Ethics and Economics: Towards a New Humanistic Synthesis for
ABSTRACT. The Encyclical-Letter Caritas in Veritate by Pope Benedict XVI suggests to advance
towards a new conceptualization of the tenuous relationship between economics and ethics,
proposing a “new humanistic synthesis”. Where social encyclicals have traditionally justified policy
proposals by natural law and theological reasoning, Caritas in veritate gives great relevance to
economic arguments. The encyclical defines the framework for a new business ethics which
appreciates allocative and distributive efficiency, and thus both markets and institutions as improving
the human condition, but locates their source and reason outside the economic sphere. It places a
clear accent on the ontological connectedness of the economic and ethical dimensions of human
action. It is the proper ordering of means towards the end of integral human development that allows
mankind to leave a vicious circle of consumerism and enter a virtuous circle that applies the
creativity fostered by markets. This vision implies a new model of business management that
integrates considerations of vocation, purpose, and values at a theological level.
KEY WORDS: Caritas in Veritate, Catholic social thought, business ethics, economic efficiency,
humanism in management, papal encyclicals.
Not only since the events of September 11, 2001, the conflict between economic rationality
and religion has taken center stage in the public debate. Some religious devotees violently
oppose modern economic society as a demonic threat to their identity while secular groups,
on the other hand, denounce religion as a whole as a dangerous factor for peaceful
development. These events have brought to our attention that the supposed emancipation of
social and political thought from religious values and sentiments may only exist on the
surface. This realization defies the self-understanding of the disciplines of economics and
business administration. Where classical economics was still grounded in moral philosophy,
the development of the discipline into a “science” was accompanied by the conviction that it
could and should be conducted positively, i.e. by eschewing any foundation in values and
normative reasoning. Although much of “political economy”, as an academic discipline, had
its origin in natural theology (theologia naturalis) as based on reason and ordinary
experience, economics increasingly came to be seen as a substitute for this (Oslington,
2008). The emergence of business administration followed this pattern. Its classical authors
such as Fredrick Winslow Taylor, Henri Fayol, Lillian Moller Gilbreth, Henry Gantt, Eugen
Schmalenbach, Yoichi Ueno, or Herbert Simon may have diverged in areas and methods of
research, but they concurred in their belief that the science of management had only one
legitimate goal – the increase of efficiency. In defending the objectivity of scientific theory,
the sociologist and economist Max Weber (Brubaker 1984: 54) insisted on a sharp
separation between ends and means, and on social science being value-neutral with regard to
ends. Economics has since become “self-consciously non-ethical” (Sen, 1987, 2). Although
some currants in neoclassical economics have recently begun to question this dichotomy,
Weber’s methodological stance has dominated in the various areas of business
administration until the present day (Albach and Bloch, 2000). It explains the reluctance of
management scientists to consider questions of value or meaning ensuing from business
decisions, particularly if these questions derive from a foundation in religion. Some critics
believe that there have been significant costs associated with this growing divide between
management and ethics, and a strong orientation of business researchers towards value-free
economics has been identified as part of the problem (Ghoshal, 2005). 1
Against the background of a widening disconnect between economics and religion, it is
auspicious that Pope Benedict XVI in Encyclical Letter Caritas in Veritate employs
economic arguments to underpin his ethical and ultimately religious argumentation. Previous
social encyclicals have justified policy recommendations by arguments from moral theology,
including arguments taken from Natural Law or positive divine Revelation, following the
teaching of the Roman Catholic Church. They included economic arguments only
peripherally and hardly derived any moral conclusions from them (Yuengert, 1999). Pius
XI’s encyclical Quadragesimo Anno (1931), for example, introduced several principles of
social ethics: just wages and worker participation in capital (§ 63-74), subsidiarity (§ 79f.),
and occupational (vocational) organization (§ 81-87), in addition to “social justice and social
charity” (§ 88, 126). However, the justification for all of these was exogenous, by referring
to the natural law or to theological teachings. By first arguing endogenously, i.e. from within
“economic logic” (§ 32, 36), Caritas in Veritate opens up innovative types of deliberation.
Most importantly, the Encyclical departs from the traditional assumption in economics and
business administration that the goal of efficiency would necessarily exclude other values
from being pursued. This paper traces these new arguments of papal teaching in the context
of Benedict XVI’s comprehensive theological reasoning, and investigates their underlying
rationale. The importance of the document will then be shown as lying in a new
conceptualization of the tenuous relationship between economics and ethics, proposing a
“new humanistic synthesis” (§ 21).
The principal economic arguments of Caritas in Veritate are the following, either in their
original formulation, or in paraphrase:
(1) “Profit is useful if it serves as a means towards an end that provides a sense both of how
to produce it and how to make good use of it. Once profit becomes the exclusive goal, if it is
produced by improper means and without the common good as its ultimate end, it risks
destroying wealth and creating poverty” (§ 21).
