Public Discourse

The Semiconductor Industry and the Future of the World Economy (II)

In my previous article, I explained five ideas. First, that computer chips are the fundamental building block of the modern economy, much more so than oil. Second, that because of the enormous economies of scale in the industry, semiconductor production—especially of the most advanced ones—is incredibly concentrated in Taiwan and South Korea, a region with high geostrategic instability. Third, that the United States controls the most important part of the value added in the semiconductor industry (since the physical production of semiconductors is only one step in the industry, which also requires design, software, etc.). Fourth, that for the past decade, China has been trying to capture a larger share of this global value added. And fifth, given the military repercussions of the Asian giant’s progress in semiconductor production, the United States launched an aggressive and unusual campaign of restrictions on the export of technology in this sector to China, with the announcement of new regulations on October 7, 2022, which heralded a new stage in the world economy.

Today I will explain how we have arrived at this situation and outline future prospects for the coming years. It is a complex story, which I will have to summarize and—much to my regret—in some cases simplify (a more extensive treatment appears in Chris Miller’s 2022 book, Chips War, although events have accelerated since the book’s publication).

Recent History

For many decades, U.S. semiconductor policy was relatively lax. The idea was that the U.S. could always “run faster” and stay two generations ahead of its competitors with semiconductors (this strategy was called “sliding scale”). Though the cheapest semiconductors were manufactured in East Asia, this benefited American companies, which could control their production costs and keep the most profitable links of the value-added chains (programming, marketing, etc.) in the United States. In addition, this division of labor helped to foster strategic allies surrounding China (Japan, South Korea, and Taiwan).

This U.S. policy had one exception: the Soviet Union. From the American perspective, limiting the Soviet Union’s access to the most advanced technology meant that Soviet military forces could not adequately compete. In reality, the only real advantages of export limitations on the Soviet Union were rhetorical. Its socialist system was so flawed at its roots that it could never support a powerful semiconductor industry. Much of East Germany’s economic ruin came precisely from trying to mass-produce semiconductors under a system as absurd as a centrally-planned economy.

 

These pragmatic considerations (advantages of the international division of labor, aid to East Asian economies, the inefficiency of socialism) were complemented by economic ideas that in the 1980s and 1990s emphasized the advantages of international trade and distrusted governmental industrial policy. As Michael Boskin once, evidently, said: “Potato chips, computer chips—what’s the difference?”

Boskin had a point. Look around you, dear reader. Most of your material possessions, except for your house, are probably not made in your home country—from the electronic device you are using to read this to the clothes you are wearing. This incredible internationalization of the economy has also meant, for instance, that for my home country, Spain, we have been able to emerge from the morass of economic autarky that resulted from decades of misguided policies. Internationalization works, and Spain is the best example: in 1960, Argentina had a per capita income 19 percent higher than ours, today Spain enjoys more than double Argentina’s per capita income.

The problem, of course, is that international trade is a very good idea when your partner does not intend to use the profits from this trade to undermine your national security. There is no perfect trading partner (as there is no perfect person) and every partner is going to overstep the mark on more than one occasion (as Spanish, Danish, or Slovakian companies often do). But everything is a question of proportionality. Driving at 26 mph in a 25-mph zone is not the same as driving at 190 mph.

Yes, Japanese or Korean companies often overdid it in the ’80s and ’90s, but all within a basically reasonable margin. Even China, from the beginning of its economic reform in 1979 until about 2012, behaved in a way that could be accommodated by international trade rules. Again, I stress, China was not perfect, but no other nation was.

As I pointed out in my previous article, the problem is that Xi Jinping came to power in 2012 with the idea of breaking the deal. Xi distrusts international rules (both political and economic). He thinks that the United States is in terminal decline, that Europe is a pygmy obsessed with irrelevant issues such as human rights and democracy, and that the time has come for China to retake its rightful place in international relations, merited by its history, population, and economy. Moreover, this repositioning must be done through the iron grip of the Communist Party, which is the only institution that, in his opinion, can ensure China’s future. And all this, of course, involves semiconductors: the backbone of the entire modern economy.

In 2014 and 2015, the United States began to realize that Xi is different from his predecessors. The final years of Obama’s presidency marked growing concern over China’s new aggressive style, both internally (increased repression, massive concentration camps in Xinjiang) and externally. Suddenly, the question seemed no longer to be whether Chinese companies are going to take a 5-percent market share from them in the semiconductor industry in a somewhat crooked way. Instead, it was about a geostrategic rival that wants to reorganize the world map.

The Opening Shot

Although the details of this shift in U.S. foreign policy are complex, for our issue, semiconductors, the opening shot was fired in October 2016 when Commerce Secretary Penny Pritzker warned in a speech to the Center for Strategic and International Studies in Washington, D.C., that there are “new attempts by China to acquire companies and technology based on their government’s interests—not commercial objectives.” And before that, “The U.S. government will make clear to China’s leaders at every opportunity that we will not accept a $150-billion industrial policy designed to appropriate this industry.”

The unexpected electoral victory of Donald Trump a few days after Penny Pritzker’s speech reinforces this new vision. There is a fundamental and underappreciated continuity in U.S. foreign policy from Obama’s second term through Trump to Biden.

The first battle in this U.S.–China standoff centered on ZTE and Huawei. These two companies specialized in telecommunications equipment, a particularly tricky subject. Several European governments learned during the last few years that their ministers’ cell phones had been hacked and their private conversations spied on by unknown third parties. The problem here was not just that ZTE and Huawei violated too many intellectual property rules and skirted sanctions on Iran and North Korea, but that both companies had close relationships with the Chinese government—one being semi-public and the other with opaque shareholding.

ZTE was fined in 2017 for selling banned equipment to Iran and North Korea, and after much back and forth, the company remains sanctioned in the United States, with a recent prohibition on exporting telecommunications equipment. The case of Huawei is similar, with a ban on purchases of this company’s products by the federal government in 2018 and additional sanctions in the years that followed. There was the issue of controlling such an important technology as 5G, where Huawei had significant advantages. And in 2022 it was SMIC’s turn to be banned, due to its close links with the Chinese armed forces.

China’s reaction to this first battle was interesting. Of course, it complained in public and protested to international organizations (there are complex issues here of international trade law and the jurisdiction of the World Trade Organization). But on the whole, there was little retaliation. Did Xi think that this was not the time to escalate the confrontation? Or that perhaps the United States would tire of these battles, as the price of phones and other telecommunications equipment went up, and the sanctions would fade over time, especially given Trump’s volatile nature? Or did he think simply that the sanctions were not very effective and therefore not worth fighting over?

Then came COVID and everything accelerated. In a production-constrained world, securing semiconductor supply was a clearer priority than ever. Significantly, one of the few companies to receive exemptions from the draconian COVID containment policy by the Chinese government was Yangtze Memory Technologies. Moreover, we all became aware of the lack of chips and the enormous risks that the concentration of production in Taiwan and South Korea carried in a world where the old rules of collective security were being pulverized by Putin’s aggression in Ukraine and China’s change of rhetoric regarding Taiwan.

And as in the 1980s, faddish ideas tend to reinforce these geostrategic tensions. Although the empirical evidence that industrial policy works is rather scant (for every example where it has worked, there are five examples of failure—a pretty bad batting average), it came back into vogue a few years ago in certain circles. My interpretation is that this resurrection of interest in industrial policy is based on a clear reality—that is, the poor productivity growth in many advanced economies since 2000 and the consequent stagnation of wages. But that diagnosis is incorrect (again, with a few exceptions): this stagnation has more to do with demographics than with any other factor.

New U.S. Strategy

It is the confluence of all these forces (economic, geostrategic, and ideological) that led Jack Sullivan, the National Security Advisor for the Biden administration, to give two key speeches, one on September 16, 2022 and another on October 12, 2022. I invite the reader to read the two speeches in their entirety. It is better to start with the second speech, which announced the new U.S. national security strategy, and then go to the first one, which, although delivered earlier, describes in more detail the specific measures regarding semiconductors.

Here are some of the fundamental ideas of these two speeches (I am merely summarizing what Sullivan said, not agreeing or disagreeing with it):

1. The United States believes it is in the early years of a decisive decade that will set the terms of its relationship with China.
2. The United States judges that China’s behavior, both in domestic and foreign policy, is promoting an illiberal vision in the economic, political, security, and technological arenas in competition with the West.
3. The United States finds that China is the only competitor that has both the intent to reshape the international order and the growing capacity to do so.
4. The United States does not see Russia as that strategic rival. The war in Ukraine has made it clear that Russia is a paper tiger, except for its nuclear weapons.
5. U.S. superiority in the three key technologies of the twenty-first century—computing, biotechnologies, and energy—is a top strategic priority.
6. The United States will abandon its “sliding scale” policy. The United States will now seek to maintain as large a technological edge as possible.
7. To this end, the United States will invest large amounts of money in research and manufacturing of the three technologies listed in the fifth point.
8. At the same time, it will establish a “small yard, high fence” policy to limit China’s access to new technologies.

What does “small yard, high fence” mean? That, instead of establishing very broad restrictions on the export of technologies, in this case semiconductors, the United States is going to focus on creating very strong barriers (the “high fence”) at very specific pressure points (the “small yard”; for example, as I explained in my previous article, on extreme ultraviolet light photolithography machines and the lasers they use), which are essential in the manufacture of more advanced semiconductors. It is this “robust guardrails” strategy that is reflected in the October 7, 2022 restrictions.

 

Will this new U.S. strategy work? There are several points to consider. First, the United States does not control all the most advanced technologies. In particular, we have the leading lithography company, ASML, located in the Netherlands; and a leading company in the silicon wafer industry, Tokyo Electron in Japan (the other three key companies here, Applied Materials, Lam Research and KLA are U.S. companies and therefore fully subject to federal government restrictions).

The United States appears to have secured some government cooperation from the Netherlands and Japan, although its effectiveness remains to be seen. Technology companies have a long history of “obey but don’t comply” on these issues. ASML does not seem to be in the mood to be overly helpful, and since some of their equipment does not depend on U.S. patents that are subject to possible restrictions, they have a certain degree of freedom. Japan, on the other hand, with China on the prowl, appears to be more willing to cooperate with the United States. And then there is Taiwan, which is in a complicated situation: it neither wants to lose its technological advantage by setting up factories in the United States (which also makes it less important for the United States to defend), nor to unnecessarily provoke China.

My reading of the situation (while cautioning that I lack access to insider information on the trade secrets of these companies) is that at least in the short term, the United States will control enough pressure points to make life seriously difficult for the Chinese semiconductor industry.

