With the disintegration of communist societies throughout much of the world, capitalism has been hailed as a triumphant, if sometimes ignoble, victor. Although the great benefits of a free-market system are clearly most able to produce the greatest wealth for the most number of people, there is still apprehension and skepticism about the effectiveness of the system. Poverty is still widespread throughout the world, and even in the wealthiest countries such as the United States a stagnant underclass plagues us. Where capitalism triumphs, and great material wealth is produced, there is also much social and spiritual malaise: personal meaninglessness, breakdown of family and community, and little sense of common good. Work and workplace are often unfulfilling, uncaring, and fail to empower people to be more loving and effective human beings. Finally, there is much confusion about the meaning of wealth and the purpose for which it is to be used.

The free-market system of wealth creation, then, must still address itself to numerous problems.

Any economic system, however, if it is to realize the full possibilities of wealth creation for the greatest number of people, must consider the true nature of the individual and the society. The failure to do so brings about the destructive consequences that can be seen in traditional societies and, more recently, in communist societies: economic, political, and social freedom are restricted; an elite group controls the decision-making processes of society; material and spiritual poverty are pervasive.

Principled Economics makes several basic assumptions:

(1) An economic system must create both material wealth and contribute to the spiritual well-being for the individual, family, and society;

(2) The capitalist, free-market economic system offers the best opportunities for wealth creation;

(3) This system is not yet operating at its full potential;

(4) The elements of the capitalist system must be guided by universal religious and ethical principles to provide for the most productive system.

What follows, then, is an outline of a healthy, productive, and mature economic system. Then, we examine the present capitalist system and explain why it is not yet performing to its full potential, creating unhealthy results. Finally, we offer a general prescription of what must be done to realize the goals of a mature economic system.

Standard dictionaries, such as Webster's, define many of the most significant terms of a capitalist economic system in the following way:

economic: of the production, distribution and consumption of wealth..."

wealth: large possessions of money, goods, or land; great abundance of worldly goods..."

capitalism: the economic system in which all or most of the means of production and distribution ...are privately owned and operated..."

free-market: any market where buying and selling can be carried on without restrictions as to price, etc..."

Principled Economics enlarges upon these traditional definitions by explaining that the creation of economic wealth takes place most effectively through the entrepreneurial-led, free-market system best exemplified in the United States. Furthermore, special consideration must be given to the wellbeing of the person, family, community, and environment as the process of wealth creation is guided by religious principles. Principled Economics, then, is concerned with enhancing the process of wealth creation for the person, the business, and the society with the goal of greater benefit for greater numbers of people. It is not concerned with changing the basic mechanical framework of capitalism.

At the core of Principled Economics is the primary source of wealth creation, the human person. Further, since a human being is not merely an economic creature, but a cultural and religious being, religious and cultural values are central to the effectiveness of an economic system. The creation of wealth, consequently, involves not merely material abundance, but the well-being of the person and the larger common good of the society. These are not mutually exclusive realities. Any economic choice made in the course of production, distribution, and consumption must consider the nature, purpose, and value of the human person in the context of relationship with a larger good.

In the teachings of the Judeo-Christian religions, for example, the person is defined as being created in the image of God, of having a divine nature, a spiritual nature of infinite worth. The person exists not in isolation, randomly thrown into a void. Rather, God creates the person in His likeness and commands that love be the guiding principle toward Himself and toward other members of the human family. The person is bound up in the relationship and is commanded to act in responsible and loving ways in these relationships. The human purpose, according to the teachings of Judaism and Christianity, as well as of many other religions, is to fulfill one's divine, individual, and material nature by creating loving relationships to God, to the human community, and to the environment. Human value is realized as one actualizes one's nature and purpose in art, science, humanities, and economics. Economic creativity and value, then, are aspects of the larger human creativity and value.

Religion, culture, and economics are inseparable, for they each involve assumptions about the nature of the person in society. Religious and ethical values, the basic beliefs about the nature and purpose of human life, can provide the norms for a mature, healthy culture and thus for an economic system as well. In Judeo-Christian culture the fundamental religious principle which is the basis of all reality is a loving and ethical God. As God is the creator of human life, He is also the source of principles that must guide human behavior. In Judaism, for example, the person is commanded to be ethical because God is ethical.

