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Morality and Economic Law: Toward a Reconciliation

Saturday, 20th March 2004

I mirror this article so that it may not fall down the memory hole.

Morality and Economic Law: Toward a Reconciliation

by Thomas E. Woods, Jr.

The Lou Church Memorial Lecture in Religion and Economics, Austrian Scholars Conference, Ludwig von Mises Institute, Auburn, Alabama, March 20, 2004.

The approach found in many of the encyclicals has led the Church to attempt to impose on the economic order principles external to the science of economics, and thus, it promotes policies that are bound to fail, and that will bring disrepute to the Church, leading people to reject its teachings as unserious…. [T]he principles of economic activity are orderly and unchanging, and attempts to impose particular policies from outside of that system reflect a lack of comprehension or recognition of the reality of the economic order.


Shortly after delivering the paper, I began receiving correspondence urging me to expand the argument into a full-length book. I am happy to report that that project is now complete, and that the manuscript is under review as I speak to you.

The points I made in that paper have been a source of controversy in some Catholic circles even as they were happily welcomed in others. In my remarks today, therefore, I wish to do three things. First, I shall briefly dispense with the implicit — and at times not so implicit — claim heard in certain quarters that someone who takes the economic views I have adopted involves himself in “dissent” from Church teaching. As I show at much greater length in my book, the nature of economics as a positive science possessing an internal coherence of its own renders this claim perfectly nonsensical. Second, I wish to speak at some length about a single example — that of labor and wage rates — that demonstrates the importance of sound economic analysis to proper moral judgment, and which provides a passing glimpse of some of the difficulties and frustrations with which the Catholic Austrian has at times had to reckon. Finally, I wish to say a few words about the philosophical attractiveness of Austrian economics from a Catholic point of view.

Economics as a Science

My critics notwithstanding, the primary claim I am making is not that there is no moral dimension to the economic order. Fraud, theft, and malicious failure to meet contractual obligations are crimes that amply merit the condemnation of the moral theologian. Moreover, one can raise no objection when a churchman expresses his concern regarding the material well-being of families and suggests that morally licit methods of improving it should be pursued. My point is simply this: as soon as he recommends the best or most effective way to carry out that intention — via minimum wages, various mandated benefits, heavy taxation on the wealthy, or whatever — he is entering a field in which his conclusions must be evaluated not on the basis of his authority as a churchman but instead on the rigor of the argument he makes on their behalf.

If a churchman possessed some special insight into economics merely by virtue of his exalted authority, why not into other disciplines as well? Why should this special insight not extend, say, to architecture? As soon as we thus extend it, however, we see the logical problem with applying moral analysis to a value-neutral, scientific discipline. It is certainly quite acceptable to say, for example, that churches should be constructed in such a way as to give to God the proper honor that is due to him, but it is quite another to employ a moralistic idiom to pronounce upon how many supporting columns are necessary to keep them standing, or what kind of building materials are the most desirable from the point of view of structural soundness. These questions are obviously well outside the legitimate province of the moral theologian.

Issues surrounding the well-being of the workingman can help illustrate the point. Although in his encyclical Longinqua Oceani (1895) Pope Leo XIII appeared to endorse only voluntary unionism rather than the coercive variety with which Western nations are intimately familiar, individual bishops, theologians, and lay defenders of the Church’s social teaching often fail to make such a distinction, taking it for granted that a Catholic’s support for the interests of labor includes endorsing the various special privileges that labor unions presently enjoy under the law. In short, hardly anyone who claims to speak for the Church on economic matters calls for a completely free labor market today.

But if I can show that coercive labor unionism must have the overall effect of impoverishing society more than in proportion to any “gains” won by unionized labor, and that unionized labor itself would be better off in a society with a free labor market, I cannot be obliged in conscience to believe coercive labor unionism to be a good thing from the point of view of workers’ economic well-being. We are dealing here with a matter of simple disagreement on a debatable point of fact — qualitatively different from the denial of the Virgin Birth, the Immaculate Conception, or the equality of the three Persons of the Holy Trinity.