(2) A greater disparity in wealth is counter-productive, because “through the systemic
increase of social inequality, both within a single country and between the populations of
different countries […], not only does social cohesion suffer, thereby placing democracy at
risk, but so does the economy, through the progressive erosion of ‘social capital’” (§ 32).
(3) The “access to steady employment for everyone” must be safeguarded, since “economic
science tells us that structural insecurity [of workers] generates anti-productive attitudes
wasteful of human resources, inasmuch as workers tend to adapt passively to automatic
mechanisms, rather than to release creativity” (§ 32).
(4) Economic exchange under conditions of trust reduces transaction costs and allows for a
greater efficiency of outcomes (§ 35).
(5) An economic system is not a zero-sum game in which one party wins what the other
loses. Thus it is “erroneous to hold that the market economy has an inbuilt need for a quota
of poverty and underdevelopment in order to function at its best” (§ 35). Economic
development is a positive-sum game in which all parties can achieve higher levels of
(6) Sustainable business policies are different from a “speculative use of financial
resources,” i.e. from “seeking only short-term profit, without regard for the long-term
sustainability of the enterprise, its benefit to the real economy and attention to the
advancement, in suitable and appropriate ways, of further economic initiatives in countries
in need of development” (§ 40).
(7) “The so-called outsourcing of production can weaken the company’s sense of
responsibility towards the stakeholders – namely the workers, the suppliers, the consumers,
the natural environment and broader society – in favour of the shareholders, who are not tied
to a specific geographical area and who therefore enjoy extraordinary mobility” (§ 40).
(8) A “morally responsible openness to life” is justified by the fact that “the decline in births,
falling at times beneath the so-called ‘replacement level,’ also puts a strain on social welfare
systems, increases their cost, eats into savings and hence the financial resources needed for
investment, reduces the availability of qualified labourers, and narrows the ‘brain pool’ upon
which nations can draw for their needs” (§ 44).
(9) “To consider population increase as the primary cause of underdevelopment is mistaken,
even from an economic point of view” (§ 44).
(10) An internalization of environmental externalities (under inter-generational equity) is
needed to achieve the most efficient use of natural resources (§ 50).
As these passages show, economic reasoning in the Encyclical does not have a merely
illustrative role. Rather, the Pope argues that efficiency itself is good, because it is required
by a good stewardship over resources (§ 50). Since much of current economic activity is
inefficient, “economic logic” requires the first step to be that of achieving greater efficiency,
although economic action must not stop there. The Encyclical also describes the normative
implications of positive economics, for example by stating that “human costs always include
economic costs, and economic dysfunctions always involve human costs” (§ 32). This
mutual implication amounts to a “convergence between economic science and moral
evaluation.” The argument here appears to be within the framework of neoclassical
economics, parts of which have indeed dropped any strict distinction between positive and
normative analysis (Sen, 1987; Van Staveren, 2001). The defence of the market economy
against Marxist and socialist reproaches of exploitation is explicit and follows indications
given already by Pope John Paul II in his encyclical Centesimus Annus (1991). With the
collapse of socialist command economies still fresh, this document had taken a more positive
attitude towards entrepreneurship and a regulated market economy. Yet Benedict XVI makes
it clear that the Church “does not have technical solutions to offer” (§ 9). His Encyclical uses
economic arguments to warn of problems but not to construct alternatives. Instead it has a
“mission of truth to accomplish” (§ 9) from which also follow important criteria for social
and political arrangements.
What Caritas in Veritate proposes is nothing less than a new basis for business ethics.
Instead of retreating to the narrow arguments of individual virtue ethics, Benedict holds the
claims characteristic of the tradition of Catholic Social Thought (CST) that a faith-based
view helps to get the priorities right also in the creation of legal and social institutions. Since
Rerum Novarum (1891), as the first of the series of social encyclicals, it had become obvious
that the claim of Christian message was not restricted to orientations concerning issues of
morality or personal life. In fact, no magisterial document distinguishes between personal
and social ethics. Benedict XVI now went further than his predecessors by proposing a
system of ethics rich in cultural meaning and supported by faith rather than mere moralism,
as will be shown below.
The Structure of Reasoning
Even if we take this important widening into consideration, it would be a grave
misunderstanding to read Caritas in Veritate as simply an adaptation to current mainstream
economics. Though making use of economic language, it does not accept the utilitarian
underpinnings of the neoclassical paradigm. Ends are not arbitrary, and Benedict XVI is far
from endorsing consequentialism or utilitarianism. He concedes that the search for utility as
such may well be beneficial, and this is fully consistent with the Catholic theological
tradition. Aquinas had advised to seek what is useful, believing that the will has a natural
inclination towards the good (De veritate, q. 24, a.8). But not only must ends be good;
means directed towards these ends must be effective, efficient, and come at minimal human
costs. Caritas in Veritate neither denounces efficiency nor implies that striving for it is an
idol that drives out true values.2 But it does place human persons into a category that is not
reducible to labor as a factor of production, and here one finds a crucial difference from
some important lines of neoclassical theory: “the primary capital to be safeguarded and
valued is man” (§ 25). The Encyclical is not built on ontological or methodological
individualism; its social ontology assumes a complex congeries of persons, institutions, and
relations between these. Any assumption of a free pursuit of individual utility leading to an
optimum social equilibrium without an institutional framework is an ideological illusion. To
this extent, the Encyclical argues from the tradition of institutionalist political economy.