How Will China React?

The second point to consider is China’s ability to react to these restrictions. I do not buy the argument made by opponents of the new export restrictions. They claim the restrictions will incentivize China to develop its own industry. But the reason the United States approves the sanctions is that China is already doing this. The incentive already existed! Perhaps it is stronger now, but the difference is marginal.

In the past, China has been very creative in solving its problems of access to forbidden technologies, as it did during the development of satellites in the 1990s (I recommend Hugo Meijer’s book about the U.S. restrictions on technological exports to China since 1979). This past success suggests that in a few years, China may have made up much of its backlog in semiconductor manufacturing, especially in a world of high technological diffusion. For example, RISC-V is a free hardware instruction set that has improved tremendously in recent years and may change the future of the industry for some time to come. There are no secrets in RISC-V: it’s all in the network.

 

As before, this argument about China’s ability to catch up is often presented as a reason not to impose restrictions. Again, I believe this argument is flawed. From the U.S.’s perspective, any additional delay in China’s convergence on the technological frontier is a net gain. If China catches up to the United States in 2030, rather than 2025 (to posit two arbitrary years), then thanks to restrictions, that is five years of additional geostrategic advantage. Foreign policy is about surviving tomorrow. The day after tomorrow, we shall see.

But it is not just a question of short-sightedness or short-termism. The United States believes that the reputational cost with China of these new restrictions is small (relations were already broken, so there is not much “continuation value” to maintain) and that in the long term, the future is in its favor. Both demographically and in terms of social vitality, the U.S. is much better positioned than China (this book, and this other one, are two recent accounts of this perspective). My own more recent research on China suggests that the combination of perverse demographics and a clear drop in productivity growth predicts economically bad times in the 2030s for the Asian giant.

Considering these two points together, yes, the United States will be able to inflict damage on the Chinese semiconductor industry, and while this impact is not absolute, it is enough to justify embarking on this policy. In a world where there are no magic wands for anything, but only partial patches to complex problems, this is the policy that maximizes the benefits to the United States, at least in light of what we know right now.

This article is adapted from a version originally published in February 2023 at El Confidencial, a leading Spanish digital newspaper. We are grateful to Professor Jesús Fernández-Villaverde for his permission to publish it in English here, and to Thomas Howes for his translation.

Public Discourse

America’s Commercial Republic, and Its Detractors: An Interview with Samuel Gregg

In recent years, the market economy has come under attack from both sides of the political aisle. In some cases, both Democratic and Republican policies are even converging to expand the role of the state in the economy. Young people remain disillusioned with capitalism, while CEOs of major corporations adopt “ESG” policies and focus on matters of social justice and equity while de-emphasizing shareholder value. It seems that the success story of the market economy—the dramatic increase in our living standards worldwide over the past two hundred years—has been forgotten.

In late 2022, Samuel Gregg, a long-time contributor to Public Discourse and Distinguished Fellow in Political Economy at the American Institute for Economic Research, addressed these questions and others in his book, The Next American Economy: Nation, State, and Markets in an Uncertain World, which has received acclaim since its publication. I was recently able to interview Gregg about the themes explored in the book. An edited interview follows.

Kelly Hanlon: In the opening chapter, you make the case that there are threats to the market economy from both the left and the right. On the left, there is what you call “stake-holderism” whereby firms are no longer focused solely on increasing shareholder value. On the right, meanwhile, there are calls for economic nationalism, with an ever-growing list of demands for the use of government action to engineer particular outcomes. What are the broad contours of the debate between the left and the right today? Where do the two sides converge? And why are you so alarmed at calls for intervention in the economy?

Samuel Gregg: Thanks for this conversation, Kelly. The first thing to note is that today’s economic debate is less between the right and the left per se. It’s focused on two things. One is the state’s role in the economy. Many on the right have embraced economic ideas difficult to distinguish from those on the left. If you look at some of the economic statements of two politicians as different as, say, Senator Marco Rubio and Senator Elizabeth Warren, you discover they effectively line up on the same interventionist page on many economic issues. Another division is between those who believe in using state economic intervention to try and realize particular moral–cultural ends like buttressing two-parent families, and those skeptical of the effectiveness of such measures.

But even deeper arguments lurk beneath the surface of these fights. They range from disputes about American economic history to the causes of America’s obvious social dysfunctionalities, the meaning of liberalism, America’s relationship with the rest of the world, and even how much conservative America considers itself bound to the American Founding. I’m convinced that many economic disagreements today function as proxies for other issues.

As for my alarm about creeping interventionism, it’s driven by several concerns. One is the very-hard-to-refute evidence attesting to such policies’ general failure to realize their ends and their propensity to inflict considerable economic, social, and political damage. Take, for instance, industrial policy. Its track record of success is utterly abysmal. It also breeds some of the worst cronyism. The same is true of tariffs. I’m also worried about the way that many conservatives seem content to use regulation and the administrative state to try and engineer particular social and economic goals. Leaving aside the fact that tinkering with, say, the tax code won’t do much to reverse the deep destruction inflicted on the family by, say, the disaster of the Sexual Revolution or LBJ’s Great Society programs, this involves acquiescing in the undermining of limited government constitutionalism in America. That is an odd position for American conservatives to hold, even tentatively.

KH: Part of the so-called stake-holderism of the left centers on the adoption of ESG policies throughout corporate America. Broadly speaking, what is ESG and why are corporate leaders advancing these kinds of policies? In a recent symposium at Law and Liberty, you suggest that one solution is that CEOs should better communicate their firm’s value and purpose. But, if CEOs are buying into the ESG agenda, doesn’t this suggest a deeper problem that goes beyond the value of the market economy—and into the realm of formation, education, and culture? How can we encourage CEOs to resist and reject the ESG ideology?

SG: ESG is about principles that purport to allow investors to invest their capital in ways that promote Environmental, Social, and Governance goals alongside profit and shareholder value. To no one’s surprise, most of these goals reflect progressive priorities.

Why do businesses embrace ESG? In a few cases, they’re led by CEOs and boards of directors who are “woke” true believers. That shouldn’t surprise us. After all, business executives swim in the same messy cultural streams as the rest of us. They’re no better equipped than anyone else to understand the degree to which ESG is an ideologically charged weapon.

In other instances, CEOs have told me that younger investors want more alignment between their investment choices and their political preferences. There’s certainly evidence for that, yet there’s also evidence indicating significant gaps between people’s stated political preferences and how they actually invest their capital. There’s a limit, it turns out, to the willingness of wealthy, uber-woke lefties to pay more for less return! Making matters even worse is that many companies see ESG as a way to charge higher fees. They’ll charge more fees to investors for putting their capital in ESG funds on the basis that the higher fees reflect your willingness, as ESG jargon says, “to invest your values.” When, however, you examine the composition of ESG funds, you discover that they’re not that different from non-ESG funds. When Elon Musk called ESG a “scam,” he had a point.

But maybe most importantly, corporate America’s present romance with ESG owes much more to CEOs’ trying to preempt government efforts to regulate them down such paths or get progressive NGO activists off their backs. Alas, corporate America doesn’t seem to grasp that these groups are unappeasable and that regulators like the Securities and Exchange Commission are already way down this path. Whatever businesses do in this area will never be enough for those activists or regulators trying to force companies to embrace progressive priorities.

So, those are some of the factors at work. As for the formation issues you mention, you’re right. Milton Friedman often stressed that most CEOs aren’t especially articulate when it comes to explaining the good that businesses do qua businesses, or what you might call the vocation of business: that it’s through pursuing profit and shareholder value that business makes its particular contribution to society’s general welfare. Wealth creation not only provides for people’s material needs and wants. It also facilitates employment over the long term as well as sustaining and growing the capital that people need to raise families, secure their retirement, be philanthropic, build schools, support religious congregations, educate their children, etc. And if enough CEOs embraced this vocational outlook and had the courage to make this case in a public way, it would go some way to highlighting the incoherences and ideologies underlying the ESG agenda.

 

KH: On the right, there seem to be two camps who are increasingly calling for government intervention in many areas of private life—the industrialists and the integralists. Can you give a high-level overview of these two camps, and their views on economic policy? What are their fundamental assumptions? What problem is each camp trying to solve? What, if anything, do they get right—or wrong—about the policies they promote?

SG: Far, far more wrong than right, I’m afraid. Some people in both camps are pointing to obvious social problems that mark America. Well, few are going to dispute that much of American culture is in very bad shape, as indicated by things like divorce rates, a collapsing birthrate, the prevalence of gender ideology in the academy, the number of young men checking out of the workforce to embrace a life of drugs and video games, etc.

Advocates of industrial policy argue that things like trade liberalization have contributed to these developments and that it’s possible via a range of interventionist and regulatory measures to generate better economic outcomes than markets in particular economic sectors and more optimal social conditions for, say, families or blue-collar workers. Work is important, they say, and providing work is one way of addressing these issues.

Putting aside the dubious and highly economistic cause-and-effect logic underlining such diagnoses of America’s social problems, let me say this: work is a good in itself. Even the humblest types of work allow humans to acquire any number of virtues that make us who we’re supposed to be as humans. But using government to try and provide work, or even to try to rig the labor market toward providing particular types of work, is a counterproductive way of going about that. Protectionism and industrial policy generate massive misallocations of resources, trivialize economic truths like comparative advantage and trade-offs, and create massive disjuncts between production and consumption. In the long term, such policies corrode competition, incentivize entrepreneurs to become cronies, and give even more power to legislators, lobbyists, and bureaucrats in places like Washington, D.C., who are about as insulated from market forces as it is possible to be. The long-term results are economic stagnation, the displacement of market exchange in favor of a hyper-politicized economy, and the endless proliferation of barriers to economic growth—all of which severely cramp the economy’s long-term capacity to generate jobs.

Concerning the other group you mention, the integralists, some of them adhere to economic nationalist policies. So, to the extent they embrace such ideas, they’re subject to the same critiques. Other integralists, however, want to implement the economic policies associated with corporatism. Broadly speaking, corporatism means top-down coordination by state officials of an economy in which the forms of private property and market exchange are maintained but embedded in legal and political structures that prioritize the establishment and enforcement of a consensus focused on achieving specific economic and social goals.

