As John Lukacs, among others, points out, we are at the end of an age, the age of rationalism. Since it coincides with it, this is an age that for our purposes can be defined as the age of the social contract. It is an age of splendid rhetoric and dismal practice. This dysfunction comes more easily to the fore not only if we concentrate our attention on the economics of the age, but especially if we measure the essential characteristics of the social contract against the standards of the previous age, an age that can be characterized as expressed under the aegis of the moral contract.
The Moral Contract
The age of the moral contract can be pinpointed as going from Moses to 1776. This was a universal realm of intentions and practices whose injunctions were applied not only over vast extensions of time but also vast expanses of territory. As if to underscore the universality of this construct, we shall find strict similarities of approaches both in the sacral and the secular literature.
The Moral Contract in the Sacral Literature
Contrary to widespread assumptions, the moral contract was not based on some vague ideas or ideals of morality existing in the sacral literature. Rather, it was rooted in two surprisingly complex and comprehensive economic models: the economics of Moses and the economics of Jesus.
The Economics of Moses. The Economics of Moses is contained in two fundamental doctrines: Observe Jubilee (including Sabbath and Sabbatical year) and Do Not Steal. Both doctrines embrace a full system of thought that is based on the integration of two particular legal and economic institutions. One was the institution of stewardship; the other was the tripartite division of goods into private goods, public goods, and common goods. Explicitly land, and implicitly money, belonged to Yahweh who said: “The land is mine.”  Hence, land and money were conceived as common, rather than private, goods. Amidst these institutions, human beings automatically became owners rather than workers. The theory composing this system has been reconstructed in Gorga and its details do not need to be repeated here. This work has been published in Tavidze and it has received consistently extremely high marks from a wide spectrum of readers. Policies and practices that stem from this theory are well known and can be summarized as follows.
Land whose usufruct for any reason might have been sold during the course of the years reverts back to the original owner—no compensation required—at the beginning of the fiftieth year; debts are cancelled at the end of the seventh year. These and many other policies of much less momentum were intentionally constructed in order to avoid hoarding of wealth.
The Economics of Jesus. Jesus said “Do not think that I have come to abolish the Law or the Prophets; I have not come to abolish them but to fulfill them.”  And in fact the Economics of Jesus is only a more explicit and forceful restatement of the Economics of Moses: Two complementary doctrines are derived from the Parable of the Talents. The first doctrine states: Invest Your Talents; the second states: Do Not Hoard.  The third doctrine is Give to Caesar What Is Caesar’s. The functionality of the theory remains the same: if the end result of Moses’ Jubilee is to avoid hoarding of money, land, and natural resources, then in the Economics of Jesus this purpose is elevated to a doctrinal injunction: Do not hoard.
Only one observation is possible here. In both models, morality is not external but internal to the economic system. The decision to hoard or not to hoard is a free—hence moral—decision. Hoarding causes clear-cut negative effects on economic growth, inflation, and poverty; in the long run hoarding hurts the person who hoards as well every other human being caught in the wake of this action. To avoid these dangers, morality is so construed as to be inside the economic decision. Morality cannot and should not be imposed from the outside. That is moralizing and a losing proposition; society can only prevent the legalization, normalization, and justification of those institutions that foster hoarding.
There is another point of view through which to observe that economic morality was a universal pursuit during this age. Many economic expressions of the moral contract were not exclusive to the Judeo/Christian tradition but in ancient times were rather common throughout the world. The locus classicus is Aristotle’s Politics. For the existence of ethical rules applied to the economic life in ancient Chinese life, see, e.g., Schumpeter. For the demands of statecraft in ancient India, Amartya Sen cites Kautylia’s Economics (!). The Prophet Mohammed put the desirable relation between people and land most simply and clearly: “Let him who owns land cultivate it himself, and if he does not do so let him have his brother cultivate it.” The Arapaho Indians put this commandment this way: “Take only what you need and leave the land as you found it”. Interestingly, this policy was still advocated by Locke. The last stronghold of the millennial struggle against usury is still very vibrant in the modern Muslim world.
The universality of the moral contract can be observed from still a different point of view, the point of view of secular literature.
The Moral Contract in the Secular Literature
With the Roman conquest, the Israelites lost control of their land; they lost control of their money; their land was acquired by Roman senators and their friends. At Rome as elsewhere, Roman law gave birth to that peculiar institution that is still with us today: the latifundia. With the amount of wealth being finite at any particular moment, when the few have too much, the many have too little. With the latifundia, the inordinate accumulation of land in a few hands, came poverty—as well as, to repeat, less economic growth than possible and more inflation than desirable. When some of the issues that result from accumulation of stocks of real as well as monetary wealth are linked together and their effects pursued over the long run, the analysis makes it clear that a decision to hoard wealth causes only negative effects.
After the Roman conquest, the system of economic theory that stood behind the moral contract could no longer be seamlessly carried out into policy. Everything changed in politics and economics from independence to dependence. Israelites, whether at home or in foreign lands, and Christians later on, had to adopt new social and economic relations.
In time, the moral contract merged with the Aristotelian/Scholastic doctrine of economic justice. Indeed, as if to confirm the validity of the moral contract from a secular point of view, specific social and economic relations had already been invented five hundred or so years earlier in Greece—a land in which slavery, we must remember, was accepted as a matter of fact—and are well known. Codified by Aristotle and later ratified by St. Thomas Aquinas, these new institutions controlled economic relations in just about the entire Western world up until the time of Adam Smith. They were centered on two forms of justice: political justice and economic justice. In turn economic justice was divided into distributive justice, a field that was concerned with fixed and static societal rules for the just distribution of wealth once it was created, and commutative justice, a field concerned with societal rules for the just transfer of wealth among buyers and sellers. While the Doctors of the Church left much room for discretion to the parties involved in the process of discovery of distributive justice, they reached a firm and revolutionary conclusion in their economic analysis of commutative justice. The commutation of wealth, namely the exchange, occurs in accordance with principles of justice and implicitly principles of morality, they discovered, only if it reflects a free market price: a just price is determined in a market that is not dominated by either governmental or private monopolistic forces.
