ECONOMICS FOR DUMMIES
Thomas E. Woods Jr., The Church and the Market: A Catholic Defense of
the Free Economy (Lexington Books, 2005) 280 pp., $21.95, Paperback, ISBN-13:
Reviewed Rupert J. Ederer
Normally I shy away from doing book reviews. This one was requested by two persons who are themselves masters of that craft, E. Michael Jones and Thomas J. Herron. Perhaps they feel less comfortable reviewing a book about economics than its author Dr. Thomas E. Woods Jr., felt about writing such a book, even though he is billed as an Assistant Professor of History at Suffolk Community College of State University of New York. His work is a venture into economics involving the suggestion of expertise even in such specialized areas of that science as methodology and the somewhat arcane field of monetary theory. Knowledge of theology and philosophy is a forgone conclusion in a work intended to expose the Catholic Church’s supposedly flawed venture into moral teachings about the economic order.
Immediately upon reading the Introduction of the The Church and the Market, it dawned on me that the book calls for an exposé rather than a review. I was transported back in time to when someone asked me to do a review of Michael Novak’s work on The Spirit of Democratic Capitalism (1982). As a matter of fact the name of that arch-dissenter against the Magisterium (Humanae Vitae, papal social teachings, and the justice of the disastrous war in Iraq) appears on the second page of the book as the head of the Advisory Board for Studies in Ethics and Economics sponsored by the Acton Institute. The author did not disappoint either the advisor or the Institute. The old adage about the apple falling not far from the tree is demonstrated in the opening pages of the Introduction (p.5) where we find a typical Novakian blast:
Now if it can be shown that any arrangement other than that achieved on the unhampered market must make workers worse off, there can hardly be a reasonable objection to my suggesting 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).
That struck me as a pretentious and presumptuous bit of pomposity. A host of some of the most impressive and saintly popes in the long history of the Church are in effect presented as “dummies” along with “most people,” which would be the rest of us peasants! And that is by a Catholic historian writing a book about economics, who proposes that the popes speaking in magisterial terms for what Paul VI first referred to as the “expert in humanity” are out of their depth. I would suggest that here is one assistant professor of history who had best catch up on his historical studies so that, among other things, he could comprehend what persons so far apart in ideology as Karl Marx and Bishop Wilhelm von Ketteler and Leo XIII (who regarded himself as his disciple on such matters) learned long before there was a well-heeled Acton Institute to turn the clock back to Victorian times.
A standard review would take another book of at least equal length in order to come to grips with the misinformation and errors throughout. What needs to be addressed here, first of all, is the objective dissent from moral teachings by the Catholic Church. The author is in effect opening a whole new line for what as come to be known as “cafeteria Catholicism.” Catholic social teachings from Leo XIII until John Paul II are reduced to the status of a dubious option!
Dr. Thomas R. Woods represents himself as a Catholic scholar. He indicates some discomfort about coming into apparent conflict with the Church’s social teachings dating back to the pre-Vatican II days and extending to those by Pope John Paul II. This becomes clear from the first chapter, where there is talk of, and defense against talk of, “disobedience to Church teaching” ( p. 3), up to the last chapter with its somewhat nervous defense against any charge of “dissent from Catholic doctrine” (213). Given that the last chapter is entitled, In Omnibus, Caritas. I decided to take on this task because the first obligation in charity is truth!
The author goes off the track from the start by adopting the prevailing party-line among economists that theirs is a positive (speculative!) science not unlike chemistry or astronomy. Thus it is subject to the same kinds of “laws” which popes apparently do not understand or wish to accept. At the end he informs us that popes are not divinely protected if they said things like “two and two made five” (p. 214). The inference is clear, and all of the intervening chapters in effect do purport to demonstrate that popes from Leo XIII onward to John Paul II have been trying to make two + two = five! What we are offered in place of their folly is what Woods calls the “brilliant edifice of truth to be found in the Austrian School of economics” (216). It is nowhere allowed that its members too could have tried to make two + two = something other than four. In fact their infallibility is proclaimed early in the book by William Luckey, who teaches such things at Christendom College. Luckey laments the fact that Catholics are expected to deal with teachings which “do not square with what Austrian (that is, free market) economists know to be true ...”(p. 6).
The early founders of that School, Carl Menger and Eugen von Böhm Bawerk are dismissed with a polite tip of the hat in order to get to the figures whom Woods relies on especially, They are Ludwig von Mises (1881-1973) and his understudy, the ex- socialist Friedrich von Hayek (1900-1992). He acknowledges that they were ”themselves agnostics” (p. 6), but we are warned that “their insights into human action are not for that reason alone to be ignored or despised.” We are nevertheless expected to reject the insights into “human action” of the popes who are theists. A host of American disciples are also mentioned: including Murray N. Rothbard, whom the author especially admires, along with such luminaries (unknown to most) as George Reisman and Israel Kirzner. One may safely assume that the three Americans were also agnostics since Jewish intellectuals, especially academic types like Mises and Hayek, are almost without exception agnostics or atheists as, incidentally, were also their socialist Jewish counterparts, Karl Marx and Ferdinand Lassalle.
It should be noted here that Catholics are sometimes specifically propositioned by the “Austrian” factor. Woods in fact includes a section entitled: The Catholic Attraction to Austrian Economics (216-217). We are even informed that “the Austrian School carries forward a great many of the economic insights of the late Scholastic theologians....” More about that later, but it appears the author is more impressed with the “late Scholastics” than with the ultimate Scholastic and Doctor of the Church, St. Thomas Aquinas. For example, we are asked to accept that poor Thomas didn’t get it quite right with regard to usury and about the “absolute” nature of the private property right (cf. p. 111,194).
Actually, Austria has produced a lot of less than salubrious ideologues, especially since the 19th century. I am not even thinking in the first instance of Sigmund Freud, but of the failed Austrian painter, of whose monstrous misdeeds we are reminded almost daily by our media. On the other hand, given their state of ideological captivity, Woods and the surviving Anhänger of the Austrian School would no doubt show little interest in the many positive by-products of that beautiful little country. Take, for example, the monumental work on Social Ethics (1949) by the great scholar Msgr. Johannes Messner. They would never buy his explication of the Scholastics’ acceptance of the Aristotelian natural law principle—that the state in its subsidiary role as the promoter and protector of the common good is the perfect human society (p. 542ff). Nor would they be likely to support a call for the beatification of the Austrian Chancellor Engelbert Dolfuss who had hoped to establish his country as a “Quadragesimo Anno state” before the Nazis assassinated him. Those were authentic Catholic Christian Austrians, like their recently beatified last Emperor Charles.