What are some of the characteristics of such a principled person, one whose nature reflects God's nature? Such a person is loving, ethical, sacrificial for the greater good of others, dedicated to love the world as God loves the world. Moreover, such a person seeks to draw out divine value from oneself as well as from others. As God's love is eternal, unchanging, and absolute, a principled person seeks to establish families, friendship, and community life based on these principles. Since the creation also reflects God's lawfulness, beauty, and love, the principled person is obliged to enter into lawful, beautiful, and loving relationship with the environment. For an individual to behave in such principled ways, the intellect, emotion, and will must be trained through various disciplines to develop the intellectual and moral virtues. Prudence, temperance, justice, fortitude, faith, hope and love are as relevant today as they have been for thousands of years. They are the characteristics of a person who has ordered the soul and is prepared to order the society, including an economic system.

Principled persons create principled economic, social, and political systems that further empower ethical and loving persons. Economic creativity is liberated through an economic system that encourages full and fair participation, and that recognizes that economic creativity is one component of our divine, creative nature. Political life is enriched as individuals are encouraged to take responsibility, through democratic means, to insure that family and community life are protected by sound laws. Great emphasis is placed upon institutions such as schools, churches, and voluntary associations which promote the virtuous habits of a free, disciplined people who choose the common good as a basis for individual good. Finally, the social ideals of a free, rational, and loving people are fostered through cultural norms of honesty, generosity, responsibility, and care for others.

More specifically, the Principled Economic system will be characterized in some of the following ways:

(1) Economic activity is guided by universal religious and ethical values (Judeo-Christian values in the West). Self-interest is directed toward, and balanced with, a commitment toward the common good;

(2) The person, as a divine being, has an infinite potential of value to be drawn out and to be utilized for and respected through economic activity;

(3) The creation of wealth, the primary goal of economic activity, involves not only the production of goods and services but the well-being of the person and of the society. The individual is always part of and integral to the larger community. As the person benefits, so society benefits;

(4) Genuine love for the good of the other (the person, society, and environment) should be a motivation for economic activity along with the desire to create and to be prosperous;

(5) Honesty, sincerity, service, sacrifice, excellence, responsibility, accountability, and care for others are some of the human virtues within a system of Principled Economics.

Production, distribution, and consumption, the classical processes of an economic system, are all areas in which religious and cultural principles affect economic choices, so that economic wealth and human well-being can be promoted simultaneously.

Central to the process of production is the theme of leadership, and many of the foremost management theorists, from Peter Drucker to Stephen Covey, have emphasized the importance of the mature, creative person to the production process. Principled leadership promotes spiritual, ethical, and economic values that bring long-term benefit to individuals, families, communities, and the environment. A company can benefit itself and the larger society as it emphasizes this kind of corporate culture. The person is central to what is produced, how it is produced, and for whom it is produced. Films, for example, can illustrate the dignity of human life and the sanctity of the environment instead of demeaning life. We can produce things that are profitable and socially responsible.

Corporations like Levi Strauss & Company, which encourage communication, criticism, and cooperation between management and employees, create a work environment which is more productive of quality goods and more meaningful for workers. Principled production systems, moreover, encourage broad worker participation in management through employee stock ownership plans, enterprise funds, and other mechanisms to empower the disadvantaged. Thus, the production of wealth can be increased and spread broadly.

Finally, a principled production system emphasizes quality, excellence, and long-term value as production goals. Tom Peters, in his many books on management, such as In Search of Excellence, stresses the relationship of profitability to the quality of what is produced. We in America must now re-learn the lessons of quality control and zero defects from those who are profiting from what they have learned from us.

As Principled Economics purposefully seeks to broaden the participation in the wealth creation process, this has many implications in the arena of distribution. The promotion of free trade in ideas, products, and technology will promote the freedom on a global level that will maximize wealth creation and human well-being. Principled behavior in the distribution process not only reinforces the classical virtues of philanthropy and charity, where the wealthy are motivated to use their wealth for the benefit of others, but allows others the full opportunity to benefit from the resources available to any nation.