However, there are plenty of commentators who cannot or will not make this kind of distinction. For example, Todd Whitmore, an associate professor of theology at the University of Notre Dame, has raised the question of whether the free-market positions adopted by author Michael Novak “constitute formal dissent on Novak’s part.” “I believe that they do,” Whitmore concludes.

What neither Whitmore nor any other commentator has taken the trouble to answer is how it makes sense to speak of “dissent” from teaching one believes to be based on factual error on a matter on which the Church has been promised no divine protection from error. Had a series of popes said that two and two made five, it would be unreasonable to call someone a “dissenter” who argued that in fact they made four, particularly since mathematics is not a discipline into which the popes have been granted any special insight. The very notion of dissent is obviously inapplicable in such a case. And if economics is just as legitimate and internally coherent a discipline as mathematics or any other field of study, the same boundaries should apply in this case as in those.

This is precisely the nature of the critique offered by Novak and even more so by my own work. (If anything, the problem with Novak’s position is not that it is too pro-market but that it is far too timid in its endorsement of the market.) We are not dealing here with the pertinacious denial of a solemn dogma believed by the Church for two thousand years that the conscience is absolutely bound to accept, but rather with a good-faith effort on the part of loyal Catholics to amend certain economic positions which, though advanced in the name of helping the poor or rectifying alleged injustice, have had and indeed must have the opposite effect.

Still, there are those who would stifle healthy and vigorous discussion of economic issues in the name of authority. “We need a Mandatum,” say Mark and Louise Zwick of the politically leftist Houston Catholic Worker, “to ensure that the economics taught in Catholic universities will reflect the social teaching of the Church.” Such a demand is both an embarrassment to the Church and an outrageous offense against a legitimate sphere of academic freedom within the university. It also reveals a profound confusion regarding the very nature of economics and of the Church’s Magisterium itself.

As I have indicated, it can be shown on the basis of theoretical argument and of empirical evidence that coercive labor unionism makes some workers worse off; Richard Vedder and Lowell Gallaway of Ohio University have also shown that labor taken collectively is much worse off than it would have been had a free labor market prevailed over the past half century. To be sure, that conclusion appears to contradict the implied conclusion of Catholic social teaching that labor unionism is a legitimate means for workers to advance their interests, and one that Catholics should favor. What, exactly, would the Catholic university endorsed by the Zwicks do with such information as Professors Vedder and Gallaway provide? Ignore it? Assume a priori that it must be false? Would I be fired for communicating such subversive information to my students? If so, would the Zwicks, before firing me, at least do me the courtesy of explaining where my logic was mistaken, or am I simply to assume that logic is not welcome in their “Catholic” university, since its conclusions are disappointing from the point of view of the social teaching?

Those of us who belong to the Church and are persuaded by the claims of Austrian economics insist upon the legitimate liberty of opinion that is supposed to be permitted in matters that do not touch upon Catholic dogma, and on which men of good will may disagree. St. Augustine is said to have remarked, “In fide, unitas; in dubiis, libertas; in omnibus, caritas” (in faith, unity; in doubtful matters, liberty; in all things, charity). Such liberty of opinion on economic matters is generally recognized in practice. No one is suggesting that the sixteenth-century Spanish Scholastics, who held a number of proto-Austrian economic ideas, be declared heretics for that reason — though they certainly would be considered heretical had they denied an actual Catholic dogma: the Incarnation, the Trinity, the two natures in Christ, and so on. The Spanish Scholastics remain profoundly admired by Catholics as the great intellects they were — unthinkable if they had pertinaciously taught perverse error.

