Protection racket lingers on

Those arguing for strategic trade theory are -- like all protectionists simply seeking to avoid competition, writes Richard Wood.

BILL WEEKES was correct when he wrote in The Age on Monday that "the protection debate is not over".  But the reason that protectionist pressures will continue derives not from any new trade theory but from the inescapable fact that there will always be some who seek to avoid competition rather than to meet it.

Fortunately for the consumer and for employment, in Australia most old protectionists are now acknowledging the bipartisan acceptance that protection is not the way to go.  This was vividly illustrated when the new president of the Textile, Clothing and Footwear Council made it clear on Sunday that the future of the industry now lies in the development of exports.

The new trade theory -- the so-called strategic trade theory -- is based on the notion that government intervention in the operation of markets may produce benefits for the community which would more than outweigh the costs of such intervention, both to industries that are not assisted and to consumers.  Its basis is that some industries can earn higher than normal returns because economies of scale exist when they increase production.  In such circumstances, if government were to assist such industries to increase their output, the country could benefit through the establishment of a monopolistic position in the market for the industries' products.

There is, however, nothing particularly novel about trying to establish a monopoly position where economies of scale exist.  The problem is that there are severe limits to the application of the theory on a country basis.  Australia is a relatively small player in international trade and it would be a very risky undertaking to try to expand manufacturing, to the point of trying to establish a dominant position in international markets, in the sort of industries usually nominated for government assistance.  We would be competing against the same industries in other countries that would also have the benefit of economies of scale.

The main populariser of strategic trade theory, Dr Paul Krugman, has readily acknowledged the practical problems with it.  In a 1987 article he stated:  "It is possible, then, both to believe that comparative advantage is an incomplete model of trade and to believe that free trade is nevertheless the right policy.  In fact this is the position taken by most of the new trade theorists themselves."

Contrary to the suggestion by Mr Weekes, there is no contradiction between obtaining increasing returns to scale and the "law" of diminishing returns.  In fact, the two principles deal with fundamentally different issues.  Thus, the law of diminishing returns simply states that, if you increase the quantity of one input of production but hold all other input quantities constant, the quantity of additional output will progressively diminish.  The principle of economies of scale, on the other hand, refers to the situation where all inputs are increased simultaneously by the same percentage but the quantity of output increases by more.

Finally, it is, of course, erroneous to suggest that the major reason for high unemployment is "the erosion of our domestic industrial base by imports, reflecting government policies over the past 20 years".

The reduction in protection has been more than offset by the depreciation in the (real) exchange rate.  As a result, the capacity of manufacturers to compete has actually been increasing.  The decline in manufacturing employment reflects structural changes in consumer spending and in the efficiency of manufacturing industry.  In developed economies the main source of jobs growth now comes from the service industries, not from manufacturing.

The old protectionists will need to do a lot better if they are to reverse the tide which is now running fast against them in Australia.

ADVERTISEMENT

Australia's Heavy Capital Gains and Wealth Taxes

by Terry McCrann

Responding to criticism by the Minister for Finance, Senator Walsh, Terry McCrann sets out his reasoning and evidence for the claim that Australia's capital gains and wealth taxes are among the most severe in the industrialised world.  This article is based on two columns which appeared in the Melbourne Age on June 19 and June 20 (1986).

SENATOR Walsh took me to task, uncharacteristically gently, for referring to the Government's capital gains tax as the most punitive in the world.  While I concede this was a touch exaggerated, Australia certainly has one of the most punitive taxes.  Further, we appear to have among the highest levels of "wealth" taxes among developed industrial countries, with many ordinary wage and salary earners each year having to pay $1,000 or more -- and rising rapidly -- hi these forms of tax.

According to Senator Walsh, the key point is that whereas most OECD countries levied capital gains taxes at a rate around 30 per cent, they did so on nominal gains (with the exception of Britain).  Thus, while our all-new local capital gains tax would be levied at the taxpayers' normal marginal income tax rate -- which in most cases would be either 47 per cent or 61 per cent, maybe dropping back to a maximum 50 per cent next year -- only real gains were to be taxed down under.  Obviously, if a realised capital "gain" was entirely due to inflation, no tax would be payable in Australia in contrast to some tax paid in most of those other OECD countries.  Conclusion:  our tax was less punitive.

Senator Walsh makes this point as follows:  if an asset was bought for $100,000 and both "the market price of the asset (sic:  I suggest he meant to say, the annual increase in the market price of the asset) and the inflation rate remained constant at five per cent for 14 years and the asset was then sold," the tax levied in Australia would be zero as against perhaps $30,000 under the common OECD-type tax.

The good Senator was kind enough to concede that if one made different assumptions, such as the particular asset's value rising at a faster pace than inflation, then the numbers would not be so dramatically favourable to the Australian tax.

So the same $100,000 asset held for 14 years with five per cent annual inflation but a 10 per cent compound increase in its value -- assumptions he stressed were "highly unlikely" -- the typical OECD capital gains tax would take just under $90,000 with the down-under model claiming just under $80,000.

His bottom line was that "with any ratio of inflation to asset value increase less than the 1:2 ratio which is cited in that hypothetical example, the Australian tax would be lower than under the common type of capital gains taxes which prevail in the OECD."

Unfortunately, this is barely half the story.

There are less salubrious features of our new tax.  Two in particular.  The first is that our tax bears far more harshly than the common OECD tax on short-term capital gains, where inflation is irrelevant.  A common example is where an investor buys $100,000 worth of shares, the market booms, and he sells them for $200,000 one year and one day later.  Assume a 10 per cent inflation rate and the investor having other income amounting to the mammoth sum of $35,000.  That investor will pay tax of 61 per cent (maybe 50 per cent after next year) of $90,000.  That is equal to $54,900 (maybe $45,000 if the rates are cut) compared with $30,000 under those far tougher common OECD capital gains taxes.

And why did I say he sold the shares one year and one day after acquiring them?  Because that got him into the "softer" version of Senator Walsh's range of capital gains taxes.  The Government plans to leave in place the existing provisions of the Income Tax Act which tax as ordinary income any gains, indeed any nominal gains, on the sale of an asset within 12 months of acquisition.

Now Senator Walsh might argue that this is an income tax and not a capital gains tax.  Others might take a different view and even chance their arm that this is the most punitive capital gains tax in the world -- without fully knowing the tax systems of Gabon, Gambia, Guinea et al.

If my mythical investor had sold after 364 days, he would not have even picked up Senator Walsh's "generous" allowance for inflation.  He would have paid 61 per cent of the full $100,000 (ditto as before, maybe 50 per cent sometime in the future) -- or just about exactly double the amount levied under those terribly harsh taxes common in most other OECD countries.

The second point is that the Government in its generosity will allow realised capital losses to be offset against capital gains to reduce any tax liability.  This, of course, applies to most capital gains taxes in the OECD and, with a moment's thought, is self-evidently the only equitable thing to do.

But, in the case of our overly-generous tax, only realised nominal losses will be allowed to be offset, not as one might have expected realised real losses.  Assuming continuing inflation it will be almost impossible for investors to incur nominal losses -- except on assets held for short periods where inflation has not had a chance to work its miracles.  Whoopee!

Consider an example where an investor buys one parcel of shares for $100,000 and an investment house also for $100,000.  Over 10 years (with aggregate 100 per cent inflation) the house appreciates in value to $300,000 while the shares languish at that original $100,000 -- a not unlikely prospect to anyone who lived through the early 1970s.  Under Senator Walsh's tax the after-inflation profit on the house is $100,000 and thus $61,000 of tax is payable.  No offset is allowed for the real loss on the other parcel because there is no actual nominal dollar loss.

But consider what happened to that investor's investment portfolio -- the combination of the house and the shares.  The investor started with a $200,000 investment portfolio.  After 10 years the inflated value of his portfolio was then $400,000 which is exactly what he realised on sale.  He may have made a real profit of $100,000 on the house, but in real terms he lost $100,000 on the shares.  In short, he did not make a penny of real profit on the portfolio taken as a whole.  Yet he is still up for $61,000 tax.

Wealth Taxes

The lunatic, and not-so-lunatic, left -- and various economists, academic and otherwise -- clamour for a wealth tax in this country on the grounds of tax "rationality", economic "efficiency" and "equity".

It is undeniably true that one would search in vain through the tax laws for any imposition of a "wealth tax", or even its less emotive title, "net worth tax".  But that, of course, proves nothing, as a thorn by any other name would still cause pain.  In truth, we do have "wealth taxes" -- at least three that I can think of without too much effort.  And, what is more, they are unfair in their impact as they are levied on gross assets without any deduction for liabilities as against the conventional wealth or net worth tax, which is levied on net assets -- the total value of the taxpayer's assets at a particular point of time less liabilities outstanding.

Furthermore, the down-under wealth taxes are levied almost exclusively on one particular form of asset or wealth which, to use one of those awful phrases I detest from the tax "reformers", renders them horizontally inequitable.  That asset is property.

Various disguised wealth taxes are state property taxes, council rates and Melbourne Metropolitan Board of Works or other water rates.  My comments apply to the Victorian situation and especially to the people who live in the Melbourne metropolitan area, but I presume the position is not significantly different elsewhere in Australia.  Thus, just about anyone who owns a house in Australia -- even just the one family home -- is paying at least one, most likely two and possibly three of these disguised wealth taxes.

And in the main they are paying those wealth taxes out of after-tax income as -- income-earning properties aside -- they are not deductible against federal income tax.  Indeed, they might be paying those wealth taxes even though in the strict sense they don't actually own any property at all, if they have just started paying off their house bought with borrowed money.

Before explaining this, it is worth emphasising that rates and state land taxes are very definitely a form of "wealth tax" -- or worth, or asset, or capital tax, whatever particular name is used.  They are levied either entirely or almost entirely on the value of the asset, in this case property or land.  They are not levied on income or capital gain or the like, simply on the value of assets.  The fact that it is only one asset -- land -- is, apart from the tax equity questions, simply irrelevant.

It might be argued that water and council rates are not really a tax but a fee for service -- garbage collection, provision of water, etc -- and therefore equivalent to any other expenditures people make, such as for petrol or food.

One response to this is that all taxation is one way or another a "fee for service" -- the services being defence, schools, hospitals and so on to even include social welfare which, it might be argued, makes for a less unpleasant environment.

More importantly, though, these rates are less and less related to the cost of provision of the service -- and are more and more simply a means of raising revenue.  The added costs of collecting one garbage can from a house on a hectare in Toorak compared to a small weatherboard in Williamstown does not justify the Toorak resident paying several thousand dollars for the "service" as against a few hundred for the Williamstowner.

Even accepting in part the fee-for-service argument, one might note that the taxes are levied only on people owning an asset, to wit, the land.  They are not levied on users who do not own land.  Quite clearly, the money raised by council and water rates is nothing less than a direct tax on "wealth".