While these rules appear simple on their surface, they embrace great complexities. With them, the Doctors of the Church unified the requirements of freedom with those of morality in the field of commutative justice. More explicitly, as the Doctors of the Church firmly proved, it is the exercise of morality that yields freedom. Perhaps this statement deserves to be restated. Freedom comes, not from the government, but from the exercise of one's responsibilities. Without entering into its theology, the application of this formula created the essential conditions for the enterprise system to be as free as it could possibly be at the time. And the limits of the time, of course, were considerable: the world was riddled with small and large public and private monopolies; there was no social ladder through which one could change to one’s advantage the shares—let alone the rules—of distributive justice; there was no conception of the third major pillar of economic justice, namely participative justice. Yet, the discovery of the rules for the just price is so foundational as to be the basis on which anti-trust policy, with Louis D. Brandeis as one of its staunchest defenders, is still practiced today.
From this all too brief excursus it can be clearly seen that the effort to permeate societal institutions with principles of justice was inherent in the age of the moral contract, and that the major aim of both types of economic justice was to prevent the inordinate accumulation of wealth in a few hands. The aim was to prevent hoarding.
Three More Institutions
Three more institutions helped maintain a strong sense of morality in economics all through the many centuries that we are observing at the moment: the commons; the monasteries; and the struggle against usury. Let us briefly see how did these institutions operate.
If the essential purpose of economic theory is, not to make the rich richer, but to create conditions whereby everyone can work and live in dignity, then the following characteristics were some of the essential conditions for an inner balance at the core of the existence of the moral contract. As a vague memory of the splendor of Moses’ Jubilee concerning land, the poor were left with free access to the commons. Access to the commons preserved the dignity of the poor and set an automatic restraint to the desire for unending accumulation of wealth by the few.
This balancing act between the needs and desires of the people was most important because it was an indication of a deep belief. Men and women of this age had much faith in this observation by Jesus: “Look at the birds of the air, for they neither sow nor reap nor gather into barns; yet your heavenly Father feeds them.... Consider the lilies of the field….” Amartya Sen’s work has proved that famines occur, not because of natural shortages, but because of hoarding, poor distribution of income, and overpricing—hence the essential importance of economic justice in action.
Men and women of this age also had a deep appreciation of the distinction between charity and economic justice, hence for them the surplus wealth of the rich legally belonged to the poor, and the entire output of monasteries—something like a nonprofit enterprise of today—was available to the poor: no questions asked, urged St. Chrysostom.
The story of the struggle against usury is the story of the longest running unified policy in the history of the world. No other field, notwithstanding outrageous retrenchments, has ever shown such unanimity of intent over such a long span of time. Should the reader be reminded that the struggle against usury is still alive and well in the Muslim world? Should the reader be reminded of the vastness of the geographic area in which Muslim rules are practiced?
Over time, the ordered set of priorities that reigned in the ancient world among charity, morality, and freedom was turned upside down and its power dissolved. Through insistence on unfettered economic freedom, the unity of freedom and morality was eventually shattered, the doctrine of economic justice was lost in the fog of time, and charity became compulsory.
The Social Contract
The social contract is a political as well as cultural mega-construct that inevitably, with its comprehensive worldview, was destined to systemically invest an entire era. Our attention will be focused on the economic content of this construct, but some of its other aspects cannot be passed totally under silence. From its remote beginnings, the era of the social contract was heralded with fanfares of great expectations. Individual economic freedom was supposed to eradicate poverty from the face of the earth, all the while we were enlightening ourselves in such a way as to become free creators of our own destiny. What an exhilarating project! In time, it was the Enlightenment that assumed the responsibility to carry this project to fruition under the banner of Liberty, Fraternity, and Equality. All the social and political freedoms that we now enjoy are indeed the legacy of the Enlightenment. What is the economic content of this program of action?
Three portentous events occurred in 1776. They form the kernel from which many detailed developments spawned. First, as an unintended consequence, Jefferson, by literally erasing the Lockean formula of “Life, Liberty, and Property” from the Declaration of Independence and substituting “Life, Liberty, and the Pursuit of Happiness,” detached the world of politics from the culture of property and launched economic policy into the never-never land of entitlements in which the profit motive becomes a subject of suspicion and rights are separated from responsibilities.
Second, Adam Smith, by inveighing against the morality “of the (drunken) monks”, decoupled economics from morality and substituted it with his own Theory of Moral Sentiments (1759) in which morality was dictated by the conscience of the individual human being, a conscience no longer led by Tradition and the Magisterium of the Catholic Church, but by an “impartial spectator.” And who might that spectator be? Lui-même, of course!
The third event is this. Adam Smith conflated two words, two irreconcilable economic phenomena—hoarding and investment (capital)—into one: accumulation, and by equating saving with investment, he made hoarding magically disappear from the economic discourse. Gone were the Mosaic injunctions against hoarding. Gone was the power of the Parable of the Talents. The operation was so successful that mainstream economists have the hardest time in seeing hoarding any longer; no matter how many times they encounter it in reality or read the word or even write the word in the daily newspaper or, worse, in loose economic treatises, they still cannot see hoarding. Formally, or mathematically, in their framework of analysis, everything that is not a consumer good must be a saving, and saving in that theory is equal to investment. Therefore, hoarding does not exist.
These three interlocked events converged to destroy the core of the moral contract. What Jefferson, Adam Smith, and many members of the Enlightenment were unable to imagine is that in economics, as in all other fields, the separation of human beings from morality and the consequent separation of rights from responsibilities does not yield freedom but havoc. Human beings become separate automatons: the ideology and practice of Individualism is in the saddle; the only countervailing power invented so far to the excesses of Individualism is the ideology and practice of Collectivism. Let the reader decide between them and beware. The reader might then want to escape into the safety and sanity of Somism.
Before consciously leaping into the warm embrace of Somism, the reader might want to understand a little more of the shortcomings of the social contract. Let us start at the beginning. Once the moral contract in its diluted forms of economic justice was destroyed, society could not be left without rules. A new form of contract had to take its place. While one half of Aristotle’s Justice Project, the half concerned with political freedom was hammered into our consciousness on the tall assumption that all we need is to throw the rascals out and to vote the good people in, the other half that concerned itself with the old rules of distributive and commutative justice underwent these subtle developments: Both forms of morality and justice, which were already a far cry from the stern but vital policies of the original moral contract as promulgated by Moses and Jesus, were gradually watered down into a set of gentlemen’s agreements to be broken at the drop of a hat; the shadow of those rules became the cartilaginous structure of the social contract.
