On the Priority of Labor Over Capital

• DOI: http://doi.org/10.1111/ajes.12355
• Date: 01 September 2020
• Published date: 01 September 2020
• Author: Charles M. A. Clark

On the Priority of Labor Over Capital

By Charles M. a. Clark*

abstraCt. In his encyclical Laborem Exercens, John Paul II asserts the

principle of the priority of labor over capital. The purpose of this

article is to examine this principle. The conflict between labor and

capital is often noted as an essential part of capitalism. There is a long

tradition of assigning more significance to labor than to capital. In

fact, the classical economists argued that labor determined the “value”

of a good. To understand this conflict, we must first review what is

capital and its role in capitalism. We will then look at John Paul II’s

assertion of the principle of labor over capital, followed by a review of

how economists have understood the relationship between labor and

capital. Neoclassical economists dismiss labor and capital as classes,

so they believe there is no conflict. We examine one neoclassical

economist’s claim of a gap in the principle of the priority of labor over

capital by not including finance capital in the analysis. We demonstrate

that the Church’s teachings on usury answer the objections raised. We

conclude with a review of the implications of the priority of labor

over capital.

Introduction

One of the most controversial statements in John Paul II’s (1981)

encyclical Laborem Exercens is the claim of the “priority of labor over

capital.”1 After all, Michael Novak and many conservative Catholics

have claimed that John Paul II endorsed capitalism, and yet here it

looks like John Paul II has placed the Church on the side of workers

in the class struggle.1 Even worse, John Paul II states that the Church

has always taught this principle. This assertion is especially pertinent

today, as many people are questioning the usefulness and viability of

capitalism, especially since most of the benefits of economic growth

American Journal of Economics and Sociology, Vol. 79, No. 4 (September, 2020).

DOI: 10.1111/ajes.12355

© 2020 American Journal of Economics and Sociology, Inc

*Senior Fellow, Vincentian Center for Church and Society. Research Fellow, Center for

Global Business Stewardship. Professor of Economics, Tobin College of Business, St.

John’s University (NY). Email: clarkc@stjohns.edu

1148 The American Journal of Economics and Sociology

in the past 40 years or so have gone to capital, with wages being

mostly stagnant (Clark 2011). The problems of inequality and climate

change have threatened social stability and the long-term survivability

of the planet to such an extent that radical solutions are increasingly

being considered. Is it possible to have capitalism without the conflict

between labor and capital?

In this article, we will look at John Paul II’s claim of the priority

of labor over capital in the context of how economists have under-

stood the conflict between labor and capital. We will start with an

examination of what is capital and what is capitalism. Next, we will

look at John Paul II’s analysis of the conflict between labor and cap-

ital, followed by how economists have understood the relationship

between these two social classes and factors of production. We will

then examine the claim by Edmond Malinvaud (2002) that there is a

“gap” in Catholic social teaching on the “priority of labor over capital,”

specifically the need to add finance to the analysis. We will present

the Church’s teaching on finance (usury) as an answer to Malinvaud’s

critique. Lastly, we will look at some of the implications of the princi-

ple of the priority of labor over capital.

Nature of Capital and Capitalism

One of the characteristic features of a capitalist economic and social

order is the juxtaposition of labor and capital as two distinct enti-

ties that are in some way opposed to each other, with capital play-

ing the dominant role. After all, it is called “capitalism” for a reason.

Some ideological supporters of capitalism have suggested dropping

the word “capitalism” because it often carries negative connotations.

Deirdre McCloskey (2016) has argued for “bourgeois civilization” or

“market-tested improvements.” McQuillan and Park (2017: 89) argue

that giving is the essence of capitalism: “Capitalism is first an expres-

sion of giving. … Capitalism is a competition of giving.” While there

have been societies in which social status was attained by giving away

one’s wealth, this is not the essence of capitalism. Capitalism is the

opposite of a competition of giving; it has always been about taking,

what economists call the accumulation of capital. As Marx ([1867]

1976: 742) famously declared:

1149On the Priority of Labor Over Capital

Accumulate, accumulate! That is Moses and the prophets! … Accumulation

for the sake of accumulation, production for the sake of production: this

was the formula in which classical economics expressed the historical mis-

sion of the bourgeoisie in the period of its domination. Not for one instant

did it deceive itself over the nature of wealth’s birth-pangs.2

To demonstrate this last point, Marx ([1867] 1976: 742 fn. 25) cites two

prominent economists from the early 19th century:

“The savings of the rich are made at the expense of the poor” (Say) and

“The Roman proletarian lived almost entirely at the expense of society …

One might also say that modern society lives at the expense of the prole-

tarians, on the portion of the wages of labor which it withdraws from their

pockets” (Sismonde).

The essence of capitalism is the private ownership and control of

a community’s productive assets (capital), which are used for the pri-

mary purpose of generating a surplus (profits) for the owners of the

capital. Typically, capital is used (invested) in an activity that provides

goods and services to the market, and the success of those products in

the market will determine the level of their profits. However, owners

of capital can generate profits by withdrawing goods from the mar-

ket, creating artificial shortages and driving up prices. The methods

that can be used to generate profits are determined by the “rules of

the game” of market competition. There is a wide variety of “rules of

the game” (which are determined by the political and legal systems);

hence, there are many types of capitalism. One of the reasons for the

success of capitalism is its adaptability to different circumstances.

There can be no doubt that, in a capitalist regime, labor and cap-

ital, both as social classes and as factors of production, are separate

and unequal. This is not to say that labor and capital are two fully

distinct and separate entities, but they are made into separate legal

entities. Prior to the end of slavery in America, a substantial portion

of what counted as the capital stock of the southern states consisted

of enslaved people, so what might normally be called “labor” was in

fact “capital.” After the enslaved people were freed, part of the plan-

tation owner’s capital now became “labor,” dramatically reducing the

wealth of the elites in these states. The newly freed persons still did