When in the early twentieth century Msgr. John Ryan put forth his moral arguments for a family wage for a head of household, he was criticized by some in Catholic scholarly circles. The Catholic University Bulletin published a lengthy critique of Ryan in 1907 — and as anyone familiar with that publication knows very well, its editors would never have published anything they believed to be in conflict with the tenets of the Catholic faith. That they nevertheless published critiques of Ryan reveals that they were able to make the elementary distinction between matters of Catholic dogma and matters which, by virtue of their reliance upon analysis borrowed from a secular discipline, are necessarily excluded from the infallibility that the Church claims in matters strictly pertaining to faith and morals.

Pope Pius XI made a significant concession in his encyclical Quadragesimo Anno (1931), which marked the fortieth anniversary of the issuance of Leo XIII’s seminal Rerum Novarum. He acknowledged that limits must exist to what the moral theologian may legitimately say within the economic sphere, since “economics and moral science employs each its own principles in its own sphere.” To be sure, the Pope then went on to deny that “the economic and moral orders are so distinct from and alien to each other that the former depends in no way on the latter.” But once it has been conceded that economics is a bona fide science possessing an internal coherence of its own, problems immediately arise for those who would claim that Catholic social teaching definitively settles all major economic matters in an absolute and binding way. As A.M.C. Waterman points out, this concession by Pius XI “throws doubt on the authoritative character of that very substantial part of Catholic (or at least papal) social teaching which consists not of theological and ethical pronouncements, but of empirical judgments about the economy.”

This is the fundamental issue, as yet unresolved, in Catholic social teaching from the perspective of the supporter of the market. The moral argument advanced in favor of such teachings as the “living wage” is inextricably bound to certain economic preconceptions. But if those economic preconceptions are incorrect, what happens to the moral analysis whose conclusions are based on them? For instance, churchmen have wanted to increase the material well-being of workers, and some have not ruled out the imposition of a government-mandated “living wage” in order to do so. But what if such legislation increases unemployment? Should this not be a factor in our moral evaluation of living-wage legislation? Furthermore, what if we can show that real wages are reliably increased across the board not by intrusive legislation but by an economic order that leaves capital accumulation unhampered, thereby increasing the productivity of labor? Facts like these must inform our judgment of such important matters.

This is the primary difficulty with some of what goes by the name of Catholic social teaching. And it is this, rather than any lack of loyalty to the teaching office of the Church, that accounts for why so many genuinely faithful Catholics have had difficulty lending their wholehearted support to these positions.

William Luckey, chairman of the department of political science and economics at Christendom College, shares this concern. “The fact that Catholic economic teaching, put forth as unchanging and required of belief, did not square with what Austrian economists know to be true, has created an agonizing crisis of conscience for such economists.” All these economists have tried to say is that if churchmen wish to weigh in on important economic questions, they cannot do so in a way that legitimately binds the conscience unless they pay very serious attention to what the secular discipline of economics has to say.

The Anti-Marxist Insight of Leo XIII

In Rerum Novarum, Pope Leo XIII insisted that there was no inherent antagonism of interests between labor and capital. This point strikes at the heart of Marxism, of course, since that ideology posited a war of class against class as the normal and unavoidable condition of the market economy. The Pope may not have realized the full import of the point he was making. The analysis that follows may, I hope, vindicate his claim more decisively than he may have thought possible.

What I want to show here, in brief, is that in fact the normal operation of the market tends toward an increase in the laborer’s standard of living. So benevolent an institution is the market that no one’s gain has to come at the expense of anyone else. Everyone can gain simultaneously. That being the case, it is this approach that Catholics should take when seeking to increase people’s standard of living — not only because it is the only way that can improve everyone’s economic well-being at once, but also because it does so in a way that sets up no artificial antagonism between labor and capital, as does all proposed legislation that would have increases in the worker’s well-being come at his employer’s coerced expense.

In my opinion, one of the most important contributions of George Reisman’s book Capitalism (1996) is the author’s “productivity theory of wages.” Given my limited time this morning I can only sketch Reisman’s argument, though I do him considerably more justice in my forthcoming book.