The problems with corporatism are manifold. They include the creation of economic insiders and outsiders based on access to political power, the evisceration of economic freedom and property rights, the cronyism and clientelism it breeds, the marginalization of consumer needs and wants from the economic equation, etc. Then there’s some integralists’ determination to creatively reinterpret the U.S. Constitution, much like progressives have, to legitimate rule by unaccountable bureaucrats overseeing a corporate state via an imperial presidency, and to abuse the lexicon of the common good to rationalize such things.

KH: As I talk to young people, particularly in their late teens through late 20s, there’s an underlying desire for equality. We see this in some of the conversations around wealth inequality, with the assertion that a new tax policy could eliminate inequality. There seems to be a related sense that the accumulation of wealth is itself deeply immoral. Have you encountered these concerns? And, if so, what arguments have you found compelling in persuading others that the creation of wealth is not inherently evil?

SG: Let’s start with equality. Have you noticed the selective character of contemporary equality-angst? I haven’t heard many of the people you describe expressing worries about the visible decline of the rule of law throughout America. And if anything is grounded on the equality in dignity enjoyed by all humans and the principles of natural justice that flow from that, it’s the rule of law. Or the blindingly obvious injustices that are integral to the workings of affirmative action programs? Or how “anti-racism” and DEI programs legitimate discrimination against large numbers of Americans because of their race or sex? I don’t hear such things even being acknowledged, let alone discussed.

Wealth inequalities are inevitable in any economy in which market exchange, economic creativity, and the satisfying of consumer preferences prevail. They’re also a precondition for, and a byproduct of, economic growth. If you want a “no-growth” economy—a sentiment I’ve heard expressed by some traditionalists and, ironically, radical greens who hold basically pagan religious views—then you’d better saddle up for life in an impoverished society in which most people are desperately poor while the wealthy are those skilled at using force to extract large pieces of an ever-shrinking economic pie for themselves. As for trying to eliminate wealth inequalities, that’s a sure-fire way of opening up the path to all the evils—not just the inefficiencies but the evils—of socialism.

Is the accumulation of wealth in itself immoral? Well, if it occurs through, for example, lying, theft or, say, owning a brothel, it’s obviously immoral because such choices are intrinsically evil. I’d even argue that it’s morally dubious to accumulate wealth through rent-seeking insofar as cronies effectively engage in wealth-extraction from the rest of us. But there are so many more ways to increase one’s wealth that are completely legitimate and also provide opportunities for vocational growth by everyone involved in a business enterprise.

The real action concerning the morality of possessing wealth concerns its use: the free choices that we make about how we use the wealth that we have justly acquired. You really can’t go wrong if you follow Aquinas on this topic. He neatly summarizes all the entitlements and obligations associated with property ownership, including wealth that exceeds our vocational needs and responsibilities. A few years ago, my friend Adam J. MacLeod wrote an excellent book that addresses these questions in a manner cognizant of twenty-first century economic life. It’s really worth reading.

 

KH: Another point that I’ve encountered with some frequency is the view that other (non-American, perhaps even non-democratic) political and economic arrangements are better suited for life in the twenty-first century. By all measures, we’re living in the most prosperous time in human history. For those who advocate state capitalism and economic nationalism, are there examples in history where those regimes have worked well? Have they ever outpaced the free market in terms of the general welfare of a country’s population? If state capitalism doesn’t work on the whole, are there areas where state intervention may be helpful? Or, more broadly, what role should the state play in the market economy?

SG: My book highlights several cases where economic nationalist policies have been widely deployed and details the long-term damage they inflicted on otherwise healthy economies. Japan is the classic example. When I was a teenager, numerous policymakers, books, novels, and even films like Black Rain, Rising Sun, and Die Hard suggested that Japan and Japanese-style industrial policy was the future. And just as all that hysteria crescendoed, Japan collapsed into what became a 20-year economic slump.

There are several reasons for that, but in the early 2000s, the Japanese finance ministry published an official paper conceding that Japan’s extensive use of industrial policy had been a major contributor to Japan’s economic stagnation. I’d argue that China is now making similar mistakes because they’ve used more and more industrial policy since 2008 in an economy what was only ever very partially liberalized. No one should be surprised that we’re now seeing the same problems emerge on a mass scale in China—something those American conservatives who are fans of Chinese economic policy studiously avoid mentioning. The more Xi Jinping continues deepening the directive role of the Chinese Communist Party, the Chinese state, and the Chinese military in China’s economy, the weaker and less productive that economy will become.

So: what should the state do in the economy? For a start, government has some very basic responsibilities like protecting and adjudicating property rights, providing public works, ensuring law and order, administering the rule of law, and maintaining monetary stability. None of these are small tasks, and the U.S. government is presently doing a lousy job in all these areas. I also think that a very basic safety net should be provided by the state, though I’d want strict limits on this, not least because of the economic and social damage that expansive welfare states inflict on society and the soft despotism that they facilitate. Lastly, governments should ensure that the rules governing international trade are being followed, and act when proxy actors for regimes like Communist China engage in activities like intellectual property theft. Again, it was only in 2018 that the U.S. government finally got around to begin addressing this decades-old problem with Chinese nationals and businesses in any meaningful way.

 

These are the state’s prime responsibilities as far as the common good’s economic dimension is concerned. Everything else, to my mind, is normally better handled by free economic processes and those non-economic associative institutions we call civil society. The latter is where most welfare functions should be located. Of course, there are always emergencies that may necessitate state action beyond the parameters I’ve just mentioned, but such interventions should be limited and never become permanent features of economic life.

KH: In the book, you make the case that Americans face a choice between state capitalism and a free market economy. It seems as though if we do nothing, we’ll continue down the path toward state capitalism. How do we move closer to a free market economy? What gives you hope that we will move closer to a free market?

SG: Let’s be clear. State capitalism is already the norm in America’s economy. The last time the federal government actually shrank was during Calvin Coolidge’s presidency!

Virtually all economic freedom indices show America as being in decline in the realm of economic liberties. Our economy is riddled with interventionism, industrial policies, and cronyism from top to bottom. Our default settings for macroeconomic policy remain strongly neo-Keynesian. The notion that American economic policy had been run since the 1980s by so-called “market fundamentalists” is absurd. The refusal—the refusal!—of many American conservative legislators even to discuss reforming those entitlement programs that are driving us into ever-greater debt and that facilitate so many social problems isn’t just disappointing. It’s plain irresponsible.

That said, those who believe in entrepreneurship, free competition, trade liberalization, and their moral, legal, and political foundations must rethink how they make their case. Yes, we must press for deregulation of our ever more regulated economy, we need to get incentives aligned correctly, we should get the state out of doing things that it does badly, and we must focus the government on those activities I just mentioned. But if the case for markets is reduced to more stuff produced more efficiently for more people, or associated with Davos Man borderless world delusions, or involves trivializing the very real bonds that many Americans have to their nation and communities, millions of Americans won’t listen to them, no matter how compelling the economics.

 

The line I often hear is “America is a country with an economy, not the other way round.” To which I say, “Amen.” But America is also a country in which the idea of being a commercial republic is at the core of our identity. Much of my book involves spelling out how the idea of a commercial republic is inscribed into key texts, speeches, and documents of America’s Founding like the Federalist Papers and George Washington’s “Farewell Address.” As the historian Gordon Wood points out, this is where America finds its identity as a nation.

Put simply, key Founders believed that America’s future was to be a polity in which free and dynamic commerce would play a powerful role in defining society, as opposed to, say, the priorities of aristocratic or feudal societies. The “republic” side of this political economy equation is that this commercial society would operate within the context of institutions and sets of virtues that draw upon classical, religious, and moderate Enlightenment sources.

That, I’d suggest, is the vision that those who regard free markets as the most optimal economic system for America should embrace. Protectionists and industrial policy advocates play the patriotism card all the time. That’s ironic, given that tariffs and industrial policy are always driven by, and always focused on, promoting sectional and special interests rather than the general welfare of 330 million Americans.

Let me sum it up this way: America isn’t meant to be just another European social democracy engaged in managed decline. America isn’t meant to be a corporatist state like the World Economic Forum’s envisaged “stakeholder capitalism,” let alone Mussolini’s Italy. America doesn’t have to relive that miserable economic decade known as the 1970s. If those who believe in free markets can tap into that vision of America’s understanding of itself as a commercial republic and what this means for the United States’ place in the world, we have every reason to be hopeful.

Public Discourse

On Abolishing the Death Penalty: A Response to Daryl Charles

 . . . [Divine] Mercy is found even in the damnation of the condemned, for, while not completely loosening the punishment, It nonetheless lessens it short of what is entirely deserved. (Summa Theologiae Ia.21.4 ad 1).

I would like to address J. Daryl Charles’s argument published here at Public Discourse yesterday that the death penalty is a mandatory punishment for premeditated murder, necessary to achieve justice, and necessary to respect the image of God in the offender by holding him responsible for his acts. I cannot address everything that Charles argues in his essay. I will do only three things. First, I will argue that Charles has not and cannot successfully press the case that the use of the death penalty is mandatory in the exercise of punitive justice. Second, I will argue that it should be abolished in the United States, against the background of Thomas Aquinas’s argument (that Charles himself cites) that taking a criminal’s life is lawful in order to protect the common good. Third, I will conclude by reflecting on the implications of the image of God within us for justice and mercy.

The Early Church and Capital Punishment

On the first point, consider only the early Church figures that Charles cites. By and large, they do indeed recognize the legitimate authority of a political community to take the life of an offender. However, they also recognize something that Charles does not: it is within the state’s authority to refrain from this punishment and to instead extend mercy. (In this section, I summarize, paraphrase, and later quote the excellent article by Phillip M. Thompson, “Augustine and the Death Penalty,” in Augustinian Studies, January 2009, pp. 188–203.)

For example, Lactantius in one work forbids anyone in authority charged with the administration of justice from charging anyone for a capital crime, but in another acknowledges the state’s authority to put someone to death. Tertullian recognizes the authority of the state to impose death, and yet forbids any Christian from doing so. So also, the Christian author Athenagoras, whom Charles does not cite, forbids Christians from participating in it. This is not yet a point about mercy. However, it suggests a certain abhorrence on the part of the early Church for the death penalty as inconsistent with the life of a Christian. The secular or pagan state may be permitted to impose death as a punishment, but the authors suggest Christians ought to play no part in exercising that power.

