Monday, December 8, 2014

The Church and the Market: In Defense of Economics

Chapter 1, In Defense of Economics in Thomas E Woods Jr.'s The Church and the Market has six sections: praxeology, Catholics and Austrian economics, the socialist calculation problem, Austria vs. Chicago, economic law, and economics: a value-free science.

In introducing this chapter, Woods highlights the rationality of the economic methodology of the Austrian School. He narrates that such an approach has both biblical and historical basis. The Bible and the Church Fathers attest to the beauty of God's design manifested in nature. There is regularity, order, lawfulness, and purpose. Such design is accessible through the employment of human reason. 

Not only the Bible, but great historical figures confirm Wood's thesis. He claims that both Isaac Newton and Ludwig von Mises share this concept of design. In the case of Isaac Newton, he saw similar operation both in the physical world and the society. Mises found the same order in economics and was happy to see that human actions can be studied not only from ethical perspective, but also from economic point of view.

Another historical evidence is the systematization of economic activity accomplished in the 18th and 19th centuries. The intellectuals during this period observed organic harmonies in human action. Woods refers to Mises to prove this point:
"As Mises points out, many of these thinkers found the hand of divine providence in the beautiful order and harmony created by the free market and the division of labor - a supplement to the order in the physical realm that St. Paul and Catholic theology as a whole had always pointed to as evidence of God's existence and goodness" (p. 140). 
Another authority in economics is the 19th century classical liberal, Frederic Bastiat. Here I want to copy the full quote from Bastiat taken by Woods from Economic Harmonies:
"For if there are general laws that act independently of written laws, and whose action needs merely to be regularized by the latter, we must study these general laws; they can be the object of scientific investigation, and therefore there is such a thing as the science of political economy. If, on the contrary, society is a human invention, if men are only inert matter to which a great genius, as Rousseau says, must impart feeling and will, movement and life, then there is no such science as political economy: there is only an indefinite number of possible and contingent arrangements, and the fate of nations depends on the founding father to whom chance has entrusted their destiny" (pp. 14-15).
After showing the biblical and historical precedents of the methodology of the Austrian School, Woods mentions the antagonism between the Austrian School and the German Historical School. And then he emphasizes again the importance of Austrian methodology based on the testimonies of both Carl Menger and Ludwig von Mises.

Carl Menger, contrary to the German Historical School, advocated the existence of economic law. He thinks this law is "universal and accessible to human reason" (p. 15). 

Returning to Mises, Woods emphasizes the distinction between the natural science and the social science, the so-called "hard" and "soft" sciences. In physics, it is just normal to use equation, chart, and graph for the objects of study are inanimate. This cannot be done in economics for the objects of study are human beings. The constant you find in physics is inapplicable in the study of human action. Based on this distinction, Woods asserts that for Mises, "the predictive power of economics was comparative rather than absolute" (ibid.). 

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I am happy to read that Woods starts his defense of economics with teleology. Reformed theology confirms such concept. However, the author assumes that reason is the same in all human. In this, he fails to take sin into account. Though he admits in the concluding section of the chapter that morality is inescapable due to the fact that economists are still human, but he implicitly denies the impact of sin on human reason. To this blogger, basing on Van Tilian assumptions, sin affects the entirety of man including his reason, and that would mean even his study of economics. And that is why I find this portion of Bastiat quote in pages 14 and 15 interesting:
"For if there are general laws that act independently of written laws, and whose action needs merely to be regularized by the latter, we must study these general laws. . . ."
Woods has a different goal in mind when he quoted Bastiat. I think he wants to emphasize the existence of economic law discoverable by human reason. As for me, I see another way to take a look at that quote. I think Bastiat's concept of the written laws regulating the general laws opens a different interpretation. If he was referring to the laws found in the Bible as the "written laws," then that would mean that even the study of the law of nature, which includes economic law, is not outside the regulation of biblical law. 

Besides that idea about the biblical law regulating economic law, this quote shows mankind two options as far as the study of economics is concerned. The first choice is to study the science of political economy that acts independently, but regularized by written laws. The second option is to depend on the wills of "great men." 


Source: Woods, T. E. Jr. (2005). The Church and the Market: A Catholic Defense of the Free Economy. Lanham/Boulder/New York/Toronto/Oxford: Lexington Books.