First, a proviso. In an economy with an expanding money supply, it is conceivable for everyone to earn more money at the same time, and for the prices of all goods to rise on a steady and regular basis. This, of course, is a description of the American economy for most of the twentieth century. But these features of our inflationary economy obscure the actual process by which our living standards are increased, because they mislead us into thinking that the source of our increased prosperity is the greater quantity of dollars we tend to receive over time for our services. For the sake of conceptual clarity, therefore, we imagine in what follows an economy with an unchanging quantity of money.

The key to the process whereby the unhampered market increases the average standard of living involves business investment in capital goods that increase the productivity of labor — that is, the amount of output that each worker is capable of producing. A forklift makes it possible for a worker to move and stack far more pallets than before, and to reach heights that would have been impossible with his bare hands. Other kinds of machinery can multiply the efficiency of a single worker many times over, sometimes even by orders of magnitude. The amount of goods the economy is capable of producing rises, at times even explodes. This is how wealth is created.

As a result of such capital investment, firms can now produce many, many times more goods than before, and at considerably lower cost. Thanks to the pressures of market competition, firms pass on these cost cuts to consumers in the form of lower prices, better quality merchandise, or a combination of both. The ordinary person’s standard of living increases, therefore, not because government takes from the rich to give to him — that kind of simple theft would only undermine the process herein described — or because labor unions “struggle” with employers to win him concessions. His standard of living increases because on the unhampered market business firms are in a position to invest in machinery that makes it possible for more and more goods to be produced with fewer and fewer hands, thereby increasing the overall amount of material goods available and rendering them less and less expensive. As Reisman explains, “It is the productivity of labor that determines the supply of consumers’ goods relative to the supply of labor, and thus the prices of consumers’ goods relative to wage rates.” (That this process tends to increase all real incomes and not just wages in no way minimizes the fact that it does contribute to an increase in real wages.)

It should be unnecessary to point out that this does not mean that we will run out of jobs. As long as human wants remain even partially unfulfilled, there will never be a shortage of jobs. In some fields, such as agriculture, the increase in output made possible by productivity gains will not be met by a proportionate increase in consumption, and will therefore result in fewer workers employed. But this released labor is now available to produce other goods that we could not have had before, since it had been tied up in agriculture. Again, the result is greater wealth. In other fields, such as automobile manufacturing, productivity increases will make possible a mass market in a product that had once been a mere luxury, and will therefore attract more employment. In both cases, the great mass of consumers are enormously benefited.

To say the least, this is not the description of events that we find either in the typical history text or, unfortunately, in the statements of bishops’ conferences. Instead, we hear that massive redistribution of wealth from rich to poor was and is morally necessary and economically indispensable in order to improve the lot of the least wealthy. But that kind of policy would have done absolutely nothing to improve the standard of living of workers who lived during the early Industrial Revolution. As Reisman puts it, “If one person in a thousand, say, is a wealthy capitalist, and eats twice as much and has twenty times the clothing and furniture as an average person, hardly any noticeable improvement for the average person could come from dividing the capitalists’ greater-than-average consumption by 999 and redistributing it.” At best, therefore, such wealth redistribution would have been useless in eradicating the poverty of the past; at worst, by discouraging the wealthy from investing, such an approach would only have inhibited the process of wealth creation we have described here, and diminished or halted altogether the progress toward a higher standard of living that would otherwise have occurred for the great mass of the population.

The salutary process by which the free market leads to an ever-higher standard of living occurs without having to threaten violence against anyone or to confiscate anyone’s wealth by force. It certainly occurs very much in spite of destructive and ill-considered campaigns for a “living wage” — carried out, all too often, in the name of Catholic social teaching — which utterly fail to understand how this process occurs and which only make it more expensive to hire people in the first place. Pope Leo XIII’s point that there is no necessary antagonism between labor and capital could enjoy no greater and happier vindication than this wonderful, mutually beneficial process. Labor and capital alike should want the same thing: an economic environment with as little taxation as possible (even none at all), and an environment in which business investment and expansion are unhampered. How could this conclusion not be central to sound and sensible moral reasoning?