 

Augustine, however, is particularly important when it comes to mercy. He recognizes the authority of the state to impose death as a penalty, particularly to protect the common good from a threat to its safety. And he does not forbid Christians from participating in it, as others had. But he also pleads for mercy on the part of governing authority. In one case pleading for mercy he writes, “[W]e do not in any way approve the faults which we wish to see corrected, nor do we wish wrong-doing to go unpunished because we take pleasure in it. … [However,] it is easy and simple to hate evil men because they are evil, but uncommon and dutiful to love them because they are men.” Even if one does not agree with Augustine that one should love the offender because he is a man, as it seems Christ commanded us to do, Augustine gives evidence in the Christian community of the recognition that not only justice is the task of the state, but also that mercy is within the authority of the state, as much within its authority as is the authority to execute the offender.

However, the importance of mercy amid justice is no sectarian Christian virtue. The responsibility of governing authority to show mercy is a fact recognized by Seneca, no Christian, in his letter to Nero, De Clementia, where he argues that mercy in a ruler is essential to governing. As a stoic, however, his argument for mercy is significantly different from Augustine’s, focusing not on loving the offender as a fellow human being, but on the need to rein in both leaders’ and society’s passions of cruelty and savagery, passions that often accompany the just desire to punish. He goes on to argue that the power of the emperor to extend mercy is even greater and more manifest than is his power to condemn, “for anyone can take a life, but few can give it.” That power in a ruler is in fact godlike, according to Seneca. Aquinas agrees when he writes that among all of God’s attributes, it is in mercy that God’s omnipotence is most clearly shown. (“Unde et misereri ponitur proprium Deo, et in hoc maxime dicitur eius omnipotentia manifestari” ST IIaIIae 30.4.)

Just as one would be hard pressed to find a culture with a governing authority, biblical or otherwise, that had not at some point asserted and exercised the right to put capital offenders to death for heinous crimes, one would be equally hard pressed to find one that did not claim the authority to exercise mercy and punish short of death. Good government in the administration of criminal punishment will establish a range of possible punishments for a crime, acknowledging the need for both mercy and equity in judging which punishment is best in the circumstances. Again, this is a point recognized by the pagan Seneca, who argued that mercy does not come after the judgment of just punishment, to limit justice as it were, but enters into the determination of what justice is in a particular case.

Aquinas on Capital Punishment

Aquinas argues that this governing authority to establish the character of punishment and its application to cases is rooted in the natural law. But in the end, positive human law determines the actual force and scope of punishment. Any such “determination” of the actual punishment appropriate for a crime has only the force of human law, not the force of the natural law itself (ST IaIIae 95.2). We decide how crimes will be punished as a matter of human positive law, not by deriving them from natural law. This determination is part of our dignity as images of God: we participate in divine providence by being provident over ourselves. We use our reason both to recognize the natural law within us and to establish human law over diverse political communities and common goods (ST IaIIae 91).

In addition, like Seneca before him, Aquinas recognizes that it is also the task of judicial authority to exercise equity (epikeia) when determining punishment under human law. The judicial authority does this by taking into account circumstances not anticipated by the legislature when it crafted the law. In other words, judicial authority sets aside “the letter of the law,” lest one sin against the common good by application of the “letter of the law” (ST IIaIIae 120.1).

If we acknowledge Aquinas as an authority on these matters, as Charles seems to do in citing him, these points make it clear that it is well within the governing authority of a community to refrain from the use of the death penalty to punish crime. Political leaders can even refrain from legislating that capital punishment will be among the range of punishment for serious crimes, including premeditated murder. This decision ultimately requires reflection about how to preserve and promote the common good of a particular community in a particular place and time.

 

A Case for Abolition

Now I would like to argue that the death penalty should be abolished, at least in the United States and many other nations as well. Of course, Aquinas’s argument about the lawfulness of a community’s taking the life of an offender is often cited by proponents of the death penalty in the way Charles cites it—as if permissibility requires the exercise of the death penalty in certain cases, that is, makes it “mandatory.” However, Aquinas’s argument is merely that it is lawful to take the life of an offender to protect the common good from threat. He does not come anywhere close to arguing that it is required or mandatory for certain crimes.

It is very important to notice about Aquinas’s argument that it is not based on principles of restitution, that is, not based on the need to redress the harm done to the one who has been wronged. Nothing can be done to redress the wrong done to the one who has been killed. Nothing can undo that, no recompense given, no restitution made. This is a point that Charles himself recognizes in the case of murder. In addition, though it might sound harsh, it is not the task of governing authority to criminally punish offenders in order to assuage the anguish of the family and friends of the murdered. Those left behind or affected by a murder may derive a certain amount of psychological catharsis in seeing the responsible parties punished, but it is probably not lasting. What’s more, in terms of restitution, nothing can undo what they have lost. That is in part the horror of the crimes done—that nothing can be done to restore to the one abused or to family and friends what has been taken from them. At best, punishment can be merely symbolic with respect to restitution in these cases.

Criminal law punishes not on behalf of the individuals who have been harmed by a crime, but on behalf of society’s common good, which has been harmed by a crime. It punishes to restore the order and peace of society that has been disturbed by the crime, and to further protect it from threat. But even here in the case of capital crimes, society cannot have restored to it what the crime has taken; society cannot have restored to it the human being killed. No punishment will return the order of tranquility and innocence lost to a society by the abuse of children, or to women and men by various forms of violence. However, a certain amount of peace and tranquility can be restored in protecting society from further threat of such things.

Close attention to Aquinas’s argument suggests that a malefactor loses, in a way proportionate to the gravity of the crime, the protections afforded by society to the innocent and thus becomes subject to the punishment of the law. This is its retributive aspect, that formally the gravity of the punishment is directed to the will of the offender in a way proportionate to the gravity of the crime willed by the offender. But, as we’ve seen above, the idea of “proportion” here is not a conclusion drawn from the natural law, but a “determination” of human law in light of the common good that punishment serves to protect. The offender becomes subject to the loss of property or the loss of freedom of movement, for example. Also, in some cases he becomes subject to the loss of life.

 

What Aquinas does not argue, however, is that having become subject to punishment, even possibly the loss of life, a criminal’s loss of life is required or mandatory. It is not the so-called lex talionis—an eye for an eye, a tooth for a tooth, and a life for a life—that allows for the lawfulness of killing another human being. The lawfulness of ending an offender’s life is based on the need to protect society from the threat by the one who has lost the protection of society. So, one cannot claim that according to Aquinas the killing of a human being is lawful in order to pursue retribution or restitution for the wrong done. It is lawful to protect from harm, which is forward-looking, not backward-looking.

Thus, Aquinas’s argument is not that killing an offender is always lawful, much less that it is mandatory. It is lawful upon a condition, namely, that it is necessary to protect the common good from a threat. Absent that condition, Aquinas does not argue or even suggest that killing a malefactor, including one who has committed murder, is lawful. Indeed, in his discussion of clementia as mercy extended to those who are subject to punishment (ST IIaIIae 157.3 ad 1), he suggests that the desire to harm through punishment should be avoided and mitigated, even when someone deserves punishment. He also says that it is better when the one doing the punishing decides the wrongdoer has had enough, rather than pursue the full extent of punishment possible.

One can ask under what conditions governing powers should exercise mercy. The exercise of mercy ought also to take into account the common good. Aquinas’s argument that it is lawful to take the life of a malefactor to protect society from threat also suggests that mercy is legitimately exercised when no threat to the common good is posed by the offender. This would be the case when, for example, the offender can be rendered harmless to the common good by means other than killing. This point concerning the death penalty is made explicitly by Pope St. John Paul II in his encyclical Evangelium Vitae.

In the thirteenth century when Aquinas made his argument, it might not have been possible in general to render a murderous malefactor harmless short of killing him. However, it is now possible in the United States and many other modern nations to protect the common good from the threat of those who have committed murder and other heinous crimes. That being the case, we have no reason to think that it is lawful for those nations to kill human beings who in other times and places might pose a threat to the common good. Given the imperative to act with mercy as much as with justice, the death penalty ought thus to be abolished in the United States and other such countries.

 

Mercy and Justice

To conclude, Charles makes much of the idea that the image of God in human beings is not taken seriously if we do not hold offenders responsible for their crimes, particularly those who have killed with premeditation. I agree with that proposition. What Charles and other defenders of the death penalty do not take seriously enough is the thought that being made to the image and likeness of God is not a static fact of human nature, but a responsibility. Nothing can erase from the nature of a human being the image created within him or her by God, no sin or crime however heinous. We acknowledge that fact when we hold our fellow human beings and ourselves responsible for our actions. However, being made to the image of God is a vocation, that is, a call to being godlike in all that we do. So, those of us who seek justice in the punishment of others must ask ourselves what our godlike responsibility is in the circumstances in which we live.

God is not simply a God of justice, but also a God of mercy. Mercy and justice are not set against one another. As Aquinas argues, they are manifest in every act of God’s (ST Ia 21.4). Even so, divine justice is founded upon divine mercy. Even the pagan Seneca recognized that mercy is as godlike as justice. In addition, mercy is not a poor second cousin to justice. Again, Aquinas argues that among human virtues, mercy is the greatest of all virtues, greater even than justice (ST IIaIIae 30.4). Mercy does not come in after justice to limit it. Mercy informs justice. Indeed, if we take Aquinas seriously, justice strives after mercy as its goal. “It is clear that mercy does not take away justice, but is in a certain way, the plenitude of it” (Ia 21.3 ad 2). Justice must always then be informed by mercy. After all, with the responsibility to live up to the image of God within us, it is worth pondering the fact that not even the damned in Hell are punished by God as much as justice alone might allow that they deserve. How much more, then, should punishment be loosened for those among us who have not yet been damned?

Public Discourse

Capital Crimes and Capital Punishment

Today’s essay by Daryl Charles makes the case for capital punishment for those guilty of premeditated murder. Tomorrow’s essay will be a reply by John O’Callaghan, who argues for the abolition of the death penalty.

Our culture is morally confused about many things. Conservative Christians tend to focus on concerns about hot button issues like abortion, sexuality, relativism, and education. But one phenomenon that is overlooked but no less urgent is murder. A mere listing of mass killings occurring in the United States in recent years boggles the mind. The year 2022 alone, by all counts, surely must be record-setting. As I write (early October of 2022), one reads that a fifteen-year-old in Raleigh, North Carolina goes on a shooting spree, killing five (including his brother and an off-duty police officer) as he walks through a neighborhood; that five people have been shot in a northern South Carolina home; that in Bristol, Connecticut, two police officers are fatally shot and a third wounded in responding to a domestic violence call (which is said to have been a ploy to lure the officers); and that a thirty-two-year-old is charged with two counts of murder and six of attempted murder following a stabbing melee on the Las Vegas Strip. In the same week we read that four bodies have been found in the Oklahoma River. And this just in: a Florida jury recommends a life sentence without parole instead of the death penalty for the man who murdered seventeen people at Marjory Stoneman Douglas High School in 2018.

