Pope owes poor better understanding of markets


Galileo ran afoul of the Inquisition in 1633 when he was found “vehemently suspect of heresy.”

His heresy?

Declaring the heliocentric view of the solar system: that the earth revolves around the sun.

His punishment was lighter than many others who faced the Inquisition.

He was “only” sentenced to house arrest until his death in 1642.

As is occasionally the case, the Roman Catholic Church’s pronouncements did not age well, and it matters little whether Pope Paul V or Cardinal Bellarmine shoulders the blame.

The Church ordered Galileo “to abstain completely from teaching or defending this doctrine and opinion…the opinion that the sun stands still at the center of the world and the earth moves, and henceforth not to hold, teach, or defend it in any way whatever, either orally or in writing.”

One might think that being this profoundly wrong about something well outside the realm of theology would cause the magisterium, and the pope specifically, to tread very carefully even 386 years later.

Pope Francis can start by realizing that his opinions on economics are woefully uninformed. For the sake of the poor, it’s time Pope Francis took a lesson.

But one would be wrong. Because here comes Pope Francis yet again, offering economic opinions from the bulliest of pulpits about something he understands no better than a garden-variety college freshman.

Mutually Beneficial Trade

Pope Francis’s most recent ill-advised foray into economics occurred during his commemoration of United Nations World Day. Speaking on the problems of global nutrition, the pope said,

The battle against hunger and malnutrition will not end as long as the logic of the market prevails and profit is sought at any cost, with the result that food is relegated to a mere commercial product subject to financial speculation and with little regard for its cultural, social and indeed symbolic importance.

According to the pontiff, “the logic of the market” keeps people hungry.

But “the market” has no logic.

The market isn’t a thing, let alone a sentient thing.

“The market” is the sum total of individual interactions among billions of people.

The market is the world community, the coming together of billions of people who both offer and want things that billions of others both want and offer.

The market is the metaphorical space in which people come together to trade. And they trade all kinds of things, including food.

While there is no “logic of the market,” the logic of the people in the market is that they trade when it is to their mutual advantage to do so.

And this is something anyone concerned with world hunger, indeed even world peace, should applaud.

Until the maturation of markets—and capital—the way people gained riches was by looting and pillaging.

They took riches from others. People developed markets as a way to create riches through cooperation with others.

Whenever a trade occurs, both sides are better off for having made it. We know this because if they weren’t, the trade wouldn’t occur. This is the logic of the people who occupy markets.

Not surprisingly to anyone but perhaps Pope Francis, some of the first financial speculation in which humans ever engaged involved food.

Financial speculation and its more evolved cousins, options and futures contracts, evolved precisely as a means to fight hunger. Centuries ago, farmers incurred significant risk because they had to choose what crops to plant and in what quantities months before they could know what crop prices would be.

The more land a farmer planted, the more risk he incurred.

If there were a way to transfer this risk to someone else, farmers could afford to plant more food.

Financial speculation solved this problem by giving monied investors—today we’d call them capitalists—the ability to purchase crops before the crops were planted.

If crop prices went up, the speculators made profits.

If crop prices fell, speculators lost money.

Importantly, the speculators took some of the risk of price fluctuations off the backs of farmers, and this made it possible for farmers to plant more food. Continue reading

Additional reading

News category: Analysis and Comment.

Tags: , ,