This kind of analysis dramatically simplifies the process of making moral and economic sense of such subsidiary issues as working hours and working conditions. Didn’t workers in the past have to work very long hours? Certainly. There is no doubt that by today’s standards, people in the nineteenth century did indeed work an exhausting schedule. But, again, when output per worker is miserably low, then a supply of consumer goods that most people consider adequate requires people to work correspondingly long hours to produce them all. That, and not the wickedness of big business — as the typical textbook relates the matter, with dreary predictability — accounts for the low standard of living and long hours of work that existed in the past. As the productivity of labor increases, and with it the level of real wages, people can begin to opt for additional leisure rather than continue to work the long hours of the past. Without the need for any legislation whatever, a situation will eventually arise in which employers find offering correspondingly fewer hours to be in their own economic interest, and will offer them without the need for government coercion. If someone who once worked 80 hours per week now wishes to work only 60 (that is, three-fourths as many hours), and is willing to accept a wage less than three-fourths that of his previous wage as a premium on the leisure he will now enjoy, it makes perfect sense for his employer to offer these terms.

To the extent that maximum-hours legislation corresponded with people’s desire to work fewer hours, it was superfluous, since such an outcome would have come about by means of the process just described. But to the extent that such legislation was economically premature, forcing fewer hours on workers who needed the wages of their longer hours in order to maintain what they considered an adequate standard of living, it harmed the very people it was allegedly intended to help.

The same can be said for legislation to improve working conditions, which was praised by Pius XI in Quadragesimo. Improvements in working conditions that pay for themselves in terms of less workplace damage and disruption will of course be readily adopted by any profit-seeking enterprise. But even improvements that do not pay for themselves will still be adopted in cases in which the wage premium that would have to be offered to attract workers in the absence of the improvement would be higher than the cost of simply introducing the improvement.

The only non-arbitrary way of introducing an improvement like climate-controlled facilities, therefore, and the only way of doing so that does not price workers out of jobs entirely or impoverish society out of proportion to the satisfaction derived by workers now enjoying climate control, is by paying attention to the market. Everyone knows that certain lines of work, because of their difficulty or because of undesirable or unpleasant aspects of the labor involved, carry a wage premium to attract sufficient workers by compensating them for these negative factors. As time goes on and more and more places become climate controlled, the wage premium for non-climate-controlled workplaces will rise. The wage differential that the non-climate-controlled workplace must pay in order to attract workers away from employers with climate-controlled facilities may eventually reach a level at which it would be less expensive for the firm simply to install climate control rather than to go on paying higher wages than their competitors who provide climate control. The market thus allows for rational allocation of resources, and helps to ensure that improvements in workplace conditions — which, after all, have no logical limit: who would not want five-hour lunch breaks, the services of a masseuse, and an office with a view of Niagara Falls? — do not come at the expense of other goods that workers and consumers value more. There is no such thing as a free lunch, economists sometimes say, and any improvement in working conditions must come at the expense of something else that must now be foregone. There is no way, in isolation from market exchange, that improvements in working conditions can be rationally compared with these foregone opportunities.

Most people, including numerous recent popes, take for granted that the government must enact legislation governing working conditions. Now certainly the popes would oppose state-mandated safety requirements so stringent as to cause serious disruption in employment. As free-market economists have suggested, however, there is only one non-arbitrary way of ensuring that increases in working conditions do not come at the expense of other goods that society at large as well as workers themselves value more highly. That way involves market exchange. For that reason, therefore, there is nothing subversive or objectionable taking place when a Catholic recommends the market as the best way of implementing the popes’ concern for working conditions, even if this particular solution may not have occurred to them (as indeed it does not occur to most people).

