The Church and the Market: Summary of Chapter 1

Thomas E Woods Jr. presents his defense of the free market in chapter 1 of his book, The Church and the Market against three objections:

Objection # 1 - The emphasis of Austrian School on efficiency is morally questionable. 

Objection # 2 - The Austrian concept of economic law is incompatible with Catholicism. 

Objection # 3 - The autonomous nature of economics is contrary to Catholicism. 

Before refuting all these objections, Woods introduces first two subjects: the biblical and historical support for the rationality of the economic methodology of the Austrian School and praxeology. 

Concerning historical support for the Austrian methodology, Woods mentions the Church Fathers, Isaac Newton, Ludwig von Mises, Frederic Bastiat, and Carl Menger.

Regarding praxeology, Woods defines it as the "science of human action" (p. 16) where economics falls under this category. Moreover, praxeology is also the central methodology of the Austrian School. From this axiom of human action, Austrian economists "deduce an entire edifice of economic truth" (ibid.), which includes the goal of human action; the use of time, resources, and the human body; the concept of "ordinal ranking of ends" (p. 17); "the concepts of subjective value and the subjective nature of costs" (ibid.); "the law of diminishing marginal utility" (ibid.), and; the law of supply and demand.

The Efficiency Argument

For Woods, the efficiency argument is a baseless objection. This is because both Ludwig von Mises and Murray Rothbard do not see efficiency as central to the economic conception of the Austrian School. For Mises, central to his ideas is the insoluble problem of socialism due to the impossibility of economic calculation without the market price. Consequently, central planners are running blind in managing the socialist economy that will inevitably result to economic waste, poverty, and chaos. 

Furthermore, another essential element in Mises' thought is the desctructive consequence of socialism beyond economic failure into "the social and moral foundations of society" (p. 24). 

In the case of Murray Rothbard, the ethical question is central in his thought. In fact, he actually criticized efficiency as a myth.

The Economic Law Argument

The second objection is about the incompatibility of economic law with the Catholic faith. For Woods, the perceived incompatibility is non-existent for Aquinas himself teaches this concept of economic law. And besides, none of the laws of economics contradict Catholicism. Instead of criticizing the Austrian concept of economic law, Woods suggests that Catholics should learn from this school to have better and "informed economic decisions" (p. 29).

The Autonomy Argument

The third objection has something to do with the autonomy of economics from any academic disciplines particularly from natural science and theology. I find Woods' refutation of the third objection consistent with Catholicism's assumption. However, from the perspective of Classical Protestantism as seen in the writings of Herman Bavinck, Cornelius van Til, and Gary North, we can see several inconsistencies concerning the autonomous character of economics. These inconsistencies are related to the limitation of academic discipline, the descriptive character of economic analysis, the negation of the existence of Christian science of economics, and the relationship of faith and reason. 

For a detailed refutation of all these objections, you can read the following articles:

• The Efficiency Argument

• The Economic Law Argument

• The Autonomy Argument

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. 

The Church and the Market: A Value-Free Economics?

This is the 6th and the last section of chapter 1. It's about Economics: A Value-Free Science?

Chapter 1 deals with three types of objections:

Objection # 1 - The emphasis of Austrian School on efficiency is morally questionable. We answer this objection here.

Objection # 2 - The Austrian concept of economic law is incompatible with Catholicism. The response to this objection is found in this article. 

Objection # 3 - The autonomous nature of economics is contrary to Catholicism. This is the focus of the present article.

The third objection is about the relationship of economics to religion, Christianity, theology, and ethics. At the outset, we can see that the center of contention is between the autonomy of economics as a science and its subordination to religion. 

For Woods, the third objection is an outcome of a misconception about the nature of economics as a science. And so he responds to the objection by explaining first the nature of economics. 