It cannot be emphasized too strongly from the outset of our discussion that the social contract has nothing to do with economic justice.
The confusion, as we shall see, germinates from the use of a mixed metaphor: social justice. In this metaphor, justice has no role to play—except as remembrance of things past or hoped-for future.
Economic Theory and the Social Contract
If the moral contract is founded on the Economics of Moses and the Economics of Jesus, what is the economic theory that underpins the social contract? Try as one might, there is no such theory to be found. As widely acknowledged, economic theory is in a state of crisis. The essence of the ongoing crisis in economic theory is that, without the bedrock understanding of hoarding, ever since 1776 economic theory has been dominated by an inexorable succession of well-known revolutionary schools of thought, each vying to overthrow the previous one. In the presence of such a steady flow of radical changes, economic theory has no longer been able to guide economic policy. Consequently, in the absence of firm direction from economic theory, economic policy has been controlled by the political ideology of the moment—be it the ideology of the right, the center, or the left.
Enveloped by this variable intellectual atmosphere, the outward shell of the social contract has never been static, and its inward economic content has ever bounced between two extreme poles: either the market or the government is supposed to take care of the economic needs of the people. Since one extreme leads to a Dickensian world of poverty and the other extreme leads to the horrors of the Gulag, most of the time the world has been sensible enough to search for accommodations between the two extremes. Accommodations form the core of the social contract. The “mixed economy” is its perfect definition. In one of its best known formulations, the underlying structure of the social contract was based on the promise that people would be taken care of “from the cradle to the grave.” The government was to assure conditions for “full employment”; corporations were supposed to provide jobs; and the unions were supposed to provide “countervailing power” to possible abuses by the corporations
Now that we are witnessing the dissolution of the social contract, we can clearly see that even these bland requirements have proved to be temporary and partial phantasmagoric apparitions: The government has never been able to secure the conditions for full employment; corporations shirk responsibilities and lately have outsourced jobs; labor unions go the merry way of securing benefits for their members full speed ahead.
The Bare-knuckled Economic Reality of the Social Contract
Underneath the rhetoric of the social contract, which has been much discussed, there is a bare-knuckled economic reality that has been held constant from the collapse of the moral contract to the present day, and yet it still manages to remain mostly hidden from view. All the clauses in this economic reality were unilaterally written by the few for the benefit of the people of power. These people made the rules and the rules were enforced through the power of the state. The rules covered land, capital, and labor.
Land and the Social Contract. As noted, with the Roman conquest of Palestine, the legal institution of stewardship of land (and money) disappeared from sight—it disappeared especially from the sight of scholars who studied economics; and it was subsumed under the institution of private property. With the disappearance of the practice of the Jubilee, the ownership of land became concentrated into a few hands: the latifundia were born, and they still affect the legal, social, and economic panorama of the world to this very day. Indeed, with its ideal of absolute liberty the doctrine of the social contract gradually made a bad situation worse. Traditionally, as we have seen, two institutions mitigated the negative effects of the latifundia: the commons and the monasteries. (It is interesting to notice that the land tenure extended by the monasteries to the tenant farmer involved long-term contracts and fixed shares in the division of the product that were a near equivalent of private land ownership.) Both were destroyed by Henry VIII and gradually by every other potentate in the Western world who, having overspent their resources and being under severe stress of indebtedness to bankers, made a run for an easy power grab; the Eastern world does not seem to have escaped such a fate either. The lands owned by monasteries were confiscated; and the commons were ever so gradually enclosed: Under the ideology of privatization, under our very eyes the last remaining commons, the oceans, are these days being enclosed for the benefit of the few. This tragedy is the real tragedy. (What passes for the “tragedy of the commons” is a lie, a deceitful misnomer that covers the collapse of the enclosures.)
The real tragedy of the enclosure of the commons has occured without much guidance from economists who, restricted to their knowledge of private goods and public goods, do not see common goods as a third category deserving, as explored by Elinor Ostrom, of its own set of rules and regulations. For various issues involved in the current wave of enclosures of the ocean commons, please search for this writer’s work in the Gloucester, MA, newspaper. And what has been the ultimate result of the confiscation of monasteries’ lands and the enclosure of the commons? The weakest members of society have suffered the brunt of the crude effects of these policies. Ever since these two events have occurred and been accepted by the intellectual and political powers-that-be, the world of the many has plunged into an abysmal poverty whose depths had never been experienced before. Ever since they were herded toward overcrowded cities, the poor have been left prey to all sorts of shortages: food, water, municipal services, space, green, even air. The abysmal void has too often been filled with all sorts of vices and exploitation, often administered by the sharpies among the poor themselves.
These are well known facts. Indeed, the private enclosure of the commons is often listed as a key factor in the rise of capitalism. But these are partisan views that cover unpleasant facts. Hence the facts are shunted aside. What takes the place of objective observation is the fixation on the many splendid products of industrialization and urbanization. (Who would ever deny their existence; who would ever decry their usefulness?) In the revolving door of poverty, the number of people going out, which at times can indeed be spectacular given the technological advances of the age, is carefully tallied and heralded to the world; the number of people going in is decorously passed under silence. In the meantime, the fixed point of hunger and malnutrition persisting in a country as rich as the United States—not at the bottom, but at the top of the business cycle—is often overlooked.
The “issue” of “land reform” persists, of course, at the fringe of economic analysis. It has been appropriated mainly by the political left. But its tenets are fallacious; and the left never seems to learn from history. When succeeding totally, as under Communism, it has failed totally by granting the monopoly on land to the government (which, as Public Choice Theory has unearthed, unavoidably serves interests of “friends and relatives”); and when succeeding partially, after enormous effort and even bloodshed, succumbing to its predilection for redistribution of wealth—rather than fair distribution at creation—the effort has earned for the people only marginal lands of marginal value.