As for the agnostics of the “Austrian School,” now they are another matter! Nor are they ideologically neutral, as if that were even possible in social sciences dealing predominantly with human acts—contrary to what Woods appears to be suggesting throughout is work. Let us consider first the “sorcerer,” and then his “apprentice.” Ludwig von Mises, the Jewish agnostic, indicating his awareness of Peschian solidarism and its “similarity” to Catholic social teaching, wrote In his work on Socialism, that it (solidarism) is “but a simple step from Socialism,” because “it places above the owner an authority—indifferent whether Law and its creator the State (!), or conscience and its counselor, the Church—which is to see that the owner uses its property correctly.” (p. 83).
His “apprentice,” Hayek, also a Jewish agnostic, made no secret of his contempt for Catholic social teachings. In a work entitled The Mirage of Social Justice he wrote in 1976: “My basic contention is that in a society of free men, the term social justice is wholly devoid of meaning or content.... Social justice can be given meaning only in a directed command (i.e. totalitarian) economy in which individuals are ordered what to do” (p. 69). The concept distributive justice fares no better, since the “distributive justice aimed at is thus inconsistent with the rule of law and that freedom which the rule of law is intended to secure” (p. 96). As for solidarism, he claims that “primitive cultures burdened mankind with ‘solidarism,’ a concern for the welfare of the community, and ‘altruism,’ a charitable and self-sacrificing altitude toward one’s neighbors” (Cf. David Peterson, “Revoking the Moral Order: The Ideology of Positivism and the Vienna Circle,” Culture Wars, October1999). For Hayek “primitive cultures” presumably include the last vestiges of the medieval Christian social order that was overwhelmed by the incursion of capitalist individualism.
So much for a “neutral” economic science beholden to no ideology, let alone theology. What the Austrians are about, so far as their economic methodology is concerned, is pure positivism. That reaffirms what the Jesuit economist Heinrich Pesch (1854-1926) had to say about so-called “neutral” economics. Pesch was the master architect who set about not only to develop a social philosophy (solidarism) in harmony with the teachings of his Church, but also to provide direction for the reconstruction of the economic science by that time sorely in need of it. After being accused of “theologizing” economics in the earlier editions of his Lehrbuch, he responded with words that young students who get involved in the economic science should place at the top of their notebooks:
Let us not deceive ourselves: economics has always been under the sway of one or another Weltanschauung. For a long time this was the materialistic-Enlightenment point of view which had a decisive influence on bourgeois and socialistic economics. Very few scholars were not influenced by it. And those too in our own time, who do not want to hear about a normative science are for the most part under the influence of a positivistic, naturalistic world-view” (Lehrbuch/Teaching Guide to Economics, Pesch/Ederer, Vol.II, Bk. 1. p. iii).
What Ludwig von Mises (1881-1973) was all about, even while Hayek (1900-1992) was still a fledgling socialist, was already known to Pesch. In the fifth volume of his Lehrbuch, the Jesuit warned about his approach. What he wrote then applies precisely to the kind of economic system that Thomas Woods is proposing now. Referring to “neo-Manchesterism,” Pesch stated that “Mises is regarded as the main exponent of this trend....” He added: “Mises is on the wrong track when he attributes the terrible conditions in the English factory regions where neo-Manchesterism prevailed, not to that phenomenon, but to other circumstances.” Pesch concluded that “the historical development of industry among the various nations, and also a proper understanding of human nature, pass judgment on individualistic freedom” (Vol. V, Bk. 1, p. v). The Jesuit did his theological studies (1885-1889) in England close to Liverpool where he had the opportunity to observe first-hand the conditions of the working class. Woods, on the other hand, perhaps abandoned his field, history, too soon, so as to venture into economic theory.
What Pesch wrote about Mises’ work Gemeinwirtschaft (1922) suggests that what the Austrian’s disciples are proposing as a bold new approach to economic reform based on his supposedly value-neutral “praxeology” is actually some pretty old stuff. Since I could not find praxeology in my unabridged dictionary, I had to extrapolate its meaning from the context. I assume it includes all of the demand and supply curves, along with their different “elasticities,” and those which are “kinked” or “bend backwards.” Presumably it also involves the model of perfect competition on which economists like the late Joan Robinson (Economics of Imperfect Competition, 1933) and Edwin Chamberlin (Theory of Monopolistic Competition, 1933) built illustrious careers showing that it had little to do with economic reality.
That brings us to what is really at stake here. Value-neutral economics is a myth because it is a practical science unlike value neutral-astronomy or arithmetic (the 2 + 2 = 4 thing). Therefore, why is the Catholic Church excluded from presenting also a Catholic Christian Weltanschauung as appertaining to human, (i.e., free) actions which transpire in economic life? The problem lies in the positivist ignorance and/or rejection of, among other things, the very ancient and classical Scholastic distinction between the actus humanus and the actus hominis. The former has to do with voluntary or free acts, specific to human beings. The latter involves involuntary non-deliberate ones (respiration, heartbeat, etc.) which man, the rational animal, shares with the non-rational ones, and which are the proper objects of physical sciences. Economic actions, on the other hand, relate to human endeavors by people in cooperation with other people striving for their survival and upkeep. They are subject to moral laws, natural and Divine. Free human beings can ignore those at their own peril, in the same way that Catholics are able to ignore the teachings of their Church with regard to economic actions and all of their attendant problems. Ironically, Mises wrote a lengthy book entitled Human Action, where, unfortunately, he could not have gotten far beyond self-centered, hedonistic actions by humans.
Beyond the merely philosophical aspects, for those who identify themselves as Catholic, there is a further important dimension involved here. When I studied my catechism long before Vatican II, I learned that popes may teach infallibly with regard to both faith and morals. In other words, they are not confined to dogmatic matters (like the doctrine of the Immaculate Conception), as was suggested so frequently during the period of dissent against Humanae Vitae. Later, in the major seminary (still before Vatican II), I was privileged to study moral theology courses about the Seventh Commandment and about the theological virtues, including charity, as well as about the cardinal virtues, which include justice. Perhaps because I was of an earlier generation, it never occurred to me to question whether the popes were beyond their capacity in teaching about justice and charity and their opposites, like theft and avarice. Therefore, it came as no surprise or shock when Blessed John XXIII stated in Mater et Magistra: “What the Catholic Church teaches and declares regarding the social life and relationships of man is beyond question for all time valid” (218). He added in what seems to me a pretty magisterial mode: “Above all we affirm that the social teaching proclaimed by the Church cannot be separated from her traditional teaching regarding man’s life” (222).