A similar analysis can also shed light on the problem of child labor, the source of a great deal of uninformed moralizing. Far from a product of the Industrial Revolution, child labor has existed since the beginning of time. When the productivity of labor is hopelessly low, parents naturally think of children as economic actors who can contribute to the well-being of their families. Without their children’s participation in the family’s work, the entire household could suffer terrible privation. This is a fact of life in poor, low-productivity societies that no “progressive” legislation can wish away. As Anna Krueger writes, “The issue of child labor is vexing: there are legitimate issues of intolerable working conditions, but employment of children may provide food that prevents a family from starving. In some instances, also, it may provide girls with an alternative to forced early marriages.” Even the International Labor Organization conceded in a 1997 report, “Poverty, however, emerges as the most compelling reason why children work. Poor households need the money, and children commonly contribute around 20 to 25 percent of family income. Since by definition poor households spend the bulk of their income on food, it is clear that the income provided by working children is critical to their survival.”

To say that legislation can bring about an end to child labor is akin to saying that someone’s fever could be cured by dousing his thermometer in ice. The only way child labor can come to a genuine end is when the need for it has dwindled or disappeared. In societies where the productivity of labor has risen sufficiently — in other words, when the labor of fewer people is now necessary to perform the same amount of work as before — the contribution of children to the productive process no longer carries the same urgency. In wealthy societies like these, parents have the luxury of keeping their children at home, and in our own case, even providing them with over twelve years of formal education by age 18. Again, this outcome could not have been wished into existence. It had to be brought about through a dramatic increase in the productivity of labor — in other words, by the capital investment that occurs on the unhampered market.

Those who, out of a combination of legitimate humanitarian concern and unfortunate economic ignorance, attempt to accelerate this process by means of legislation prohibiting child labor only add to the very misery they claim to be alleviating. It is only because such humanitarians have spent their lives in the fantastically wealthy capitalist societies of the West that they could have failed to realize that dire poverty, which makes child labor inevitable, has been the lot of the entire human race for the great majority of its history. The fact is, legislation or no legislation, the typical family in a very poor country still needs the income the child’s work brings. If the law prevents their children from being employed legally, then — supposing they do not want to starve — they are likely to employ their children illegally, where conditions are almost certain to be far worse. In fact, in exceedingly poor societies where liberal humanitarians have prohibited child labor, it is not uncommon to find that the children wind up in prostitution — hardly an improvement in their welfare, to say the least. In fact, Oxfam, the British charity, recently reported that when factory owners in Bangladesh gave in to pressure to fire child laborers, thousands starved or went into prostitution.

In light of our discussion of wages and how they are increased, we are in a better position to evaluate Pius XI’s statement in Quadragesimo Anno that all men must be paid a wage sufficient to support their families in reasonable comfort, and that where this is not possible “social justice demands that changes be introduced as soon as possible whereby such a wage will be assured to every adult workingman.” According to our analysis of wages, when Quadragesimo instructs us to introduce changes in order to make a living wage available to workingmen, we should comply by removing as many obstacles to investment as possible, and eliminating taxes on capital, “excess profits,” and the like. Unfortunately, certain ecclesiastical documents seem to call for just the opposite. Such ill-considered recommendations only underscore the importance of sound economic reasoning to sensible moral judgment. “What was wrong with Catholic social thought in the nineteenth century,” writes Fr. James Sadowsky, “was not so much its ethics as its lack of understanding of how the free market can work. The concern for the worker was entirely legitimate, but concern can accomplish little unless we know the causes and the cures for the disease.”