And we now find that even people with just one piece of land -- the family home -- in suburbs a long way from a hectare in Toorak are paying the state land tax.  Under the previous Liberal Government (and still so in most other States) the family home was generally exempted from land tax and you had to own at least two properties to be assessed for the tax.  This is no longer so and, although there is an initial exemption threshold, people owning quite modest homes which are their only property asset are paying $60 to $100 a year in property tax.  And that is the amount this year.  The way the tax is structured it will almost certainly rise exponentially as the land value increases at a faster pace than the exemption threshold.

Unless significantly amended, it will mean that ordinary one-home-owning wage and salary earners (and those not even earning) could be paying $500 or more in this disguised but very real wealth tax hi the not-too-distant future.

On rates, it is not uncommon for people with ordinary blocks to be paying $600 or more to both the local council and the Board of Works.  Add in the land tax and many ordinary Victorians are now paying $1,200 to $1,500 in these disguised wealth taxes.

And they have to find that money out of after-tax income.  If their wage/salary is around $20,000 they have to apportion around $2,500 for their "wealth" tax.  If they are really rich and earning about $35,000, they have to set aside $3,000 or more.

To emphasise, for many Victorians 10 per cent or more of their pre-tax income is now being paid in these disguised wealth taxes.  Those "wealthy" citizens have to pay those taxes whether or not they actually "own" the family home in the true sense.  They may pay up to $1,000 a year in "wealth" taxes on an $80,000 home even though they have a $60,000 mortgage and thus only $20,000 of equity in the property.

That alone suggests that our disguised wealth taxes are among the most punitive in the world, but the international comparisons, such as they are, provide further evidence.  According to the Chart, the share of government revenue from taxes on wealth in Australia is well above the OECD average and higher than in 16 of the 22 OECD member countries.

Wealth Taxes

Relative size of taxes on wealth in OECD countries (1982)

Source:  Reform of the Australian Tax System, draft white paper, AGPS, June 1985

Poverty in Australia

Consultant's Report

Problems of Measuring Poverty

THE standard measure used for estimating the number of persons in poverty in Australia is the Henderson Poverty Line, first calculated by Professor Ronald Henderson who chaired the National Poverty Inquiry which reported in the mid-1970s.

The measure used by Professor Henderson was derived from New York based studies of the consumption patterns of American poor persons living in cities.  The relative cost of living for various US poor families of different size was used by Professor Henderson as basic data and translated using equivalence scales (as a basis for determining whether families of different composition and size had the same income) to Australian data.

The Melbourne Institute of Applied Economic and Social Research periodically updates the Henderson measures of poverty in line with changes in wages and prices.  Two concepts of poverty were highlighted by Professor Henderson, one adjusted and the other not adjusted for housing costs.

The housing costs adjustment recognises that homeowners, even though they may have little income, are in a superior financial position to non-homeowners required to pay rent.  Since many pensioners own their own house outright, such an adjustment is absolutely essential to assessing the number of Australians in poverty.

As the need for adjustments for the cost of housing demonstrates, caution is needed if policy recommendations are based on abstract measures of numbers of persons in poverty.  A summary measure (particularly one based on experience in another country in an earlier decade) can not accurately assess the widely differing financial and economic needs of individuals.

Housing is not the only area where there can be significant differences in the circumstances of individuals with the same measured income.  Health and community services is another important case where needs and costs may be different.  There are also regional differences in the cost of living that need to be reckoned with.

Indeed whilst pensioners forced to rent accommodation in the private markets in the major capitals (especially Sydney and Melbourne) face high rentals for low quality accommodation, that does not mean that all non-homeowners will face housing problems.  Renters in rural or some regions of the country (or those in subsidised public housing) could for example be in a more fortunate position.

One important item commonly overlooked in assessments of the adequacy of low incomes in Australia is the imputed value of the comprehensive range of services provided by the Commonwealth, state and local governments to the holders of the Pensioner Health Benefit (PHB) card.

The PHB card provides benefits with a value which varies from state to state and from locality to locality.  The value has been estimated in the range of an additional $10 to $15 per week even following the introduction of the Medicare system which extended free medical services to the whole population.  Major benefits offered under the PHB card include free pharmaceuticals, transport concessions, other concessions such as for rates and community services and comprehensive access to the health system.

These and other reasons mean that measured or reported income alone does not provide an accurate assessment of the needs of the person or family.  Users of crude measurements of poverty based on aggregate data need to be aware of these major limitations.  At best poverty lines are merely guides to potential social welfare problem areas.

This is not to deny that there are poverty and areas of unmet social welfare need in this country.  But as the comparisons of trends over time show, poverty is a relative concept the dimensions of which must be evaluated in terms of specific details and comparisons with the income and well-being of the less poor segment of the population.

Specific groups, such as non-homeowners required to rent in the private rental market, will clearly have greater needs than others.  But to consider all pensioners and beneficiaries as being groups in need is to ignore the fact that some may be comfortably off even with little other income than the pension.  Many of our pensioner homeowners are likely to fall into that category of person.

Substantial improvements have occurred in social welfare benefits recently.  These include increase in the pension relative to average weekly earnings (pensions have increased at a faster rate than wages) and the introduction of the government's family assistance package (providing additional payments of up to $28 per week tax free to low income families with children).

The implementation of these changes will have reduced the numbers affected by and the incidence of poverty in Australia.  These benefits have been substantial (especially after allowing for the tax that would have been paid on additional wages or property income to provide benefits of the same value).

One final aspect of the measurement of poverty is also relevant.  Measuring the income of certain groups in society, especially the self employed and farmers, is a difficult exercise.  Whilst there are many poor farmers and self employed persons, these groups are over-represented (compared to their relative importance in the total population) in the numbers of persons shown to be in poverty.  Problems of measurement of incomes have certainly contributed to this phenomenon.

Measuring the income of this segment of the population is difficult, especially measuring the imputed income accruing to the business and allowing for cash transactions which are prevalent in the self employed segment of the economy.

Trends in Welfare Assistance

Reviewing the total numbers of persons in receipt of social security and veterans affairs pensions highlights the comprehensive range of income support provided to the Australian population.  This support comes from the taxes paid by the working population and by business and other taxpayers.

An analysis of Social Security data reveals the following major trends:

1. Social Security and Veterans Affairs pensioners and beneficiaries have increased as a percentage of the population over the last two decades, despite recent government action to restrict the numbers of pensioners (by reintroducing the assets test and the income test for those aged 70 or more).  Relevant data is:

   Pensioners and Beneficiaries expressed as percentage
   of Total Population

   1969	1978	1983	1987
   8.7%	16.6%	21.3%	20.2%

   
   

2. For assessing the impact of welfare outlays on the tax burden, the relationship between the growth in the number of government income support recipients and the growth in the labour force is a key variable.  In 1987, income support recipients represented 42.5 per cent of the labour force compared with 20.3 per cent in 1969.  That change virtually doubles the tax required to be collected from each member of the workforce to pay the required income support payments.

   Pensioners and Beneficiaries expressed as percentage
   of Total Labour Force

   1969	1978	1983	1987
   20.3%	37.2%	47.1%	42.5%

   
   

   The data shows that a peak was reached in 1983 before the Labor party introduced measures to reduce the number of age pensioners.  The fall from 47.1 per cent of the labour force in 1983 to 42.5 per cent in 1987 reflects declining levels of unemployment over that period and the impact of the specific policy decisions affecting age pensioners.

3. The data presented above permits an approximate estimate to be made of the impact of increasing numbers of income support recipients on personal tax burdens.  The average pension and unemployment benefit payment has varied around an average of 20 per cent of Average Weekly Earnings (AWE) (the maximum benefit is currently around 25 per cent of AWE).  Because of the large number of relatively low income wage earners, average wage levels also represent approximately 80 per cent of AWE (the precise figure may be even lower and closer to 75 per cent).  Using these figures, income support payments for approximately 42 per cent of the labour force necessitate average tax collections from each worker equal to 8.5 per cent of AWE or 10.6 per cent of average wages.

4. The absolute numbers of pensioners and beneficiaries has also increased significantly over the years as shown below.  In some parts of Australia upwards of 20 per cent and as high as 40 per cent of the population are recipients of pensions and benefits from the Commonwealth government.

   Total Numbers of Pensioners and Beneficiaries

   Recipients	1969	1978	1983	1987
   Age	710,527	1,264,778	1,417,218	1,346,925
   Service	76,202	123,955	341,181	375,112
   Other	284,865	927,142	1,520,310	1,560,059
   Total	1,071,514	2315,875	3,278,709	3,282,096

   
   

   This data shows a large growth hi the numbers (included under the category of other) of the pensioner and beneficiary population who were not aged (i.e. not age or service pensioners).  In 1969, 27 per cent of the income support recipients came from groups of work force age.  By 1987, that figure had increased to 47 per cent of the total pensioner population.

5. The increased importance of social welfare outlays over the past two decades is highlighted by the increasing share of PAYE personal income tax collections required to finance social welfare payments as broadly defined in the Budget papers.  Trends are shown below:

   Social Welfare Outlays as Proportion of Personal
   Income Tax Collections

   	1968/69 $m	1978/79 $m	1982/83 $m	1986/87 $m
   Total Receipts	6,228	25,567	44,345	72,184
   of which Net PAYE	2,379	12,804	18,840	28,136
   Social Welfare as % of PAYE	47.4	63.7	74.6	73.0

   
   

   Net PAYE are not of course the only source of tax collections, but represents the tax contributions of the bulk of the population.  The table shows that the largest part of PAYE collections are necessary to finance social welfare outlays even though social welfare outlays are only 28 per cent of total Commonwealth outlays.

Reasons for Increase in Income Support Recipients

The causes of the increase in numbers on pension and benefit have been analysed over the years by a number of researchers including recently by the Social Security Review chaired by Professor Bettina Cass and earlier by the Social Welfare Policy Secretariat.

The reasons presented for the growth in numbers include:-

• demographic changes;
• increased unemployment;  and
• government policy decisions.

During the period of the 1970s and early 1980s, discretionary policy changes included the abolition of the means test for pensioners aged 75 or more (later extended briefly to those aged 70 or more), relaxation of the pensions income test, abolition of the assets test and the introduction of new benefits especially the supporting parents benefit.  These changes all resulted in a substantial increase in numbers of pensioners and beneficiaries.

Demographic trends are also contributing to the growth in numbers, but is not the most important consideration.  The Australian population is continuing to age, a trend common to all other developed countries.  But at this stage of our history, Australia still remains a relatively young country with the median age of the population some 5 years below that in other countries such as the United States.  The greatest impact of ageing will be felt, on present projections, in twenty years tune around the year 2010.

The growth in unemployment which commenced around 1974 and peaked in the early 1980s added substantially to the numbers of unemployment beneficiaries and sole parent pensioners.  There have been other contributing factors including increased marriage break-up resulting in the growth in numbers of sole parents.

Indeed, the growth in numbers of sole parent and widow pensioners since the supporting parents benefit was introduced in 1973 has been particularly large.  Numbers receiving a pension have increased fourfold from 80,000 to 331,000 persons.  (The total population increased by only 22 per cent over this period).