To be sure, this does not mean that everything in an encyclical is of its nature an infallible pronouncement. There is also much prudential counsel which rates at least as much reverence as that proposed by agnostics! However, the mandate, for example, about the just wage to which each adult worker is entitled is another matter. It involves precisely the Seventh Commandment and the cardinal virtue of justice. And when a pope writes in an encyclical, as Pius XI did in Quadragesimo Anno, about the just wage: “If in the present state of society this is not always feasible, social justice demands that reforms be introduced without delay which will guarantee every adult workingman just such a wage”(71)—that seems to me to be pretty serious, if not solemn, use of the papal teaching authority with regard to morals. It entails also the Church’s competence in interpreting the natural law as Blessed John XXIII reaffirmed in Mater et Magistra.
Nevertheless, the late John Paul II, whom many are now calling the Great and proposing for sainthood, reaffirmed what his Blessed predecessor had said previously. In Sollicitudo Rei Socialis ( 41) he stated that while it is not the normal business of the Church to “propose economic systems and programs,” its social doctrine nevertheless belongs to the field, not of ideology but of theology, and particularly of moral theology.”
Alas, the “expert in humanity” and teacher of moral theology has come up short, so far as Thomas Woods and his school of thought are concerned. That emerges early in the book, and it resurfaces continually throughout and in its conclusion. In the Introduction we find the patronizing disclaimer:
I have nothing but the most profound respect for the pre-Vatican II popes whose economic commentary I regret having to criticize in the present study. They were good, holy, and courageous men who governed the Church with great skill and courage and from whose writings I have profited immensely. Yet as great as they were, merely by virtue of occupying the Chair of Peter, they did not inherit any particular economic insight over and above what any intelligent layman might possess.
It should be noted that the term social teachings is replaced here with the expression “economic commentary!” Mutatis mutandis, that statement is made of the same stuff as the “personally I oppose abortion but ...” disclaimer by some “Catholic” politicians. Furthermore, the author emulates the maverick theologians after Vatican II who always appeared to operate under the assumption that popes had no competent theologians and other experts around them (like the man who is now pope!). Modern pontiffs who drafted social encyclicals were themselves brilliant and highly educated men, and they also had around them scholars with the special expertise required for specific subject matter. Woods found the social teachings of John Paul II, “disappointing in certain ways,” even though in Centesimus Annus “he reveals a far greater understanding of market mechanisms than is evident in earlier encyclicals” (p.9). That, he calls “an encouraging sign.” I call such commentary a despicable display of hubris! Here the assistant professor in history is passing judgment on a pope who had two earned doctorates, taught social ethics at the prestigious Jagellonian University in Krakow, and then occupied the chair in that field for 22 years at the Catholic University at Lublin!
It goes without saying that what John Paul II had to say in his previous two social encyclicals indicated that he understood all too well the “market mechanisms.” The latter have brought even the “richest” economy in the world to where it is deeply indebted to the Chinese socialist giant on whom it now depends to a dangerous degree for far too many of its manufactured products. Laborem Exercens (1981) reaffirmed the just wage doctrine of Leo XIII and Pius XI by referring to it as no less than “the concrete means for certifying the justice of the whole socioeconomic system...” (19). To refute that papal teaching there is reference to certain “late Scholastics,” (p. 57) who are supposed to have held that free bargaining on the labor market leads as by magic to a just wage. It is never explained how the freedom of the rank-and-file steelworker—especially if unorganized, which status the author wholeheartedly endorses throughout—matches the freedom of let us say, Andrew Carnegie, in wage negotiations! It is rather, as Leo XIII stated over a century ago, that the worker “through necessity or fear of a worse evil,” becomes the “victim of fear and injustice’ (Rerum Novarum 34).
My mentor at St. Louis University, Harvard-trained Father Bernard Dempsey S.J., knew more about the Scholastics (early and late) and their teachings about interest, usury, and the just price than any American economist. He dealt with free market economics in his own succinct manner. “The chief difference between Scholastic just price and classical natural price is that the liberals believed their deistic Providence constituted fair markets automatically through the magic of competition, no matter how hard men tried to make them unfair.” He contrasted that with how the medieval guildsmen felt, since they “believed that men were the sons of Adam as well as of God, and that the accomplishment of the designs of Providence required the sedulous application of human reason as well as cooperation with divine grace” (The Functional Economy, 1958, p. 100). Recall that the Deists who started the economic science denied, among other things, the existence of original sin.
Substitute for the early “liberals” their later counterparts, agnostics like Mises and atheists like Marx, and you will find that they all represent an inevitable sequel to an uncaring, unloving and, therefore, irrelevant, and eventually fictitious God. Thus, mankind was supposedly left to rely on “laws of the market” to bring about the happy state of affairs designated as “general equilibrium.” In this utopia, wages, prices and interest rates etc. all turn out for the best in the long run (That Alice-in-Wonderland economics sparked all kinds of acid comments like Keynes crisp remark that “in the long run we are all dead,” and more recently the senior George Bush’s reference to “voodoo economics”).
One problem facing us now is that liberal capitalism has made a remarkable comeback since the post-Nixonian era. Pope John Paul II identified the trend in his Apostolic Letter Ecclesia in America (1999) as neoliberalism. The lunar economics designed to explain its promising prospects is here presented in this book about The Church and the Market. Labor unions are to be kept out, so that wages will be kept low assuring high profits. That will encourage capitalists to invest in order to produce things which it will require buyers from the moon to purchase, because a large and growing percentage of our underpaid earthlings are less and less able to afford them. For example the price of a gallon of gasoline, supposedly set by demand and supply on the free market (actually some oil barons meet monthly in Vienna around a large table to determine the supply) will soon make it impossible for the growing army of minimum-wage type workers to commute between their mandated multiple miserably paid jobs. It takes a lot of blind faith and historical oblivion to still believe in that long since discredited “law of markets” discovered by J. B. Say in 1803, suggesting that supply creates its own demand! But George Gilder and the “supply side” neoliberals are up to it!