Caritas in Veritate employs economic reasoning but at the same time criticizes an
economistic conception of man and society. Persons are not merely economic agents defined
by preference functions. At the center of CST has always been a relational view of the
person as embedded in communities such as families, villages, professional groups, firms,
and nations, all generating respective rights and duties. Economic decision-making can
therefore not simply be seen as an abstract allocation of scarce resources but occurs in a
social space filled with institutions and normative structures. Markets are such social spaces,
and as mere institutions that permit persons to exchange goods and services in order to
satisfy needs and wants, they are morally neutral (§ 35).
The Encyclical thus identifies two causal loops that describe opposing options to use
markets (Figure 1). Many people are caught in a vicious circle of consumerism and media
trash, which only creates those “needs” which it presumes to satisfy. The Pope denounces
elements of a vulgar “popular” culture as a pathology of Western societies – a theme which
he had visited in his previous writings (Rowland, 2010, p. 33ff.). In doing so he
accommodates reservations which many religious people around the world – especially from
emerging and developing countries – have raised against the models of development which
are offered to them by secular progressivism. They object to certain types of “value
propositions” which ignore human dignity, religious symbols, traditional family structures,
and moral feelings, all of which are to be sacrificed to facilitate marketing strategies of
companies based in highly-developed industrialized countries.
While markets can produce depravity and despair, they can also foster attitudes of self-
discipline and human creativity, which allow for prosperity and integral human
development. The cardinal question is that of how to set the course between the two
trajectories. Since markets cannot by themselves generate the values that allow for a
transition from a vicious to a virtuous circle, they must be complemented by appropriate
institutions. Religious values transmitted by families, schools, churches, or civic
organizations can, quite independently of government intervention, hone the creativity,
determination, and vision of economic agents to build prosperity and contribute to integral
human development (§ 7, 53f.). The Encyclical relies neither on an “invisible hand” nor on
spontaneous market forces creating economic order. In Benedict’s Augustinian theology,
such models of economic theory are figments that are ruled out by a view of the person as a
relational being created for a purpose, by the reality of sin, and by ineradicable failings in
human nature (§ 34, 48). They rely on an erroneous view of man, who is seen to be
“completely controlled by the binding laws of the market while believing he acts in freedom
from them” (Ratzinger 1986, p. 200). Adam Smith’s “liberal” model is in fact “deterministic
in its core” in believing “that the free play of market forces can operate in one direction only
[…], namely toward the self-regulation of supply and demand, and toward economic
efficiency and progress” (ibid.). In the spirit of Augustinian realism about man and the
world, Benedict doubts that progress and questions the “perhaps even more astounding
presupposition, namely, that the natural laws of the market are in essence good” (ibid.).
Rather than relying on spontaneous market forces, Caritas in Veritate sees the human need
for security (or, more generally, Keynes’ “animal spirits”) lead society to develop social,
economic, and governmental institutions that, if employed prudently, are able to overcome
sinful propensities and support human development. Yet the Encyclical does not rest on a
Pelagianism that promises self-salvation through institutions. Human freedom is
indispensable for the good life, and it is guaranteed by fidelity to the truth, which in turn is
inextricably linked with charity: “Intelligence and love are not in separate compartments:
love is rich in intelligence and intelligence is full of love” (§ 30). The main arguments of
Caritas in Veritate may then be depicted in a graphical form (Figure 1):
Figure 1: Structure of principal arguments in Caritas in Veritate
One of the contributions the Encyclical makes to business thought is that economic actions
in markets do not confine consumers and producers to the vicious circle but open up the
virtuous circle towards integral human development. The moral potential of business
activities is even emphasized in an astonishingly informed way that is based on current
findings. For example, efficiency is credited with improving the allocative function of
markets, which is a precondition for achieving ethical goals. The Pope points out the benefits
of international trade, which by lowering prices through a substitution effect increases
consumers’ purchasing power and standards of living. Yet the mobility of factors of
production that enables trade again has positive and negative impacts, and both need to be
balanced in the interest of integral human development (§ 24f., 58). Since trade is to serve
humankind, no inexorable laws are “built into the system.” Moral considerations may well
constrain certain deals. Business deals in the abstract are not evil; concrete human actions
In previous documents of Catholic social teaching, the exact role of efficiency had remained
somewhat hazy, particularly with regard to the ordering between economic and moral
criteria (e.g., Compendium of the Social Doctrine of the Church, § 344). A tendency towards
a moralistic ethics prevailed, with many mandates and prohibitions slapped onto business.
Caritas in Veritate introduces a greater clarity here which reflects its being more explicit
about the theological matrix of ethical reasoning. Business ethics may, based on St.