Without examining each pension and benefit separately, reference can be made to similar adverse trends in take-up of other benefits such as invalid pension.  The numbers of invalid pensioners have increased from 1.8 per cent to 2.3 per cent of the eligible age group over the ten years 1977 to 1987.

In summary, the growth in the total number of persons receiving pensions and benefits does not necessarily reflect a massive growth in inequality in the community.  Discretionary policy decisions of government have played a large role in increasing dependency on Commonwealth income support.

Incentives to Stay on Welfare

A social security system which provides a comprehensive safety net, as in Australia, presents major problems for ensuring that pensioners and beneficiaries are encouraged to seek employment and/or make best use of their available financial resources.

One defect in the present system is that the combined impact of the pensions income test and personal income tax (combined with other income tests in the welfare system) creates major poverty traps.  These reduce incentives to seek and take employment when offered.  Alternatively, poverty traps provide strong incentives not to declare income to social security and the tax office (when PAYE tax has not been withheld).

Some examples illustrate the dimensions of the poverty traps.  The unemployment benefit income test allows a free area of $30 per week, subjects the next $40 per week to a 50 per cent reduction and then reduces benefit by 100 per cent of income in excess of $70 per week.  In addition income tax is payable on that income when total taxable income (including unemployment benefit) exceeds the tax threshold at marginal rates of 25.25 per cent or 30.25 per cent (including the medicare levy).

Unemployed persons living in housing commission homes are subject to a further reduction in income of at least 20 per cent of their income because subsidised rents charged are linked automatically to income.  Furthermore assistance provided to children is also subject to an income test in relevant ranges of income.  The combined impact of all these overlapping systems can be tax rates in excess of the additional income received from employment.  There can be no doubting the potential impact on incentives to seek employment.

Similar traps apply also to sole parents who have in addition to face substantial child care costs in seeking employment.  Effective tax and pension income test rates are however lower for sole parents than for unemployment beneficiaries, because the sole parent income test exempts the first $40 of income and reduces the pension by 50 per cent of any income in excess of that amount.  Poverty traps can still generate combined income test and tax rates approaching 100 per cent of income received.

Age and service pensioners are another group where financial incentives encourage the dissipation of their assets (to avoid the harsh impact of the assets test in some circumstances) or over-investment in exempt assets such as the owner occupied home.  Pensioners scared of losing their valuable PHB card in many instances do not invest so as to maximise their income.

The effective pension income test and income tax rates on pensioners generally fall in the range of 62 per cent to 67 per cent, significantly higher than for the highest income groups in the community but lower than for some other pensioner groups.

One major cause for concern about poverty traps is the discouragement of savings for retirement by persons concerned about losing or not getting a pension.  Guaranteeing everyone an adequate age pension as part of a social security safety net may consequently reduce wealth creation through retirement savings that otherwise would have eventuated.

Policy Implications -- General

Complex policy issues are raised by recommendations to further redistribute income or wealth to groups assessed to be in poverty or most in need.  Whilst there is universal agreement about the need to ensure that the poor in society are fully protected by our social security and welfare systems, this does not necessarily require substantial additional social welfare outlays.

In particular, there is an urgent need to ensure that the welfare system provides financial signals and incentives consistent with wealth creation in this country (and the development of new industries).  If the social security system or high taxes to finance that system discourage individuals from saving or seeking to get ahead by gaining additional income, the whole community will suffer in the long run.

There are no easy answers to dealing with current social welfare problems.  Very difficult conceptual questions have to be considered.  For example, the higher the level of income guaranteed to persons in retirement or in the case of unemployment, invalidity and similar untoward events during working life, the lower will be the financial incentives for private savings or insurance to protect against risks.

Lower savings means additional consumption which will reduce aggregate resources available to the community for investment purposes.  Higher levels of consumption will also divert investments to areas such as housing, cars and personal consumption from more productive alternatives.

Not every one accepts the point that a generous social security system can reduce aggregate savings, but Australia is certainly in need of greater savings effort and investment to deal with our massive foreign debt.  Increasing taxes to finance additional social welfare outlays would certainly involve a large risk with our future.

This submission leads to the conclusion that it is by no means clear that inequality in Australia would be reduced if further resources were devoted to direct social security outlays under present arrangements.  Present problem areas include the poverty traps, adverse financial incentives for saving, the efficient use of assets in the system and the very large tax burden already resulting from present outlays.  The higher that taxes and income test rates are, the greater the adverse incentives in the system.

Policy Implications for Various Groups

This submission can not cover all of the problems faced by the present social security and welfare systems.  But if it is agreed, as we believe it is, that addressing inequalities and concentrating welfare support on groups most in need should be given highest priority, the key question to be answered is whether increased social welfare outlays will assist the achievement of those objectives.

For the aged, the approach needed is to ensure that policies are directed towards encouraging the most efficient use of available assets to generate retirement incomes.  This requires addressing the incentives to over-invest in housing and/or dissipate wealth before retirement.  Changes in the present assets test and reducing the combined impact of taxation and the pensions income test are appropriate policy responses, not additional outlays.

Similarly continued participation in the work force for as long as possible should be encouraged, to cope with the impact of Australia's ageing population on the available labour supply in the future.  The United States has for example introduced measures to raise the retirement age in that country.  Yet no similar action has been taken in Australia even though the retirement age for females (at age 60) is five years younger than that for men despite the fact that women live up to eight years longer on average than men.

Sole parents are the group shown by research studies based on poverty lines to be most in need.  The recently introduced family allowance supplement may have changed these results considerably because of the major benefits offered under that package.  However, additional funding may not be the best solution to deal with the financial positions of sole parents.

The best solution is one that would discourage continued reliance on social security benefits, the adequacy of which will in any event be placed under increasing pressure by our ageing population and taxpayer hostility to tax increases.  Looking to the causes of sole parenthood suggests a better approach than increasing outlays.

The Hawke Government is now attempting to place part of the financial burden for supporting sole parents on the former spouse.  This will reduce financial pressures for irretrievable marriage break-up merely to obtain the sole parent pension.  But the new rules will have no impact whatsoever on incentives for marriage break-up, for example in the families of the unemployed where compulsory maintenance payments would not be sought under the new rules.

Separation can thus still generate additional income for an unemployed couple with children.  (This results from the higher rate of pension paid to a sole parent compared to the wife of an unemployment beneficiary).

Dependence on the state for support can also be reduced by retraining and providing incentives for part and full tune work.  But while the income test and the formulae for determining rents of subsidised public housing continue to apply, sole parents will continue to have little financial incentive to get ahead compared with remaining on the pension.

The preferred policy both for the community and the individual in the long run may accordingly be to provide less rather than more financial assistance to sole parents.  Concentrating assistance only on emergency situations or on cases where young children are involved and child care expenses are highest could provide a viable alternative to present arrangements.  The important message is that sole parents pension rules should recognise that the community can not afford to give continuing income support to individuals merely because they have a child.

Indeed the recent government action to deprive sole parents of their pension when their youngest child turns 16 (compared with the previous age 25 for student children) represents belated recognition of this point.

The above and similar suggestions may impose short run hardships for individuals which would need to be dealt with by special benefits and other short term action depending upon the extent of transitional problems.

One final word.  Generating job opportunities is the best means of reducing the demands on the social security safety net.  Making the social security system and its incentives contribute to the needed structural changes in investment and the economy would help encourage employment growth.  The most effective way of reducing inequality is to ensure that employment opportunities are maximised.

The Nature of Wealth

by Michael Porter

Michael Porter is Professor of Economics and Director
of the Centre of Policy Studies at Monash University.

''The prime element in the value of all property is the knowledge that its peaceful enjoyment will be publicly defended.''  Without this legal and public defence ''the value of your tall buildings would shrink to the price of the waterfront of old Carthage or corner-lots in ancient Babylon.''

- Calvin Coolidge as quoted in Paul Johnson, ''Modern
Times'', Harper and Row, NY, 1985, page 222.

Measuring Community Wealth

IN popular usage wealth is taken to be synonymous with assets and reflected in affluence, luxury, opulence, prosperity, abundance and command over money.  People are perceived as wealthy when they have large observable measures of capital.  Conversely, people associated with large observable assets are taken to be wealthy.

While these observations may often be instructive, statistical rankings of assets held do not tell us anything reliable about the relative income earning capacity of individuals.  People with significant observable holdings of assets, while possibly able to spend more in the short-term, are not necessarily able to command greater resources over the longer run than those whose wealth is embodied in non-observable forms.  And as we shall see, a correct economic definition of wealth makes it intrinsically non-observable.

To the economist wealth is a precise concept, at least in theory.  Following the writings of Irving Fisher we may define wealth as the capitalised value of expected future income streams -- where ideally these income streams include the financial and non-financial benefits accruing to an individual.  However, while market values of corporations are struck every day on the stock exchange, individuals are (since slavery) free of such valuations, and so there is no market reporting of human wealth.  What we do know is that wealth is not measured simply by adding up estimates of the worth of factories, buildings and so on, since these are merely devices for assisting in the production of income.

As a start, our efforts to compute wealth can focus on measures of cash income capitalised into a measure of wealth by discounting those expected future flows by some subjective discount rate.  The problem is that not merely do we not know the future, let alone how long people will live, we also have no obvious way of adding up dollars today with dollars next year or dollars at the time a person dies.  Thus, even if one uses a definition of wealth based on income flows, the discounting and time horizon issues make sure measurements difficult.

But, it is also not possible to offer any objective measure of individual wealth based on statistical records.  While we can record some specified account balances, such balances, once specified, become assets to avoid, particularly if wealth taxation is proposed, or may be expected to flow from the political process once such wealth measurements are published.  If we restrict ourselves to looking at assets in personal or group balance sheets, we miss many of the other components of wealth which determine spending power or command over resources -- the ultimate purpose of wealth.

Consider a person who is cash rich, who owns a house and a boat, but who for some medical or other reason has an incapacity to generate future income flows.  Such a person in reality is relatively poor in terms of future command over resources (because his future income flows are limited to returns from his investments), even though his measured financial assets may be large.  On the other hand, his neighbour may have many resources above the shoulders, if not below the ground or in the bank, such that he has ideas and knowledge which are likely to generate very considerable future income.  Such a person may be a millionaire or a billionaire in prospect, but could be totally immune from any accounting for wealth -- and would clearly avoid any taxation of observable wealth.  And were he taxed in the expectation of wealth, he may lose the desire to take the risks inherent in generating the wealth.  A tax on such ''wealth'' would, in effect, make sure it is never created!

Partly because of all these ambiguities economists have devised the term ''human capital'', to refer to the human dimension of wealth (popularised in the 1960s by Professor Gary Becker at the University of Chicago), with human capital being intended to summarise the income flows capitalised over their life.  ''Human capital'', so defined, is enhanced by investments in training and education, by experience on the job or elsewhere, by exposure to smart people and concepts.  Arguably the sum of these ''human capitals'' -- allowing for interactions -- is the national wealth, and it varies with our state of confidence and knowledge and is affected by our discounting of the future.