These randomly selected tragedies, of course, only identify the tip of the iceberg. Most of our cities are currently reeling from the sheer frequency of killings that have descended on our streets, our neighborhoods, our families, and even our schools. In the four months of June, July, August, and September of 2022, there were respectively 73, 100, 71, and 70 mass shootings, with the total numbers of injured or dead being 297, 439, 262, and 272 respectively. Tucked away in these numbers are the horrendous tragedies and suffering that have visited communities such as Orlando, Uvalde, and Buffalo.  According to the Marshall Project, more mass shootings (i.e., of four or more victims) have occurred in the last five years than in any other half decade since 1966.

 

The barbarism behind increasing murder rates suggests that debates over capital punishment should intensify. But this has not been the case. In fact, what is striking is the relative absence of discussion and debate of the death penalty. On the rare occasions when the death penalty is discussed today, it is almost always viewed unfavorably. The abolitionist argument takes any number of forms: the mental health of the murderer; the possibility of prematurely ending a criminal’s rehabilitation; debates over deterrence; the misconstruction of retribution as revenge (i.e., retributivism); fallibility of the criminal justice system; and modern notions of “civility.” Religiously motivated abolitionists sometimes point to the annulment of the Mosaic code, assumed ethical discontinuity between the Old and New Testaments; and Christ’s teaching on forgiveness.

We have grown intolerant of meting out punishment that is perceived as “cruel” or “barbaric.” Strangely, however, our abhorrence of penal “barbarity” is displayed against the backdrop of increasingly barbaric criminal acts themselves. Indeed, until very recently, capital punishment was almost universally affirmed biblically, morally, and legally.

Christian History and Capital Punishment

Even though abolitionist arguments have been dominant in recent decades, it is worth recalling that for most of history, a variety of civilizations have used the death penalty and grounded it in serious moral reflection. Capital punishment was practiced in the earliest recorded history. Its prescription appears in the mid-eighteenth-century-BC Code of Hammurabi, in sixteenth-century-BC Assyrian codes, in fifteenth-century-BC Hittite codes, in the thirteenth-century Mosaic Code, as well as in ancient Greek and Roman law.

Among the church fathers, one finds varying perspectives on the death penalty, although there is a general recognition of the state’s responsibility to implement capital justice. Tertullian (late second century) and Lactantius (late third century) affirmed that in the case of murder divine law consistently required a life for a life. Both Augustine (late fourth and early fifth century) and Theodosius II (mid-fifth century) acknowledged the state’s role in mediating capital sanctions. In addition, various councils from the seventh century (the Eleventh Council of Toledo) to the thirteenth (the Fourth Lateran Council) followed the lead of Leo the Great (fifth century) in forbidding clerics from engagement in matters of capital justice, even as they understood the state’s legitimate role in facilitating such matters.

 

In the Summa Contra Gentiles, Aquinas insisted that the community had both the right and the duty to “cut away” an individual in order “to safeguard the common good.” The common good, he reasoned, is “better than the good of the individual,” notably because “certain pestilent fellows” who serve as “a hindrance to the common good, that is, to the concord of human society.” Such persons, he concluded, therefore “are to be withdrawn by death from the society of men.”

Late medieval and Reformation-era theologians also affirmed the state’s duty before God to impose capital sanctions upon murderers. Even the so-called “left wing” of the Protestant reform movement—from which much modern religious opposition to capital punishment is thought to derive—recognized the death penalty. The Schleitheim Confession of 1527, an exemplary document adopted by the Swiss Brethren (the progenitors of earliest Anabaptism), reads: “The sword is an ordinance of God. … Princes and Rulers are ordained for the punishment of evildoers and putting them to death.” This Anabaptist declaration concurs with the 1580 Lutheran Formula of Concord, which prescribes for “wild and intractable men” a commensurate “external punishment.” In summary, the patristic, medieval, and late medieval periods generally mirror the church’s tacit acknowledgment of capital punishment in cases of murder.

There has been much debate about the place of capital punishment in Catholic social thought, but the pre-2018 version of the Catechism of the Catholic Church articulates the most sound position on the topic:

Preserving the common good of society requires rendering the aggressor unable to inflict harm. For this reason the traditional teaching of the Church has acknowledged as well-founded the right and duty of legitimate public authority to punish malefactors by means of penalties commensurate with the gravity of the crime, not excluding, in cases of extreme gravity, the death penalty. (no. 2266, emphasis added)

The Church’s teaching on the death penalty historically finds expression in Thomas Aquinas’s question “Is it legitimate to kill sinners?” (S.T. II-II, Q. 64.2). His response is predicated on “the common good,” with an analogy. If the well-being of the whole physical body requires the amputation of a limb, the treatment is to be commended. “Therefore if any man is dangerous to the community and is subverting it by some sin, the treatment to be commended is his execution in order to preserve the common good, for a little leaven sours the whole lump.” What is forbidden, Aquinas argues later, is to take the life of an innocent person (Q. 64.6).

Theological Arguments

It is no surprise that for most of Christian history, the death penalty was widely embraced. To understand the theological basis for capital punishment, we must first look to the nature of law. Fundamental to the biblical story is the depiction of the Creator as Lawgiver. Law, as the reader of the biblical narrative discovers, is of no human origin, nor does it issue out of pragmatic or popular consent. Its authority issues not out of cultural or intellectual enlightenment but from the universal created order. Whether individual cultures and regimes recognize this reality is, of course, another matter. Yet the effects of moral law are as the law of gravity: its disregard always and everywhere results in the rotting of social culture.

In a remarkable—though little remembered—series of homilies in 1976 (eventually published under the title Sign of Contradiction), Karol Wojtyła, at the time Archbishop of Cracow, delivered a sustained reflection on the question of man’s purification from sin in the present life. Guilt incurred by sin, he observed, constitutes a debt in the present order that must be paid. Punitive dealings, thus, provide necessary atonement and restore the balance of justice and moral order that has been disturbed. In theological terms, they prepare the human being for a destiny in eternity.

 

In Sign of Contradiction, we find the necessary response to religious abolitionists who ground their bias against capital punishment in a particular (mis)reading of Jesus’ teaching in the Sermon on the Mount and a purported “forgiveness” ethic. Pitting a misinterpreted Jesus against Paul, they ignore ethical continuity in the broader sweep of biblical revelation and prefer, based on the flaws of human government, to dismiss its divinely instituted commission to punish evil and reward good.

This defect in religious thinking—“the cross is not a sword”—demonstrates conspicuous disregard for what is recorded in the text of Genesis 9, where God makes his covenant with Noah after the flood, the implications of which are stated in universal terms. It is precisely because the human being is fashioned in the image of God that one who purposely sheds the blood of another must die. Genesis 9:5–6 is to be understood foremost as an institution that protects life, in accordance with the Decalogue’s pronouncement “Thou shalt not murder.” The rationale for this morale imperative is none other than the safeguarding of human life. Retribution discourages invasions on the sanctity of the human creature. (Here let us pause for a moment: any society that advances an “inversion ethic” of killing human beings in utero while refusing to take the life of a convicted murderer should strike us as barbaric.) The Genesis narrative suggests that premeditated murder is an assault on human life and is comparable, as it were, to an assault on the very being of God. The fact that justice demands punishment befitting the crime—i.e., just retribution—reveals the essential difference in character between revenge and retribution.

Having been created in the imago Dei, human life is a sacred trust. The implication is clear: murder—i.e., the deliberate extermination of a life by another human being—is tantamount to killing God in effigy. Moreover, as confirmed in Mosaic legislation, premeditated murder is the one crime for which there exists no restitution. As C. S. Lewis noted in his wonderfully prescient essay, “The Humanitarian Theory of Punishment,” to be punished however severely because we in fact deserve it is to be treated as a human being created in the very image of God.

Justice, Charity, and Restitution

When a murder occurs in our community, we are obliged, regardless of our comfort level, to clear our throat as it were and make a public, communal declaration. The deliberate extermination of another human being is an absolute evil and therefore absolutely intolerable. Period. This was the argument advanced by David Gelernter in a 1998 Commentary essay. Gelernter, a professor of computer science at Yale who was letter-bombed in June of 1993, almost lost his life. The essence of Gelernter’s argument was that we execute murderers in order to make a communal statement: deliberate murder embodies evil so terrible that it defiles the community, and as a result the community needs catharsis that occurs through criminal justice properly construed. Gelernter correctly noted that in the face of murder, contemporary society, however, is more prone to shrug it off than to exact just retribution and affirm binding moral standards.

 

Justice has classically been defined as rendering to each person what is due. Desert, then, is foundational to ethics; it is a part of the human moral intuition. Parents know this, children know it, and indeed people from Kansas to Canada to Kenya to Kazakhstan know it as well. Retributive justice, then, is a social good, for it corrects social imbalances and perversions. Herein we find the wedding of justice and charity. When through social attitudes and the rule of law we affirm retributive justice, we are addressing several levels of “imbalance” and disturbance: we are attentive to (1) the victimized party who has been wronged, (2) society at large, which has been offended and is watching, and (3) future offenders who might be tempted to do evil. This trifold application of justice, as Augustine and Aquinas understood it, was in fact an application of charity. And as an extreme example, both saw going to war as an act that can express the wedding of charity and justice properly construed: it is charitable to prevent the criminal (whether domestically or in war) from doing evil, and it is charitable toward society, which needs protecting.

Punishment for a crime and restitution for the victim are interrelated concepts. In the case of premeditated murder, compensation is not available. Hence, as much of human history attests and as the biblical witness affirms, it is the one crime that carries a mandatory death sentence. To suggest or argue that the ultimate human crime should not be met with the ultimate punishment being meted out by civil authorities, at least in a relatively free society, is not some “higher” ethic as some might contend; nor is it “Christian” by any stretch of the imagination. Rather, it is a moral travesty because it fails to comprehend the nature and meaning of the imago Dei.

Civilized societies do not tolerate the murder of innocent human beings; uncivilized regimes do.

Public Discourse

Should Wealth Be Distributed Equally?

Today’s essay is the first of four in a series by James E. Hartley on what literature can teach us about economics.

It’s because of you that anybody possesses
Anything radiant or beautiful or pleasing to mankind.
It’s all from wealth that these things stand.