Land Policy does not exist in polite mainstream political and economic discourse. Thus, if we were to unearth the hard hidden economic rules of the social contract in relation to land, we might say that we have found Rule # 1: Latifundia are untouchable. The disappearance of stocks—and concentration on flows of wealth—in the framework of mainstream economic theory has caused latifundia to become invisible. Yet, once they reappear into view, it becomes evident that latifundia were not created by the social contract. They are practices inherited by the collapse of the moral contract. In any case, private property rights in land have been left rooted in privilege: power and might; hence, they have been exposed to attack and erosion by the unholy alliance of the forces of socialism, environmentalism, and suspicion of the profit motive.
Capital and the Social Contract. Rule # 2: Ownership of capital is acquired via ownership of financial savings. But—apart from those who inherit wealth—who can save, when wages are kept at subsistence levels? Surely, the clever and the martyrs do accumulate some savings; but the cost is so high, and the insecurity so rampant, that the practice invites retribution against the largest majority of the population. This is the road that leads to such excesses as those observed in the last few years, when a few hedge fund managers obtained billions—billions—of dollars in compensation for their labors and the majority of the people, if employed at all, had to have two or three jobs to eke out a living.
If the practice of the acquisition of capital is so dismal within the realm of the social contract, a possibly worse condition endures at the level of the theoretical understanding of capital. The accumulation of financial capital has been treated in theory to such an extent like land that the two factors of production are often treated as one. The classic case for this conflation is Kelso’s Two-Factor Theory; land disappears from sight, and the two factors of production are capital and labor. Land is taken to be one form of capital. Ineffably, in mainstream economics both land and capital disappear from sight, because in mainstream economics there are only flows of money and no stocks. Hence, stocks of wealth are not measured. And capital is defined in a hundred different ways, which means that there is no scientific, universally accepted definition of capital.
In the absence of a robust treatment of capital in economic theory, the field is left to ideologues who see only the benefits of “capitalism.” In the ensuing pervasive atmosphere of intimidation and fear that ideologues instill in their interlocutors, the idea of the Jubilee about controlled cancellation of financial debts is spoken hat in hand, very softly and without much conviction. More. As is well known, the countervailing forces that for untold ages preserved the moral character of social arrangements were not only the institution of the commons but also the prohibition of usury: the incestuous daughter of capital. The necessity of battling usury, the extortion of excessive interest as the major tool for the fast accumulation of financial wealth, has been gradually emasculated. Limits to the charge of interest were finally abolished in 1971 in the United States: Interestingly, at the same time convertibility of paper money into gold was also terminated. It is only Islam that still fights a rear-guard battle against usury—and fights it intelligently through such practices as microfinancing, thanks to Muhammad Yamus, and traditional forms of equity-financing.
Ever since the end of the Civil War in the United States, the same pattern of absolute freedom that exists for the few in their accumulation of land and financial capital, combined with practical exclusion of the majority of the people from access to both factors of production, has been evolving concerning the accumulation of capital in its physical aspects. Not only stocks and bonds that represent the ownership of physical capital have been subjected to the tendency of being concentrated into a few hands, but even the ownership of individual physical plants and individual multi-plant firms have been allowed to be concentrated into fewer and fewer hands. Again, when the political left takes over, it concentrates the ownership of the entire financial and industrial structure of a nation into the hands of the government.
Under the cover of the social contract, we hear much of Capitalism in mainstream economics, but nigh not a whisper about Capital Policy or lately even Industrial Policy.
Thus, private property rights in capital are left rooted in privilege: power and might.
Labor and the Social Contract. The stronghold of the moral contract was that human beings are stewards of land and money; hence, they were stewards, and practically owners, of their own labor. In the era of the social contract such a robust proposition of economic morality has disappeared from sight. Another hard hidden economic rule of the social contract can then be stated as follows. Rule # 3: Through the payment of wages, “labor”—or euphemistically, the service of labor—is bought and sold as any commodity. Cast away from the moorings of the culture of property, the social contract has nothing to say about land, it is unable to distinguish the physical from the financial aspects of capital, and assumes that to labor under the wage contract is the only conceivable legal condition for men and women.
The ideology of Communism, of course, justifies any action as a response to the needs of “labor”—even the Gulag. Since the ideology of Capitalism is dominated by the idea of freedom, the relationship between labor and capital is enveloped in a Catch-22 of colossal proportions: “Save money, invest it wisely, and you too can become a capitalist,” one has the effrontery to say to the worker. The reality is that both the communist state and the capitalist enterprise pay the worker as little as they can get away with. The dacha on the Black Sea is the economic equivalent of the McMansion on the Back Shore.
The Social Contract and Social Justice
Caught in the vise between Communism and Capitalism, the social contract escapes off the tangent and calls itself social justice. This term is an Italian and Catholic idealistic invention of the 19th century. While its rhetoric invokes justice, its substance invokes charity and goes in pursuit of entitlements, the wealth of others to grant to the disenfranchised many. Let us see how.
Much has been written about social justice; often it is treated as a synonym for the social contract. The two expressions are not synonymous. While the social contract is a construct that originated in political science and we are trying to find its economic content in this text, social justice originated in a corner of economic policy and remains there. Apart from the vague idealism of the term, which no one seems to be able to pinpoint, the core of the social justice program is related to the problem of redistribution of income. At the end of our discussion, it will become clearer why we are addressing the topic of redistribution of income and wealth in a rather cavalier fashion. The problem exists, is serious, but it is not soluble as presented because it enters the discussion at the end of the play, when the curtains are down. The remaining listeners are hot under the collar. But it is too late to raise the issue; the play is over. The play was about the distribution of wealth while it was being created: Income (and wealth) was distributed in accordance with well established rules. If one is not happy about the outcome, one has the duty to speak about the rules of distribution, not to go off topic and reach the never-never land of redistribution.
The central reason why the preachers of social justice are not listened to is due to a mechanical cause and effect relationship. Entitlements eventually disenfranchise everyone: Eviscerated by Socialism, environmentalism, and suspicion of the profit motive, private property rights, which unquestionably are the bedrock of economic and political independence, are gradually being emptied of content. (The discussion to be had about profits has to be restricted to how were they procured and how were they distributed; the rest is ideological noise.)