It is clear, for example, that for most people, and for most of their lives, their human capital is far greater than any financial or physical capital (such as a house) over which they may have command.  A major difference between human and physical (or financial) forms of capital is that, traditionally, it has been more difficult to borrow against actual or potential human capital, which many believe accounts for a degree of under-investment in human skills.

As an example of a ''human capital'' calculation, take the person who at age 20 earns an income of $20,000 but is expected to earn an income to age 70, with a growth rate of seven per cent per annum.  The total earnings will add to $8.7 million to the year 2038, with an implied asset value (at five per cent discount) of $1.6 million.

Indeed, for many people today the capitalised value of such an income stream would be in excess of $1 million.  Yet such a person would never be properly represented, at age 20, in a survey of income and wealth, whereas a 50 year old who has battled all her life, raised a family and faced sickness and other adversities, but happens to have a significant superannuation policy, for example, may be defined as being a wealthy person if she has something like $300,000-$400,000 in assets, including a house, superannuation and other assets, far less than the wealth of the 20 year-old son!  A wealth redistribution, necessarily based on observable assets, would threaten to penalise those who may simply not be fleet of foot in relocating their (modest) assets.

Measuring Community Wealth -- The Physical Capital Stock

A given set of factories which are otherwise identical may be worth nothing in India or Afghanistan, yet generate massive income streams in Japan, because of the ''human capital'' and the institutional environment in which they work.  Put in other terms, equipment working with a smart labour force and operating under competitive conditions with good management and an environment sympathetic to enterprise, may generate enormous incomes for workers and shareholders in Japan, but be an embarrassing source of rust in Afghanistan.

Any stock market which values these assets, through the ownership of a firm, would indicate great wealth in Japan and relative poverty in Afghanistan.  But if one wishes to generate income to remove poverty, the strategy is not to tinker with the ownership of observable capital stock or ''wealth'', but to foster the process whereby all can accumulate wealth by the most efficient and fairest means possible.  Relative wealth calculations will, of course, be fascinating, but they are capable of generating more policy mischief than almost any other attempt to statistically summarise society.  Some might be led to conclude on the basis of so-called wealth statistics that one country is intrinsically well off and the other poor on the basis of observed asset structures.  The real issue is the quality of management and incentives to create wealth.  What is poor in this Afghanistan situation is, of course, the quality of management and labour, and the institutional environment.  There is, by definition, no shortage of observable physical capital in this hypothetical example, yet such a point would be missing from any survey of income and wealth in Afghanistan.

Similarly, if we compute a ''high'' observable wealth in the form of pension funds, equities and other observable assets, there always exists a set of economic policies which can grind the value of such a measured capital stock to zero, and make retirement incomes worth very little.  A redistribution of wealth based on the resulting and miserable financial asset values, which left aside the management and incentive issues causing a collapse into banana republicanism, would be a distraction from the needed analysis of those policies capable of extracting the maximum value from the nation's physical and human assets.  Indeed, such a redistribution would likely reduce wealth as properly measured by reference to future income flows.

It follows that there is no point in making spurious ''wealth'' surveys.  Nor is there any point in comparing the results of such surveys across countries, given the possible, indeed likely, misinterpretations and resulting policies and their potential for perpetuating poverty.

Government Ownership of Capital

A characteristic of government ownership, documented in various studies (see the recent issue of Spending and Taxing II -- Taking Stock, edited by Freebairn, Porter and Walsh) is that the chains of command and patterns of control over government assets are rarely clear or predictable.  There is no single profit line guiding the management of state enterprises which command the state's capital stock, and thus there is no simple bench mark by which we can value performance.  Furthermore, narrow interest groups, most of whom are far from poor, have a capacity to capture for themselves many of the benefits which flow from state enterprises, and this means that any valuation of the capital stock in the hands of government is contingent on definitions of the beneficiaries.

There are many cases in which the prime items of government capital stock -- such as the factories of British Steel -- have been valued at zero or even negative sums, because of the obligation to take on a workforce which was out of all proportion to the labour needs of the enterprise, and which made the combination of capital and labour a losing proposition, for which no rational bids would be received.  There are many Australian government enterprises which, when bundled together with an inappropriate and excessive labour force, and subject to government policy controls, have a negative valuation, with the cost of what they provide in the way of goods and services being in excess of the price individuals are willing to pay.

Because government-owned enterprises have a unique capacity to price below cost, partly because of deficit funding through government, the fact that certain government enterprises have a negative valuation means that in any proper census of wealth they should not appear.  On the other hand, some government enterprises may be valued highly, not necessarily because of the physical capital value, nor because of the quality of management (which could be very high), but because they live under regulatory or monopolistic privilege granted by government, which has the effect of jacking up the prices they charge and thus increasing the capitalised value of the income stream.  Accordingly, where there are examples of highly valued government enterprises -- for example, Telecom in Australia and the UK -- it should not always be assumed that the valuation of these enterprises stems from the enterprise itself -- since the real source of wealth to some individuals may be monopolistic privilege allocated by government.  It may turn out that the advantages which flow from this high valuation of wealth are captured largely by unions on their feather beds, or by those consumers who are cross subsidised by the profitability of the enterprise.

An Ideal Measure of National Wealth

The potential wealth of Australia would be the sum of all individual wealth calculations, which would capitalise the potential income streams available to the respective individuals.  This potential measure of wealth would assume no unemployment and, for those who choose not to participate in the marketplace, would nevertheless capitalise their potential income streams which would be an understatement of the value of their preferred activities.  Such a conceptual measure would bear little or no relationship to the sum of physical and financial assets observable in Australia since such calculations are inherently backward looking and focus on only those items which happen to be measured.

Such ideal calculations (see below) would demonstrate quite dramatically the wealth consequences of policies which obstruct young people from gaining jobs, which prevent the acquisition of skills, and which accord privileged work status to some while excluding others owing to occupational licensing.  All these interferences in the marketplace have the effect of lowering wealth of individuals by hundreds of thousands of dollars, and of the nation by tens of billions of dollars.  Of course, it is quite infeasible accurately to compute such measures of wealth, given the difficulty of measuring potential income.  I would suggest that it is entirely likely that taxes on observable forms of wealth, even more than high marginal tax rates on income, would have the effect of suppressing the income streams, reducing the employment opportunities, frustrating the training and education of individuals, all with the effect of lowering our real national and individual wealth.

An ''Economic Rationalist'' Wealth Creation Package for Australia

In the table below we set out the likely wealth implications of certain economic reforms which would have the capacity to raise significantly economic growth in Australia.  Our methodology is to adjust the rate of growth of income, starting from average annual earnings in 1988 ($25,000), at differing rates according to the extent of economic reforms.  The overall income calculations are applied to 16 million Australians, 10 million of whom are assumed to be in the workforce.

We assume that the combined effect of policies to reduce regulatory distortions, to remove barriers to employment, to minimise tax distortions and to abolish tariff and other industrial protection measures, is to raise the growth rate by 1.5 per cent.  This fairly conservative assumption is based on general deregulation and privatisation enabling 0.5 per cent increase in the growth rate, liberalisation of labour markets, with shifts towards enterprise unions, productivity agreements and other work place oriented measures also contributing 0.5 per cent to the growth rate.  Lower marginal tax rates across-the-board are also conservatively assumed to add 0.25 per cent to the growth rate, as is generalised reduced protection of industry.

Starting from the basis of average earnings of $25,000 in 1988, a growth rate of, say, 2.5 per cent per annum would produce community wealth of $7,074 billion (in 1988 purchasing power) if future income streams are discounted at a real rate of five per cent.  Using the same real rate of discount the ''Wealth Creation Package'' would add $2,576 billion (in 1988 purchasing power) to community wealth, bringing it to $9,650 billion.  This wealth calculation for the nation can be individualised to generate a per worker increase of $257,600 in 1988 terms.

To see this most clearly, and to emphasise the role of discounting hi these calculations, the current average of annual earnings in Australia would, by the year 2038, add to $85,928 if the growth rate is 2.5 per cent but would be almost $177,667 at a growth rate of four per cent (all valued in 1988 purchasing power).  If we take a shorter time horizon, for example the year 2000, average annual earnings would be $40,000 at a four per cent growth rate as opposed to $33,600 at a 2.5 per cent growth rate.  The magic of higher growth rates is that they compound;  just as the evils of distortions and regulations combine and compound to sap initiative and distort possibilities for increasing the standard of living in our community.

It is, of course, difficult to put accurate numbers on the effects regulation, taxes and tariffs may have on economic growth.  And many will disagree as to the likely relative size of these effects.  But it should be noted that growth rates of around four per cent are achievable, and have indeed been exceeded in other countries where rational economic policies have been pursued.  And countries with Australia's spectacular endowments and opportunities should, we argue, achieve much higher growth rates.

In the context of the Bishops' inquiry into wealth, we suggest that the orientation needs to be towards those measures which are capable of generating higher incomes, which in turn will generate improved calculations of wealth.  The table below also demonstrates that those who would further regulate the Australian economy, could lower the growth rate by, say, one per cent, with an associated wealth effect of nearly $2,000 billion in 1988 dollars.

''Economic Rationalist'' Wealth Creation Projections, (courtesy of Irving Fisher & Co). Average annual earnings (1988 dollars), $25,000 Real discount rate 5.00% Real growth rate 0.5% 1.00% 1.5% 2.00% 2.50% 2.75% 3.00% 3.50% 4.00% Wealth in $ billions (1988 dollars) $4,960 $5,388 $5,875 $6,433 $7,074 $7,430 $7,812 $8,666 $9,650 Assumes workforce of 10 million Suggested effects of deregulation and lower taxes on wealth estimates. POLICY (starting from 4% ''Economic Rationalist'' rate of growth) Growth Effect Wealth Effect ($ billions) General regulation -0.50% $984 Wage regulation -0.50% $854 Taxes -0.25% $382 Tariffs -0.25% $356 Wealth Package 1.50% $2,576 billion Additional Wealth per member of the workforce $257,600

The Church, ''Social Justice'' and ''Rights''

by Rev. Dr. John Williams

The Rev. Dr. John William is a Uniting Church minister and author
of numerous articles on theological, economic and educational themes.

In 1984 the US National Conference of Catholic Bishops published the first draft of a pastoral letter on the US economy.  That draft generated controversy both in ecclesiastical and in academic circles.  Two years were spent refining the arguments proffered in the letter, taking into account some of the criticisms the first draft had received.  The fourth and final draft was published in November 1986:  Economic Justice for All:  Catholic Social Teaching and the US Economy. ⁽¹⁾

THIS final draft has likewise been subject to considerable comment, both laudatory and condemnatory, from numerous individuals and organisations, particularly from Catholic and other Christians enjoying expertise in academic disciplines relevant to the issues addressed in the pastoral. ⁽²⁾

These comments, both critical and supportive, illustrate the wide divergence between Christian economic perspectives.