Augustine, nearly be reduced to one overriding maxim: Be guided by charity, and let your
other decisions follow.3
The Rationale for Economic Arguments
The openness towards economic reasoning, which exceeds that in all earlier works of papal
social teaching, may come as a surprise. Benedict’s focus is on love (caritas) rather than on
justice, which had served as the cornerstone of the German social ethics tradition since the
Jesuits Gustav Gundlach and Oswald Nell-Breuning influenced Pius XI’s social encyclical
Quadragesimo Anno (von Nell-Breuning, 1986). Some recent critics among journalists and
theologians, especially in Benedict’s home country Germany, have indeed interpreted the
changing architecture as “inward-looking” and as an expression of a rarefied and moralistic
virtue ethics aloof from social reality (Deckers 2009; Drobinski 2009). In their eyes, Caritas
in Veritate falls below the level of interdisciplinary sophistication which had been reached
by that earlier tradition that focused squarely on social justice. However, particularly the
Augustinian stream in which Benedict stands is far from any trite moralism that, as Max
Weber and others have shown, is distinctive of nations with a Puritan heritage (Weber 1930:
II, ch. 4.A). In fact, economic arguments are an antidote to it, as proofs that an exogenous (or
extrinsic) moral code need not even be invoked if certain economic policies already fail the
endogenous test of efficiency. And the Encyclical itself emphasizes continuity: “[…] clarity
is not served by certain abstract subdivisions of the Church’s social doctrine, which apply
categories to Papal social teaching that are extraneous to it” (§ 12).
We suggest that the logic of Caritas in Veritate lies in the rejection of the separation
between positive and normative arguments, which again derives from a coherent view of
social reality. The supposed autonomy of economic “science” is at the base of what is
presented as an “economicist fallacy”: “the conviction that the economy must be
autonomous, that it must be shielded from ‘influences’ of a moral character, has led man to
abuse the economic process in a thoroughly destructive way” (§ 34). Economics is no more
separate from social goals than economic agents are from concrete persons embedded in
social and political reality.
Previous papal teaching had already dismissed economists’ claims to the isolation of positive
analysis from values, criticizing them for denying its normative content (Yuengert, 1999,
35ff.). A distinction between positive and normative economics may well be held at the level
of methodology, but not at the underlying level of ontology – for the economic order
depends on the moral order (Quadragesimo Anno, § 42). Benedict expresses this by saying
that “the economy needs ethics in order to function correctly” (§ 45) whereas morally
justified behavior can occur under different economic régimes. He argues that “all social
action involves a doctrine” (§ 30) and that supposed “value-free” economic doctrine is
actually theory-laden: “The economic sphere is neither ethically neutral, nor inherently
inhuman and opposed to society. It is part and parcel of human activity and precisely
because it is human, it must be structured and governed in an ethical manner” (§ 36).
Already in 1985, the then Cardinal Ratzinger had warned that a decline in ethics “can actually cause
the laws of the market to collapse” (Ratzinger 1986, 204). All this points to the precedence of ethics,
which is divinely ordained, over economic systems.
With this argument, Caritas in Veritate in fact appears curiously pre- or post-modern.
Modernity from Hume to neopositivism drew a distinction between fact and value, “is” and
“ought,” or the positive and the normative. Modern economic analysis of whatever
methodological direction – from Ludwig von Mises to Milton Friedman and Paul Samuelson
– relied on it without fail, and the same stance was adopted by management theory.
However, even in economics, there are nowadays few who would uphold the claim to a
merely positive science. It has been largely recognized that economic efficiency and Pareto-
optimality themselves are normatively chosen means towards the end of maximizing
consumption or production rather than being unproblematically value-neutral. Work that
reveals the normative commitment of economic research even at the methodological level
has become abundant (Sen, 1987; Dean and Waterman, 1998; Van Staveren, 2001; Brennan
and Eusepi, 2010). The debate has rather shifted to the choice of a normative framework
within which to conduct an analysis which, if no longer value-free, often still takes its cues
from physics. Any mechanistic approach, however, is contrary to CST, which builds on the
goal-orientation, responsibility, but also spontaneity of human agents.