There is a correspondent major reason why the preachers of social justice are not listened to. They have their own rules. But the rules are wholly arbitrary and personal; therefore, they are moveable and unacceptable in a well ordered society. There are no just rules of redistribution; to redistribute wealth once it has been created is a task for the gods, not for men. Here are some of the insoluble specifics: What type of wealth ought to be redistributed? From whom? To whom? How much? How often? In search for answers one encounters only sketchy assumptions, imbalances, and injustices.
That is not a way to construct a just society. And, in fact, when pressed to clarify its position the redistributionist movement admits that it does not appeal to the sense of justice. It appeals to another virtue, the highest of all virtues: charity. We shall soon see what is the ultimate effect of this appeal.
The Shortcomings of the Social Contract
The shortcomings of the social contract—and those of the faulty ideal of social justice—would be better understood through a detailed observation of the interactions among the factors of production over time. Barring this opportunity, we will concentrate on three key moments of that dynamic: We will observe first the ultimate outcome of the social contract, then its central strategic mistake, and then the blindness that exists at the very core of the social contract. Before that we have to touch upon the absence of monetary and fiscal policies from these pages.
On the Role of Monetary and Fiscal Policies
Discussions of monetary and fiscal policies are nearly the beginning and the end of all economics today. They are not treated here for two major reasons. First, since they are construed mostly as transfers of wealth from one segment of the population to the other, they are both only indirectly related to the creation of wealth: For confirmation, it might suffice to note that the government does not create marketable wealth. Second, with little exaggeration, the field can be disposed of on the basis of this observation: While fiscal policy has been delegated to the politicians, monetary policy has been delegated to the bankers. Is it not sad but true that economists are welcomed among politicians and bankers only as long as they give assent to preordained policies?
The Ultimate Outcome of the Social Contract
The ultimate outcome of the social contract is the existence of a fact that is utterly contrary to its inner ideology. The ideology of the social contract is based on the strongest possible belief in the value of freedom. And yet, any dispassionate observer—if not today, then at some distant future—will have no trouble spotting that the ultimate consequence of the social contract is this. Prevailing economic policies have reduced nearly everyone, world-wide, to the condition of a beggar: The rich beg for lower taxes (and subsidies); the middle classes beg for jobs; and the poor beg for entitlements. Why have we gotten ourselves into such a sorry state?
There are two answers. One concerns a fundamental strategic mistake committed by the ideology of the social contract (and ideology of social justice); the other is the blindness that exists at its core about the process of accumulation of wealth.
A Fundamental Strategic Mistake
Fusing its efforts with the vague idealism of social justice and the demands of the more aggressive redistributionist movement, to redress social imbalances the ideology of the social contract has relied on charity rather than justice. Since Jesus said that “the poor will always be with you” and “whatever you do for the least of my brothers, you do for me,” the social contract has felt fully justified in its appeal to charity. What to say about this use of high morality?
The standard applies: By the fruit you shall judge the tree. Not only has the call to charity become the line of first resort against poverty, rather than last resort; in the process of attempting to redistribute existing wealth, charity has become compulsory. Thus the task of charity has become so overwhelming as to become impossible of fulfillment; and through this impotence charity itself has lost its meaning. In the United States, you will go to jail if you do not oblige the requests of the Internal Revenue Service (IRS), requests that are mostly justified in the name of compulsory charity. When charity is made compulsory, charity itself is destroyed. We see this effect not only in the ever present, very human, attempt to shun the duties of charity; the worst of all possible worlds can be found in the assumption that one does not any longer have a duty of charity toward human beings who are in need, because the government is performing this duty for us.
There is a penalty in all this confusion about the duties of charity and the duties of justice. The ultimate result of the primary appeal to charity is that we have nearly all become nations of beggars. Such a fundamental strategic mistake that exists at the very core of the social contract has been compounded, if not ultimately determined, by its blindness about the mechanisms of accumulation of wealth.
The Blindness at the Core of the Social Contract
There is blindness in the social contract about the mechanisms of accumulation of wealth. While each mechanism involves a set of purely economic relationships, the mutuality of such relationships appears to be the major concern, not of economics, but of a companion framework of analysis. It concerns justice—justice defined as the agreement between two parties about what is fair to give and to receive; namely, an agreement based on the search for an equivalence of values that can be ascertained and ratified by a third party acting in the role of judge. This blindness concerning the exercise of rampant privilege is brought forward following the ancient Mosaic commandment: do not steal.
Let us leave petty larceny well alone. To see how this doctrine affects the very core of the economic process, let us, first, realize that when people do not pay the full share of the taxes they owe, especially their full share of taxes on land and natural resources, they steal from fellow citizens who are burdened with the total cost of running a country. (The issue of the amounts of taxes owed to the government can be treated only in the context of a discussion on the necessary functions of government.) Second, when the central bank sells national credit to preferred customers (the prime dealers), the central bank sells for a mess of pottage a national treasure that belongs to the entire population. Private appropriation of common goods—such as land and money—without compensation is expropriation and plunder. Third, when stockholders cash in their stocks and bonds, they rob the workers who have originally contributed to the creation of that value—and are excluded from the bounty of capital appreciation by the transparently frail fig leaf of the “wage contract.” Fourth, when one purchases a whole corporation, and uses other people’s money to concentrate the wealth of the nation into fewer and fewer hands, one robs at least the workers, if not also previous as well as future potential stockholders, of the ensuing capital appreciation of the corporation.
The evidence is strong that this is the road to inordinate accumulation of wealth. The consequence is undeniable: The inordinate accumulation of wealth by the few is the cause of poverty of the many. No, the few are not necessarily the rich but the wicked. No, this is absolutely not a condemnation of the entrepreneur—and even less a condemnation of the inventor. No, this is not a condemnation of economic growth either. This is a condemnation of tolerance for the wrong type of economic growth, the type of growth that leaves the wicked free to legally steal the wealth of others and leads to outward dazzling statistics accompanied by inward substantive emptiness: When the numbers were tallied, the spectacular spikes in growth levels during the last decade amounted to a fat zero effect. We were back at the levels of wealth that existed at the beginning of the decade. Yet, zero-sum game speculative markets are not innocuous practices; they leave havoc in their wake. Besides, there is a profound philosophical question involved here. If wealth is a social construct, what counts are the relative levels of wealth or poverty.