That, basically is what the entire second chapter—“Price, Wages, and Labor” is all about. It includes authentic 1920s Chamber of Commerce-National Association of Manufacturers boiler plate: keep labor unions out, wages low, profits high, and we will all prosper. Presumably that course of action should have revived the then devastated stock market. Accordingly, the author even scolds Herbert Hoover (p. 68) for what may have been the one smart proposal he made after the Great Depression began on his watch. He suggested that employers should “keep wages high.” Now there will always be an economist somewhere who, notwithstanding all of the ineluctable “laws” supposedly governing economic life, has another opinion about such matters. There is even a considerable body of retrospective opinion which traces the inflated stock market of the 1920s and the consequent Great Crash to a post-World War I decade of static wage rates, even while productivity was rising nicely, so that profits also rose generously, causing the insane Wall Street orgy in the first place. Labor unionism involved barely10 percent of the non-agricultural work force in the mid 1920s—there being no significant protective labor legislation except in the railroad industry. In addition there was the ongoing employer program known in the labor relations textbooks as welfare capitalism. i.e. workers were asked to believe that they did not need unions, because the capitalist employers would see to their welfare! That, in essence is what Dr. Woods, a history professor, is proposing as economic wisdom in his book where those “good, holy, and courageous” pre-Vatican II popes with their “unscientific” encyclicals are asked, in effect, to mind their own business.
According to one of Dr. Woods’ experts, Jesuit James A. Sadowsky, “the trouble with Catholic social thought in the 19th century was not so much its ethics as its lack of understanding of how the free market can work” (p.80). I italicized “can” because historically it never actually worked that way. He had suggested elsewhere that the popes early on should have learned the fine points of the “wider science of human action known as praxeology” (p.16).
I would propose instead that the neoliberals should learn about the important relationship between the economic science and the science of ethics which according to Scholastic philosophy has as its material object precisely the actus humanus (human act) stemming from the deliberate act of the will. Since economic actions are in the main human actions, they are therefore subject to the moral law moreso than to the phoney “laws” of the market. The latter date back, not to Scholastics, paleo- or neo-. They are the contrivances of economic thinkers called physiocrats because of their inordinate fascination with the physical universe and its laws. Adam Smith admired them to the extent that he was sometimes termed “the last of the physiocrats.” He was followed by a host of so-called classical economists—some stranger than others—like Thomas Malthus, David Ricardo, Jeremy Bentham and John Stuart Mill, who all got into the act long before the so-called Austrian School.
As for praxeology, the real reason for papal neglect of it may have been precisely because the “free market” never did work as Father Sadowsky assures us it “can work.” The pioneer of Catholic social teaching, Bishop Wilhelm Emmanuel von Ketteler (1811-1877), was already aware of that. He wrote in 1871 in his remarkable essay, Liberalism, Socialism, and Christianity, long before socialism became a historical reality:
The dear Lord always sees to it, however, that the trees which men plant and the towers that they erect will not grow into heaven. Accordingly, he has permitted this false liberalism to give birth to a legitimate son. That son has already declared his father senile while proposing himself ever more boldly and persistently as the legitimate heir of liberalism. I refer, of course, to socialism.
The conclusion which von Ketteler drew is, if anything, prophetic. “If the principles of liberalism are valid, socialism, which is in fact one of the most perverse exaggerations of the human spirit, is fully justified.” This was the Bishop to whom Leo XIII referred to as his “great predecessor,” indicating that, “It is from him that I have learned.” (The Social Teachings of Wilhelm Emmanuel von Ketteler, Rupert J. Ederer, 1981, p. 506). So apparently did Pius XI. He wrote in his encyclical On Atheistic Communism: (1937) that the way had been prepared for its ”blind acceptance of Communism” by “the religious and moral destitution in which wage earners were left by liberal economics” (16).
Pius XII does not appear at all in the book’s Index. But he was, in fact, the last of the pre-Vatican II popes whom, despite their supposed lack of enlightenment about modern history and economics, the author regards as several cuts above the post-Conciliar ones. The omission may be due to the fact that Pope Pius XII did not write any encyclicals designated as “social” ones. Like John Paul II, he was a brilliant and gifted scholar and linguist. An ebullient John XXIII all but beatified him and declared him a doctor of the Church in his first Christmas Message—the ongoing absurd campaign to depict him as “Hitler’s pope” notwithstanding!
Actually Pius XII presented a great amount of social teaching during his 19-year pontificate. Much was addressed to the economic order, even to economic methodology. It too runs sharply counter to the neoliberal line which Woods presents in his book. He stated, among other things, in terms almost precisely identical with Heinrich Pesch’s Bedarfdeckungsprinzip, that “economic life is not about profits or riches or power, but about adjusting human production to human needs.” In an address “On Human Needs and Human Dignity” delivered in Rome on 3 June 1950, he offered this advice to the Catholic International Congress of Social Study in Rome also with regard to economic methodology:
The solution of this question must not be sought from the theory of ‘laws of the market’—a purely positivistic by-product of neo-Kantian criticism—nor in the mere formula, every bit as artificial, of ‘full employment.’ There before you is the problem on which We should like to see the theorists and practical men of the Catholic social movement concentrate their attention and bring their studies to bear.
That is counsel which is especially pertinent to what the author is up to. In any case, Woods, since he is himself not an economist but a historian, should not object if another non-economist, this intelligent pope of the Catholic Church, deals with a question of economic methodology, especially when a twisted methodology gives rise to severe moral problems, i.e. social injustice. Nor should his young Jesuit “expert” Father Sadowsky and other “praxeologists” take exception to what Pius XII said on 9 September 1956 in an address delivered in Rome on September 9, 1956, entitled Economics and Man:
The science of economics started to build up, like other sciences in modern times, by observation of facts. But if the physiocrats and the representatives of classical economics believed they had built a solid framework by treating economic facts as if they were physical or chemical phenomena amenable to the determination of natural laws, the falsity of such a conception was revealed in the crying contradiction between the theoretic harmony of their conclusions and the terrible social misery which they allowed to exist in reality.