In the realm of consumption, Principled Economics guides economic choice by a profound understanding of human purpose. Consumption, which seems to be an end in itself in modern culture, is a means to material and spiritual fulfillment of the person and society. We are not suggesting that government, or any other coercive authority, will dictate what are the appropriate choices to fulfill human desire. We are emphasizing, rather, the importance of a mature, free, principled person who makes principled choices. We may disagree with or dislike the choices that people make, and we can then seek through rational, civil, and loving persuasion to offer alternative choices. This principled process may not bring immediate utopia, but it may well usher in a healthy, ethical, and prosperous society where our choices will not be damaging in their effect upon others and upon ourselves.

A healthy economic system rests upon the foundation of a true understanding of the nature, purpose, and value of the human person. Economic systems which fail to consider the true nature of the individual and society will have limited value, not reach their full potential, and often cause more harm than good. Traditional or pre-modern, communist, and capitalist societies can each be viewed in terms of the model of the principled system which we have set forth.

In traditional or pre-modern societies religious values often do not promote the universal values espoused by the major religions, nor do they emphasize the divine, creative potential of each individual in the political, social, and economic realms. What follows from these limited world views is that wealth, and opportunity for wealth creation, rests in the hands of an elite. Further, such societies see their position as distinct, separate, and often hostile to other societies. As individuals are subject to the power or position of individuals, rather than equal protection under the law, the person, family, and property of individuals can be violated easily. Wealth is often defined in terms of land or other material things, not the creativity of the person, and values and institutions are so particularistic and static that social changes bring destructive consequences.

Communist and socialist societies are often prey to the same limitations as pre-modern societies. The individual is defined as a material and social being, not a divine being, whose value lies in relation to a historical or collective process. The spiritual nature, purpose, and value of the person is thus ignored. As economic, political, and social decisions are made by a small group on behalf of the larger society, individual liberty in each of these areas is seriously restricted in the name of the greater good. While private property is either nonexistent or is subject to many restrictions, the legal system often operates arbitrarily, secretly, and is under the control of an elite. Finally, government interference in the economic system seriously retards the freedom of individuals and the process of wealth creation.

Capitalist societies, in contrast to traditional and communist societies, have created abundant material wealth and, generally speaking, the wealth has been spread broadly. Wealth, however, is usually equated with goods and services produced, sometimes with little focus on the wellbeing of the person or the society. Although such societies may theoretically embrace lofty, universal religious ideals, in practice religious and ethical norms are often reduced to the celebration of freedom for the individual, who is responsible only for himself, in an arena of competing, hostile others. Economic freedom is paramount, as the individual pursues his own material interests, according to his own desires and wants, without thought of the consequences upon others. Economic activity, moreover, is seen as separate from religious, social or political activity.

The unfortunate consequences of such un-principled economic activity, though often unintentional, are: the exploitation of individuals, the breakdown of families, the disintegration of community, and the violation of the environment. When the un-principled actions are intentional, the consequences are even greater. Self-interest, narrowly understood, becomes the guide for behavior, and one seeks to get away with whatever is possible.

There is no doubt that capitalist systems have been the most successful in creating material wealth. However, if such economies are not centered on classic religious principles, which clarify the nature, purpose, and value of human life, then serious breakdown accompanies the creation of material wealth. Such systems cultivate un-principled actors who, in turn, create un-principled economic and social systems.

Individuals in such an un-principled system tend to perceive themselves as disconnected from others. They are often dominated by material desire, physical pleasures, and the usefulness of relationships as they benefit oneself. They are easily tempted by lust, greed, licence, and other maladies that destroy the virtuous human character that is needed to build a healthy society. Society itself becomes an un-principled system that reflects the individuals who create it. A confusion of values pervades the system, and individuals react to the confusion with resentment, envy, anger, and violence, even within the workplace. Relationships with employers, professional colleagues, family, and friends are pleasure-oriented and short-term. Adversarial relationships dominate institutions, community anomie becomes pervasive, and spiritual and material pollution abound. Consequently, manipulation, mistrust, and lack of participation characterize economic, political and social systems.

The United States, perhaps the most capitalist system in the world, and perhaps still the "wealthiest" nation in the world, exhibits severe effects of un-principled behavior, which has massive social and economic costs. Compared with other developed countries, the United States has the:

highest number of murders (25,000 in 1991)
highest divorce rate
highest number of children involved in divorce
highest teenage pregnancy in the world
highest abortion rate in the world
highest percentage of teen abortion in the world
highest percentage of children living in a single parent household
highest percentage of violent deaths among youth

It is important to understand that un-principled economic activity has not "caused" these problems. The causes are more complex. However, our present systems of wealth creation and free enterprise are unfortunately now part of the problem because they reinforce so much un-principled behavior.