Scarcity and the satisfaction of an end are two basic facts in economics. Its task is to describe these facts not to "prescribe" what our ends should be. However, by saying this, it doesn't mean that ethics is not important. Economics is simply describing the boundary of its subject matter and uses "reason to discover how man's ends can be reached" (ibid.). It accepts its limitation by acknowledging that the determination of end is not part of its task, but the territory of theology and moral philosophy. 

At this point, I notice that Woods is cautious about the danger of "intelletual imperialism" (p. 31) coming from both natural science and theology. He issues a warning:

"Every academic discipline, while making its own contribution to knowledge, is necessarily limited in the amount of truth with which it can enlighten us" (ibid.). 

That is why Woods likes Rothbard's idea that the recognition of this limitation is actually "good for our souls" (ibid.). 

Furthermore, by asserting the autonomy of economics, Woods also acknowledges the fact that economists as humans "should take moral positions" (ibid.) and these positions affect their attitude towards their subject. 

Closely related criticism to economics' autonomy includes the charge of "compartmentalization," which is a common mistake in modernity. Woods denies this charge. Since the task of economics is purely descriptive, he does not see the need for an ethical connection. And then he provides examples of such desciptive technical analyses: "analysis of supply and demand curves," analysis "of the complementarity of capital structure," and "analysis of the economic effects of inflation." 

For Woods, relying on Shawn Ritenour, the axiom of human action, which is the scope of economics does not belong to moral philosophy; it is simply a statement of the fact of human nature. As such the analysis of human action can rightly be perceived as "either correct or incorrect," but not necessarily "moral or immoral" (p. 32).

And so for Woods, there is nothing wrong to keep the autonomy of economics. He agrees with Benjamin Rogge that the Bible, the Papal encyclicals, Christian doctrine, and Christianity have nothing to do whatsoever with pure science like economics. Woods affirms Rogge's conclusion: "There can no more be a Christian science of economics than there can be a Christian science of mathematics" (p. 33). 

We notice here that Woods is emphatic about the disconnection of economics from ethics. However, he is cautious to repeat that this disconnection only concerns economic analysis and not about the use of economic resources. 

To strengthen his case, Woods brought us to the Medieval Period. During that time, the distinction between natural philosophy and theology was maintained. None would dare to import theology into natural philosophy for these two academic disciplines were accepted as separate. The issue of "compartmentalization" was not raised. Again, Woods finds justification for this position in Thomas Aquinas. He concludes that the same principle must be maintained to keep the autonomy of economics from theology. And finally, Woods relates his conclusion to Aquinas' three types of knowledge:

"St. Thomas made a famous distinction between knowledge attainable by reason alone, konwledge attainable by reason and also known by faith, and knowledge attainable only through faith. . . . Economics and its laws belong to the category of knowledge that is attainable by reason alone" (p. 34). 

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In summarizing the last section of chapter 1, I want to raise few points concerning Woods' position on the autonomous character of economics. I acknowledge that since the book is a Catholic defense of the free market, I think Woods' position is consistent as far as the Catholic presupposition is concerned particularly as found in the writings of Thomas Aquinas. 

However, Catholicism does not have the monopoly of the intellectual defense of the free market. From the perspective of Classical Protestantism as seen in the writings of Herman Bavinck, Cornelius van Til, and Gary North, we can see this issue of economics' autonomy from a different point of view.

One particular concern is about the limitation of academic discipline. I encounter this idea of "intellectual imperialism" first in Herman Bavinck's book, The Philosophy of Revelation. The concern of Woods concerning the dominance of natural science was already raised by Bavinck in his Stone Lectures at Princeton Theological Seminary for the academic year of 1908 and 1909. In chapter 4, Revelation and Nature, he affirms that natural science is “perfectly free in its own sphere” (p. 86) and it has to acknowledge its limitations, a principle, which Woods observes has been neglected by natural science for so long (p. 31). 