For Benedict XVI, the distinction between fact and value does not only break down at the
methodological level or that of the philosophy of language. The papal position is starkly
different here from that of some contemporary philosophers and economists such as Hilary
Putnam and Amartya Sen, who accept this breakdown but refuse to explain it by an
ontological continuity (Sen, 1987; Putnam, 2002). For Benedict XVI, the factual and
normative spheres of reality cohere, and values are part of reality. Homo oeconomicus as a
self-interested utility maximizer is not a truly ontological construct of man; decisions on
economic matters are taken by the same humans who take them on moral, aesthetic, or
simply family matters. But this implies that there is also no domain of the “economic” with
its own facts and laws. The illusion that the economy was somehow “autonomous” and
insulated from moral considerations “has led man to abuse the economic process in a
thoroughly destructive way” (§ 34). Segregating charity from the marketplace, and treating
justice as an afterthought that might “correct” the outcome of the market process instead of
defining its end and determining every step in the process, leads inevitably to social injustice
and lack of true freedom. Government paternalism is as problematic here as is an ideological
orientation towards efficiency for its own sake. A value-free science is thus not only
undesirable; it is impossible. If this is so, intellectual activity necessarily involves making
The Encyclical uses economic reasoning to strengthen its arguments and at the same time
criticizes economic concepts which go against basic values of Christian humanism. Most of
all, however, it does not treat economic reasoning as an exclusive basis to model human
relationships in a modern economy. Rather, it argues for an integral understanding of
economic activities which also includes the role of “relationships of gratuitousness, mercy
and communion” (§ 6) (Habisch and Adaui, 2010). Production, consumption, and exchange
are integral parts of human existence, as are moral valuation and the quest of meaning. The
Encyclical does not separate economic activity from other spheres of life. It is for this reason
that Benedict XVI in the same document, and with the same logic, addresses issues of
migration, technology, energy, or bioethics.
Already in the 1920s, the Austrian theologian, jurist, and economist Johannes Messner
proposed an interdisciplinary methodology which, in a manner very innovative for his time,
presented economic theory as an important device for clarifying ethical reasoning in the
social domain (Messner, 1927; Messner, 1965). Messner was confronted with an anti-
economic approach of large parts of his church-related contemporaries. He tried to show,
however, that Christian convictions and arguing in the economic mode are by no means
contradictions. For the identification of concrete policy goals, social ethics (as a heuristic)
and economic analysis (as an analysis of restrictions) should interact (Homann and Blome-
Drees, 1992). The goal of helping needy groups, for example, must acknowledge their
personal dignity; however, it should also employ economic analysis to determine whether a
certain policy instrument proposed really strengthens their position, or rather weakens it
because of unintended side-effects. Protecting elderly workers from dismissal may grant
them more security; however, it may also hinder younger people from finding a job and
augment youth unemployment, which is especially problematic since young people may feel
that they are not welcome in society. Helping single parents with welfare payments might
enable them to live a better life with their children; however, it might also nuture long-term
dependency and an attitude of “acquired helplessness”. The Christian concept of a human
person and of solidarity may serve as a heuristic orientation for development – a long-term
orientation which every market economy urgently needs.
On the contrary, if it disregards the ultimate goal of integral human development, the market
system suffers from imperfections. Markets are efficient instruments for the production and
exchange of goods, and thus for wealth creation. However, free exchange only allows for
commutative justice (§ 35). Externalities, the limited time horizon of decision-makers,
unintended consequences, bounded rationality, and other restrictions lead to market failures.
And the Encyclical adds that profits undermine the otherwise desirable creation of wealth if
they do not recognize the common good as their ultimate goal (§ 21). The market needs
social cohesion for its proper functioning but cannot produce it by itself (§ 35). Since
economic action gives rise both to virtuous and vicious circles, the problems it creates must
be resolved through the political process, which aims at distributive justice.
To be sure, Caritas in Veritate does not haphazardly tap into some opaque forms of
argumentation; rather, the tradition of CST offers very intriguing lines that open up a
dialogue between religion and economic analysis but that somewhere fell into oblivion
during the recent decades. Caritas in Veritate paves new roads for religious engagement in
modern society. Understanding the context of a market economy not as a contradiction but
as a possibility as well as a constraint for the realization of their goals is a challenging
learning process. At the same time, a dialogue with social ethics serves as an efficient
corrective for managers.
The New View of Management
Caritas in Veritate calls for nothing less than for “a profoundly new way of understanding
business enterprise” (§ 40). This suggests a view of business activity that emerges from
previous papal teaching but is distinctive or new in at least the following characteristics:
• Entrepreneurial or managerial action cannot be dissociated from economic
goals, which in turn must contribute to integral human development (§ 34, 41).
5, 33, 37, 47).
• Ethics is deeply integrated into the structure of entrepreneurial or managerial
action such that any attempt at arriving at decisions on merely “technical”
grounds must fail (§ 36, 70-73).
• Business activity “is present in all work, understood as a personal action,” and
management should therefore foster the creativity of employees, for example
through “cross-fertilization between different types of business activity” (§ 41).
• The search for ever more efficient solutions on which classical management
theory has embarked is justified but limited in that it is a necessary but not
sufficient condition for good management (§ 50, 70).
• Business must again find stabler structures of corporate governance built on a
responsible management over longer periods of tenure (§ 40, 47).
• Businesses must again find stronger roots in the territories they serve rather
than being footloose; even though globlization cannot be stopped, a
commitment to particular territories can be developed (§ 2
• Corporate social responsibility, which truly rests on personal virtues, cannot be
reduced to attitudes towards specific groups of stakeholders but extends to the
entire value chain and all stakeholders (§ 40).
• Management must not be practiced (and studied) in isolation from its proper
ends, for good objectives are intrinsic to good management, and the micro-
macro link is crucial to recognizing these objectives (§ 38, 58).