So, set these four mechanisms aright, and you will Give to Caesar What Is Caesar’s. You will steer society away from the exercise of privilege; you will, instead, do justice and receive justice. With a just distribution of wealth, there is no need for its redistribution; and the task of charity becomes feasible again. It is only on the basis of curing these four blind spots in the legal and economic system that we can ever hope to build a new contract, a contract in which the spirit of morality is tied to economic freedom for all. The parameters of this contract will have to be firm. Let us call it the legal contract. This is a systemic change that combines the best aspects of the moral contract—its moral rectitude—with the best aspects of the social contract: the idea and practice of economic freedom, now extended to all, rich and poor alike. We will thus attain the deepest goal of the Enlightenment, not only the substitution of relative poverty with relative affluence, but the presence of freedom for all. Indeed, the question is not whether these four marginal changes in our economic policies will ever be implemented; or even whether it would be possible to have one change without the others; the question is whether there are other tools to achieve the wanted levels of relative affluence and economic freedom for all.
The Legal Contract
Economic rights are rights of access to such resources as land, labor, physical, and financial capital that are essential for the creation of new wealth. Thus, economic rights are the fathers and the mothers of property rights. One of the fundamental reasons why the economic world is in a shambles today is that this set of relationships is upside down. We proceed under the legal and economic fiction that property rights produce wealth. Property rights are pieces of paper, and pieces of paper do not produce wealth. It is the use of real wealth that produces wealth; to use real wealth is to exercise an economic right. For all intents and purposes, economic rights today are exercised as privileges by the possessors of property rights; since privileges divide, while rights unite the economic world can be put aright only if ways are found to exercise economic rights, as rights, and not as privileges. To set the world of economics aright, we have to find ways to extend the exercise of economic rights to all human beings. There is no other way, if we want to respect the dignity of every human being.
Rules for the Apportionment of Economic Rights
Upon the naked structure of the factors of production we shall place the mantel of economic rights and economic responsibilities. Instrumentally, economic rights and economic responsibilities perform functions outlined in the conception of “general abstract rules” by Hayek, the “original position” by Rawls, the “reverse theory” by Nozick, and the “Principle of Generic Consistency” by Gewirth. Practically, they will function as Gladwell’s “tipping points.” Ultimately, it was a poet, Vincent Ferrini who caught the essence of economic rights and economic responsibilities by identifying their ability to provide “the answers to universal poverty and the anxieties of the affluent.”
Land and the Legal Contract
We all have the right of access to land and natural resources. This is a natural right. It belongs to us just in virtue of our humanness. Land and natural resources are our original commons. They belong to all. The most direct way of securing this right in the complexity of the modern world is through the exercise of the responsibility to pay taxes for the exclusive use of those resources that are under our command—with a corresponding reduction of taxes on buildings and man-made improvements on the land. Land that sits idle does not produce income, yet in today’s world it generally produces capital appreciation over time.
By imposing taxes on land, the back is broken of the first mechanism of unjust accumulation of wealth. Land taxation reduces the incentive to hoard, namely the incentive to accumulate idle land. A synergistic cascade of economic effects takes place once a fair system of land taxation is properly and gradually instituted. The most important effects can be easily envisaged by the reader: Paying taxes on the value of land and natural resources encourages dishoarding. Hence, by enlarging the supply land taxes lower the price of the land and, correspondingly, grant to others who are willing to pay taxes the right of access to that land with its natural resources.
In brief, it can be said that this mechanism—by returning to the community part of the value created by the community—is an equivalent of the original Jubilee concerning land.
Financial Capital and the Legal Contract
We all have the right of access to national credit. National credit can be defined as the power of a nation to create money. And since the value of money is given by the value of wealth left over by past generations and the creativity of every person in a nation, national credit is the last frontier, the last commons. It belongs to all the people within a nation.
Of course, access to national credit should be extended only on the basis of the responsibility to repay the loan. And these loans, not grants, once made available to the entire population, will have a high chance of being repaid because they ought to be issued at cost and issued exclusively to individually owned and operated enterprises, Employee Stock Ownership Plans (ESOPs), and cooperatives (as well as states and municipalities) and are to be issued exclusively for capital formation, namely for the creation of new wealth—not to buy financial paper, consumer goods, or goods to be hoarded. Capital credit liberates us, while consumer credit enslaves us.
By borrowing money from the community and returning it to the community, amidst the complexities of the modern world this policy would implement the spirit of the Jubilee regarding money.
Labor and the Legal Contract
We all have the right to the fruits of our labor. This right should not be limited to the right to obtain only a wage. It should be extended to cover the other major fruit of economic growth over time: capital appreciation—as well as being subject to capital loss, of course. Workers have to be transformed into stockholders, because outside the institution of ownership of the full fruits of one's labor there is no way of accounting what is just or unjust—or even logical.
The only justification for reserving the right to capital appreciation to stockholders, the owners of a corporation, and excluding workers from it, can be found in the fact that loans are given only to owners of past wealth. Thanks to Louis O. Kelso, from now on this right can be extended to people who do not have prior wealth by legally transforming workers into owners through Employee Stock Ownership Plans (ESOPs).
Of course, this full right should be extended only in correspondence with the responsibility to offer services of value equivalent to projected compensation.
Physical Capital and the Legal Contract
We all have the right to protect our wealth. This right seems to be universally accepted, except in one case that matters most: in the case of the trustification process, the process used especially after the Civil War in the United States to create corporate trusts and repeated in a hundred subtle variations ever since all over the world. People felt free, not only to acquire shares of the stock of one corporation, but free to use that stock to acquire another whole corporation by all forms of trusts, mergers, and acquisition. The very idea of the corporation, forever a public entity, was then privatized and monetized.
There are two ways in which corporations grow: One is through internal growth, and this approach ought to be protected in no uncertain terms; the other is growth by external purchase, and this manifestation ought to be prohibited in no uncertain terms. Why? Because this is the only prevention against the absolute freedom of corporations to grow-by-purchase into too-big-to fail institutions, a practice that is causing havoc in industrial and financial relations; conversely, this prohibition is the only certain way to protect the wealth of present owners. And if it is assumed that most stockholders of the modern corporation are happy to have their shares bought and sold on the market, it must be granted that growth-by-purchase takes wealth away from workers who have contributed to create that value—and many times, in the trustification process, lose their work site as well. All in the name of efficiency—a misnomer that stands for private financial gain generated at the expense of shifting costs onto the community. “Do not steal” has to remain a firm law of economics.
