I. INTRODUCTION

Only within the past few years has the dominant business opinion m the United States begun to admit that economics is subject to ethics. The majority of American business men acknowledged, indeed, that cheating and deception were morally wrong, but did not pass the same judgment upon low wages, exorbitant prices or monopolistic extortion. The latter practices they regarded as exempt from the precepts of morality. 

This extraordinary attitude was due to three principal factors: the teaching of the economists, the attitude of the most influential Protestant churches and the inactivity of legislators. During the greater part of the nineteenth century the orthodox economists taught, either explicitly or implicitly, that every free contract was also a fair contract. Hence market wages, no matter how low, and market prices, no matter how high, were always in accord with justice. The three greatest Protestant groups, namely, the Lutheran, the Anglicans and the various branches of Calvinism, had for two centuries neglected to apply the moral law to industrial relations. The official leaders of these groups looked upon buying and selling, hiring and discharging, borrowing and lending as outside the proper scope of their teaching and preaching. They held economics to be as remote from their proper province as chemistry or physics. The same attitude was implicit in the failure of legislators to restrain the immoral excesses of individualism and competition. Under these conditions a business ethics easily developed and became dominant which acknowledged no subjection to the ethics of Christianity.

A formal defense of the proposition that economic activities have an ethical aspect is, happily, no longer necessary. Economic transactions are a part of human conduct and all of human conduct is either morally right or morally wrong. This is the verdict of natural morality and natural reason. Revealed religion teaches the same principle. Faith alone is not sufficient for salvation. We save our souls by doing as well as by believing, by conduct as well as by faith. As Pope Plus XI expresses it, social and economic questions fall under the authority of the Church “in so far as they refer to moral issues.” Since the beginning of the present century all the important Protestant and Jewish denominations have explicitly recognized the ethical aspect of economic activities, and have endeavored to apply the rules of morality to current economic practices and institutions.

Nevertheless, it is one thing to hold that economics is subject to ethics in general, and quite another thing to apply ethical principles to particular economic practices. In many situations the latter task is exceedingly difficult. This evening I shall attempt to perform it in relation to the three subjects which are of greatest importance in the endeavor to bring about national industrial recovery. I refer to interest, wages and labor unions.

II. THE JUST RATE OF INTEREST

The underlying theory of the National Industrial Recovery Act is that the purchasing power of labor must be increased in order that the industrial product may be sold, the industrial machine kept going and unemployment ended. Increased purchasing power for labor means higher wages and a larger share of the national product. If the share of labor is increased, the share of capital must be decreased. This is a mathematical certainty. Moreover, the increase in the volume of wages which is necessary to attain the ends of the National Industrial Recovery Act will have to be greater than the equivalent of the 7 percent rise in industrial efficiency which is estimated to have taken place since 1929. In order to bring about full industrial operations and full employment, the share going to labor will have to be further increased through higher wage rates at the expense of the returns to capital. Unless this takes place, the NRA program will be defeated by excessively high prices and excessive expansion of capital equipment.

As a matter of fact, the greater part of industrial and commercial investments have probably not averaged more than 3 percent over the past fifty years, owing to losses of both interest and principal during depressions. The assumption that 6 percent, or more, is actually received over a long term of years, is simply a delusion.

Nevertheless, it is certain that capital will not quickly, nor gracefully, reconcile itself to a notable reduction in the rate of interest. The owners of capital have been badly educated by court decisions and the practices of corporations. To public utilities the courts have, for several years, awarded what is called “a fair return” not only on the amount of money invested, but on the considerably higher figure which represented the cost of reproduction, and “the fair return” has sometimes been fixed by the courts at 8 percent, never at less than 6 percent. Stock watering and various other devices of monopoly have enabled billions of dollars of capital to obtain considerably more than 6 percent. As a consequence of this perverse education, the owners of capital have been persuaded, or have persuaded themselves, that they have a vested right to at least 6 percent, and to as much more that they can obtain. Therefore, we shall have to rely upon public opinion, competition and, perhaps, governmental price fixing to induce capital to accept those moderate rates of interest which are essential to industrial recovery, and which are, in the long run, most advantageous to capital itself.

To Catholics, the ethical aspect of this situation is simple and definite. In his encyclical, “Quadragesimo Anno,” the Holy Father declares that both labor and capital are entitled to a portion of the industrial product. Each should receive its “just share.” What is the just share of capital? The Pope’s answer is not stated in terms of percentage, nor in any other mathematical formula. The just share of capital, as well as of labor, he says, is that which is in harmony with the common good and social justice. According to this rule, if the common good requires interest to be reduced to 2 percent, then 2 percent will be the just rate. We should all be grateful to the Holy Father for having authoritatively laid down this simple, reasonable and economically sound rule concerning the just share of capital. It provides not only a principle of justice, but a measure of rational expediency.

This principle of the common good has many implications for the industrial recovery movement. I shall call attention to only one. As stated above, the central endeavor of the NRA program is to provide purchasing power to those who need it most, and to those who will most quickly convert it into actual purchases and, therefore, into increased business activity and increased employment. Higher wages will necessarily bring about higher costs of production. This will mean some increase in prices, but not necessarily such a high level of prices as would defeat the NRA program. Prices will not rise to that destructive eight unless business men insist on getting what they regard as normal profits and normal interest. In the present emergency, therefore, the common good requires capital to be satisfied with considerably less than 6 percent, and business men to be content with reasonable living profits. Putting the matter in very practical terms, I do not hesitate to say that until the success of the recovery movement is assured, every, business man, whether he be manufacturer, merchant, trader or contractor, should be content with that amount of returns, whether in terms of profit or interest, which will enable him and his family to enjoy a decent living. In the present situation this seems to me to be a clear demand of social justice.