John XXIII, who launched the Vatican II enterprise but did not live to conclude it, is also not mentioned in the book’s Index, even though he issued two magisterial social encyclicals. They affirmed and, as is typical, went a few steps beyond what previous pontiffs had said! Perhaps his “Blessed” status prompted the author to exempt him. Or maybe the “venture in trivialities” judgment in William Buckley’s National Review when Mater et Magistra came out in 1961 is considered definitive by all neoliberals. But inasmuch as it was John XXIII who sought to extend world-wide the application of the virtues of social justice and social charity from the rich to the poor nations, his benevolence in this regard must also be considered as flawed papal teaching according to Woods’ treatment of “The Economics and Morality of Foreign Aid.”
That entire fourth chapter is devoted to giving Pope Paul VI, his “come-uppance” for his encyclical-length proposal that the rich nations of the earth have obligations in justice and charity to assist the poor nations. Or, as the author puts it, with apparent indignation, “Western taxpayers were morally obligated to support less developed countries ...” (p.3). If there is such a thing as a worldwide common good, especially in a world grown much “smaller” following what may in a certain sense be termed the second worldwide common bad (World War II), and if we do in fact have obligations toward the common good in social justice and charity, then it seems that the leading teacher of a billion Catholics had a right to speak on the matter. Not surprisingly, a school of thought which opposes solidarity among workers (unions), and also within a national economy, is not likely to cotton to the international solidarity which calls for help from rich nations to poor nations.
In any case, it is not helpful to launch into an ideological tirade against the successor of Peter with a serious misstatement of what he is supposed to have said but did not say. In a fragmented quotation from his Apostolic Letter Octogesimo Anno, Pope Paul is quoted as saying: “that government always intervenes with care for justice and with devotion to the common good for which it holds final responsibility” (47). The quote is extracted from a lengthy paragraph in which the Pope listed several objectives which the “(P)olitical power ... must have as its aim.” And that is quite a different story!
On the other hand, the author cites with approval a statement by a government official formerly associated with the U. S. Agency for International Development: “Foreign aid is inherently bad” (131). Now there’s a value judgment! In the interest of positivistic objectivity he could at least have said “ineffective.” Undoubtedly some money from the assistance programs was at times handled incompetently and may even have fallen into corrupt hands. That is an eventuality to which our own Washington bureaucrats are no strangers. There were probably even a few “operators” present at the Sermon on the Mount, who put away a few extra loaves and fishes to sell them later along the roadside! However, such shenanigans do not negate the principle of the common good as the object of the virtues of social justice and social charity (solidarity). These were, of course, first negated definitively by Adam Smith in his Wealth of Nations, where he stated cynically that, “I have never known much good done by those who affected to trade for the public good” (p. 423). Accordingly he advised all to act in their own interest, suggesting that the greatest possible public good would result automatically. The program, for economic liberalism—both old and new—is based on the sound mathematical but flawed social premise that the whole is equal to the sum of its parts.
Speaking of things “mathematical,” the author and his Austrian mentors oddly disapprove of the intense mathematizaton of economic theory that has taken place. Yet the assumption of an economy that performs according to “laws” akin to the ones which govern the physical universe leads precisely and consistently to that end. They should not be surprised then if Alan Greenspan dutifully consults his complex econometric models before he sets out to raise interest rates one more time! Mathematics is the proper language for the positive sciences like physics and astronomy. Economists need to have more regard for the moral law, and for Catholics their popes are the leading guardians and interpreters of those laws, not a group of agnostics, Austrian or otherwise.
Specifically on this matter of foreign aid, Dr. Woods, following one of his experts, dismisses even the Marshall Plan, an early post-World War II foreign aid program, as unwise and unnecessary (p. 143). Aside from the charitable aspects of helping fallen comrades (even former enemies!) back on their feet, there is also the prudential consideration that our failure to do so at the time may well have resulted in a Communist takeover of also Western Europe, and/or World War III.
As for the author’s predictable championing of free trade and his censure of the Pope’s “high hopes for what tariff barriers could accomplish” (p.139), he should as a historian consider the wise action of Alexander Hamilton who instituted the first program of protective tariffs for our then infant-industries. Had those industries not had a chance to establish themselves and prosper when they did, the North may well have lost the Civil War to a South, which early on had far better generals and cavalry. The North’s advanced industrial development is widely credited with having made the difference.
I could not help but wonder how Woods and his neoliberal colleagues feel about the prodigious amount of “foreign aid” the American taxpayer has been providing for Israel—not by any means “poor” or Third World in the accepted sense, given that it has the fourth largest military force in the world, complete with nuclear arsenal! In fact such money is used also to buy bulldozers and tanks which level homes on Palestinian land, and to build a new “Berlin wall” separating Israel from the prospective Palestinian state, snipping off significant portions of it in the process!
The fifth chapter, about what the welfare state supposedly did to “the family and civil society,” again scores “certain encyclicals,” like Laborem Exercens by John Paul II, which “appear to call for a fairly substantial and expensive array of government welfare programs ... .” (147). The neoliberals have always treated that pope’s first two social encyclicals (Laborem Exercens and Sollicitudo Rei Socialis) as flawed practice-runs leading up to Centesimus Annus where he was finally beginning to get it right! Actually the three constitute a masterful trilogy of social encyclicals by that pope, providing a brilliant capstone for all social encyclicals since Leo XIII.
There is in this chapter an extensive denunciation of the “welfare state” and specifically of Sweden, represented as its paragon model. We are asked to accept that it is the “welfare state” which has led to the destruction of the family. The sexual revolution should get at least some of the credit, along with the official Anglican blessing for contraception in 1930. Then there were also the population controllers, including Wilhelm Röpke, whom Woods cites with approval. As for the social security system and the emerging demographic collapse of the West, the “population bombers” perhaps more than any single factor played a major role in that. Neoliberals never forgave John Paul II for stating in Laborem Exercens : “The expenses involved in health care, especially in the case of accidents at work demand that medical assistance should be easily available for workers, and that as far as possible, it should be cheap or even free of charge” (19). Is there anyone in America who proposes that health care has gotten less expensive since that was written in 1981?