On the other hand, contrary to the conclusion of Woods, natural science (and I think Bavinck woul also include other sciences including economics) cannot be completely disconnected from theology and ethics. Bavinck warns:

Natural science "shall not form a conception, out of the narrow sphere in which it works, in which no room is left for the soul and immortality, for intelligence and design in the world, for the existence and providence of God, for religion and Christianity” (p. 86). In fact, Bavinck even argues that natural science has been using terms and ideas borrowed from metaphysics "like ‘thing’ and ‘property,’ ‘matter’ and ‘force,’ ‘aether’ and ‘movement,’ ‘space’ and ‘time,’ ’cause’ and ‘design,’ . . . . ” (p. 88). 

Moreover, the science of nature has a duty to “maintain its ethical character, and shall not put itself at the service of the evil inclination of the human heart in its endeavor to explain the world without God and to erect itself into a self-supporting and self-sufficient divinity” (ibid.). 

I think similar principle can be applied to other sciences. Maintaining the ethical character of the sciences is not a violation of their autonomy or a replacement of intellectual imperialism of natural science with another kind, theological imperialism. This is unavoidable on two grounds:

First, the world is either supranatural in its origin or has come from an eternal matter of some kind. Second, if the former is true, the fact of revelation is also inescapable. Christian Theism teaches that both nature and the Bible are parts of divine revelation. The study of economics is part of nature. 

Another concern is related to the descriptive character of economic analysis. It is something that all human can share regardless of religious standing, Christians or not. If this is the meaning of "ethical disconnection," I think the classical Reformed theology will have no quarrel with it. Moreover, Cornelius van Til has a particular concept that I think helpful to this discussion. He distinguished the difference between proximate or immediate matters from ultimate matters. When it comes to proximate matters, these are things that all human share by virtue of common grace. Theological formulation is unavoidable even in these areas of human concern.

My third concern is about the negation of the existence of Christian science of economics. I am not sure if I accurately understood Woods in this regard. If the "Christian science of economics" is similar to "biblical or Christian economics," I am now thinking about the 39 years spent by Gary North in finishing his 31 volume economic commentary on the Bible, which primary thesis is to prove the relationship between the Bible and the free market. Of course, to disprove North, one has to exert a certain amount of time and energy studying his books. As for me, that is a task that is next to impossible for none in our generation would dare do it, not only because it is perceived as a waste of time, but also the fact that the intellectual consensus has decided that the case is already closed. 

My fourth and last concern is about the three types of knowledge. This issue is connected to the relationship between reason and faith. I want to repeat here a portion of my comment on the first article: 

". . . . 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."

For an overview of the relationship between faith and reason:

Faith and Reason 1

Faith and Reason 2

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. 

The Church and the Market: Economic Law

After responding to the efficiency argument, Thomas E Woods Jr. mentions another argument that the same person raised. This time it is about the incompatibility of economic law with the Catholic faith. 

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The problem, says Woods, is that Sharpe presumes to know about the Austrian concept of economic law, but in fact, knows nothing at all about it. Though Woods concludes in this way, still he tried to understand what Sharpe meant when he said that "the 'laws' which the Austrians maintained have nothing whatsoever to do with the Natural Law of philosophical realism and the Catholic Faith" (p. 28). If by this, Sharpe meant "that the law of diminishing marginal utility" "has nothing directly to do with the Catholic faith", Woods grants that this is true. However, Woods sees no problem with this for a lot of temporal matters has also no direct connection to Catholicism. And besides, as already mentioned in the previous article, the Austrians' concept of economic law finds justification in the teaching of Aquinas. 

The Austrian concept of economic law and its methodology are not inimical to Catholicism, but to logical positivism. Woods identifies that most critics of praxeology came from this camp. They malign Austrian method as scholastic, old-fashioned, and unscientific. By the last word, they mean the natural science, as if, it is the only valid kind of science, and failure to follow after its footstep is considered unacceptable. 