• Good decision-making depends on a proper order of virtues, with charity being
the chief one that animates all others (§ 30-34; 1 Corinthians 13).
• Culture has a crucial role of mediation by providing incentives for the correct
ordering of values to be implemented in virtuous entrepreneurial or managerial
actions, where efficient results are a criterion of virtue (§ 32, 36f.).
• Ultimately only revealed religion can provide meaning to the proper roles of
entrepreneurs and managers, which are understood as vocations (§ 7, 11, 16-19,
With this new interpretation, Caritas in Veritate introduces a powerful corrective to
mainstream management thought. It is both path-dependent by emphasizing efficiency and
transcends the tradition by suggesting a different rationale for ever more efficient solutions.
Management thought must depart from any reliance on rational choice theory with its
formalistic and ultimately utilitarian notions of rationality. Management at the micro-level of
the economic system must serve integral human development at the macro-level. And
business ethics looses its role as a putatively independent corrective of managerial action
that includes its own justification.
What the economic arguments of Caritas in Veritate proclaim, is that our failings to support
integral human development and a just society are grave, but that they are all the more
serious because we have not even created a truly efficient economy by the standards we have
believed to be the right ones. Before our moral failings come our intellectual failings –
“man’s darkened reason” (§ 36). Economic development, for example, is by any account a
very complex issue; simple solutions such as a mere redistribution of wealth are bound to
fail because poverty is not reducible to lack of material resources: “At the same time, in
some poor countries, cultural models and social norms of behavior persist which hinder the
process of development” (§ 22). But we can in principle understand the roadblocks to
development. Benedict XVI sounds an optimistic message because he shows confidence that
the problems we face have solutions.
If “new solutions” (§ 32) are to be promising, they must overcome the blockages in
economic efficiency first, for markets can be beneficial institutions (§ 35) and the
instruments of business are in themselves good (§ 36). But economic forces are not the only
ones in society, and they must be ordered towards good ends. This cannot be expected of the
economic system itself nor of any secular ethics that makes ultimate values depend on
human consensus. The reason for this lies in the impossibility known from systems theory
for any system to explain itself or define its own rules.
When Caritas in veritate calls for a “new humanistic synthesis” (§ 21), this implies also a
new and dynamic equilibrium between economics and religion. Earlier papal teaching saw
the economic order depend on the moral order and yet economics and moral science both
employ “each its own principles in its own sphere” (Quadragesimo Anno, § 42). Benedict
XVI goes beyond a static mirroring of the moral order by social science. Economic analysis
in turn may challenge the faculty of ethical judgment, as it may inform about unintended
consequences of certain social or political postulates. It may also strengthen the reasoning of
social teaching because it shows that it corresponds to the inherent economic logic of a truly
sustainable development. The envisaged synthesis is a dynamic two-way relationship.
This new model of business constitutes not only a stark corrective of the forms of
management entrenched in capitalist societies, particularly as these have led to the economic
crisis that has been the historical setting for the Encyclical. It also suggests entirely new
forms of business. The suggestions of Caritas in Veritate on gratuitousness (§ 6, 34, 36,
38f.), the “civil economy” (§ 38f., 46f.), and the “economy of communion” (§ 46), are
strongly integrated into the theological argument of the Encyclical. They follow from
Benedict’s thought on the nature of economic action, which in turn derives from his
theological anthropology. They are by no means a mere “add-on”, as critics of the Encyclical
have claimed (Weigel, 2009). The focus on reciprocity and on alternative business
enterprises sustained by civil society rather than, much more narrowly, the owners of
financial capital, flows from the underlying orientation towards charity. A traditional “social
justice” orientation of the Thomistic tradition restricted itself to calls for an authoritative
interference by the government administration into distributive outcomes. Charity, on the
other hand, is preemptive by inviting personal engagement, social entrepreneurship, ethical
investment, and creative management techniques such as an unequal distribution of
workloads over the life- and family-cycle or true employee participation in the share capital.
The new models of enterprise that Caritas in Veritate advocates, for the first time in the
history of CST, cannot simply be relegated to the “non-profit” sector, for they are meant to
assume a place in the mainstream (§ 46). The third sector of gratuitous giving and
volunteerism breaks the binary model because of an underlying anthropology which sees
humans not only as social but also as spiritual individuals. Since “commercial logic”
evidently cannot solve all social problems, it follows “that in commercial relationships the
principle of gratuitousness and the logic of gift as an expression of fraternity can and must
find their place within normal economic activity” (§ 36). This implies that even the old
distinction between “for-profit” and “non-profit” enterprise erodes, as a hybrid third
category has established itself that combines properties of both. Gratuitousness is at work in
many “for-profit” operations as well, for example in cooperatives, in family businesses, in
social enterprises, in employee stock ownership plans, etc. And it stands behind a series of
business strategies like stakeholder dialogues, certain types of engagement as corporate
citizens, ethical investment funds, or corporate volunteering, which may certainly also be
analyzed in economic terms. Economic reasoning must not limit its applicability by
exclusively assuming selfishness. Regard for the common good, too, is “demanded by
economic logic” (§ 36). There is now already a voluminous economic literature on factors of
“social preferences” such as altruism, intrinsic motivation, fairness, and reciprocity (Fehr
and Fischbacher, 2002; Frey, 1994; Kolm and Ythier, 2006).