The economist (and practising Lutheran) Paul Heyne ⁽³⁾ states that "the fact of such conflicting visions disturbs ... few of those theologians who continue to draft or endorse new church pronouncements on the economy."  It is profoundly to be desired that the Australian Catholic bishops prove an exception to what Heyne states, and observation suggests, is the norm.  The Church, and indeed the nation, are poorer for a lack of creative interchange between Christians holding radically diverse social and economic visions.

Significant also is the conviction of many committed believers in both the USA and Canada ⁽⁴⁾ that the vision of a "just" and "good" society they hold and defend, a vision usually described as "classical liberalism," either went unheard, or was grossly misunderstood and misrepresented by their bishops.  Such indifference they regard as unjust and, indeed, intellectually irresponsible.

For better or for worse, a "classical liberal" vision of the "just" and "good" society has enjoyed a virtual renaissance in many economic, historical, and philosophical circles over the past 15 years.  To ignore, to misrepresent, or lightly to label as "unchristian" such a vision invites the charge of injustice and exacerbates a distressing pastoral situation.

The Church and the nation would be enriched if in the course of their report the Australian bishops were:

• to draw attention to the diverse visions of the "just" society competing for the allegiance of believers and other people of good will;
• to acknowledge that the theological, philosophical, historical and economic differences informing these diverse visions are not easily resolved, let alone ranked in terms of "Christian acceptability";
• to encourage a more intense but less rancorous interchange between Christians who believe that faith demands that they take seriously the material needs of human beings, but differ in their visions as to what constitutes and how best to achieve a "just" social and economic order.

ON JUSTICE

Many social and economic statements by mainstream denominational and ecumenical bodies make extensive use of the term "justice" and its cognates, particularly the expressions "social", "economic" and "distributive" justice.

The US Catholic bishops in chapter two of their pastoral letter, "The (sic) Christian Vision of Economic Life," develop and defend a concept of "justice" allegedly derived from biblical materials, the writings of some scholastic philosophers, papal encyclicals, and, so some scholars have argued, a "lively awareness" of the analysis of "justice" proffered by the contemporary US philosopher John Rawls. ⁽⁵⁾

It is a shame that the bishops do not make greater use of the philosophical and theological tradition which, in a sense, is their birthright.

This tradition defines "distributive justice" as the specie of justice dealing with the distribution of common goods, having nothing whatsoever to do with the distribution of wealth or of income, let alone with such issues as wages, profits, and interest.  These issues are discussed with considerable sophistication by the schoolmen under the heading at commutative justice. ⁽⁶⁾  Yet instead of drawing upon this tradition, the bishops advance what Paul Heyne describes as a "hodgepodge of citations (from diverse sources) ... mixed with ringing assertions about dignity and justice which could only be questioned by someone who wanted to know exactly what they mean." ⁽⁷⁾  The outcome is a model of "distributive justice" far removed from that of the schoolmen and eeriely reminiscent of that defended by John Rawls and vigorously attacked by Rawls' Harvard colleague Robert Nozick in his justly famous volume Anarchy, State and Utopia. ⁽⁸⁾

It may be useful briefly to indicate their respective stances.

Rawls provides an end-pattern analysis of (distributive) justice.  A distribution of wealth or income is "just" to the extent that it complies with a predetermined, ideal distribution exhibiting particular characteristics.  Rawls argues that a distribution is "just" if it approximates to the distribution which derives from what he calls two basic "principles" of justice.  These principles in turn derive from an ingenious use of what in effect is the "starting point" of social contract theorists such as Hobbes, Locke and Rousseau.

What is significant, however, is that Rawls develops and defends the view that the "justice" or "injustice" of a distribution of wealth and income is determined by the congruence with or departure from a predetermined, ideal "pattern" of distribution. ⁽⁹⁾

Nozick, in addition to subjecting Rawls' position and, indeed, other "end-pattern" analyses of "distributive justice" to powerful criticisms, gives an "entitlement" (or what some philosophers have called a "procedural") analysis of "distributive justice".

The "justice" or otherwise of a given distribution of wealth or income is, on such an analysis, determined by reference to the behaviour which generates the distribution.  What matters is not any internal characteristic of a distribution of wealth or of income -- the distribution's "pattern" -- but how a person has acquired his or her holdings and income.  Nozick posits two foci:  "original acquisition" and subsequent exchanges of goods and services.  Specifically, if a person's original possessions and skills were "justly" acquired, and such exchanges as subsequently occurred between that person and his or her fellows were also "just" (minimally, not involving actual or threatened violence theft, or fraud) the resulting wealth or income distribution is "just".

A singer enjoys, let us say, an annual income of $1,000,000.  A magician, who practises even more diligently than does the singer and is equally devoted both to his "art" and to bringing pleasure to his audiences, endures an income of $5,000 per annum.  Is this distribution "just"?

An analysis of "distributive justice" in terms of an "end-pattern" -- a pattern stressing, say, "an absence of substantial inequalities" -- may well lead one to describe the distribution as "unjust".  The singer's income is, after all, two hundred times that of the magician.

An analysis of "distributive justice" in terms of "entitlements" or "procedures" would look not at the pattern of the distribution but at the events which led to the magician and the singer acquiring their respective holdings and incomes.  If a large number of people preferred to surrender substantial sums of money to enjoy the singer's performance rather than to retain that money or spend it in other ways, but few people similarly so chose in the case of the magician, no "injustice" is involved.  People have "justly" used what is "justly" theirs, surrendering what they value less to acquire and enjoy what they value more.  The magician may well deplore his fellow human beings' tastes and choices, but that is all.  The respective distributions, in no way involving actual or threatened violence, theft or fraud, are "just".

Nozick carefully distinguishes between "deserts" and "entitlements".  The recipient of inherited wealth may not, as is often pointed out, "deserve" that wealth.  Yet according to Nozick, he or she may well have "justly acquired" that wealth.  If the original holder of that wealth "justly" acquired it, it is owned by that person.  The verb "to own" signifies liberty to use that wealth, and to dispose of that wealth, as is chosen.

A further example may clarify the distinction.  A man enjoys two healthy kidneys.  His sister possesses but one failing kidney.  The logic of Rawls' argument seemingly leads one to conclude that, in the name of "distributive justice", the man should be forced to surrender one kidney -- assuming that his so surrendering has no significant effects for him or for "society".  He is no worse off and his sister is better off.

Nozick would insist that neither party "deserves" his or her respective situation.  Should the fortunate party surrender a kidney, make possible a transplant, and improve the situation of his sister, his action is one of "charity", not a dictate of "distributive justice".  In Jesus' metaphor, the man has gone "the second mile."  His behaviour is the result of a charitable compulsion no law could prescribe.

These summaries of Rawls' and Nozick's positions over-simplify two subtle and superbly-argued cases.  Yet at least they define two radically diverse analyses of "distributive justice" which any responsible discussion of this concept must involve.

SCHOLASTICISM AND DISTRIBUTIVE JUSTICE

It is frequently claimed that medieval scholasticism embraced an "end-pattern" analysis of distributive justice.  It is thus to be expected, so some critics of the Canadian and US bishops' statements have claimed, that the "procedural" analysis of "distributive justice" defended by Nozick and other classical liberals inevitably received little or no hearing.

Whether or not this assertion does "justice" to the bishops' deliberations can be debated.  What is not up for debate, however, is that many medieval schoolmen, when discussing issues today related to "distributive" or "economic" justice, were much closer to Nozick than they were to Rawls.  Questions about the distribution of wealth, income, wages, profits and interest were analysed in terms of commutative justice, not distributive justice.  This claim is defended at length in footnote ⁽¹⁰⁾.

SCRIPTURE AND DISTRIBUTIVE JUSTICE

The US bishops, in developing an "end-pattern" analysis of "economic" justice, further claim that such an analysis is demanded by the scriptures.  Sadly, their exegesis of scripture, like that of liberation theologians such as Gustavo Gutiérrez and Juan Luis Segundo, "political theologians" such as Jurgen Moltmann and Jean Baptist Metz, and "liberated evangelicals" such as Ronald Sider, leaves much to be desired.

If one isolates all biblical Hebrew and Greek words appropriately translated by "justice" and its cognates, three conclusions are inescapable.

First, the most frequent use of such terms relates to "individual virtue," a concept roughly approximating to Aristotle's and Aquinas' notion of "universal justice."  Noah is described as a "just man, a man of integrity among his contemporaries" (Genesis, 6:9b).  According to Ezekiel, the "just man" is law-abiding and honest, worships only the God of Israel, observes religiously-sanctioned proscriptions and taboos, and shares of his own [that is, "justly acquired"] possessions with the poor (Ezekiel 18:5ff).

Second, the biblical writers use concepts akin to Aristotle's analyses of "retributive" and "commutative" justice.  Courts must not be "partial to the poor nor over-awed by the great:  [Israelites] must pass judgement on [their] neighbour according to justice" (Leviticus, 19:15, cf. Exodus, 23:3).  Weights and measures used in person-to-person exchanges must be "just":  "Your legal verdicts, your measures -- length, weight and capacity -- must all be just.  Your scales and weights must be just, a just ephah and a just hin."  (Leviticus 19:35f).  This insistence is given very down-to-earth expression by the author of Deuteronomy, who bluntly states that the Israelites must not have "two kinds of weights in their bag;  one heavy and one light" (25:13).  The equality of all -- aliens and natives -- before the law finds repeated reference (cf, Leviticus 24:22 and Numbers 9:14).  The "shepherds" (rulers), "interpreters of the law," and the wealthy are again and again castigated because they conspire to pervert justice, creating one law for the politically and economically powerful and another law for the poor and the outcast.

Third, conspicuous by its absence, however, is any use of a single word appropriately translated by "justice" and its cognates referring to any "pattern" of wealth or income distribution.  No concept remotely akin to the "end-pattern" analysis of "distributive justice" as advocated by Aristotle in Book V of his Nichomachean Ethics or by John Rawls or even by the Catholic bishops of Canada and the USA can be found in scripture.

Rather, the biblical writers adopt a position remarkably akin to that of Nozick.  The "justice" or "injustice" of a distribution of wealth is related back to the behaviour giving birth to the distribution.  If that behaviour was in accord with general rules of just conduct equally applicable to all, the resulting distribution is "just".  If the "rights" of widows and orphans had been trampled upon by the powerful, and different rules applied to the wealthiest and the poorest, the distribution is "unjust".

Clearly, ancient Israel also embraced institutionalised means for assisting the poorest.  While -- contrary to the claims of some Christians attempting to derive an "end-pattern" analysis of distributive justice from the scriptures -- the "annual tithe" prescribed for Israelites was not primarily a "welfare" measure, a further tithe, exacted every third year, was, in part, used to assist the poorest.

[The annual tithe funded (a) a yearly national festival involving feasting by all (Deuteronomy 12:10-28;  14:22-27) and (b) the Levites (Numbers 18:24).  Farmers were required to let the poor "glean" crops or fruit remaining after harvesting (Leviticus 19:9-10;  Deuteronomy 24:19-21) -- a practice more akin to "workfare" than "welfare", as those terms are used today.

