, to the disadvantage of the latter, was bound to emerge in light of the supposed tendency of manufactured goods to rise in price while the prices of commodities (in which developing countries tended to concentrate) fell. In fact, the alleged deterioration in the terms of trade never occurred, as Gottfried Haberler was already arguing ten years before Populorum Progressio, if anyone was bothering to listen. Yet it was on these faulty grounds that Paul VI then proceeded to discourage free trade as a path to prosperity for the developing world. (I realize some readers of this site may oppose free trade, but the conservative argument against it is that it allegedly hurts the rich country and benefits the poor country”€”surely we concede that someone benefits from free trade, right?) Countries that have followed that advice have lagged far behind those that have integrated themselves into the international division of labor. There is no denying this.

Was it “€œdissent”€ to have observed that the Pope’s factual error about the terms of trade was indeed a factual error? Was it “€œdissent”€ to have pointed out that these recommendations would not have their intended effect? Were we to believe that the Pope’s authority over faith and morals extended also to cause-and-effect analysis applied to international development aid. These questions should answer themselves.

By the 1980s and 1990s, the consensus among observers of all kinds was that Bauer had been vindicated, and that these programs had indeed done more harm than good. Even the most intractable opponents of common sense, like the New York Times and the International Monetary Fund, were forced to this conclusion. And yet we read, in 2009, in Pope Benedict XVI’s Caritas in Veritate:

In the search for solutions to the current economic crisis, development aid for poor countries must be considered a valid means of creating wealth for all. What aid programme is there that can hold out such significant growth prospects”€”even from the point of view of the world economy”€”as the support of populations that are still in the initial or early phases of economic development? From this perspective, more economically developed nations should do all they can to allocate larger portions of their gross domestic product to development aid, thus respecting the obligations that the international community has undertaken in this regard. [emphasis in original]

All right, I”€™ll say it: this is wrong in every respect. However well intentioned it may be, it is absolutely wrong. We can express our unhappiness with statements like this as respectfully and non-flippantly as possible, but to remain silent about them leaves the false impression to potential converts that they would be committed to obviously debatable propositions like these should they choose to enter the fold.

In the wake of the new encyclical’s release I came across a few disparaging references by conservative Catholics to Paul VI and Populorum Progressio, against which these critics (rather implausibly, in my view) wished to contrast the more sober and sensible Caritas in Veritate.  What’s interesting about this is that I don”€™t recall any of these critics, some of whom were alive during Paul’s pontificate, offering such remarks at that time. But if Populorum‘s advice is ill considered to the point of having been refuted by experience by 2009, then it was at least open to discussion in 1967. Where was that discussion? Why is Populorum being critically examined only now, after the damage has been done?

Now I repeat: only the most uncomprehending or superstitious Catholic would think the Pope’s authority over faith and morals granted him some kind of magical insight into the best model to pursue for Third World development. Were that true, then economics in general and development economics in particular should be abandoned immediately, since simple inquiries with the Pope would yield all the answers we might need.

This is why Pope Leo XIII once declared,

If I were to pronounce on any single matter of a prevailing economic problem, I should be interfering with the freedom of men to work out their own affairs. Certain cases must be solved in the domain of facts, case by case as they occur…. [M]en must realize in deeds those things, the principles of which have been placed beyond dispute…. [T]hese things one must leave to the solution of time and experience.

In addition to some of its more unfortunate statements, Caritas in Veritate is also a gigantic missed opportunity. There are legitimate moral concerns to be raised about the structure of the world’s monetary systems, but Benedict XVI does not discuss them.

