Social Ecology and the Market Economy: Revisiting the Threefold Foundations of a Flourishing Society

A full vision of the social structures of human flourishing must include three elements: the economic, political, and moral-cultural.

“We have been so buffeted by international hatred, so discomfited by an almost masochistic domestic criticism and so demoralized by fraud and chicanery in government and business that we question the beneficence of the economic system which produced abundance.” These words were not penned in response to the angst over inequality stoked by Thomas Piketty’s Capital in the Twenty-First Century, anxieties over the ongoing concerns about globalization, or the recent rise of populist and nationalist movements across the world. Rather, they were written over four decades ago by the Marquette University economist Peter L. Danner.  

The need to rightly order material and non-material goods, as well as human and non-human realities, is a constant theme of Christian social thought—and an ongoing challenge for secular economics. The economist Friedrich Hayek asserted the need to focus on the nature and status of social institutions throughout his work. In his 1974 acceptance lecture for the Nobel Prize in economics, Hayek concluded,  

If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants. 

Pope Francis has notably extended a similar critique to what might be called the moral ecology of humanity, and specifically of society:   

The crisis in the family has produced an ecological crisis, for social environments, like natural environments, need protection. And although the human race has come to understand the need to address conditions that menace our natural environments, we have been slower to recognize that our fragile social environments are under threat. . . . It is therefore essential that we foster a new human ecology. It is necessary first to promote the fundamental pillars that govern a nation: its non-material goods.  

In Laudato si, Francis connects his exposition of the challenges facing the world to the earlier writings of John Paul II, quoting here the 1987 encyclical Sollicitudo rei socialis  

Authentic human development has a moral character. It presumes full respect for the human person, but it must also be concerned for the world around us and “take into account the nature of each being and of its mutual connection in an ordered system.”  

Pope Francis thus invokes the idea of “human ecology,” while Hayek uses a complementary expression of cultivating an “appropriate environment.” This essay follows this line of thinking and introduces some ways in which a recognition and appreciation of the moral ecology of human society informs and relates to the market economy.   

What this amounts to is a kind of institutional analysis of society. The economist Douglass C. North provided a seminal working definition of institutions and a distinction between institutions and organizations for modern economics. North says that institutions are “the rules of the game in a society, or more formally, are the humanly devised constraints that shape human interaction.” Institutions operate at a kind of abstract level. In defining institutions as “rules of the game,” North makes a conscious analogy to sports. In football, for instance, the “rules of the game” correspond to things like whether something is or is not a catch, or how many points are counted for a touchdown, what a touchdown is, how much air is supposed to be in the footballs, and so on.  

North goes on to distinguish between “institutions” and “organizations” with this analogy: institutions are the rules, and organizations are the players: “The purpose of the rules is to define the way the game is played. But the objective of the team [or the player] within that set of rules is to win the game—by a combination of skills, strategy, and coordination; by fair means and sometimes by foul means.” This distinction is important to keep in mind: institutions in this sense refer to the larger set of norms, while organizations are actors who work within the context of this set of norms. Organizations (as well as individuals within those organizations) have their own structures, rules, and dynamics.   

A complementary definition of institutions comes from the sociologist James Davison Hunter, who describes institutions as “patterns of thought, behavior, and relationship.” North’s “rules of the game” formulation might lead us to focus only the formal and explicit rules. This is not what North has in mind at all. In fact, he acknowledges (extending the sports analogy further) that different sports have unwritten, common codes of behavior and conduct that should be accounted for in our understanding of institutions. Hunter’s definition of institutions as “patterns of thought, behavior, and action” provides a helpful connection between the formal and informal, written and unwritten, explicit and implicit norms that constitute different institutions. 

The Structures of Social Flourishing 

What Christian social thought adds to secular economic literature is a concern that these institutions, both formal and informational, are not merely arbitrary but actually must correspond to reality, the way things are, both physically and morally. Following the lead of classical Christian social thought, including its notable expression by John Paul II in Centesimus annus (1991), there are three basic sets of structures or institutions that provide a comprehensive view of human social ecology.  

First there is the economic root, which provides value, particularly material value, for a society. A number of writers have emphasized the moral aspects of the market economy itself, and the virtues that the market economy promotes. Others have emphasized the fundamental importance, if not the centrality, of the economy and the extended market order to the development of society. The foundational contributions of Adam Smith, classical political economy and the mainline of economics, including the groundbreaking work of Hayek on price theory, information, and knowledge, are significant in this regard. Others have more recently emphasized the priority of economic rules or institutions in catalyzing economic development (these include New Structural Economics and New Institutional Economics and, perhaps most prominently in the realm of development economics, William Easterly). 