Nevertheless, the author reminds us of how well off Americans are, with all of their refrigerators, washers etc. compared with so many other peoples now and in the distant past, notwithstanding all the talk of “poverty.” That, despite the fact that the lowest earning 60 percent of households in wealthy America share 29 percent of the country’s aggregate income, not much more than the 23 percent which the highest earning 5 percent harvest! In the face of harsh reality, anyone not securely grounded in the Catholic Faith and its social teachings could easily be carried along with a pendulum-swing back to some kind of socialism by the calloused “let-them-eat-cake” party-line—e.g., “Taxation, particularly on capital, means lower productivity, less production and wealth, and a lower standard of living”(p.155). The threatened lower standard of living is encroaching, notwithstanding the Reagan and Bush tax breaks for the rich. It is due more to our free trade policy which enriches our socialist partner-in-trade China, and the policies of oil barons, foreign and domestic, who may eventually see to it that only the wealthy can drive. That would prove disastrous, especially for a country which, among other things, has long since proven its inability and will to run a passenger railroad system.
The chapter about distributism provides a convenient straw man, which it is not too difficult to demolish. Brilliant as were some exponents, like Chesterton and Belloc, and as great as their literary, and apologetical skills and historical works were, their approach to reconstructing the social order was, in my own fallible judgment, more in the nature of a nostalgic lament. It involved a valid protest against what liberal capitalism had begotten after it grafted itself onto the Industrial Revolution—itself a God-given historical event, not to be undone! The medieval economic super-structure, unlike the solid Christian principles which gave rise to it, cannot be restored.
Heinrich Pesch spent most of his life working on a systematic revision of the economic science and a restructuring of the economy based on it. In addition, there were significant portions of his Lehrbuch devoted to the protection and promotion of a vital agricultural sector, even by tariffs. He also championed the importance of skilled crafts and small enterprises, amid the burgeoning industrial development of the time. On the other hand, he purposely avoided proposing restoration of “guilds” as a part of the solution because he considered them as unsuited to post-Industrial Revolution conditions. Updated structures were needed which he referred to as occupational organizations, a concept which found its way into Quadragesimo Anno (81-87). They were intended to include owners, managers, and workers within the same occupation or industry, whose common good they were to serve in harmony with the overall common good—the ultimate safeguarding of which was perceived as the task of the state. That implied the principle of subsidiarity which could not function effectively without the restoration of such intermediate bodies.
On the other hand, the honest endeavors of the distributists do not deserve certain criticisms by the author. Woods berates Belloc “because his entire system rests on consistent, sustained aggression against private property, involving punitive taxation and restrictions on the use of property” (168). In fact, the neoliberals believe in an absolute right of private property which goes completely counter to the conditional right set forth in the Aristotelian-Thomistic view and in all Catholic social teaching since Leo XIII. My right to own an automobile does not give me the right to drive it on the sidewalk, and as a corollary: my right to own a factory does not give me the right to cheat my workers
The third chapter, on Money and Banking, could have been added as an appendix. In its 41 pages, the author attempts to resolve intricate problems in two special fields of economics: money and banking and business cycles. In addition he also gets involved in the matter of interest and usury. Only the latter topic has specific relevance to The Church and the Market. In my opinion, Woods’ treatment of the other material demonstrates the worth of two proverbs: “ Cobbler, stick with your last;” and the one suggesting that “a little knowledge is a dangerous thing.”
Money and banking is a complex field within economics to which universities dedicate specific courses. The same is true of business cycles, now commonly referred as economic fluctuations. Neither of these two areas is addressed directly in papal social teachings, perhaps precisely because they of such a specialized and technical nature. The matter of interest and usury, on the other hand, has been of concern to the Church since the Middle Ages, although it is not treated in the encyclicals of popes in the modern era. The author, a historian, does not hesitate to dive feet-first into all three subjects.
In tackling the money problem, Woods gets into solutions which in terms of realistic prospects have to be termed far-out. He proposes that banks should be required to get out of the money creation business which stems from their being allowed to lend deposits against which the original depositors can simultaneously write checks. Economists understand well how this takes place. Laymen, if they have it explained to them, either shake their heads in disbelief, or decide that it must be okay if the economists say so. I can only hazard a guess as to why the Church at its center avoided involvement in this matter. Aside from its highly technical nature, given the state of the economic science, there is no genuinely better alternative even at present. Until economists develop a valid norm for issuing money, what is going on may be the least bad among other worse alternatives.
It so happens that I risked my reputation for sanity in graduate school by including in my doctoral dissertation the elimination of bank-created money as an eventuality. My graduate mentor, the Jesuit economist Bernard W. Dempsey, went along with me. He understood well that the 100 percent reserve principle was sound because in principle private banks operating for profit have no business creating money. Neither did he leave me with any illusions about whether an arrangement which had been in effect since the dawn of the capitalist era was about to change any time soon. Dr. Woods, or anyone else who believes that pigs will fly may be interested in my book The Evolution of Money (Public Affairs Press, 1964). I dare suggest it to the author because the free market guru, Milton Friedman, included it in the bibliography for his learned piece on Money in the Encyclopedia Britannica.
In any event, my concurrence with the author was short-lived. Indeed, I had difficulty comprehending why he took swipes at Fathers Charles Coughlin and Denis Fahey who also ended up proposing that banks should be stripped of their power to create money. So did Gertrude Coogan who helped the Radio Priest develop his useful little book, Money: Questions and Answers. With regard to Miss Coogan, Woods temporarily lost his cool. He abandons his own counsel: “In Omnibus Caritas,” when he presented her as “a monetary crank if ever there was one” (p. 106). Now dumping on Father Coughlin is of the same genre as ridiculing Senator Joseph McCarthy. It ingratiates one with those who mold popular opinion in our society.
In any case, Dr. Woods jumped from what is an intrinsically sound theory, to becoming what people in the trade call a “gold bug.” He champions the need to restore the gold standard with full convertibility of other forms of money into gold! Assuming that such other “forms” would have to include bank-created deposits which constitute the bulk of the money supply in the world today, there would not be enough gold, and silver, and throw in platinum, in the world to begin to scratch the surface. In churchy terms, a sentimental hankering for a return to that system is like expecting a full-scale return to the Tridentine liturgy!
Actually, our country was effectively on a gold standard for only a short time. From the beginning, it was on a bimetallic standard with the dollar expressed and redeemable in terms of both gold and silver. That never worked as expected, and, in 1879, amid a period of serious contention with the silver interests, we went effectively onto a gold standard. That was made official by passage of Gold Standard Act in 1900. After an early interruption of gold convertibility during World War I, free convertibility ended for good in 1933 after economies and monetary systems collapsed worldwide. The run on gold spread worldwide after the failure of the Kredit Anstalt in Austria in 1931. This proved, as it had so often, that in times of political or economic insecurity when people were most intent on exercising the right to convert other money into gold, governments invariably suspended convertibility. They were forced to do this to avoid the disappearance of the money supply in multiples of the amounts of gold that went into hoards or abroad.