—Chremylus talking to Plutus, the God of Wealth in Aristophanes’ Plutus (Wealth) 

As a recent symposium at Public Discourse made clear, wealth is a subject on the minds of many. To say that wealth is desirable is about as obvious as a statement can be. As I tell my students if they object, if you have a lot of wealth, you can always give it to your favorite charity (the publisher of Public Discourse, obviously). Yet for something so universally desired, wealth generates a lot of controversy. Why? In this and succeeding essays, we will isolate the aspects of the wealth debate in order to figure this out.

Much of the perennial controversy surrounding wealth is about the way it’s distributed. What is the proper distribution of wealth in a society? Would a random distribution be acceptable? If you casually ask people, there are two popular answers: 1) distribute it equally and 2) distribute it to whoever earned it. Which one is just? It is amazing how quickly discussions of this matter revert to the oft-debated: “Capitalism: Good or Evil?”

But, this discussion of capitalism is a red herring. Aristophanes, the fifth-century-BC comic Greek playwright, devoted an entire play to the matter. This play was written roughly two thousand years before there was anything that anyone would describe as a capitalist economic system, but the issues in the play about just distribution of wealth remain relevant today. Understanding this question of wealth distribution seems essential to building a good society, regardless of how its economy is organized.

 

Plutus, the God of Wealth

At the start of the play, Chremylus has just left Delphi after asking the oracle how to end his state of perpetual poverty. He is told to follow the first person he meets, who turns out to be a blind man. Chremylus and his servant Cario accost the blind man and discover he is Plutus, the God of Wealth, prompting the following exchange:

Chremylus: But tell me, how did you manage to fall so low?

Plutus: The work of Zeus. He’s envious of mankind.
When I was a kid, I swore I’d only visit the homes
Of respectable, intelligent, honorable people.
Zeus responded by making me blind, so I could never tell
Which were which. It just goes to show
How much he resents decent folk.

Note the moral assumptions undergirding this exchange. It makes good sense that Plutus should distribute wealth to the morally good, the respectable, intelligent, honorable people. When Chremylus asks what he could have done in his life to become wealthy, the answer is that there is nothing at all he could have done. The God of Wealth is blind. Wealth is distributed randomly.

But this is about to change. Inviting Plutus to his home, Chremylus not only becomes wealthy himself, but has the means to distribute the blessings of Plutus to others. He and Cario set out to bring Plutus to the god of healing so that Wealth can regain his eyesight. As his friends gather to hear the announcement that Wealth will soon be coming their way, an old crone enters the gathering, announcing that she is Poverty. Chremylus proudly announces that he will soon be kicking Poverty out of Greece, to which Poverty surprisingly responds:

Kicking me out of Greece?
Poor humanity! Nothing could be worse.
Let’s examine the idea together right now,
And if I can’t prove to you
That I’m the source of every blessing
And that it’s I who sustain you,
Feel free to do with me whatever you like.

A debate commences. Is Wealth or Poverty the source of all good things? On the one side, Chremylus explains that when Plutus can see again, “that’ll make everyone kind and rich/ and godly too—/ Surely something that nothing could match/ or ever outdo.” It is obvious to Chremylus that Wealth is good.

Poverty explains that Chremylus is a fool, arguing that Poverty is much better than Wealth at providing good things.

Because if Wealth does see again
and can begin
To give himself to everyone
equally,
No one will practice the arts and crafts
ever again.
For once these have gone, who’ll be
at all ready
To ply the forge, to build ships,
do tailoring
Make wheels or shoes, do bricklaying,
or come to grips
With washing clothes
or leather tanning?
Who will wish
To plow the earth and gather in
the harvesting
Of Demeter’s generosity
once you can
Succumb to inactivity
and do nothing?

There lies an interesting choice. Chremylus argues that wealth should be freely distributed to everyone who is good. Poverty argues that wealth should go to people who are working hard to avoid being poor. Would you prefer to live in a society where everyone has access to becoming wealthy and idle, and where work and wealth are no longer tied to one another? Or would you opt for a society where people are industrious and active because they fear the cold grip of Poverty? In the wealthy society, who will make all the products that all the idle rich want? But would it be better for everyone to continually live in fear of Poverty and spend their days trying to avoid that old crone?

Poverty is unpersuasive within the play. Plutus regains his sight. The dishonest and corrupt are really unhappy in this new world because wealth and riches are no longer within reach for them. Then Hermes appears to explain that Zeus and the other gods are also upset. Now that everyone has access to wealth, nobody feels any need to make sacrifices to the other gods. The play then ends as Plutus takes his place in the Acropolis.

Is this a happy ending? The play is a comedy, and thus Chremylus ends up quite happy: he is now wealthy. But Aristophanes does something subtle here: Chremylus never answered Poverty’s argument about the downsides of acquiring wealth without work. We never see what happens after the play ends. Does everyone live happily ever after? Or does the fact that nobody fears Poverty mean that there is no longer any actual wealth because people no longer make anything?

One thing we learn from Aristophanes here is that a society’s just level of wealth is not merely a matter of finding the right technical redistribution mechanism; rather, any arrangement of wealth distribution involves sets of political, moral, and material tradeoffs, and no single arrangement will be universally acceptable to every society.

The Lingering Problem

The questions raised in this play are no different from the ones with which we wrestle 2,500 years later. Today’s debates are captured in Aristophanes’ Plutus. There are many people who look at the society and say with Cario, “Even the blind could see that in our day/ the secret of success is to make sure you’re rotten to the core.” If you believe that high wealth is currently going to unscrupulous people, then the idea that wealth should be distributed to those who acquire it is fundamentally problematic. We all agree that thieves do not merit the wealth they acquire. But, on the other hand, there are few (if any) people who truly believe that the distribution of wealth should always be perfectly equal. Let’s say we decide to distribute all wealth perfectly evenly in March 2023. By March 2024, you will find radical wealth inequality. Some people will have purchased a house, and some people will have squandered it all on riotous living. Much of our wealth lives and dies by our choices. Would anyone argue that the wealth levels should be equalized again one year later?

Any quick answers to how wealth should be distributed are thus woefully incomplete. People who say they want an equal distribution of wealth really mean “more equal than the current distribution.” Those who say wealth should be distributed to those who earn it really mean “those who earn it by appropriate means.” In other words, it is not as obvious as we might think that the two sides of this debate are as totally irreconcilable as they might seem.

To get at the differences in views on the proper distribution of wealth, it helps to rephrase the question a bit. Consider the following scenario. A country starts with a perfectly equal distribution of wealth in which everyone has exactly $200,000. There are two options for the future:

1. Everyone’s wealth will rise to $250,000.
2. The wealth of 90 percent of the population will rise to $300,000; the wealth of a randomly selected 10 percent of the population will rise to $3,000,000.

(Note for those concerned about inflation: assume all the numbers are in real terms, so this increase in wealth is an actual increase in purchasing power.)

Which option would you choose?

Absolute vs. Relative Wealth

I have asked this question in many different places over the years, and the audience almost invariably is evenly split. Why? It turns out that when we talk about wealth distribution two very different issues get conflated. Is it the absolute level of wealth that matters, or the relative amount of wealth? If I doubled your wealth but tripled the wealth of your neighbors, are you happier?

Those who are concerned with the relative amount of wealth tend to focus on the idea that those on the upper end of the distribution have unjustly appropriated wealth from those on the lower end. There is an implicit belief that in a fairer world, wealth would naturally be more equal. As Aristophanes shows, this idea that wealth is unfairly distributed long predates anything we could call “capitalism.” When some are wealthier than others, those whose primary concern is with relative levels of wealth will object. Some would even accept lower absolute levels of wealth in exchange for more equality.

Those who think the absolute level of wealth is more important tend to focus, like Aristophanes’ Poverty, on the fact that it requires work in order to generate wealth. (Even things that do grow on trees must be harvested in order to generate wealth for an individual.) To these people, the argument for leveling the amount of wealth is tantamount to removing the incentive to generate wealth in the first place. The reward of a less equal wealth distribution is higher wealth for everyone since inequality makes us worker harder and produce more things.

Again, we do not know whether Poverty’s warning about the dire consequences of wealth equality ever materialized. However, to reiterate: what Aristophanes suggests to us is that, like so many political matters, there are tradeoffs involved in the absolute-versus-relative-wealth debate. There is no obvious, universally desirable solution: different societies will tolerate different levels of inequality and might be willing to sacrifice different levels of absolute wealth. Nonetheless, the warning from Aristophanes’ Poverty is clear: absolute equality means absolute destitution.

 

Fair Play

But despite disagreements over absolute and relative wealth, one thing almost universally agreed upon is that wealth must be acquired by morally appropriate means. If wealth is generated by a tyrannical Pharaoh enslaving the descendants of Jacob, the resulting inequality would be acceptable to almost no one. Is the monopolist who produces a life-saving drug entitled to keep the profits from a government-enforced patent? Is the godfather of a successful gaming and alcohol distribution empire entitled to the fruits of his labors?

In other words, how one acquires wealth matters at least as much as the way wealth is distributed. In the aggregate, a society’s percentage of wealth acquired by immoral means is in many ways a reflection of how unjust that society is.

The question whether a large percentage of wealth has been immorally acquired requires an examination of what counts as moral economic activity and what doesn’t. We will study that matter in a pair of subsequent essays, using Chaucer and Dreiser as our guides.

Public Discourse

Sex Work Is Scaling

When the economy went virtual during the coronavirus pandemic during 2020, so did sex. The combination of loneliness and financial anxiety created a boom for OnlyFans, the online platform where anyone can join to sell unique content (almost always sexual) to their “fans.” The Guardian reported that the number of OnlyFans users grew from 7.5 million users in November 2019 to a staggering 85 million in December 2020—which is an increase of more than 1000 percent.

But as the world has reopened, much of sex has stayed virtual. OnlyFans has continued to expand: TechJury, a software review company, reports that in 2023, “over 170 million users have registered an OnlyFans account, including 1.5 million creators.” This means that purchasable intimacy is scaling: never before has sex been more available for such low costs.

As the sex work industry grows, debates about it have intensified. Some proponents focus on decriminalizing sex work, arguing that it is a matter of life and death. Others focus on moral justifications, pointing to arguments about bodily autonomy, the extra income such work provides, and even the fulfilling nature of the work.

These defenses overlook intractable harms caused by a growing sex work market. Sex work takes advantage of underage women who easily bypass OnlyFans’ weakly enforced age restrictions, and low-income women desperate for quick cash. It also has a corrupting effect on human well-being and dignity, since it denies the fullest meaning and power of sex. And it impacts the broader culture, encouraging men and women to commodify one another.