Of course, the right to the protection of one’s wealth ought to be purchased only at the cost of the responsibility to respect the wealth of others. These are two-way streets. We cannot even attempt to restrain the Pac-Man economy, while we use Pac-Man instruments.
One additional consequence. Institute such a prohibition, and include customers in the division of year-end profits, and you can safely dispose of ninety percent of current anti-trust policies. Indeed, you will then have—firmly and legally—implemented fully the spirit of the moral contract. That ought to be justification enough to carry relentlessly into the modern world these four marginal changes in our national economic policies.
Freedom will continue to be the pivot on which the effort of human action will be exerted. There is not one provision in the legal contract that does not respect the freedom of individual human beings. The powerful difference with the tools of the social contract is this: Benefits will accrue to the person in accordance with the degree in which personal responsibilities are exercised; in the social contract, instead, benefits accrue to the person who exercises the greatest forms of irresponsibility.
Winner-take-all is the banner of the social contract. In the irresponsible pursuit of this policy, the social contract has betrayed all the ideals the Enlightenment: The social contract does not pay heed to either Liberty, or Equality, or Fraternity. The social contract is only slave to the pursuit of freedom for the few.
To regain its footing, the Enlightenment has to pick up again the banner of liberty. And it has to focus its energies on economic liberty. It will have to extend to all the economic liberty that it has been so careful to preserve for the few. Economic justice is the tool to achieve this goal.
There are many reasons why we have to muster the courage to look at those who tolerate the shortcomings of the social contract straight in the eyes.
The most important reason is this. Property rights, acquired on the basis of economic responsibilities, bring economic security to the owner and stability to society. This has always been and forever will be the core of the struggle for economic justice. The struggle for social justice, instead, whatever that means, brings only conceit, self-deceit, an unceasing succession of Pyrrhic victories, and instability to society.
This is the core of the paper; all nuances perhaps some day will follow. Better still. Ideally, the reader who has much more knowledge and wisdom than the present writer will get up and eloquently and convincingly address all necessary nuances.
Much better still. Words without action are empty. Will the reader step up to the plate and start the work of implementing the four marginal changes outlined above? Will the reader undertake the work of asking for economic justice for all—and granting economic justice within one’s own sphere of power and jurisdiction?
We are making way too much out of our problems, and we are disempowering ourselves. The long journey out of the many current nightmares starts with such simple determination as to love justice. We only have to exert our rights. History guarantees.
Unique thanks for the framework of analysis on which this paper draws are due to 27 years of exhaustive probing by Franco Modigliani and 23 years of assistance from Meyer L. Burstein. Mitchell S. Lurio and Norman G. Kurland have been great teachers of economic policy. This paper is particularly due to persistent guidance by Wilfred Wolfsma. The paper has also benefited from wise and penetrating comments on previous drafts by two anonymous referees, as well as suggestions by Damon Cummings, Joshua Brackett, Joseph M. Patchett, and Ralph Cole Waddey.
 Lukacs, John. 2002. At the End of an Age. New Haven and London: Yale University Press.
 The reasons why there is no common knowledge of the existence of the Economics of Moses and the Economics of Jesus are many and complex. Contrary to today’s practice, neither Moses nor Jesus isolated the economic aspects of living from the total context of life. And yet, the texts they left in economics can be reconstructed as a complete theory. The procedure is rather long and goes beyond the scope of this footnote.
Here we can only be concerned with the other half of this reality. The common assumption is that economic theory is well taken care of by modern economists, and the world of Moses and the world of Jesus, for a variety of reasons, are beyond their purview. In addition, by closing themselves in, in an apparently impregnable fortress, economists keep everyone else—and certainly theologians, unless they assume a subservient posture—at bay. Theologians, especially Catholic theologians, have obliged. They have lost the institutional memory of their own and the Aristotelian millennial tradition concerning economic justice. They have assumed that Catholic Social Thought was born with Rerum Novarum (1891).
Hence, most thinkers have concluded that the Church has “no economic model” to offer a modern society. This belief was categorically expressed by Pope John Paul II in his Centesimus Annus encyclical (1991) at # 43. This belief was confirmed by Pope Benedict XVI in his Caritas in Veritate encyclical (2009) at # 9.
And, of course, both popes were right. Even when the Economics of Moses and the Economics of Jesus are brought back to life, they cannot be automatically integrated into today’s life. They need to be adapted to the complexities of the modern life. The Legal Contract inserted in reduced form in this text is designed to point the way to achieving this goal.
To acquire a well-rounded view of these complex relationships, one must also follow a parallel story. While the Catholic Church, under the attack of the Enlightenment has given up one position after another, the Muslin faith, though subjected to the same corrosive forces of “modernism”, has not only withstood the attack on its principles especially in relation to money, but has fought back with the important innovations of microfinancing and capital equity participation.
 The first doctrine is enunciated in Ex 20:8-11; 34:21; Lev 23:3; 25:2-16, 23-28; and Deut 5:12-15; 15:1; the second in Ex 20:15 and Deut 5:19.
 Lev 25:23.
 See Gorga, Carmine (2009 ) “The Economics of Jubilation – Blinking Adam’s Fallacy Away”.
 Tavidze, Albert, ed. 2010. Progress in Economic Research, Vol. 19, Ch. 1. New York: Nova Science Publishers. (See also Chs. 3, 5, 11, and 12.)
 For evaluations so far, see New Economic Atlas.
 Mt. 5:17.
 Mt 25:14-30.
 Mt 22:21.
 See Gorga, Carmine. 2002 and 2010. The Economic Process: An Instantaneous Non-Newtonian Picture. Lanham, MD and Oxford: University Press of America, 105-118, 235-302, and 329-353.
 Gorga, Carmine. 2009. “Concordian Economics: Tools to Return Relevance to Economics”, Forum for Social Economics, vol. 38 (1) 53-69.