Loans to fellow Israelites were interest-free and were cancelled at the end of every seven years (Deuteronomy 15:1-2), but the criteria as to who qualified for such a loan were stringent, a poor person being defined as a person owning no more than one cloak (Exodus 22:26-27).  The much cited "law of the Jubilee" was not designed to alleviate poverty as such:  on this matter David Chilton, in a thoroughly unpleasant volume entitled Productive Christians in an Age of Guilt Manipulators ⁽¹¹⁾ corrects some very dubious exegesis.]

The primary problem, however, is that ancient Israel was a theocratic state, not a pluralist let alone "multi-cultural" society.  The Israelites were a "covenanted people" in a sense that Australians are not, and given a free society and pluralism, cannot be.  No clear distinction can be made between an ancient Israelite's moral, religious, and legal obligations.  Such a distinction must be made in a pluralist, non-theocratic society.  Unfortunately, the US Catholic bishops -- and, ironically, Christians of the so-called "New Religious Right" such as David Chilton -- fail seriously to consider this distinction.

JUSTICE AND THE PROBLEM OF KNOWLEDGE

What, however, is so unacceptable about an "end-pattern" analysis of distributive justice?

Many references cited under (2) and (9) involve arguments for the inadequacy of such an analysis.  One particular line of argument, however, merits statement.

Nicholas Rescher attempts in his carefully argued volume Distributive Justice ⁽¹²⁾ to defend an "end-pattern" analysis of distributive justice.  He realises, as do thoughtful defenders of such an analysis, that a pattern based upon "but one, solitary, homogeneous mode of claim production" is profoundly unjust.  A "just" pattern of wealth distribution must be related to a multitude of human characteristics:  "basic ... human equality, needs, sacrifices, achievements, efforts, productivity, contribution to the "common good" and a valuation of individuals' services in terms of their scarcity in the economic world of supply and demand."

In a small, closely-knit society -- a family, say, or a school-class -- it might be possible to "reward" individuals by reference to these characteristics.  Such, however, is not feasible in a large, complex, pluralist and changing society characterised by a division of labour and specialisation even Adam Smith could not have imagined.  The information necessary to calculate an individual's "just" reward is simply not accessible.

One can make the essential point another way.  Children are prone to complain of two, seemingly contradictory, sorts of "unfairness" or "injustice" allegedly exhibited by their parents or teachers.  It may be claimed that the parent has a "favourite" or that the teacher has a "pet".  What is given to or tolerated in one child is not given to or tolerated in another.  This discriminatory behaviour is decried as "unjust".  The same rules should apply to all.

Yet, precisely the opposite behaviour is condemned as unfair or as unjust!  It is "unfair" that Joan, whose father is a drunkard and whose mother works as a waitress from 1:00 pm until 9:00 pm, should be penalised for not investing as much time in her homework as does William.  "Justice" demands that individual circumstances are taken into consideration.

Since the days of Aristotle, these diverse uses have been reconciled by the formula, "Treat equals equally, unequals unequally."  Yet when contemplating a large, complex, and rapidly changing society the formula is useless.

Given such a society, the first sense of "justice" indicated can be realised.  Individuals can all be subject to known rules of conduct equally applicable to all.

In a large, complex, rapidly changing, pluralist society, there is no counterpart to a parent or teacher who knows the peculiar situation of individuals.  Indeed, given human finitude, no such counterpart is possible.  Transferring "justice" as treatment appropriate to an individual's unique situation from the small social group to "society as a whole" involves a category mistake.

The best "justice" available to fallible, finite human beings is the justice of known general rules, equally applicable to all and impartially applied to all.  A distribution is "just" if it is generated by individuals' "just" behaviour, minimally, behaviour not involving actual or threatened violence, theft or fraud.

Friedrich A. Hayek has eloquently defended this understanding of "justice". ⁽¹³⁾  His detailed arguments deserve serious consideration, but unfortunately cannot be easily summarised.  What is vital, however, is his stress on the purely general nature of laws.  "Just" laws involve no references to particular individuals or groups, are "impartial" between agents, and are "morally neutral" in the sense that they neither prescribe nor proscribe any non-coercive vision of the "good life". ⁽¹⁴⁾

It is important to stress that procedural justice is a necessary, albeit not sufficient, condition for the emergence of an economic system co-ordinated by market-determined, changing relative money prices.  Such "encode" in accessible form information unavailable to centralised, socialist "economic planners" -- information about diverse ordinal rankings of wants, skills embodied in and diffused among millions of people, rapidly changing technologies, and the ever-altering relative scarcities of raw materials.  In the absence of such information it is impossible for a community to know what is to be produced in what quantities and by what means.  Scarce resources are misallocated, making a mockery of any notion of responsible stewardship.  Put positively, economic activities co-ordinated by market-determined, changing relative money prices enable individuals to act in ways which benefit innumerable people they do not and cannot know:  they can "care for" people they do not and cannot in a personal sense "care about."  A rise in the money price of corn relative to wheat "tells" the farmer how to use resources in ways ultimately dictated by consumers. ⁽¹⁵⁾

Studying the writings of Western "free market" economists may seem a harsh penance.  A perusal of the Soviet economist N. Shmelyou's article "Advance and Debts" which appeared in the June 1987 issue of the Soviet economic and literary journal Novri Mir might prove less onerous.  The case for reliance upon freer markets and the distribution of wealth and of income effected by procedural as against "end-pattern" analyses of distributive justice is today finding cogent expression in the writings of several economists from the USSR and mainland China. ⁽¹⁶⁾

THE "GENERAL" NATURE OF LAW

There remains, however, something intuitively attractive, at least to men and women of good will, about a law which discriminates between the richest and the poorest, coercively transferring wealth from the former to the latter.

Yet such a law, identifying and discriminating between different sub-sets of a community, is, for the classical liberal, profoundly "unjust".  If discrimination is permitted, political considerations will determine who are the beneficiaries and who are the victims of such discrimination.  What, in principle, precludes laws which transfer wealth from the elderly to the young, from the lower-middle class to the upper-middle class, from Australians of Asian descent to Australians of Anglo-Saxon descent?

The problem is simple.  Given the legitimacy of laws transferring wealth from one sub-set of society to another, politicians, anxious to promote their own utility, can transfer wealth from people who do not know what they are paying to special interest groups knowing precisely what they are obtaining.  The "information-rich" benefit and the "information-poor" suffer.  The name of the political game becomes one of identifying, even creating, and advantaging sufficient special interest groups to secure election to office.

The "law of the political jungle" reasserts itself.  The world of class and caste and legally entrenched privilege against which the classical liberals of yesteryear fought re-emerges.  "Justice" removes her blindfold and peeks!  "Tell me who you are, and then I shall tell you your rights."  Inexorably, the politically strongest reach the government trough first;  the politically weakest are left with token scraps.  A class war between net tax consumers and net tax payers is generated.  The "welfare state", in which people own their justly acquired wealth and incomes but pay a share to government for common expenses and a "safety net" system of welfare, rapidly degenerates into the "redistributionist state", wealth initially secured and created by individuals being perceived as somehow belonging to all, governments deciding what income and what wealth an individual may enjoy.  The door to tyranny is opened.

In a very real sense, classical liberals take the doctrine of the fall seriously.  They seek to specify structures and institutions which minimise the evil the "worst" people could do, assuming that these "worst" people were to enjoy political and economic power.  Lord Acton made the point succinctly:  "The problem is not that a given class is not fit to govern.  No class is fit to govern."

No sub-set of the community can be entrusted with potentially unlimited power.  Not Plato's guardians.  Not an elite privy to Rousseau's "general will."  Not the 19th century "high" or "radical" Tory aristocrats.  Not Marx's class conscious workers and liberated intellectuals.  Not Nazism's hierarchy of fuehrers.  Not the majority of unrestrained democracy.  Not "born again" Christians.

But how to curb power?  One vital restraint is an insistence that rule must be by laws classically defined:  Known general principles of just conduct equally applicable to all in an unknown number of future instances.

HISTORIANS AND CLASSICAL LIBERALISM

Oddly, the case for an unfettered market economy, and thus, at least by implication, for a procedural analysis of justice, is being made today not only by numerous economists but by some very hard-nosed historians, including not a few disillusioned ex-Marxists.

Two economic historians recently wrote as follows:  "If we take the long view of human history and judge the economic lives of our ancestors by modern standards, it is a story of almost unrelieved wretchedness.  The typical human society has given only a small number of people a humane existence, while the great majority have lived in abysmal squalor.  We are led to forget the dominating misery of other times in part by the grace of literature, poetry, romance and legend, which celebrated those who lived well and forget those who lived in the silence of poverty.  The eras of misery have been mythologised and may even be remembered as golden ages of pastoral simplicity.  They were not." ⁽¹⁷⁾

The simple truth is that with the slow evolution of private property rights, the development of rule by general laws equally applicable to all and the procedural analysis of "distributive justice" such rule involves, the free market economy was born.  The economic lot of humanity was transformed.  Here the work of Fernand Braudel is vital. ⁽¹⁸⁾  So is Jean Baechler's. ⁽¹⁹⁾  Helpful also is Gertrude Himmelfarb's The Idea of Poverty:  England in the Early Industrial Age. ⁽²⁰⁾  Such works must be heeded.

Ironically, with the free market the "problem" of poverty came into existence.  For most of human history poverty and destitution were simply realities to be accepted, not problems to be solved.  Water flows downhill.  The grass is green.  The sun rises in the morning.  The life of the vast majority of human beings is a ceaseless and often futile struggle for bare survival.  Facts -- or so it was thought.  The free market, where and when it has been allowed to operate, has made material abundance the norm, departures from which puzzle and perplex.

It is, surely, anything but clear that, in the name of a philosophical and biblically suspect concept of "distributive justice," the Church should ignore the material abundance even a fettered free market makes possible.

Consider a simple case study.  Tanzania once exported maise.  In the name of "Christian socialism" a good, kind, and compassionate ruler, Julius Nyerere, collectivised agriculture.  Within 15 years, Tanzania was reduced to dependence on foreign aid for the most basic of foodstuffs.  In fact, Tanzania received, during the years Nyerere held office, more foreign aid per capita than did any other Third World nation.  By 1975 almost half the more than 300 industries Nyerere nationalised were bankrupt.  Productive output per capita dropped some 50 per cent.  The bureaucracy grew at the rate of 14 per cent per annum, doubling in less than a decade.  Nyerere said "No!" to transnational corporations in general and to "international agribusiness" in particular, the old alibis thus failing.  A once-prosperous nation was almost reduced to destitution.  And all in the name of an end-pattern analysis of "distributive justice."

The story is not, alas, sui generis.  Sri Lanka exhibited the same appalling decline in ordinary people's standard of living, although abandonment of socialist principles in 1977 by J.R. Jayawadene's government was rapidly followed by a dramatic increase in gross domestic product.  Numerous similar cases are cited by the Swedish economist Sven Rydenfelt in his recent volume, A Pattern for Failure. ⁽²¹⁾  Commitment to an "end-pattern" analysis of distributive justice has frequently proved a commitment to equality in destitution.