The sex work industry’s barbarity is apparent in the ways it manages its clients. Last May, the New York Times magazine published a report by Ezra Marcus on the “The ‘E-Pimps’ of OnlyFans.” These e-pimps are exactly what they sound like: middlemen who serve as mediators between digital sex workers and their clients. E-pimps also manage communications between digital sex workers and their clients. They hire chatters, who are ghost writers for OnlyFans “creators.” Marcus writes: “These chatters work in shifts, responding to incoming messages and reaching out to new subscribers, trying to coax them into buying expensive pay-per-view videos.” He continues:

The subscribers presumably think they’re talking directly to the woman in the videos, and it is the job of the chatter to convincingly manifest that illusion. Their clientele—typically horny, lonely men—make it pretty easy. “Our best customers come to us not so much to buy content as they come to us to just feel a connection,” reads a post on Think Expansion’s website. This desire, the post explains, is a pimp’s bread and butter, “e-” or otherwise: “Hustling simps has been an art since the beginning of time!”

In other words, pimps and their chatters use male loneliness as an opportunity to coax as much money out of clients as possible. Perhaps some people applaud this as an example of the unfettered market working its magic. There’s a demand for companionship, people are willing to provide it at market price, and product delivery is streamlining.

But these market defenses too often ignore the real nature of demand, and the ways outside circumstances shape it. Our demands are not always on equal footing with one another: some things tempt us even though we know, ultimately, we don’t want them. Desires conflict with each other. Most of the men paying for digital sex would probably prefer freely chosen, genuine companionship rather than flirting with men in Europe, Africa, and Southeast Asia posing as beautiful women. But when counterfeit intimacy is just one click away, it creates a demand for something that men might not really want, but that is born of desperation or even addiction.

 

Digital sex work, like pornography, is probably reinforcing incel status and even turning men into incels. The sex recession has been widely documented at this point. In an April 2022 New Yorker essay, Zoe Heller cited some striking data: “In a study released in 2020, nearly one in three men between the ages of eighteen and twenty-four reported no sexual activity in the past year.” Many users on OnlyFans are weary from the hardcore violence of porn, and have turned to OnlyFans for something that more closely resembles the intimacy of a relationship. It’s not hard to see how men might opt for these e-girlfriends and might shrink away from relationships with flesh and blood women who, like any human being, have needs, opinions, and imperfections.

Scaled sex work, therefore, manipulates and exploits men, and distorts the broader sexual environment. But what about the women who are sex workers? Is it harmful to them, or is it an edgy but ultimately fun way to make money? Is it a necessary revenue stream for women who would otherwise be bereft of economic opportunity?

For many sex workers, their experience is not as glamorous as the industry’s defenders suggest. In an unintentionally revealing conversation, Reason Magazine asked a sex worker and data science researcher named Aella to “explain the class differences in types of sex work.” Aella responds:

I did a survey of a bunch of escorts and found that the amount of bad things they encountered, like sexual assault … was pretty strongly correlated with their price range. Basically, the more money you charge, you’re pricing yourself out of more sketchy clientele. The people who are going to be paying you $1,000 an hour are not going to sexually assault you. They’re a lawyer or a doctor or a politician or someone who just doesn’t want to mess with that.

Educated, attractive, and interesting sex workers like Aella can get away with charging high prices and dodging “sketchy” stuff like rape. Those at the top of the sex work food chain avoid much of the violence and harm those at the bottom experience. As a significant body of research indicates, there are disturbing links between sex work, porn, and human trafficking.

Even for online sex workers who are not trafficked into the industry, some turn to digital sex work out of economic desperation. Again, this might seem like a defense of sex work: it offers income to those who need it. But on OnlyFans, only a small percentage of “creators” are making a good income. Another 2021 New York Times magazine report noted that “90 percent of creators take home less than $12,000 a year.” In other words, the vast majority of women are getting just a few hundred dollars here and there.

Yet even if all these women were making enough money selling digital sex to live comfortably, selling and buying sex is discordant with human well-being. Unlike other actions we perform with our bodies, the ramifications of sex are not confined to the activity itself. Someone can sell their labor mowing a lawn, but they probably won’t stay up for nights wondering if they did anything wrong or embarrassing while cutting the grass, desperately hoping that the lawn’s owner loves them, or anxious that a baby will emerge. Even when pregnancy isn’t a concern, sex stirs our inner lives. The clichés are true: sex can be like a drug because, when not tempered by self-restraint and social norms, desire for it can control the rest of one’s life. It’s something that’s too sacred and powerful to be bought and sold.

 

The power of sex is apparent in the ways its ramifications extend beyond the two people who do it. This is no less true of paid sex: as the sex work industry grows and moves online, it encourages a transactional view of relationships in mainstream culture. To borrow an image that Unherd writer Mary Harrington has used, our attitudes about sex and sexual practices are part of a broader ecosystem. The mainstreaming of virtual sex work means that sex will become more and more commodified for everyone else. Thanks to the rise of “sexfluencers,” women who have no connection to sex work but have an online presence regularly get approached by men requesting sexual images. And “buying” sex with culturally approved gestures is a mainstay of dating culture: two or maybe three dinner dates is the standard price of going to bed with a Tinder match. Women in this environment must often choose between sleeping with a man they just met or being ghosted by him since he can easily find someone else who’s willing to put out. The more sex is for sale online, the more likely these trends will continue apace.

Some like sex advice columnist Dan Savage have argued that all relationships are transactional, even marriages; so sex work is actually not fundamentally different than any other sexual relationship. Yet the idea that all relationships are transactional and therefore morally equivalent relies on an overly hazy, expansive definition of “transaction.” It’s true that marriage is transactional insofar as it’s mutually beneficial and an exchange between two people. But what marriage exchanges is self-sacrifice and, if it’s working properly, it makes people grow in virtue. Exchanging sex for money, by contrast, gives the buyer a sense of ownership over the product (another’s body), and requires no sacrifice other than a dent in the wallet.

The more sex work scales, the easier it will be for men and women to see one another as commodities to be used and discarded—all the while dulling their natural longing for love and companionship. We should not only make every effort to remove sex work (digital or otherwise) from the market, but also to make it utterly unthinkable.

Public Discourse

The Morality of Money

The financial sector confounds most people with its clusters of confusing terms: asset allocation, capital gain, dividends, block chains. The technical nature of finance makes it difficult to make moral judgments about it. But understanding the ethics of finance is an urgent task, because there seem to be high-stakes moral hazards built into the financial sector: to give an obvious example, many Americans’ livelihoods were decimated during the Great Recession.

Therefore, finance needs some ethical guidance. In his 2021 book, Finance: A Christian Perspective, Pierre de Lauzun attempts to do just this. He examines the relationship between Christianity’s moral tradition and finance—and uses Christian thought to evaluate finance. Lauzun, in other words, seeks to explain economics and finance through a lens of philosophy and theology.

But before one can understand  the ethics of finance, it’s important to have a basic grasp of what finance actually does. At bottom, finance is a risk mitigation tool: which investment, and what type of contractual arrangement, will reduce the odds of  investors losing part or all their investment? The intersection of both profit performance and risk is the pricing of capital. Put another way, when capital is priced, it is priced in terms of the risk. This price is commonly referred to as the “return” for the investor and the “cost of capital” for the consumer of capital.

But is this pricing of risk just? Is the allocation of risk between the investors and the consumers of capital just? What kinds of burdens do pricing and allocation place on society (like risk to savings and retirement accounts)? Clearly, there are reasons to be concerned about injustices that seem endemic to the financial sector. After the 2008 housing crisis, everyone witnessed how the losses were socialized, yet the gains during the housing boom were privatized. Can finance be practiced in a manner different from this—one that is ethical and just for both the parties and society? How can the financial sector gain a sense of moral responsibility?

 

Lauzun offers responses to these challenges by providing an overview of economic history, looking to the Catholic Church’s contributions on concepts of money, markets, and prices. His discussion includes an overview of the mendicant orders’ (Dominicans and Franciscans) impact on nascent economic and financial concepts. For instance, the scholastics considered when a certain price for goods or services is just, and whether profit can be good. The short answer: a price is just if two parties enter a transaction in a non-coercive manner at a mutually agreed upon price. These thinkers are probably unknown to most libertarians, but they echo a principle outlined by Aquinas. The 13th-century Franciscan John Peter Olivi “emphasized the beneficial role of the entrepreneurial initiative,” which paved the way for the moral justification of economic activity.

Lauzun also includes well-footnoted discussions of money, usury (which may or may not be the same thing as interest), just prices, Church social teaching, and an understanding of the implied rational calculation in relationships and transactions. Any time individuals freely enter into an exchange, each party implicitly attaches a subjective value to the goods involved in the exchange.  Lauzun shows how this “rational calculation” concept implies a prioritization, or hierarchy, of values: the parties in a transaction rank goods or services from the most valuable to the least, therefore they enter transactions freely based on these subjective, yet rational, calculations of value. With this understanding, finance becomes a set of quantitative tools used to aid decisions about these transactions.

 

Therefore, for Lauzun, this is the “main subject, the function of finance and its basic questions: how to arbitrate the allocation of this rare resource, capital, and how to assume the duties of ownership.” Therefore, what distinguishes finance from other economic activity is that it moves beyond the price of tangible and intangible goods, and contemplates the price of money.

One of the most urgent moral concerns about finance is the way it’s tied to cultural decline. On several occasions, Lauzun points out that if we rely solely on quantitative money-based tools, we become a culture overwrought with the financialization of every decision. The term financialization, academically, connotes the increasing influence of the finance sector over general decisions of society. The government has to be mindful of how its spending and laws affect the financial sector, since commercial activity and people’s retirement and investments rely on the financial sector. Financialization even trickles down to everyday personal and family decisions, often transforming them into primarily financial decisions. In summary, Lauzun argues there has been an inversion: finance is seen as primary over, instead of derivative of, the higher human goods.

Another ethical concern of finance that Christianity raises is the financial sector’s implied view of risk, which is detached from concerns about how the financial sector’s activity affects people. Finance is taught as the management of risk, and risk in this realm is the chance the future will not turn out as planned. Every business school teaches that risk can be reduced, although not eliminated. But this perspective often means that the human person is completely disassociated from the underlying asset or investment being tinkered with. Lauzun describes this phenomenon as “detachment.” Imagine financiers sitting in offices on Wall Street, manipulating spreadsheets, with no attachment to the impact of their decisions on everyday people. As someone who has worked in that position, I know how effortless it is to manipulate numbers on a screen and allocate resources, without any consideration of real people or the real world.