As such behavior becomes the norm, economic choices in the areas of production, distribution, and consumption are directly impacted. Business leadership, for example, often does not promote long-term mutually beneficial relations between the community of workers and management. When the profit motive becomes the overwhelming raison d'etre of business, un-principled activity inhibits communication, cooperation, and creativity. Then it is possible for corruption, lack of motivation, and sabotage of the work product to be prevalent. The worker is not viewed as a child of God, but rather as an employee who can be replaced easily. There is little concern for the impact of economic decisions on the dignity of workers, families, communities, or the well-being of the environment. Even government then perceives itself in an adversarial relationship with business, while the economic system itself restricts the full participation of all citizens.

The destructive effects of un-principled activity spill over from the business and the nation to the international community. Trade wars, tariffs, and barriers to the exchange of ideas pervade international relations. Beneath the external obstacles lie the mistrust, fear, and hostility that sometimes characterize relations between many developed nations. As the giant developed nations compete, the economic situation of the poorer nations becomes merely an afterthought. There is little concern for the solidarity of the human community as one family, while resentment breaks into violence as nations seek justice.

The goal of consumption as an end in itself becomes the dominant norm of economic behavior in wealthy nations, while the poorer nations seek to catch up with their wealthier brethren. Consumers in each nation begin to resemble each other as hedonism reigns supreme, divine nature and purpose are obscured, and King Appetite seeks to devour all. To promote massive consumption, debt -- both public and private - becomes the hallmark of economic life.

If we are aware of principled behavior, we can begin to understand the destructive consequences of un-principled economic activity. Then, we can take responsibility to bring about the appropriate personal and social transformation. The restoration of healthy economic systems is a goal that is realizable as we make changes in our personal lives, in our businesses, and in our relationships to the larger society.

If Principled Economics provides a view of wealth creation and wellbeing that fulfills the divine purpose, nature, and value of human life, we need to restore religious and spiritual principles at the center of cultural and economic life. Since most cultures acknowledge the value of religious principles, the restoration process is actually one of re-ordering the positions or priorities of values. In the primary position of a healthy, principled culture are spiritual values, long-term concerns, broad-caring relationships: for family, community, society, environment. In the secondary position are material values, immediate concerns, and care for oneself. The right ordering of these values gives us a guide for prudent action. Specific decisions within a business enterprise, for example, are often highly complex, ethical dilemmas fraught with difficulty. Personal relations are very rarely simple. However, with a rightly-ordered principle framework we have a basis by which to evaluate situations, a problem-solving formula to guide us in our actions.

The re-ordering toward a principled ideal allows us to balance several goals: a healthy, productive self within a healthy, productive economy and culture. Training is necessary if these goals are to be realized. A self matures through the discipline of the intellect, emotion, and will. A healthy, mature person is one who exhibits intellectual and moral virtues, where prudence, justice, temperance, and other virtues reign over greed, pride, avarice, and the corresponding vices. Further, ethical training is necessary for individuals to understand how their economic behavior can contribute to the building of caring families, creative communities, and a sustainable environment. As J. Peter Grace, one of America's most prominent businessmen, has said: "I would change business schools so you educate people to make this a better society where we all respect each other, work for each other, and care about each other, and not encourage so much selfishness."

Once again, we are not advocating social responsibilities instead of business profit and productivity. Nor are we urging individuals to deny themselves in the name of some abstract, universal good. Rather, Principled Economics clarifies the nature and purpose of the self so that the full value of the self can be realized in a right ordering of relationships to business, to society, and to a common good. The mature self is guided by a primary set of values: commitment to family, community, and society; service and sacrifice to long-term relationships; and devotion to the ideal of the good (truth and love) as the basis for relationships.

Another set of values, in a secondary position, must also be realized if there is to be a healthy person within a healthy society. Such values involve concern for the wellbeing of oneself, for immediate personal benefit, and for personal pleasure and usefulness. The right ordering of values as a guide for action offers us the potential for maximum benefit.