Woods advances his response by referring to Richard Weaver who considers libertarians as "conservartors of the real world" (p. 29) for praxeology is simply an extension of the recognition about "the existence of natural constraints" (p. 28). If this is the case, it implies that the critics of praxeology are actually promoters of a fantasy world. 

Due to this recognition of natural limitation, heads of the state dislike Austrian economists and view them as "mischief makers" (p. 29). Consequently, the study of real economics was replaced with "'historical economics'" (ibid.). Woods quotes Mises describing the unfortunate state of "economic history" as "a long period of government policies that failed because they were designed with a bold disregard for the laws of economics" (ibid.).

In Bureaucracy, Ludwig von Mises also mentioned this deplorable situation about the expulsion of economic education from mainstream universities (1944, p. 83). The advocates of totalitarianism were only able to advance as far as they were successful in preventing the youth from learning economics and indoctrinating them instead with their tenets (p. 81). 

Returning to Sharpe's criticism, Woods enumerates examples of economic laws: the law of supply and demand, the law of diminishing marginal utility, division of labor and specialization, the connection of demand and supply with the price of goods, and the relationship between the growth of money supply with price increase. None of these laws are contrary to Catholicism. Woods suggests that instead of being critical about something that you don't know, Catholics should learn economic law to come up with better and "informed economic decisions" (p. 29).

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. 

The Church and the Market: The Efficiency Argument

The previous article is about praxeology, while the present article covers the next three sections of chapter 1, The Church and the Market: In Defense of Economics. These sections deal with Catholics and Austrian Economics, The Socialist Calculation Problem, and Austria vs. Chicago. The third and fourth sections are actually an elaboration of the efficiency argument started in the second section.

Thomas E. Woods Jr. argues that the Austrian School advocates tenets that are consistent with Catholicism. It emphasizes "a methodology that respects the uniqueness of man as a creature with free will" (p. 19). It also accepts design in nature discoverable through reason. However, it denies "scientism" and the argument that legitimate knowledge can only be obtained through inductive approach. Considering these tenets, Woods thinks that there is nothing in the Austrian School that Catholics would find disagreeable. Therefore, Woods finds it unfortunate to read the works of publishers that claim that the Austrian School teaches economics that is contrary to Catholicism.

Woods picks up John Sharpe as a concrete example of such kind of publishers. In the latter's defense of socialism as consistent to Catholic social teaching, he dismissed the economists of the Austrian school due to their liberal origin and associating "efficiency" with moral perversity. Woods thinks that Sharpe's assessment of the Austrian School has no basis. The man knows nothing, but a superficial knowledge of the Austrian School. As a fellow Catholic, he indirectly advises Sharpe to follow the example of Thomas Aquinas who tried first to understand his critics' arguments before attempting to refute them.

Though Ludwig von Mises charged socialism with inefficiency, this is not the central argument of the Austrian School against socialism. And besides, the quest for efficiency, says Woods is not a mark of moral perversity, but a value. It is simply an expression of faithful stewardship.

For Ludwig von Mises, the insoluble problem of socialism is the impossibility of economic calculation due to the absence of market price. Without the market price, the central planners are running blind in managing the socialist economy that will inevitably result to economic waste, poverty, and chaos. I like to copy here Ludwig von Mises' sharp and ugly description of socialism taken by Woods from Human Action: 

"Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that choose between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. To stress this point is the task of economics as it is the task of biology and chemistry to teach that potassium cyanide is not a nutriment but a deadly poison" (p. 24). 

Mises' critique of socialism, says Woods, goes beyond economic failure; it includes the threat to "the social and moral foundations of society" (p. 24). In Socialism: An Economic and Sociological Analysis, Mises warns that the socialist project does not stop with the abolition of private property; it also aims to alter the relation between genders. As a result, together with the abolition of private property, marriage too will disappear.