 

Then, of course, there is the question of interest and usury. Usury, as noted above, had long been condemned by the Catholic Church. So a primary moral obstacle for modern finance is how to justify charging interest on money. And can there be a “just price” of capital between providers and the consumers of capital? In this reviewer’s opinion, the fundamental part of capital that’s being priced is risk. Therefore the question is, how do we arrive at a just price for risk? In other words, how does society justly allocate economic risk? This is even more difficult since society has lost a certain understanding of risk, paradoxically, as we believe we have become better at managing it.

Lauzun concludes by discussing possible solutions to the various problems confronting finance. At a state or regulatory level, the solutions tend to work against basic functions of the market. For example, one might reduce or eliminate what is known as “high frequency trading” by imposing a certain minimum period for which to hold a security, but this solution runs counter to a basic market function of liquidity, which is the ability to convert a security into cash. At the individual level, Lauzun’s solutions could be summarized as an exhortation for people to take responsibility for their own moral development. These “solutions” aren’t especially original or satisfying, but I suppose Lauzun can be forgiven: his book is less about practical prescriptions and more about providing a philosophical and theological review of finance.

I would supplement Lauzun’s proposals with one of my own, even though it too is incomplete: Christian colleges and universities must teach their business and finance students about ethics and acquaint them with the liberal arts tradition.

I have taught at various institutions of higher learning, all nominally Catholic with core liberal arts traditions. Unfortunately, at more selective Catholic institutions, business schools seem to be moving further away from liberal education. One institution once had a requirement that all business majors take at least two non-business electives, but this is no longer true, to my knowledge. At another institution the economics and finance faculty had lunch with the CIO (chief investment officer) of a major bank. Discussion bandied about various topics of business, but when asked what was the single area in which students could be better prepared, our guest responded, directly and bluntly: their liberal education. And as Lauzun’s book makes clear, a liberal education with a focus on our Christian roots is the most promising path forward.

Public Discourse

ESG, Woke Capitalism, and the Virtue of Humility

Americans can be forgiven for feeling disconcerted by the mutation of businesses and financial institutions into centers of woke capital. Following the Dobbs decision, major corporations like Microsoft and Meta affirmed that they would cover employee travel costs to abortion clinics, while others like Walmart and Lowe’s faced pressure to acquiesce to similar activist demands. But pro-abortion measures aren’t the only ways corporations are politicizing themselves: banks are expected to atone for slavery and small businesses are pressured to reduce their emissions even if they lack the resources, while tech giants seek to replicate China’s social credit system.

An important part of the story is the rapid spread of ESG, the investment framework that evaluates companies not according to profit generated or shareholder returns delivered, but on the basis of “environmental, social, and governance” criteria. Since a 2004 United Nations report—produced with eighteen of the world’s largest financial institutions—called for the global “integration of environmental, social and governance issues in investment decisions,” ESG has ballooned into what is expected to be a $34 trillion industry by 2026.

In concrete terms, the report’s abstractions have translated into the politicization of every aspect of business: “E” now stands in for climate alarmism that damages energy industries; “S” for pro-abortion and gender ideology; and “G” for decisions on hiring, firing, and compensation tied to critical race theory. Today, major investment firms grade companies based on their ESG policies, which means that activist notions relating to “environmental justice” and “racial equity” are significantly influencing business decisions. This thinly veiled project to pressure companies into elevating social justice grievances over making profit amounts to a direct attack on the free-market system that has produced more wealth and prosperity than any other in history.

 

After making deep inroads into corporate America, ESG is finally meeting resistance. A former senior executive at BlackRock, one of the leading proponents of ESG investing, is being vocal about the fact that it doesn’t work. The SEC recently fined Goldman Sachs $4 million for policy and procedural failures related to its ESG investment funds. In the words of a professor of finance at NYU’s Stern School of Business: “It’s very difficult to create a concept that’s empty at its source and toxic at the same time, but ESG people have managed to pull off that trick.”

ESG’s toxic impact on free markets and democracy calls for strong political, legal, and regulatory responses. But ESG also reminds us of the enduring truth that economic structures cannot be abstracted from the individuals and cultures that engender them. After all, ESG investing is enabled by woke CEOs, who enjoy the power and prestige that social justice advocacy confers. Some ESG critics argue that CEOs should focus instead on communicating the good that business does. Ultimately, though, overcoming ESG will require CEOs to grow in humility, developing self-regulatory habits of restraint, as well as a commitment to community.

Values Void

In his concluding reflection on Law & Liberty’s recent forum on ESG, Samuel Gregg emphasizes the role of CEOs in pushing back against the ideology. While acknowledging that ESG raises longstanding questions about the nature of the relationship between business, society, and government, he believes that intellectual arguments against ESG can only do so much. What’s really needed, he proposes, is for business leaders to be “far more explicit and confident” about the benefits that a profit-seeking system produces. If CEOs were “more skilled” at this kind of public advocacy, there might be “less of a values void in business that schemes like ESG try to fill.” Gregg’s focus on the role of CEOs reflects a broader trend among ESG critics that is likely to intensify with the new congressional balance of power in Washington, D.C.

But is the problem really that CEOs lack communication skills? While Gregg rightly calls for business leaders to articulate that profit is both a sign of customer satisfaction and the foundation of broader social goods, his own choice of language points to deeper concerns. He warns business leaders not to “play the appeasement game or avert their eyes from the wider agenda with which some ESG proposals are associated,” and he advises against the “calculated endorsement” of schemes, like ESG, that undermine the freedom on which capitalism depends. These notes of caution suggest that combating ESG is not just about communication; fundamentally, it’s a question of character. Free markets require free individuals and free competition, but to function correctly they also require these individuals to be virtuous.

As woke CEOs have embraced ESG, often for self-aggrandizing reasons, one virtue that has been conspicuously lacking is humility, which Augustine saw as the prerequisite of all other virtues. Humility involves recognizing the limits of our knowledge, overcoming our self-centered inclinations, and evaluating ideas in ways that orient us toward what is good and true rather than what satisfies our own preferences or fashionable political views. Since these tendencies would be beneficial within the context of resisting ESG, it’s worth encouraging business leaders not just to communicate more effectively, but to attend to cultivating the virtue of humility. In particular, humility will help clarify the importance of restraint and the meaning of community, each of which has tended to be neglected in ESG conversations.

 

Restraint

To a significant degree, ESG’s rise has been enabled by a lack of restraint among business leaders and the broader culture in defining the nature and ends of business. Profit is no longer enough; ESG investors and activists seek an extravagantly expanded conception of the values that business should pursue, including divisive ideas related to diversity, equity, and inclusion. (Predictably, this has prompted some right-leaning critics to call for a more assertive political response that would replace ESG causes with an alternative set of mandated values.)

What can humility teach us about restraint? Here we might turn to the medieval theologian Thomas Aquinas, perhaps an unlikely source of business advice. (Though since ESG seems like religion for many of its advocates, maybe theology is the best response.) For Aquinas, the function of humility is “to temper and restrain the mind, lest it tend to high things immoderately.” ESG ideology is a textbook case of the modern mind’s failing to restrain itself, failing to keep business in its proper perspective, and failing to focus on profit and shareholder value. Instead, ESG investment metrics encourage CEOs to strive for dubious goals that lie outside the regular scope of business and belong more properly to the realm of NGOs.

By contrast, business leaders who embody humility would be less inclined to prioritize their own needs, ideological motives, or self-regard. They might be more receptive to the growing evidence that ESG doesn’t work, with funds underperforming and investors increasingly doubtful of ESG’s redefinition of the core purpose of business. More broadly, a posture of humility and restraint is a more natural fit with the messy uncertainty of free markets, which work precisely because they enable free individuals to exchange goods and services with each other—not because they can be managed and manipulated with reference to ESG priorities.

 

As corporate and political elites find more and more ways to publicly signal their compliance to ESG orthodoxy, Aquinas’s insight that true virtue is an “internal movement of the soul” might also be relevant. The ability to restrain ourselves from inadvisable public actions rests on the awareness of our own private limitations: the inner person shapes the outer world. This means that virtue will not be found in external gestures, but in the inward choices that we make over time. It can, as Aristotle said, be cultivated. The model of the CEO as humble, restrained, publicly modest, attentive to virtuous habits of mind, and carefully focused on delivering value for customers and shareholders sits uneasily with cocktail receptions and networking dinners at Aspen ESG summits. But it’s a model that needs to be restored if ESG is to be resisted in the long term.

Community

If ESG undermines a modest and restrained approach to business, it also challenges traditional views of the meaning of community. This is because ESG prescribes cookie-cutter practices of governance, social relations, and environmentalism, compelling businesses to incorporate arbitrary, predefined, and often contentious issues as part of their strategies. McKinsey, one of the largest management consulting firms and a leading ESG advocate, concedes that “top-down ESG pronouncements can seem distracting or too vague to be of much use.”

As an alternative to the top-down, coercive uniformity of ESG investment theories, humility will help business leaders and other supporters of free markets to prioritize the value of community. Humility is often seen as a personal disposition, but its etymology implies a wider, communal dimension. It is closely related to the Latin word humilis, which literally means on the ground, or grounded. To be humble, then, means to be grounded, rooted, and formed as part of a community, whose members we engage with constructively and without undue concern for our self-centered inclinations—or for calculations of what might be politically expedient.

 

How might this aspect of humility bear upon ESG? It reminds us that businesses—before they are anything else—are on-the-ground enterprises, located within specific industries and cultures, responding to customers, and providing goods both directly and indirectly to local communities. As such, businesses will flourish with a local, contextual approach to social and environmental considerations, rather than the one-size-fits-all ESG agenda emanating from international conferences. In this sense, it is unsurprising that resistance to ESG is being driven most notably by state leaders, who are best placed to discern its adverse effect on key industries.

Being humble is not the same as being lowly. It means recognizing that our actions are significant precisely because they shape the social fabric, each of whose members are of equal worth and dignity. It matters that CEOs attend modestly and diligently to the core purpose of business, which is to generate profits and shareholder returns, create jobs, and provide needed products and services. And it matters that CEOs perform this role as grounded in the communities that they form, and by which they are formed in turn. These are not small things—and if they provide the basis for repelling a toxic investment ideology that threatens America’s free-market economy, they will turn out to be more valuable than any corporate communications strategy.