The principles addressed in this essay, we believe, reinforce the best and most productive elements of a capitalist, free-market system, while at the same time they correct what have been perceived as shortcomings of such a system. If we examine some of the major groups of writers who comment on the capitalist system, we can see how Principled Economics can strengthen the good and correct the evil.

Certainly, the tradition of laissez-faire capitalism, espoused by writers from Adam Smith to Milton Friedman, has rightly emphasized the precious freedom of the individual within such a system and the enormous wealth that such a system has created for such large numbers of people. Where two hundred years ago almost everyone was poor and unfree, except for a minute number of people in a few countries, the laissez-faire capitalism system has brought a significant measure of wealth as well as no small amount of political, social, and economic freedom to billions of people. If, as these writers have pointed out, government has often been the tyrant to restrict the freedom of individuals and to destroy the wealth-producing capability of individuals and businesses, Principled Economics gives us the norms whereby freedom and wealth creation genuinely serve the well-being of the larger society.

Commentators on capitalism from the Catholic tradition, specifically the influential writers Michael Novak and Richard Neuhaus, illustrate in their writings the Principled Economics viewpoint that capitalism centered on moral and spiritual values develops virtuous individuals, ethical businesses, and cooperative communities. They emphasize how government can properly insure social justice by preventing elite groups from limiting participation in the wealth-producing process. Moreover, they regard equal opportunity and equal participation under the law as proper goals that government must strive to achieve. As with the Principled Economics' viewpoint, they clearly illustrate that economic freedom without religious purpose leads to violations of persons and societies. As George Weigel, another Catholic writer, has written: "The real issue is the ability of a culture to provide the market with the moral framework it needs to serve the cause of integral human development."

A "communitarian" movement that has been building in the United States for the last few years, represented by such intellectuals as Amitai Etzioni and Robert Bellah, has stressed how the individualistic elements in capitalism have worked to erode community, to destroy a commitment to the common good, and to alienate individuals from themselves and from any larger purpose. The movement seeks to rebuild caring, nurturing communities and thus to inspire individuals to participate in the economic, political, and social institutions that affect their lives. Certainly, the emphasis on community, the common good, and the engagement of individuals in taking responsibility to build healthy systems are themes which resonate well with Principled Economics.

The Green movement, with a humanistic and environmental critique of capitalism, represents another large and growing number of people throughout the world. While its extreme elements advocate a wholesale critique of industrialization, its common criticism of capitalism is that it has been flagrantly destructive of the environment in its promotion of a voracious consumerism. The Green movement speaks with much good sense when it urges the use of appropriate technology for specific cultural and ecological environments, and when it encourages more humane and sane life-styles more conducive to face-to-face, personal, caring relationships.

Once again, Principled Economics offers a value framework which would allow the genuine concerns of the Green movement to be addressed seriously, with neither a luddite-type dismissal of all industrialism nor an off-hand rejection of a group that is characterized as loving trees and animals more than people. The concerns expressed by the various groups about capitalism are not negated by Principled Economics. Rather, those concerns are sharpened by principles that characterize a healthy, productive economic system:

Religious principles are the basis for economic behavior;

Capitalism, centered on religious principles, creates the greatest wealth and well-being for the most people;

Economic, political, and spiritual freedom must be guided by a responsibility for the common good;

Commitment to the common good reflects the dignity of each person, the healthy family, caring and creative communities, and a sustainable environment.

These principles, then, offer us a basis for the restoration of a healthy, productive economic system. In such a system, economic choices encourage communication, cooperation, and creativity; private ownership is respected and protected; there is commitment to the long-term good of workers, families, and societies; production, distribution and consumption enhance human dignity, freedom, family cohesion, and social solidarity; wealth is created abundantly and shared broadly; there is universal education to promote the greatest participation in the wealth creation process; economic freedom, like all human freedom, is guided by profound purpose and thus has the possibility of generating the greatest value.

What we have outlined is a framework for a healthy economic system that is meant to generate material wealth as well as to promote the conditions for human well-being. Specific situations will, of course, demand specific applications of the principles outlined above. The Principled Economics Institute considers many of these applications in its publications, programs, and projects. As Pope John Paul II has said, "A great deal of educational and cultural work is urgently needed, so that the market's remarkable capacity to generate wealth is bent toward ends congruent with 'the truth about man' - which is not an economic truth only."

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