Political and legal institutions are another kind of institutions that are foundational for a society’s moral ecology. Notable contributions include Why Nations Fail by Daron Acemoglu and James Robinson, as well as the work of development economists like Dambisa Moyo and Jeffrey Sachs. A shared emphasis on one or another of these political institutions as significant does not mean that these writers agree on the nature of the institutions that will catalyze social flourishing. The specific approaches Sachs and Moyo are quite different, even though they agree about the basic importance of political action and legal structures. The Peruvian economist Hernando de Soto, for instance, champions the need for legal norms while de-emphasizing the significance of other social, moral, and cultural realities. Thus, writes de Soto,  

Much behavior that is today attributed to cultural heritage is not the inevitable result of people’s ethnic or idiosyncratic traits but their rational evaluation of the relative costs and benefits of entering the legal property system. Legal property empowers individuals of any culture, and I doubt very much that property per se contradicts any major culture.  

Quite often institutional discussions and analyses will extend to include both markets and political governance as significant. Some writers will emphasize market solutions while criticizing government failure, while others will see government action as necessary to correct market failures. This results in a kind of economic or political institutional fundamentalism, the idea that what is truly significant for social development is the right set of legal institutions or economic relationships.  

Thus, quite often the third ecological foundation is overlooked in this dichotomy between market and state. A number of important thinkers have considered the dynamics of what we might call the moral-cultural institutions that are necessary for social flourishing, particularly the family and the church. These include Wilhelm Röpke, Michael Novak, Jennifer Roback Morse, and more recently David C. Rose. As Hayek wrote in his last work, The Fatal Conceit,  

To understand our civilisation, one must appreciate that the extended order resulted not from human design or intention but spontaneously: it arose from unintentionally conforming to certain traditional and largely moral practices, many of which men tend to dislike, whose significance they usually fail to understand, whose validity they cannot prove, and which have nonetheless fairly rapidly spread by means of an evolutionary selection—the comparative increase of population and wealth—of those groups that happened to follow them.  

Cultural practices and social norms that correspond to reality and the moral order tend to win out over time. Hayek himself recognized the role that religion plays in developing moral practices that allow for sustained economic growth. 

As we have seen, some writers are more sensitive to the interplay and mutual dependence of these three kinds of institutions. Others are more reductive or exclusivist, preferring one or two, perhaps, as necessary for the explanation of what it means to prosper. A full vision, and one that is championed by Christian social thought, must include all three elements: the economic, political, and moral-cultural. As Alexander Hamilton observed in The Federalist 

The wealth of nations depends upon an infinite variety of causes. Situation, soil, climate, the nature of the productions, the nature of the government, the genius of the citizens, the degree of information they possess, the state of commerce, of arts, of industry, these circumstances and many more, too complex, minute, or adventitious to admit of a particular specification, occasion differences hardly conceivable in the relative opulence and riches of different countries.  

A Comprehensive, Christian Vision 

Attempts to reduce the causes of the wealth and poverty of nations to one or two factors or sets of institutions is ultimately reductive, even if these reductive explanations retain some partial explanatory value. Only a full appreciation of the moral ecology of society, which includes due concern for spiritual and cultural realities as well as material resources and legal institutions, is able to provide us with a comprehensive perspective on a truly flourishing social order, or what Roman Catholic Social thought has called “integral human development.”

When we understand that economic development, much less a limited measure like GDP, is a necessary but not sufficient condition for human beings to flourish in society, we can better understand the juxtaposition between those who see great progress over the last two hundred years and those, like the current pope, who continue to focus those who are excluded, marginalized, and suffering. Perhaps these are, in fact, two different perspectives on the same phenomenon. One sees the aggregate increase in material wealth from above, while the other perceives the material poverty of the poor and the spiritual poverty of the affluent from below.  

Peter Danner’s own prescription for the spiritual and social dangers of affluence is recovery of the ideal of “Christian poverty,” which is a more theologically and historically substantive rendering of the “worldly ascetisicm” described by Max Weber at the beginning of the twentieth century. It is precisely in the midst of the wealth and poverty of nations today that we need this integral perspective of what it means to be human in right relationship to God, our neighbor, and the created order. 

Keep up with the conversation! Subscribe to Public Discourse today.