 See, e.g., Schumpeter, Joseph A. 1954. History9 Gorga, Carmine. 1991. "Bold New Directions in Politics and Economics”, The Human Economy Newsletter, March 1991, 12 (1) 3-6, 12.; 1994."Four Economic Rights: Social Renewal Through Economic Justice for All,” Social Justice Rev. 85:1-2, pp. 3-6; 1999. "Toward the Definition of Economic Analysis. NY: Oxford University Press, 53.Rights,” J. Markets and Morality, 2:1, pp. 88-101; 2007. “Economic Justice.” In Encyclopedia of Catholic Social Thought, Social Science, and Social Policy (Lanham, MD: Scarecrow Press), 335-337*; and 2009. “Concordian Economics: Tools to Return Relevance to Economics”, Forum for Social Economics, vol. 38 (1) 53-69.*
 Sen, Amartya K. 1998. “The Possibility of Social Choice.” From Nobel Lectures, Economics 1996-2000, Editor Torsten Persson, World Scientific Publishing Co., Singapore, 2003.
 Chapra, Umer M. 1985. Towards a Just Monetary System. Leicester, UK: The Islamic Foundation, 85.
 Zona, Guy A. 1994. The Soul Would Have No Rainbow if the Eyes had no Tears – and Other Native American Proverbs. N.Y: Simon and Schuster, 88.
 Locke, John. 1689 . Two Treatises of Government. London: Awnsham and John Churchill. Laslett P. ed. NY: A Mentor Book, Bk. II, Ch. v, paras 25-27.
 Gorga, Carmine. 2008. “Economics for Physicists and Ecologists,” Transactions on Advanced Research January, vol. 4 (1) 6-9.
 See, e.g., Schumpeter, Joseph A. 1954. History of Economic Analysis. NY: Oxford University Press, 98-99.
 Brandeis, Louis D. (e.g.) 1932 . Other People's Money and How the Bankers Use It. NY: Frederick A. Stokes Company.
 Mt 6:26, 28-29.
 See Tierney, Brian. 1959. Medieval Poor Law: A Sketch of Canonical Theory and Its Application in England. Berkeley: University of California Press, 22-44.
 Ibid, 55.
 See, esp. Nelson, Robert H. 1993. Reaching for Heaven on Earth: The Theological Meaning of Economics. Lanham, MD: Rowman & Littlefield Publishers.
 See, esp. Mirandola, Pico (della). 1486. Oration on the Dignity of Man.
 Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. London: Methuen and Co., Ltd., ed. Edwin Cannan, 1904. Fifth edition, see esp. 1776, B. V. Ch. 1, par. 158.
 Ibid., see esp. 1776, B. II, Chs. 1 and 3 and B. V, Ch. 3.
 Ibid.,1776, Bk. II., Ch. 3, pars. 14-18.
 Ibid., 1776, Bk. V., Ch. 3, pars. 1, 2, 9.
 See, e.g., Broski, Mark. 2003. “The Economic Process: An Instantaneous Non-Newtonian Picture. Carmine Gorga.” Journal of Markets and Morality 6, no. 1: 297-98.
 Gorga, Carmine. 2010. “Somism: Beyond Individualism and Collectivism Toward a World of Peace and Justice”, Mother Pelican, Vol. 10, No. 11, November 2014.
 Gorga, Carmine at http://www.gloucestertimes.com.
 Appleby, Joyce. 2010. The Relentless Revolution: A History of Capitalism. NY: Norton.
 Kelso, Louis O. and P. Hetter. 1967. Two-Factor Theory: The Economics of Reality. New York: Vintage Books.
 Wood, Diane. 2002. Medieval Economic Thought. Cambridge, UK: Cambridge University Press.
 Gorga, Carmine. 1998. “The Creators of Poverty,” Gloucester Daily Times, Symposium, Dec. 18, p. A10.
 Gorga, Carmine. 1999. "Toward the Definition of Economic Rights,” Journal of Markets and Morality, 2:1, pp. 88-101.
 Gorga, Carmine. 1994."Four Economic Rights: Social Renewal Through Economic Justice for All,” Social Justice Rev. 85:1-2, pp. 3-6.
 Hayek, Friedrich A. 1960. The Constitution of Liberty. Chicago, IL: The University of Chicago Press Chicago. 153.
 Rawls, John. 1971. A Theory of Justice. Cambridge, Mass.: Harvard University Press, 12, 72, 136, 538.
 Nozick, Robert. 1974. Anarchy, State, and Utopia. New York, NY: Basic Books, 238.
 Gewirth, Alan. 1985.”Economic Justice: Concepts and Criteria” In Economic Justice: Private Rights and Public Responsibilities, Kenneth Kipnis and Diana T. Meyers, eds. Totowa, N.J.: Rowman & Allanheld, 19.
 Gladwell, Malcolm. 2000. The Tipping Point: How Little Things Can Make a Big Difference. NY: Little, Brown & Company.
 Ferrini, Vincent. 2002. “Gorga worthy of note”. Gloucester Daily Times, Dec. 11.. A6.
 Cf. Kelly, John L. 2004. “The Tithe: Land Rent to God,” Acton Institute Religion & Liberty, July and August.
ABOUT THE AUTHOR
Carmine Gorga is president of The Somist Institute. The mission of the institute is to foster sensible moral leadership. He is a former Fulbright scholar and the recipient of a Council of Europe Scholarship for his dissertation on “The Political Thought of Louis D. Brandeis.” By inserting Hoarding into Keynes’ model of the economic system and using age-old principles of logic and epistemology, in a book and a series of papers Dr. Gorga has transformed the linear world of economic theory into a relational discipline in which everything is related to everything else—internally as well as externally. He was assisted in this endeavor by many people, notably for 27 years by Professor Franco Modigliani, a Nobel laureate in economics at MIT. The resulting work,
The Economic Process: An Instantaneous Non-Newtonian Picture, was published in 2002 and has been reissued in a third edition in 2016.
This edition of the book has been annotated again by the Journal of Economic Literature in its last December issue.
For reviews, click here. During the last few years, Dr. Gorga has concentrated his attention on the requirements for the unification of economic theory, policy, and practice calling this unity Concordian economics. He is also integrating this work into political science, which he calls Somism, and culture in general, which he calls Relationalism.