After witnessing the inaccuracy of the efficiency argument John Sharpe raised based on the writings of Ludwig von Mises, we now turn to Murray Rothbard. (I intentionally skip the Coase case for I find the explanation difficult to follow). 

Murray Rothbard questioned the concept of efficiency itself in his paper, The Myth of Efficiency. For Woods, the main point of the section, Austria vs. Chicago is that the efficiency question does not characterize the Austrian School, but the Chicago School. Sharpe therefore was mistaken to use it against the Austrians. Woods' perceives that to simply associate Rothbard's view with the efficiency question "is not even close enough . . . . to qualify as a caricature" (p. 27). In fact, for Rothbard, ethics plays a big role in his economic concept. Here's a quote from Rothbard taken by Woods from The Myth of Efficiency:

"I conclude that we cannot decide on public policy, tort law, rights, or liabilities on the basis of efficiencies or minimizing of costs. But if not costs or efficiency, then what? The answer is that only ethical principles can serve as criteria for our decisions. Efficinecy can never serve as the basis for ethics; on the contrary, ethics must be the guide and touchstone for any consideration of efficiency. Ethics is the primary . . . ." (ibid.).

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.

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This video confirms Ludwig von Mises' analysis of the destructive consequence of socialism beyond private property

The Church and the Market: Praxeology

This article is the continuation of The Church and the Market: In Defense of Economics. Elaborating the meaning of praxeology is the subject in this article. This is the first section found in the first chapter of the book.

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Praxeology is the "science of human action" (p. 16). Economics falls under this category. At the same time, for the Austrian School, praxeology is its central methodology. From the fact of human action, economists in this school employ reason "to deduce an entire edifice of economic truth" (ibid.). 

Though the Austrian economists agree in their central methodology, two of their great leaders, Ludwig von Mises and Murray Rothbard differ in their basic presuppositions. Ludwig von Mises started from a Kantian basis while Murray Rothbard proceeded from an Aristotelian-Thomasian grounds. 

After mentioning the difference in the basic assumptions between Mises and Rothbard, Woods demonstrates several Misesian economic postulates derived from praxeology. By doing this, Woods wants to show how praxeology works in concrete situation. 

Woods presents the goal in human action as the first postulate. The reason why human acts is to achieve an end better than his present situation. It is the satisfaction of this end that motivates man to act. We can find this concept in the writings of both Aquinas and Mises. 

Other components in human action include the use of time, resources, and the human body. When man acts , he employs these components. Inherent in such an action is choice, and this in return implies a cost. By this, Woods means that in deciding for one thing, other alternatives are left out. To do this, it requires an "ordinal ranking of ends" (p. 17) depending on the value that one places on these ends. At this point, "the concepts of subjective value and the subjective nature of costs" (ibid.) enter into the scene.

A related concept is implied in the above explanation. This time, it is "the law of diminishing marginal utility" (ibid.). In simple terms, this means that any good that you have more supply, the lesser you need it. 

The foregoing consideration leads to another postulate, the law of supply and demand. Since the law of diminishing marginal utility has something to do with the person's decreasing demand of a particular good as its supply increases, it follows that anyone will only be willing to increase the quantity of the same good provided that its price declines. Similar principle can be applied to labor and employment. Due to the influence of interventionism in imposing higher salary without considering the increased demand for labor, this action will logically results to fewer jobs. 

In concluding this section on praxeology, Woods mentions Mises' concept about the two branches of the sciences of human action: praxeology and history. For Mises, the theory derived from praxeology is necessary to interpret history. This is because the concepts derived from praxeology are not taken from experience itself, but through logical deduction. With this principle, praxeology negates logical positivism. 

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Personal Comment:

I decided to suspend my assessment concerning the source of presupposition of both Ludwig von Mises and Murray Rothbard. I need to review first the Van Tilian presupposition before I will attempt to give my own assessment. 

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. 

Related Links:

Praxeology.net

Praxeologyeconomics.com

What is praxeology?

Praxeology

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.