In breaking down traditional boundaries, Benedict XVI also rejects an ontological division
between a realm of “value-free” economic analysis and an area of “ethical preferences”, the
latter remaining vague and subjective and seemingly having no impact at all on the social
and political structure of a society. Instead he proposes integration and methodological
sequencing – first the selection and justification of policy propoals by economic arguments,
then that of economic goals themselves by ethical reasoning, with adequate considerations at
all levels being motivated by charity. This new understanding of the proper nature of
economic action has many implications for decisions about investment, market entry,
organization, corporate governance, marketing, and other functions of business enterprises,
that will now have to be studied in detail. Special consideration will have to be given to
those new types of businesses in the “economy of communion” to which Caritas in Veritate
has now drawn our attention (§ 46). And lastly, bridges will have to be built to those
approaches in management theory that are germane to the new magisterial teaching. The
various movements of humanistic management (Melé, 2009; Rosanas, 2008; Spitzeck et al.,
2009) must be engaged here, in full knowledge that only “authentic humanism” (§ 78) will
suffice to justify authentic goals, as must be attempts at developing practical wisdom
(phronēsis) in management (Nonaka and Toyama, 2007), and some of those approaches in
the functional disciplines of business that go beyond a narrowly “technical mindset” (§ 71).
Those enterprises that, at least to some degree, have already achieved this “new humanistic
synthesis” can serve as a guideline. One may think of the “economy of communion” but also
of many for-profit and non-profit enterprises that seek to integrate principles of reciprocity,
mutuality, and solidarity (Alford and Naughton, 2001; Cornwall and Naughton, 2008;
The New View of Business Ethics
The new understanding of the role of business that Caritas in Veritate presents has important
implications for the role of business ethics. Most previous authors have defined the relation
between business and morality in terms of an ordering – subordination of one to the other, or
co-ordination between the two. Morality has been located in economic actions respectively
the mental dispositions underlying them. Consequently, business ethics has been regarded as
a discipline in relative autonomy from business administration that ought to mediate between
managerial realities and ethical exigencies.
Pope Benedict XVI takes a radically different approach. He does not postulate dichotomies
between the domains of economics (or business) and morality. The Encyclical does not
condemn efficiency, rational choice, the market, or even self-interest. Rather, it points to
their limitations and emphasizes that a correct ordering of these means towards a
transcendent goal is necessary. Efficiency is not good simply because it allows for greater
outputs with fewer factor inputs. Rather, it is an imperative of creation, ennobles the calling
of human beings, and may in some cases be required by the precautionary principle.
Efficiency is thus only a methodological antecedent, not an ontological prior, to other criteria
in policy analysis. The basic problem in a market order is not seen to lie in a categorical
contradiction between economic goals and ethical constraints, as many approaches to
business ethics would have it. Secular ethics attempts to develop rules for conduct in
business. Much of Caritas in Veritate is dedicated to the demonstration that such rules are
without foundation if they do not derive from a transcendent order (§ 11, 29, 34, 45 ). Before
he became Pope, Ratzinger wrote: “A scientific approach that believes itself capable of
managing without an ethos misunderstands the reality of man. Therefore it is not scientific.
Today we need a maximum of specialized economic understanding, but also a maximum of
ethos so that specialized economic understanding may enter the service of the right goals”
(Ratzinger, 1986, p. 204). Goals, however, cannot be defined and justified by a system of
rules itself that is purely instrumental. He objected that the selection and ordering of values
that make up an ethical system is itself founded on an ultimate justification. Ethics requires a
foundation: “An economic policy that is ordered not only to the good of the group – indeed,
not only to the common good of a determinate state – but to the common good of the family
of man demands a maximum of ethical discipline and thus a maximum of religious strength”
(Ratzinger, 1986, p. 204).
Caritas in Veritate builds on Benedict’s long-standing teaching that religion must not be
reduced to a social or individual ethics, as Kant proposed to do, and that morality must be
distinguished from moralism. Expecting too much of man means moving him into the sphere
of the divine. By expanding the distance between divine and human standards, morality
becomes increasingly “footloose” and serves a social or political purpose rather than being
embedded in a comprehensive vision of meaning. Already long before the beginning of his
papacy, Cardinal Ratzinger had argued not only that economic decisions must not be
divorced from an ethical perspective. Rather, he entertained the bolder claim that true
morality requires economic analysis: “A morality that believes itself able to dispense with
the technical knowledge of economic laws is not morality but moralism. As such it is the
antithesis of morality” (Ratzinger, 1986, 204). Ethics is the pursuit and practice of morality
under reason, not merely reflexive obedience to rules and customs. Against any moralism,
Caritas in veritate proposes instead an Augustinian understanding of morality in business,
which originates at a deeper – anthropological and theological – level, namely in love as
“desiring another person’s good and taking effective steps to secure it” (§ 7). Such morality
is not defensive, protective, or obsequious, but is motivated by being ordered towards action.