Strangely, little or no acknowledgment is made in papal economic writings since 1891 of the enormous increase in living standards that became evident among the great mass of the population from the Industrial Revolution to the present, or the substantial increase in the purchasing power of wages that occurred throughout the nineteenth century, the century of laissez-faire. This is surely one of the most outstanding features of modern European economic history, yet for some reason it features not at all in the social encyclicals. To the contrary, the social encyclicals routinely speak as if the workers’ condition had actually stagnated or even deteriorated (as indeed popular opinion continues to believe). Professor Luckey writes that it is “hard to excuse Leo XIII” for his statements to this effect. “Using life expectancy figures, which ought to have been available to Leo, it is clear that at the dawn of the nineteenth century life expectancy in England was about 37 years, but after 1871—5, about 20 years prior to Rerum Novarum, there is an acceleration in life expectancy with no setbacks, so that by 1900 English life expectancy is about 50. Real per capita income begins to soar immediately after 1800 in all of Europe.”

Let me offer one additional consideration before closing this section. When dealing with wage rates, a moral question that is hardly ever asked, but should be, by those who advocate “living wage” legislation is why the obligation of charity should fall entirely upon the shoulders of the employer. Fr. Sadowsky argues that the very fact that an employee has accepted employment is an indication that he expects to be made better off than he would have been had he attempted to go into business for himself. Thus in the case of a worker in dire need, while “certainly from a Christian point of view we ought to help him meet his needs,” the question that ought to arise is this: “Why, however, should it be precisely the employer on whom this obligation falls, if in fact the employer is not worsening but bettering the condition of his employee?” Advocates of the minimum wage, living wage, and family wage never even raise this fairly critical question. As two other scholars recently put it, “If you want to give money to poor people, why not just go ahead and do it?”

Catholicism and Austrian Economics: Concluding Thoughts

Let me be clear: those of us within the Church who advocate the Austrian approach to economics are not demanding that the popes preach Austrian economics from the Chair of Peter. No one with any knowledge of the development of economic thought among churchmen over the centuries would dare to claim that a single view could constitute “Catholic economics.” Against those who suggest that a Catholic may look at economic matters in only one way, Professor Daniel Villey reminds us that “Catholic theology does not exclude pluralism of opinions on profane matters.” We do not claim that ours alone is “Catholic economics,” but merely that what we teach is not only not antagonistic to, but in fact is profoundly compatible with, traditional Catholicism.

A profound philosophical commonality exists between Catholicism and the brilliant edifice of truth to be found within the Austrian school of economics. The Austrian method of praxeology should be especially attractive to the Catholic. Carl Menger, but above all Mises and his followers, sought to ground economic principles on the basis of absolute truth, apprehensible by means of reflection on the nature of reality. What in the social sciences could be more congenial to the Catholic mind than this?

Likewise, Austrian economics reveals to us a universe of order, whose structure we can apprehend through our reason. As Professor Jeffrey Herbener explains, “A causal-realistic approach to economics arose in Christendom because only there did scholars conceive of nature as an interconnected order, created in the flux of time by God out of nothing, and governed by God-ordained natural laws that human intellect could discover and use to comprehend nature, with the goal of ruling over it for God’s glory.” The alternative is the world of John Stuart Mill, who posited that it was entirely possible that we might find some place in the universe where two and two do not make four — a view which, in Herbener’s words, “is grounded in the metaphysical position that the universe is not an orderly creation.” Which one is more compatible with Catholicism should not be difficult to discern.

The Church has always maintained that faith and reason are not in conflict, but rather constitute two harmonious paths to truth. That is the approach toward the secular world that makes the most sense for a Catholic, and for which there exists considerable precedent throughout history. In the second century, St. Justin Martyr spoke of the “seeds of the Word” to be found in the ancient Greeks, and Clement of Alexandria insisted that the great works of the Greeks be studied at his renowned catechetical school. St. John of Damascus (John Damascene) adopted the same attitude. He favored the study and use of what was good in Greek philosophy because “whatever there is of good has been given to men from above by God, since ‘every best gift and every perfect gift is from above, coming down from the Father of lights.'”