Now Woods is of the school of economic philosophy which stands opposed to having the government do the “counterfeiting” (his expression, p. 109) instead of the banks. The bad news for neoliberals is that a gold standard depends on constant government surveillance and activity from beginning to end. Who but the state could determine what gold is worth if it is to serve monetary purposes? Reliance on the “free” market will not work here since the market value of gold changes daily, and something with a constantly fluctuating value can scarcely serve a nation as its standard of value.
What is more, the provision of any additional money supply as needed by growing economies and populations would have to be left to the chance discoveries of the metal by prospectors! That is precisely one practical reason why there is no gold standard today. Throughout history monarchs tried to meet the growing need for money, e.g., by a search for colonies with precious metals, as well as by debasing existing coinage. Later the banks stepped in to provide the medium of exchange needed in expanding economies. Necessity is the mother of invention! The Bank of Amsterdam, founded in 1609, perceived the need early on, followed later by the Bank of England (1694) and others. Such banks compensated for the faltering attempts by monarchs to provide gold and silver coinage adequate for the burgeoning volume of commercial activity stemming from the Commercial and Industrial Revolutions. Bankers devised various approaches, like banknotes and checking deposits, to provide the medium of exchange for growing economies desperately in need of it. Eventually central banks, e.g. our Federal Reserve System, were established by governments to exercise some kind of control over how banks issue money into circulation.
Now Dr. Woods is of another opinion about this, given his reverence for ancient and more recent gurus of the free market ideology. He cites David Ricardo and Frederic Bastiat in support of a flawed notion that, so far as money supply is concerned, one size fits all! (p.100). He also quotes “Mises and the Austrian School” as proclaiming that “above a certain threshold, any money supply is optimal.” Perhaps they were not aware of or concerned about how the pervasive process of deflation depresses economic activity wreaking special havoc among debtors. (The wealthy are more typically creditors.) Take an economy with 100 million people and a GDP (goods and services produced and needing to be exchanged) of, say, $1 trillion. Now picture it shifting down to operate with the same money supply as it grows toward, say, 200 million people and a $2 trillion GDP. For example, the U. S. economy after 1929 lost a third of its banks and a third of its money supply in a short time, and the deflationary impact was devastating. Dr. Woods’ generation has lived in a period of chronic inflation that has been ongoing since World War II, so it is perhaps difficult to appreciate the meaning and impact of its opposite. A predominant norm for monetary policy is to keep the value of money stable. Old Mises, Dr. Woods favorite economist, should have known better.
Finally, as a historian the author should appreciate the important role which the demon, government, played in creating money during critical times in our history. No one can say for certain whether our Founding Fathers would have succeeded in their venture without the issue of paper notes by the Continental Congress and also by the individual colonies during the War of Independence. Metallic money was in critically short supply, to the extent that the Spanish silver dollar was the principal coin (which remained legal tender until 1857). Even though the notes depreciated gradually toward being “not worth a Continental,” they did their job as a crude form of taxation when other tax monies were not readily forthcoming. The “Tis Death to Counterfeit” inscription did not deter the British from flooding the colonies with boatloads of counterfeit notes in an early form of economic warfare. They understood the importance of such paper money issue!
The same holds for the issue of new paper money—United States Notes (Greenbacks) —by the Lincoln administration during the Civil War—not to mention the South and its Confederate Notes. Because the North won the War, the U. S. Notes obviously fared much better. Beyond that, they were issued more prudently, so that they remained in circulation until recently when the Federal Reserve System seemed anxious to “simplify” our monetary system. Subsequent wars were financed in a “more sophisticated” manner by bank-created money, i.e., massive government borrowing from the banking system. The creation of new money, depending on its inflationary extent, continues to act as a hidden tax—but in extremis it can be a valid use of the government’s power, e.g., to save the nation. (The 14th century Bishop of Lisieux, Nicholas Oresme, developed this point in his significant Tractatus de Moneta ca. 1360 A.D.)
Space does not allow us to go in detail also with regard to business cycles. Dr. Woods dispenses with the highly complex issue in a few pages—an eventuality which becomes possible if one adheres to the naive laissez faire philosophy with its ineluctable economic “laws.“ He tells us confidently: “In an unhampered market with a commodity money, everything works out smoothly” (102). Once again the historian flunked the history test! The Harding-Coolidge-Hoover years came as close to providing “an unhampered market with a commodity money” as seems humanly possible. It was a period which in fact fulfilled what Woods termed “the policy implications of the Austrian theory... the government should do nothing at all” (p. 105). In fact it brought the worst economic collapse in our history, which also became worldwide, and put a definitive end, also worldwide, to “commodity money.” In addition, it brought the U. S. closer to a kind of national socialism than at any time in our history. And speaking of the real National Socialism, I propose one more question to test the historian author. How might our country and the world have fared if after the attack on Pearl Harbor, if that bete noire, the New Deal administration had not deliberately set aside the “laws” of the market, imposing instead price and wage controls, materials allocation, and rationing for the duration? Sieg Heil!
I am by no means suggesting that our economy would operate better also in normal times under such Draconian measures. But this history lesson helps to put the ineluctability of the so-called “laws,” in perspective. The law of gravity is properly called a law. If you jump out of a tall building in defiance of it, you are dead. During World War II we had 130 million Americans operating in defiance of certain so-called economic “laws” of the market. That was possible because in economic life we are not dealing with “laws” at all, but with tendencies and pressures which not only can, but in certain circumstances should, be subjected to the requirements of the common good.
Therefore, contrary to what Woods suggests (p.68), Heinrich Pesch was not being outrageous when he proposed that a person can deliberately flout such “laws.” That is precisely why he always used quotation marks when referring to them. If you flout an economic “law,” you may be inconvenienced. For example you may lose a few bucks by paying a worker more than the “market” would let you get away with. Or you may be honoring a higher law of human conduct prescribed by justice or charity.