RIGHTS

In the course of their pastoral letter, the US bishops refer frequently to "human rights."  They clearly value such traditional "rights" as the rights to free speech and freedom of worship.  They also refer to "economic rights," and urge that such "rights" be added to those enumerated in the US Bill of Rights.  "First among these are the rights to life, food, clothing, shelter, rest, medical care, and basic education."

"Economic rights," the bishops acknowledge, "... call for a mode of implementation different from that required to secure civil and political rights.  Freedom of worship and of speech imply immunity from interference on the part of both other people and the government.  The rights to education, employment, and social security, however ... call for positive action by individuals and society at large."

The distinction made by the bishops is vital.

Substantial disagreements between philosophers attend the very notion of "human rights," as is shown by a perusal of the writings of the sub-set of contemporary philosophers defending the reality of such "rights". ⁽²²⁾  Yet some points of agreement obtain.

First, a "human right" is a right existing independently of government which government "should" recognise.  Second, a "human right" does not derive from contracts made between consenting and informed individuals, such as the "right" of an electrician to an agreed upon payment and the "right" of his client to efficiently installed lighting.  Third, "human rights" allegedly are grounded in "human nature," deriving from a "shared humanity," a "universal human essence."

Traditionally, "human rights" have been understood negatively.  A person's right to free speech signifies merely that a person is not obligated to refrain from speaking.  Other people are obligated not to force that person to refrain from speaking.  They are not, however, obligated to provide that person with a rostrum and audience.  An individual's "right to property" signifies simply that he or she is not obligated to refrain from peaceful behaviour the object of which is the acquisition of property (say, a wrist-watch) and is not obligated to surrender property so acquired.  Other people are obligated not to force him or her to refrain from peaceful property-seeking behaviour or to surrender his or her property -- the wrist-watch.  They are not, however, obligated to provide that watch!  Traditionally understood, "human rights" demand, as the bishops put it, simply "immunity from interference."

The bishops' concept of "economic rights" does not, as they freely acknowledge, fit these criteria.  They do not, however, seem to realise how difficult it is rationally to defend what "economic rights" imply, particularly the conclusion that a sub-set of the community is obligated to surrender, and perhaps even to produce, goods and services expropriated and transferred to another sub-set of the community.

Consider the difference between "natural rights" as traditionally defined and "economic rights."

First.  Joe Citizen, it is claimed, has a "natural right" to the goods and services requisite for a secure and moderately comfortable existence in good health.  His fellow citizens are thus obligated not simply to refrain from interfering with Joe's self-initiated, purposeful behaviour but are positively obligated to provide the goods and services his alleged "right" demands.  The alleged right is derived not from what Joe Citizen and his fellows have in common, but from what they do not have in common, namely, wealth above a specified level.

(In fact, that statement of the situation presupposes the benign stance of the bishops.  As argued under the heading "The 'general' nature of law", the identity of the beneficiaries and the victims of such "rights" is of necessity determined politically.)

Second.  Traditionally, "human rights" are declared to be universal, deriving from the common nature of all people at all times.  It seems at least odd to suggest that a cave man somehow enjoyed, as do his descendants, a "right" or a "natural entitlement" to a good education.

Third.  By a highly improbable but logically possible shared act of will, all violations of all the world's inhabitants' "natural rights" could be ended.  All the inhabitants of earth might agree never to initiate invasive or coercive actions against their fellow.  Obviously, no such act of will could immediately bring to an end all violations of people's alleged "economic rights."  A massive increase in wealth would be required.

Fourth.  Traditional human rights do not generate zero or negative sum games.  Joe Citizen's not being assaulted in no way implies that someone else has been or will be assaulted.  "Economic rights" do generate zero or negative sum games.  If Joe Citizen is somehow "entitled" to goods he in no way created, someone somewhere has either to surrender those goods or engage in involuntary servitude to produce them.

The underlying logic of the situation can be simply described.  Any "right" -- assuming that the expression "I have a right to X" signifies something more than "I want X!" -- implies a correlative obligation.  My right not to be assaulted or robbed obligates other people to leave me and my justly acquired goods alone.  My right as party to a contract with an electrician to competently installed lighting obligates me to pay the electrician the sum of money the contract specified.  An "economic right" to employment obligates someone somewhere to provide a job and pay a wage.

The reality of contracted obligations is hardly debatable.  More difficult, but still possible, is the development of a moral case for the basic "natural right" to non-interference.  (As a first move, one can note that the onus of proof would seem to lie with people claiming that a sub-set of human beings, defined by breeding, race, intelligence, income, religious commitment or whatever, are somehow entitled coercively to curb the peaceful, self-initiated behaviour of their fellows.)

But how does one even begin to defend the claim that one set of human beings is obligated to surrender, or by involuntary servitude to produce, goods to which another set of human beings allegedly is "naturally" entitled?  Gerwich and Finnis have brilliantly attempted to articulate such a defence, but their critics have not found it difficult to demolish that aspect of their respective arguments. ⁽²³⁾

Christians and other men and women of good will may regard a question about the "obligation" of the talented and wealthy to provide goods and services for the simple and poor as in itself evidence of moral depravity.  Is it not morally self-evident that the Good Samaritan who gave of his time and wealth to assist a hurting person correctly perceived a moral obligation culpably ignored by those who passed by a suffering human being?  Is it not morally self-evident that "the just [person] ... gives of his [or her] own bread to the hungry ...?"  (Ezekiel 18:7).

Yet, as Professor Geoffrey Brennan has argued, ⁽²⁴⁾ while all "rights" imply correlative obligations, not all obligations imply correlative rights.  The obligations of Christian charity go beyond any "right" of a person to agape -- to Christian love.  This is precisely what Jesus meant when he advocated going the "second mile" (Matthew 5:41) -- that is, going beyond what Roman law did command or any law could command.

"Yet surely Christians are obligated to do what they can to ameliorate destitution, and to identify, and if able, to destroy, the causes of destitution!"

Believers maybe are so obligated.  Yet that obligation does not imply a "natural right" of those upon whose behalf Christians make their sacrifices and efforts.  Maybe people who, unlike the Good Samaritan, pass by the wounded traveller, are subject to moral censure.  Yet to affirm that is not to posit some mysterious "right," enforceable by law, of the wounded traveller to his fellows' solicitude.

Aquinas insisted that not all moral precept could or indeed should be backed by positive laws.  The late Hispanic scholastics were utterly clear on two issues.  First, since wealth acquired without "fraud, lies or extortion" justly and rightly belongs to those acquiring it, any alleged positive right of the needy to a share of this wealth is precluded.  Second, what is not precluded is the moral obligation of those enjoying such wealth to exercise charity.

The irony is that classical liberals perceive many substantial incomes today enjoyed and much wealth today accrued as unjustly enjoyed and accrued.  Most governmental interventions in the market benefit the powerful and disadvantage the "marginalised."  Tariffs.  Quotas.  Price support schemes.  Agricultural subsidies.  Minimum wage laws.  Occupational licensing laws.  Egg, wool, and wheat boards.  An objective analysis of the "wealth distribution" influenced by such coercive governmental mechanisms has led many self-styled "socialists" to embrace the so-called "capture theory" of regulation defended by the Nobel Prize-winning economist, George J. Stigler. ⁽²⁶⁾  Hence the programmes of de-regulation being implemented by "socialist" governments in Australia, New Zealand and elsewhere.

Yet further governmental intervention is not warranted.  A greater reliance upon the primary source of injustice to remedy injustice is absurd.  Inexorably, the growth of government leads to the emergence of the corporate state, reminiscent of the mercantilist economy against which Adam Smith and his successors so valiantly fought and which 20th century fascists lauded.

Yet a real problem exists.  Traditional Catholic social teaching from the encyclical Rerum Novarum (1891) until Quadragesimo Anno (1931) has been critical of classical liberalism.  A compelling case can be made, however, for asserting that this opposition was largely caused by the bitter anti-clericalism of such French classical liberals as Charles Comte and Charles Dunoyer.  A no less compelling case exists for noting that papal antagonism to a free market economy largely rested upon a failure extending from Leo XII to Pius XI to distinguish between laissez-faire capitalism and state capitalism. ⁽²⁷⁾

CONCLUSION

Urging the Catholic bishops of Australia to explore abstract conceptual distinctions about the nature of "justice" and of "rights" may seem almost blasphemous.  Poverty at home and abroad is an all too obvious reality.

Yet Jesus' parable of the "Judgement of the Nations" is terrifying in its implications.  One such implication is that those wishing to feed the hungry, clothe the naked, and shelter the destitute, may not, by a sin of intellectual omission, opt and work for "solutions" which in truth exacerbate the problem.  Dove-like gentleness must be accompanied by serpentine wisdom.

Scripture demands that the Church listen to the victims of poverty and oppression.  They, and they alone, truly know their pain and uniquely can witness to their pain.  Yet it does not follow that such people can best identify the causes of, and prescribe the remedy for, their hurting.  Taking "this world" seriously demands taking "this-worldly" disciplines seriously.  The doctor who tells a person in pain that his or her pain is not real is a fool.  The hurting know their hurt.  Yet academic expertise has a place in identifying the causes of and cures for that hurting.

The Catholic Church enjoys an awesome heritage stressing the importance of conceptual clarity and subtle distinctions.  One can but hope and pray that the Australian bishops, in the spirit of that heritage, will listen to and learn from economists, economic historians and philosophers whose Christian commitment and academic expertise lead them to defend a socio-economic stance today honoured in many academic circles, but all too often caricatured and summarily dismissed by the Church.

Hence the three pleas noted at the beginning of this submission.

• Draw attention to and clarify the nature of the significant visions of the "just" society today competing for the allegiance of Christians and other people of good will.
• Make clear to your flock, and straying Protestant and self-styled humanist sheep, the economic, historical, philosophic and theological arguments informing these diverse visions, and concede that these arguments are not easily resolved.
• Encourage and initiate a more intense but less rancorous discussion between Christians who agree that the doctrine of creation, and the reality of the Word becoming flesh, imply a commitment to take this world, and the material needs of humanity, seriously, but who honestly disagree as to how such a commitment is to be expressed.

One more plea.  A brilliant young US economist who takes both his discipline and his Christian commitment seriously, has stated, "I do not know what to do.  The economics of my Church's bishops is to serious economics as the "creation science" of fundamentalist protestants is to serious biology.  I'm hurting."  His "hurting" and that of other like-minded economists certainly takes a different form from that of the poor and oppressed.  It must not, however, cavalierly be dismissed.

The Anglican Archbishop William Temple once declared that "socialism is the economic realisation of the Gospel."  Many contemporary Christians echo that declaration.  Christians embracing classical liberalism make no such claim.  They argue merely that classical liberalism is congruent with the gospel.

Whether or not the Catholic bishops of Australia are convinced by the economic, historical, and philosophical considerations that have led many Christians to embrace classical liberalism is not important.  What is important is that their case be at least considered and their integrity respected.