Much of business ethics has consisted in a post factum analysis and critique of business
decisions, with managers and organizations usually in the dock. Corporate interests have
often brushed it aside as uninformed moralizing. Much as this caricature is unwarranted, the
dominant model has been rather that of a prosecutor than of an advisor to business.
According to the logic of Caritas in Veritate, business ethics should seek a deep integration
of ethical thinking into the mindset of managers, and should thus become preemptive. The
discipline is itself called to participate in the creative work of developing alternatives – in an
offensive and entrepreneurial rather than a narrowly defensive and prosecutorial spirit.
Benedict XVI reminds us time and again that business as such can have great value for
integral human development if it can leave the vicious and enter the virtuous circle. The
biggest defect of most businesses is not one of commission but of ommission – that they do
not live up to their potential in contributing to human flourishing (Kennedy, 2006).
The Encyclical itself provides examples of this new thinking. In discussing the economic
recession of 2007-2010, for example, the Pope does not see the fatal flaw of the investment
banks in having sought profit; he sees it in their pursuit of profit without productivity. They
were not doing what they were supposed to do – provide capital to drive the economy. The
financial sector is by its nature and calling an “instrument directed towards improved wealth
creation and development” (§ 65). The billions of dollars invested in derivatives might have
been used instead to set up new firms, hire new workers, and furnish new products, and thus
to make life better for millions of people. The crisis was an instance of finance having lost
its proper purpose (§ 40; Zamagni, 2009). Business ethicists, one may conclude, limit
themselves beyond reason by merely addressing the relations between means and ends in
business if they not also answer which ends are proper to the human person. Attempts at
providing merely a procedural blueprint for decision-making lack a sufficient foundation.
The choices here are basically between a rather arbitrarily defined basis in secular humanism
and a deeper one in revealed religion.
The new basis of business ethics proposed in the Encyclical lies in two data – “the inviolable
dignity of the human person and the transcendent value of natural moral norms” (§ 45). But
again the Pope prefers to argue with an endogenous logic: “When business ethics prescinds
from these two pillars, it inevitably risks losing its distinctive nature and it falls prey to
forms of exploitation; more specifically, it risks becoming subservient to existing economic
and financial systems rather than correcting their dysfunctional aspects” (§ 45). In other
words, any business ethics that does not rest on firmer foundations than mere human
convention will itself fail because of its own ineffectiveness. And it is unlikely to attenuate
the clash between religion and economics that has become the challenge of our century.
Caritas in Veritate makes a stronger use than previous encyclicals of economic arguments,
emphasizing especially perceived inefficiencies in current economic conditions. It thereby
breaks down the antithesis between efficiency and morality on which both the insistence on
autonomous economic analysis and the opposition to market forces were based. But
enhancement of efficiency is only the first step in an “economic logic” or “commercial
logic” that has a clear purpose – to contribute to integral human development. Economic
activity is embedded in society and culture and must therefore neither be reduced to a “pure”
logic of action nor be seen as by its nature suspicious or sinful. In this sense, the Encyclical
A preliminary version of this paper was presented at the 16th International Symposium on Ethics,
Business and Society organized by IESE Business School (Barcelona, 13-15 May, 2010).
1 Ghoshal made this claim specifically for two theories of supposedly value-free economics, i.e.
agency theory and transaction cost theory, that have been widely applied in business administration.
2 Romantics about social justice raised this critique for decades in opposition to economics and the
market (Messner, 1965).
3 “Love, and do what thou wilt” (Dilige et quod vis fac) (In Epist. Joann. Tractatus, VII, 8).
bridges the gap between religion and economics, and between religion and business, by
refocusing on their proper purpose.
The Encyclical mentions several business models and strategies that are within “commercial
logic” but differ from the shareholder-dominated model. Further studies should investigate
these. While there is much work on the application of CST to business at the macro-level,
there is little on its impact on tactical and operational decisions. Few studies have considered
how CST relates to theories of management, organization, marketing, or finance (Porth and
McCall, 2001). Even the “economy of communion” that Benedict celebrates as an
innovative business model has received little attention (Gold, 2010; Bruni, 2010).
If there is no longer a chasm between efficiency and equity, or economics and ethics, the
traditional view of business ethics as a subsequent additional corrective of business decisions
becomes moot. If charity influences decision-making at all stages within a relational view of
business, considerations of ethics become indeed deeply integrated into the conduct of
commerce. Much further work needs to be done to bring the theological vision of Caritas in
Veritate to fruition in economic reality. It is work that is of great importance and urgency.
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St. Norbert College
De Pere, Wisconsin, USA
Katholische Universität Eichstätt-Ingolstadt
Ingolstadt, Bavaria, Germany