Pope Francis's Theory of Economics

A case for the pontiff's debt not to Karl Marx but to Karl Polanyi

Pope Francis and, clockwise from top left: Keynes, Polanyi, Hayek, and Marx (Reuters/Giampiero Sposito/Wikimedia Commons)

It would make for some pretty amazing headlines if Pope Francis turned out to be a Marxist.

Between his hints at rehabilitating liberation theology—condemned by his predecessors—and talk about casting off "the economic and social structures that enslave us," Marxism isn't totally out of the question.

But happily for nervous church leaders, Francis's first Apostolic Exhortation, issued Tuesday, doesn't quite suggest someone who would get "Marx" in an Internet-style "Which Economic Theorist Are You?" quiz. Granted, he wouldn't exactly get Friedrich von Hayek or Ayn Rand, either.

But you know whom he might plausibly be matched with, though? A favorite political economist of anti-free market academics: Karl Polanyi.

Karl Polanyi is most famous for his book The Great Transformation, and in particular for one idea in that book: the distinction between an "economy being embedded in social relations" and "social relations [being] embedded in the economic system."

Polanyi's Big Idea: The Economy Has to Serve Society, Not the Other Way Around

Economic activity, Polanyi says, started off as just one of many outgrowths of human activity. And so, economics originally served human needs. But over time, people (particularly, policy-making people) got the idea that markets regulated themselves if laws and regulations got out of their way. The free market converts told people that "only such policies and measures are in order which help to ensure the self-regulation of the market by creating the conditions which make the market the only organizing power in the economic sphere." Gradually, as free market-based thinking was extended throughout society, humans and nature came to be seen as commodities called "labor" and "land." The "market economy" had turned human society into a "market society."
In short (as social sciences professors prepare to slam their heads into their tables at my reductionism), instead of the market existing to help humans live better lives, humans were ordering their lives to fit into the economy.

What Pope Francis Said

Now, back to the pope. Pope Francis, in his exhortation, notably does not call for a complete overhaul of the economy. He doesn't talk revolution, and there's certainly no Marxist talk of inexorable historical forces.

Instead, Francis denounces, specifically, the complete rule of the market over human beings—not its existence, but its domination.

"Today everything comes under the laws of competition and the survival of the fittest," he writes. "Human beings are themselves considered consumer goods to be used and then discarded," and "man is reduced to one of his needs alone: consumption." He rejects the idea that "economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world." Instead, he argues, growing inequality is "the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation," which "reject the right of states, charged with vigilance for the common good, to exercise any form of control." And he repeats the exact language he used in an early address: "Money must serve, not rule!"

Seeing the similarities yet?

Polanyi, the Pope, and Blaming the Market for Big Crises

Where things get really interesting is when Pope Francis brings up the financial crisis. "One cause of this situation," he writes, "is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies. The current financial crisis can make us overlook the fact that it originated in a profound human crisis: the denial of the primacy of the human person!"

It's nothing new to say the financial crisis came from a lack of regulation. That's a fairly popular analysis. But what Pope Francis is saying is more Polanyan, hearkening back to the idea that the tipping point has to do with the relationship between the market and society/humanity, and which is subordinate to the other. Just as Polanyi argued that the extension of the market economy across the globe (through the gold standard) was the root cause of World War I (and you'll have to go back to the original book for that, but it's a beautifully, hilariously gutsy, Guns, Germs, and Steel kind of argument), Francis is arguing that failing to keep humanity at the center of our economic activity was the root cause of the financial crisis.

A Vision for the Future

One of the tricky and crucial parts of Polanyi's argument is that he doesn't actually believe (at least, back in the 1940s, when he was writing) that we're living in a world where the economy has become fully disembedded from society. This "Utopia," he writes, that many economic theorists and policymakers are foolishly striving for, "could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness."

Pope Francis has a similarly gloomy view of global survival in the face of unchecked capitalism: "In this system, which tends to devour anything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule."

So what's the way out? At the time Polanyi's book was published, he was betting on social democracy being the answer, so long as governments worked together internationally. And you know what? That is pretty darn close to what the pope urges as well. He doesn't think this can be solved with personal charity:

Growth in justice ... requires decisions, programmes, mechanisms and processes specifically geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality. I am far from proposing an irresponsible populism, but the economy can no longer turn to remedies that are a new poison ... We need to be convinced that charity “is the principle not only of micro-relationships (with friends, with family members or within small groups) but also of macro-relationships (social, economic and political ones)”. ... Each meaningful economic decision made in one part of the world has repercussions everywhere else; consequently, no government can act without regard for shared responsibility. Indeed, it is becoming increasingly difficult to find local solutions for enormous global problems which overwhelm local politics with difficulties to resolve. If we really want to achieve a healthy world economy, what is needed at this juncture of history is a more efficient way of interacting which, with due regard for the sovereignty of each nation, ensures the economic well-being of all countries, not just of a few.

The parallels aren't perfect. Polanyi has some ideas about the Gospels ignoring social reality that the pope might not be on board with. But for now, at least, Polanyi certainly looks like a closer fit for the pope than Marx. And the pope and Polanyi have this in common: They're both surprisingly popular on liberal university campuses right now.

If you find a shot of His Holiness reading The Great Transformation on his bus ride, let us know.