III. JUST WAGES

Here again, business men have received a perverse education from our courts of justice. In declaring the Minimum Wage Law of the District of Columbia unconstitutional a little more than ten years ago, the Supreme Court of the United States laid down an extraordinary ethical proposition. Like all other minimum wage statutes, that of the District of Columbia had forbidden employers to pay wages inadequate to decent living. When the Supreme Court came to pass on the constitutionality of the law, it declared that the cost of living of the worker was an “extraneous circumstance.” According to the court, the cost of living has nothing to do with the determination of reasonable wages. Observe that the court was deciding the case on the basis of an ethical principle which it read into the Constitution. Unfortunately, this ethical principle was false. It had been explicitly rejected more than thirty years previously by Pope Leo XIII. In his encyclical, “Rerum Novarum,” he declared that there was a dictate of nature, that is, a principle of the natural moral law, which required that the remuneration of the laborer should be at least sufficient to maintain him decently. That was precisely the standard of wages provided for in the Minimum Wage Law of the District of Columbia, but it was construed by the Supreme Court as contrary to the Constitution. What the court called an “extraneous circumstance” in wage fixing, P.op.e Leo XlII set up as the essential measure of minimum justice. 

In deciding this case, the Supreme Court put forth another ethical principle. It declared that a relation of “moral equivalence” should exist between work and pay, but it failed to provide or even suggest any means by which this equivalence could be determined. Obviously, no such means exists. No direct comparison is possible between such disparate objects as work and wages. One might as well try to determine whether a certain amount of light is the equivalent of a certain amount of water. The court seems to have been confused by the elementary requirement of justice that in an onerous contract the things exchanged should somehow be mutually equal, that one should somehow be the equivalent of the other. Pope Leo XIII and Pope Plus XI recognized this general principle, but they were too intelligent, as well as too humane, to attempt to set up an equivalence between such incommensurable things as work and wages. They proclaimed, in effect, that the equivalence should be between wages and a decent livelihood. According to Pope Plus XI, this means that the wage should provide the worker with “ample sufficiency.” This phrase he defined as sufficiency for the support of the worker and his family, for their economic security, both in the present and in the future, and for the acquisition of a moderate amount of property.

This is the minimum of wage justice. It is considerably above the minimum rates inserted in any of the NRA codes that have been adopted. However, adequate rates are, no doubt, impracticable at the present stage of the recovery program. Nevertheless it is a very great gain for social justice, that the principle of a minimum wage should have found recognition in the National Industrial Recovery Act, and that a sustained and honest effort will be made to impose the rates which have been established. Some of us who have, for more than a quarter of a century, advocated minimum wage legislation, are not yet fully recovered from the pleasant shock of finding the dream come true. Our hats are still off to the genuinely great man who has translated the dream into reality—Franklin D. Roosevelt.

The “ample sufficiency” demanded by the Holy Father is not and has never been obtained by more than a small minority of the workers of the United States. If it were universally established, the wage earners would be in a position to supply all the purchasing power necessary to keep our industries going at a reasonable rate of operation. Here, as in the case of interest, social justice is identical with the common good and rational expediency.

IV. LABOR UNIONS

The necessity of organization to enable labor to secure adequate conditions of employment is fully established by our experience with the capitalist system. Therefore, the right to organize is a natural right, a necessary implication of the moral law. A further implication is that the workers have a right to maintain whatever form of organization is best adapted to secure just working conditions. As Pope Leo XIII put it: “We may lay it down as a general and perpetual law, that workmen’s associations should be so organized and governed as to furnish the best and most suitable means for attaining what is aimed at; that is to say, for helping each individual member to better his condition to the utmost in body, mind and property.” In these United States, experience has abundantly proved that the only kind of associations complying with the rule laid down by Pope Leo are the regular national unions, organized and maintained by the workers themselves, independently of any assistance, benevolent or non-benevolent, provided by their employers. We do not expect non-Catholic employers to permit unions of this kind, merely because the Pope implicitly demands them, but we do say to Catholic employers that when they deny the full liberty of labor organization, they are disregarding the prescription of the Supreme Head of their Church. Moreover, Plus XI has quoted and reaffirmed Leo’s declaration, and added a denunciation of those rulers who were hostile to labor organization, and those Catholics who looked upon unions with suspicion.

Happily, this great ethical principle of full liberty to organize is explicitly and adequately embodied in the National Industrial Recovery Act. This is a gain which is second only to that implied in the minimum wage provisions of the statute. Happily too, this legislative sanction of the right to organize is receiving full protection at the hands of the National Recovery Administration. It is true that we have witnessed some reprehensible attempts to nullify these provisions of the act by reservations, interpretations and other dishonest devices. Nevertheless, we should try to exercise charity and tolerance toward those heads of great corporations who have descended to this injustice and trickery. We should bear in mind that their minds and hearts have been corrupted by a long tradition of immoral business practices, unlimited economic domination, unjust legislative favoritism and ethically unsound decisions by the courts. (See Adair versus United States, Coppage versus Kansas and The Hitchman Coal Company versus John Mitchell et al.)

V. CONCLUSION

The changes which are taking place in our industrial system under the administration of the National Industrial Recovery Act, have frequently been called revolutionary, or referred to as a second industrial revolution. There is no exaggeration in this language. However, the majority of persons who use it are thinking only of the physical elements, of the revolutionary changes in the industrial organization. Even more important, it seems to me, is the revolution in industrial ethics. To the aims of the recovery program, President Roosevelt has more than once applied the phrase, “social justice.” The National Industrial Recovery Act and its administration are already familiarizing men’s minds with the new ethical concepts. They are teaching men in a practical fashion that economics is subject to ethics, that industrial activities are governed by the moral law.