The interest and usury question is more relevant to the author’s topic, even though it has not surfaced in the modern social encyclicals. It is included in this chapter of Woods’ book which suggests startling new discoveries in the writings of some of the later and lesser known Scholastics. I am not impressed. In fact, I would suggest that before the author and certain oft-quoted Acton scholars get too involved in reinventing the wheel, they should pay serious attention to work done more than a half century ago by the Jesuit scholar Bernard Dempsey in his doctoral work under Joseph Schumpeter at Harvard (Cf. Interest and Usury, 1943).
Among other things, Father Dempsey explained clearly what seems to present a problem to the author: the difference between a mutuum and a commodatum. The former (meum-teum) is the loan of something which of its nature must change ownership when it is loaned, because it is used up by the borrower (money, food). Therefore it is no longer the property of the lender. The commodatum involves a loan of something where the same thing is returned with compensation for use (a horse, tools). In the mutuum, only an equivalent amount must be returned to the lender barring the eventuality where he suffers some loss arising from the loan of, e.g., money (damnum emergens). He cannot be expected to pay for what by consumption or spending became his own. Woods finds “peculiar” St. Thomas’s position about charging for something you no longer own. He wonders “(W)hat exactly is wrong with ... selling the same thing twice?”(111). Perhaps in the grubby world of neoliberal economics that is acceptable, but not in the Christian world to which the Angelic Doctor spoke.
Actually, anything is possible if you seriously believe, as the author does, that price-gouging is acceptable market practice. In a previous chapter, he devoted several pages to defending the action of a Long Island Days Inn manager who was fined by the State of New York for increasing his room rate 185 percent following the 9/11 disaster. The ritual neoliberal justification is “the demands of morality can be satisfied only by means of the price that is reached through the voluntary agreements between buyer and seller.” Furthermore, “The market price therefore may with good reason be viewed as the only just price” (50). The catch is in the way neoliberals use the term “voluntary” and “free.” (Like the hapless victim of 9/11 standing before the Day’s Inn manager!)
The Scholastic teachers, including the later ones (Juan de Lugo, Leonard Lessius, and Luis Molina) all proposed a just price based on a communis aestimatio, which is definitely not the same as the particular need of a particular buyer at a particular time. Economists call the latter use value as distinct from exchange value. Use value is subjective and typically exceeds the price which finds expression in exchange value, therefore motivating the exchange transaction in the first place. The Schoolmen always insisted that the market price must cover labor et expensae (in that order!), thus assuring that the seller side of the market, along with the buyers with their differing use value estimates, was duly represented in establishing the communis aestimatio. As Father Dempsey indicated: “The title by which one receives a price for something from another must be resident in the seller: the necessity of the buyer confers no title on the seller to receive other than the common price” (Interest and Usury p. 139). That is what “gouging” is all about— e.g., like charging an exorbitant price for water to a particular man who happens to be dying of thirst at my doorstep. The labor et expense of the Days Inn manager and his staff were no greater on that particular day than on any other day where there may have been a full house. It appears that valid medieval Scholastic concepts too, like the communis aestimatio, have been redefined to fit the free market agenda of Dr. Woods and scholars at the Acton Institute.
Given the distinct possibility (which is not the case here), that some particular Schoolman may have came up with something that went counter to what a teaching pope presented in a social encyclical on, e.g. the just wage, definitive, for a Catholic, the ordinary magisterium of the Church takes unquestioning preference. For Dr. Woods proceeding from the neoliberal position, it appears that whoever comes up with an idea affirming that position is more magisterial!
Finally, it is necessary to correct some distortions of the work by the economist Heinrich Pesch, S.J., which I spent a lifetime studying. In a lament about Pesch’s rejection of so-called economic “laws,” Woods states that he “makes no serious attempt to reckon with the methodological work of such economists as J. B. Say, John Cairnes, and Nassau Senior ... .” (p. 69). He suggests that this is slipshod scholarship on Pesch’s part. Actually the shoe is on the other foot. Pesch cited Say a total of 27 times in the first, second and fourth volumes of the Lehrbuch. Cairnes was referred to in each of the first two volumes, while Senior appears ten times in the first, second, fourth, and fifth volumes.
Equally careless is the author’s claim that in his methodology Pesch was “sympathetic to the German Historical School” (p. 69). That school opposed the theoretical approach stemming from the British classical tradition, in favor of careful detailed study of actual historical conditions. While it is true that he “generously acknowledged what he termed the great achievements of the historical school,” (and there were such!), Pesch never adopted their methodology. He concluded instead that by it, “economic knowledge was doomed to remain full of gaps in the area of principles, and it failed to exhaust the full richness of economic truth” (Pesch/Ederer, Lehrbuch/Teaching Guide to Economics Vol.I Bk. 2, p. 359).
I noted that in Woods’ bibliography only one of Pesch’s earliest works, published in 1899, is listed. That was two years before Pesch returned to the university in Berlin to study economics at the age of 47. The first edition of Volume I of the Lehrbuch did not appear until1903. Woods owes Pesch an apology. If he, along with Luckey and other Acton scholars, are going to criticize Pesch, they will have to do more than skim through a few of the more than 5000 pages which he wrote. (The Lehrbuch has a copious Index.)
I devoted a quarter of a century translating into English the work of the man I consider the greatest economist until now, in the hope that one day young scholars may find it useful to reconstruct the economic science in a way that is compatible with basic Christian principles. What Dr. Thomas Woods has done in his work The Church and the Market involves a deconstruction of what Heinrich Pesch and several great modern popes of the Catholic Church set out to do. Woods stated in his Introduction that St. Thomas Aquinas built on what the pagan Aristotle had done. By opposing papal social teachings while championing the work of agnostics who were clearly contemptuous of those teachings and whose work he considers superior to them, he and his mentors at the Acton Institute are doing precisely the opposite. This kind of activity represents what the first pope of the Catholic Church warned about in one of the very earliest “encyclicals”: “The dog returns to its vomit” (2 Peter 22).
As an old man who does not have much time left, I pray that some young scholar will take seriously the counsel offered in 1925 by the greatest economist until now. “I openly and unreservedly acknowledge my conviction that the grave conditions which today afflict nations stem from the de-Christianization of economic life, and that a remedy is to be expected only if the Christian world-view will once again become predominant in the lives of people, nations, and specifically in economic life.” (Lehrbuch/Teaching Guide to Economics, Heinrich Pesch, transl. by Rupert J. Ederer, Vol..II, 1, p.iii).
This review was published in the December, 2005 issue of Culture Wars.
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