In my book on Catholic intellectual life during the Progressive Era, I show that the same type of interaction with secular knowledge was at work in the early twentieth century as well. It is simply not possible to question the doctrinal orthodoxy of the men I profiled in that book. At the same time, they were not afraid to engage in selective appropriation of the best of secular thought wherever it contained an insight that might be of benefit to the Church, all the while keeping the Faith itself free from profanation.

Yet while the Church has not hesitated in the past to make use of whatever secular knowledge has to teach, what is especially interesting about the present case is that the secular truths that economic theory has to teach were in some cases anticipated or even discovered by some of the Church’s own theologians. The Austrian School carries forward a great many of the economic insights of the late Scholastic theologians — a source of pride, not shame, for modern-day Catholics. The Scholastics perceived clear relationships of cause and effect at work in the economy, particularly after observing the considerable price inflation that occurred in sixteenth-century Spain as a result of the influx of precious metals from the New World. From the observation that the greater supply of specie had led to a decline in the purchasing power of money, they came to the more general conclusion — an economic law, as it were — that an increase in the supply of any good will tend to bring about a decrease in its price.

The Austrian School also shows what reason, properly exercised, can accomplish, and surely this is something that Catholics, who have always granted reason its rightful due, ought to appreciate. The great economic treatises of Ludwig von Mises and Murray N. Rothbard begin with the axiom that human beings act, and proceed to the elaboration of an entire economic system from this irrefutable premise and a few subsidiary postulates. Austrians reject the mathematization of the discipline that other paradigms have encouraged, and dismiss artificial models that reduce man to a mere atom. They are methodological dualists who insist that the study of man, who unlike animals and inanimate things is endowed with reason and free will, is something unique, conceptually distinct from the study of the physical universe, and they criticize the attempt to fashion economics along the model of physics and the hard sciences.

This, clearly, is a system that is eminently congenial to the Catholic mind.

Economics does not contain all the answers of life, nor does it claim to. It does, however, show how the morally acceptable desire for profit leads to spontaneous social cooperation that obviates the need for a bloated state apparatus to direct production. It shows us the fascinating mechanisms by which peaceful social cooperation, without the initiation of physical force, leads to overall prosperity. This means less disease, more leisure time to spend with our families, and greater opportunities to enjoy the good things of civilization.

In A Humane Economy, Wilhelm Ropke wrote:

What overweening arrogance there is in the disparagement of things economic, what ignorant neglect of the sum of work, sacrifice, devotion, pioneering spirit, common decency, and conscientiousness upon which depends the bare life of the world’s enormous and ever-growing population! The sum of all these humble things supports the whole edifice of our civilization, and without them there could be neither freedom nor justice, the masses would not have a life fit for human beings, and no helping hand would be extended to anyone…. Romanticizing and moralistic contempt for the economy, including contempt of the impulses which move the market economy and the institutions that support it, must be as far from our minds as economism, materialism, and utilitarianism.

That is sound advice from a wise man. It also happens to be the very message that Catholics working within the Austrian tradition have themselves been trying to convey.

N.B.: A footnoted version of this paper will appear in a forthcoming issue of The Journal of Libertarian Studies.

Professor Thomas E. Woods, Jr. [send him mail] holds an AB from Harvard and a PhD from Columbia. He teaches history, is associate editor of The Latin Mass Magazine, and is co-author of The Great Façade: Vatican II and the Regime of Novelty in the Roman Catholic Church (2002). His next book, The Church Confronts Modernity: Catholic Intellectuals and the Progressive Era, will be published in May by Columbia University Press.

Copyright © 2004 the Ludwig von Mises Institute

I delivered a paper at the Austrian Scholars Conference two years ago called “Catholic Social Teaching and Economic Law: An Unresolved Tension.” I was gratified by the amount of discussion it provoked at the time and in the months that followed. In a paper delivered later that year, Professor Richard Dougherty of the University of Dallas, who was not altogether persuaded by what I had had to say, nevertheless described my position very well:

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