If those moral concerns interest you, I suggest Jörg Guido Hülsmann’s brilliant work The Ethics of Money Production, or my The Church and the Market. (The former title was greeted with great enthusiasm in The Wanderer by Paul Likoudis, a good man whom I would classify as a third-way distributist of some sort, so its appeal extends well beyond the usual Misesian circles.) Hülsmann shows that within Catholic tradition there is ample testimony to the wickedness of monetary debasement, fractional-reserve banking, and numerous other institutional commonplaces we hardly give a second thought. As Hülsmann argues, there is no moral or economic case for the monetary system under which we are forced to live”€”a system that has never been introduced voluntarily but has always been enforced by violence, with the police empowered to suppress alternatives. The insidious nature of the government’s monopoly on money becomes even clearer when a currency degenerates into hyperinflation, all known examples of which have occurred under monopoly fiat-money systems. Short of a completely state-run system, it is as far from a free market as one can imagine.

The system we have now involves a government-privileged central bank with a monopoly on the creation of legal-tender money, charged with watching over a cartel of ostensibly private but also state-privileged commercial banks.  Its debasement of money makes it very difficult for people to save for the future without having to become speculators of one kind or another. A hard-money system, on the other hand, permitted the average person to save for the future simply by accumulating precious-metal coins, which, back in the days when they served as money, held or increased their value over time. Who today would save for the future by piling up Federal Reserve Notes? Society’s most vulnerable now must enter the stock market or take other kinds of risks just to hold on to their wealth. Is this not a moral issue?

The present system gives rise to the business cycle when it attempts to push interest rates below their free-market level. The resulting discoördination within the structure of production puts the economy on a path it cannot follow indefinitely. The bust then throws countless households into turmoil, and inevitably encourages the most despicable, predatory behavior on the part of firms seeking bailouts.

The monopoly central bank institutionalizes the problem of moral hazard. There is no physical limitation on the creation of additional paper money. For that reason, major market actors know there is no physical constraint on bailing them out in emergencies. The only obstacle, easily conquered, is one of political will. It should be obvious enough how a system like this both promotes an artificially elevated level of risk tolerance and benefits the already privileged at the expense of the average person.

All of these arguments and others besides are developed in more detail in Hülsmann’s book and in my own Meltdown and The Church and the Market. The encyclical unfortunately neglects these moral problems in favor of what strike me as platitudinous warnings about materialism and greed that I might encounter in secular form in any mainstream publication you care to name. Had the Pope instead raised the serious moral concerns I have outlined here, he would have lent his prestige to jump-starting a long-overdue examination of financial practices we have long taken for granted. Instead, although Benedict XVI surely would not think of it this way, the encyclical by and large told the Powers That Be what they wanted to hear: materialism and greed need to be kept in check by economic planners and stabilizers. (Quis custodiet ipsos custodes? one wonders.) In other words, the regrettably conventional recommendation of Caritas in Veritate appears to be closer regulation of the existing system.

Because these institutional factors are neglected, moreover, the encyclical lacks any systematic comprehension of business cycles, which by clear implication the reader is left to believe are caused by the aggregate sum of individual acts of wickedness. The interesting question”€”namely, why these acts of wickedness should occur in sudden, cyclical clusters”€”is not raised.

What, then, is a Catholic to do? There is no need to provide chapter and verse to the effect that the Pope is not (and was never thought of as) an absolute monarch whose every utterance is to be greeted with obsequious flattery. Any educated Catholic knows this. Throughout the vast bulk of Church history, the cult of personality”€”let’s call it what it was”€”that surrounded Pope John Paul II would have struck Catholics as downright bizarre.

St. Thomas Aquinas contended that a layman may rebuke his prelate, even publicly, if the latter is giving scandal. Under the heading “€œWhether a man is bound to correct his prelate,”€ St. Thomas writes: “€œIt must be observed, however, that if the faith were endangered, a subject ought to rebuke his prelate even publicly. Hence Paul, who was Peter’s subject, rebuked him in public, on account of the imminent danger of scandal concerning faith.”€

Now again, I like Benedict XVI, and I believe he has made important changes for the better in the life of the Church. But certain key passages of Caritas in Veritate, in addition to being unhelpful or ill considered, erect gratuitous obstacles to conversion on the part of countless Protestants and other non-Catholics. If St. Thomas”€™ counsel does not apply in this case, where would it apply?