---

FOOTNOTES

1.  The complete text of the letter is available in Gannon, T.M., (ed), The Catholic Challenge to the US Economy (New York:  Macmillan, 1987).

2.  For example, Gannon, T.M., (ed) ibid;  Rasmussen, D. and Sterba, J., The Catholic Bishops and the Economy:  A Debate (New Brunswick:  Transaction Books, 1987);  Block, W., The US Bishops and their Critics:  An Economic and Ethical Perspective, (Vancouver:  the Fraser Institute, 1986);  Freeman, R.A., Does America Neglect Its Poor? (Stanford:  Hoover Institution, 1987);  Toward the Future:  Catholic Social Thought and the US Economy -- A Lay Letter (Lay Commission on Catholic Social Teaching and the US Economy, 1984);  Royal, R., Challenge and Response:  Critiques of the Catholic Bishops Draft Letter on the US Economy, (Washington DC, Ethics and Public Policy Centre, 1985);  Heyne, P., Christianity and "the Economy", (This World, Winter, 1988), pp. 26-39;  Pavlischek, K.J., The Ethics and Economics of "Workplace Democracy":  A Response to the Catholic Bishops (This World, Spring 1988) pp. 46-58;  The Catholic Bishops' Pastoral and the American Economy:  A Symposium (This World, Winter 1985) pp. 9-117.

3.  Heyne, P., ibid, p. 26.

4.  Ethical Reflections on the Economic Crisis (Episcopal Commission for Social Affairs of the Canadian Conference of Catholic Bishops:  5 January 1983).  For criticisms of this statement see, Economics and the Canadian Bishops:  A Symposium (This World, Spring/Summer 1983) pp. 122-145;  Block W., On Economics and the Canadian Bishops (Vancouver:  The Fraser Institute, 1983.)

5.  Rawls, J., A Theory of Justice (Cambridge:  Harvard University Press, 1971).

6.  Obviously the writings of Aquinas here are crucial.  Yet the economically sophisticated writings of Saint Bernardino of Siena, Saint Antonino of Florence, Joannis Gerson, Conradus Summenhart, and Sylvestre de Priero also merit close study.  The better known works of Cajetan (Cardinal Tomas de Vio) represent the bridge between these Scholastics and their later Hispanic followers.

7.  Heyne, P., op cit, p. 27.

8.  Nozick, R., Anarchy, State and Utopia (New York:  Basic Books, 1974).

9.  It may be objected that this description of Rawls' position overly simplifies a subtle and sophisticated case.  One problem, however, facing both a defender and critic of Rawls is that his position is remarkably opaque.

10.  Raymond de Roover, perhaps the most knowledgeable authority in his day on the subject of medieval scholastic economics, reached a different conclusion.  Yet de Roover was in error.  He ascribed the term "social justice" to the scholastics, even though no expression they used can be so translated.  He asserted that the schoolmen utilised the concept of "distributive justice" in their discussions of the distribution of wealth and of income, of wages (stipendium), of profits (lucrum) and of interest (usaris).  They did not.  Such economic concepts they analysed under the heading of "commutative justice" -- that is, the fairness or otherwise of voluntary exchanges between consenting and informed adults.  See de Roover, R,, "Monopoly Theory Prior to Adam Smith:  A Revision" (Quarterly Journal of Economics, November 1951) p. 495.

Aquinas insists that "distributive justice" relates only to "common goods" and, in democracy, is effected "according to liberty" [Summa Theologica, Latin text and English translation (London:  Blackfriars, 1975), II-II, qu. 61, art. 1.]  The distribution of wealth or of income typically comes under the heading of commutative, not distributive, justice.  Distributive justice relates merely to "common goods" -- and, be it noted, Aquinas and his late Hispanic successors did not primarily mean by that term "state-owned" goods.  Indeed, the late Hispanic scholastics anticipated several arguments against the economic wisdom of "state-owned" goods proffered by so fervent a defender of the free market economy as Rothbard, M.N., Man, Economy and State (Los Angeles:  Nash, 1962), pp. 883-889.  Usually by "common goods" the scholastics referred to goods owned by a family or a voluntary association.

By "commutative justice" Aquinas and his successors signify exchanges "freely taking place between two persons" (Aquinas, op cit, II-II, qu. 61, art. 3).  Since profits fall under the heading of commutative justice, such profits are "just" when they are the outcome of buying and selling at "just prices," these prices being those realised when exchanges are effected between buyers and sellers acting voluntarily -- id est. realised in the absence of coercion, fraud or monopoly.  Duns Scotus attempted to modify this free-market stance, arguing that although manufacturers and tradesmen might "justly" acquire profits, the "good prince" -- government -- should coercively act to correct any "unjust" profit (Cuestiones sutilisima sobre las Sentencias (Antwerp:  1620), p. 509.  Mercilessly, however, Scotus' successors employed powerful arguments against this opening for governmental intervention, insisting that the "just" price is and can only be determined by uncoerced market exchanges of goods and services.

Even the "Dries" of Australian politics might well gag at the conclusions the late scholastic philosophers drew from their careful uses of words translated by the English word "justice" and its cognates.

According to Domingo de Soto, "every individual has the right to transfer his property through gambling."  The gambler's profits derive from commutative justice -- voluntary contract.  The gambler's "profits" and resultant wealth are thus "justly" derived.  "Do ut des meaning:  I risk my wealth so that you in turn, will chance yours ... An economic action should not be condemned because its results depend on good fortune (and only known to God ...)  [M]any licit businessmen are trusted to the uncertainties of fortune" (cited by Chafuen, A.A., An Inquiry into the Medieval Doctrine of the Just Price, Ph.D. Thesis, (Los Angeles;  International College, 1984).

Wage determination, for the late scholastics, is also a matter of commutative justice.  After reading some of their writings on this subject, one finds oneself regarding the proceedings of the inaugural meeting of the H.R. Nicholls Society 28 as extremely restrained.

Discussions of this vexed question are usually found in the medieval schoolmen's discussions of "rent" (lacotiane).  Luis de Molina argues that "[in] addition to renting his belongings and the things someone gave him to rent, one can also hire himself out ..." (De Iustitia, Disp. 486, col. 1064).  The "just" wage is typically equated with the "just" price -- that is, the wage established between consenting parties.  Aquinas argued that wages are the natural remuneration for labour "almost as if it were the price of same" (Quasi quoddam pretium ipsius, Summa Theologica, I-II, qu. 114, art. 5, 4 resp).  De Molina insisted that relating a "just wage" to a worker's "needs" involved injustice:  "[A wage is not] unjust ... even though the servant may barely support himself and live a miserable life with this wage ... [The employer] is obligated to pay only the just wage for his services ... not what is sufficient for his sustenance and much less for the maintenance of his children and family" (De Iustica et lure, col. 1147).

Domingo de Soto tersely states that an employee receiving a wage insufficient for his and his family's well-being has one remedy at hand:  Et ideo si non vis illo pretio servire, abi ("If you do not want to serve for that salary, leave!" (De Iustitia et lure, book V, qu. III, art. 3, fol. 150.)

It is little short of tragic that the Catholic bishops of Canada and the USA seemingly have, like Esau of old, bartered away their scholastic birthright.  Keynesian bread and Rawlsian lentils are a sorry substitute for an awesome and insightful tradition.

11.  Chilton, D., Productive Christians in an Age of Guilt Manipulators (Tyler:  Institute for Christian Economics, 1985).

12.  Rescher, N., Distributive Justice, (New York:  Bobbs-Merril, 1966).

13.  Hayek, F.A., Law, Legislation and Liberty, volume two, The Mirage of Social Justice (Chicago:  Chicago University Press, 1976).  Cf. Gray, J., Hayek on Liberty (Oxford:  Basil Blackwell, 1984);  Butler, E., Hayek:  His Contribution to the Political and Economic Thought of Our Time (London:  Temple Smith, 1983);  Walker, G., The Ethics of F.A. Hayek (Lanham:  University Press of America, 1986).  Cf. Dietze, G., Two Concepts of the Rule of Law (Indianapolis:  Liberty press, 1973);  Leoni, B., Freedom and the Law (Los Angeles, Nash Publishing, 1972);  Coleman, J. and Paul, E.F., Philosophy and Law (eds) (Oxford:  Basil Blackwell, 1987).

14.  Gray, J., "F.A. Hayek and the Rebirth of Classical Liberalism" (Literature of Liberty, Winter 1982), pp.  52f.

15.  Peter Rutland, a self-styled socialist, argues that only a "Hayekian" free market "socialises" information:  see The Myth of the Plan (La Salle:  pen Court, 1985).  Cf. Lavoie, National Economic Planning:  What is Left? (New York:  Harper and Row, 1985).

16.  Xu, D., et al, (eds) China's Search for Economic Growth (Beijing:  New World Press, 1982).

17.  Rosenberg, N. and Birdzell, L,, How the West Grew Rich:  The Economic Transformation of the Industrial World (New York:  Basic Books, 1986).

18.  Braudel, F., Civilisation and Capitalism:  15-18th Century, three volumes, trans Sian Reynolds (New York:  Harper and Row, 1984).

19.  Baechler, J., The Origins of Capitalism, trans, B. Cooper, (Oxford:  Basil Blackwell, 1975).

20.  Himmelfarb, G., The Idea of Poverty:  England in the Early Industrial Age (New York:  Random House, 1985).

21.  Rydenfelt, S., A Pattern for Failure (New York:  Harcourt Brace Jovanovich, 1984).

22.  Gerwirth, A., Reason and Morality (Chicago:  University of Chicago Press, 1981);  Nozick, R, Anarchy, State and Utopia (Oxford:  Basil Blackwell, 1974);  Veatch, Henry R., Human Rights:  Fact or Fancy? (Baton Rouge:  Louisiana State University Press, 1986);  Finnis, J., Natural Law and Natural Rights (Oxford:  Clarendon Press, 1980);  Thompson, Judith J., Human Rights:  Restitution and Risk (Cambridge:  Harvard University Press, 1986).

23.  See, for example, Regis, H., Gewirth's Ethical Rationalism:  Critical Essays (Chicago:  University of Chicago Press, 1984);  Paul, F., Miller F., and Paul, J., (eds), Human Rights (Oxford:  Basil Mitchel, 1984).

24.  Brennan, G., The Christian and the State, (St Leonards:  Centre for Independent Studies, 1983).

25.  Leube, K.R., and Moore, T.G., The Essence of Stigler (Standford:  Standford University Press, 1986).

26.  Sadowsky, J., Classical Social Doctrine in the Roman Catholic Church, (Religion, Economics and Social Thought:  Proceedings of an International Symposium, ed. W. Block and I. Hexham (Vancouver:  The Fraser Institute, 1986) pp. 3-22;  Novak, M., Freedom with Justice:  Catholic Social Thought and Liberal Institutions (New York:  Harper and Row, 1984).

27.  Arbitration in Contempt:  Proceedings of the H.R. Nicholls Society (Melbourne:  The H.R. Nicholls Society, 1986).