By:Thomas Storck | January 20, 2010
Dr. Woods’ article, “Catholic Social Teaching and the Market Economy Revisited: A Reply to Thomas Storck,” is, I must admit, superficially attractive. It appears to crush opposition under a weight of impressive learning. But, I would suggest, when his assertions are examined, Woods’ citation of authorities, like his argument in general, fails. I begin with one example because it gives me the opportunity to note another feature of Dr. Woods’ piece, his frequent misrepresentation of what I actually say. Let’s look at what Woods says about the German historical school, a school of 19-century German economists who stood in opposition to many of the teachings of economists in the tradition of Adam Smith. Dr. Woods writes, “And if the scarcely mourned German Historical School is declared the winner, as Storck seems to wish, are adherents of all other schools thenceforth outside Catholic communion?” But did I say that the German Historical School is the “winner”? Hardly. In fact I said that “something like the original American Institutionalism, or the German historical school, or economic sociology, seems to be required if we are to examine the actual workings of economies in the manner that the popes have done.” And later I add, “Although I am not arguing that any of these alternative economic schools is by itself necessarily sufficient to ground a complete economic analysis, taken together they suggest an approach which Catholic social philosophers and economists should find fruitful, and which gives a wide field for further development.” But Woods seizes upon my supposed selection of the German historical school and this allows him to speak with an authoritative voice on the differences among adherents of the German historical school, their relations to Austrian economics and so forth. But none of this, I would suggest, is very relevant, since I was painting with broad strokes here, and merely pointing to those schools of economists whose methodology differs from that of the mainstream neoclassical school and Woods’ own Austrian school.
Now my paper was mainly an attack on mainstream economics, and I quote the recently deceased Paul Samuelson more than once as the expositor of its views. I mention the Austrian school only two or three times and simply as sharing in the generally deductive approach to economic analysis that neoclassical economists take. My approach is that of Anton Lowenberg, who, writing in the Cato Journal, said “I use the term ‘neoclassical’ here very broadly; it includes all theories that are based on the economizing behavior of individual value-maximizing agents.” By a deductive approach I mean an approach which sets up a model of how an economy works based on a limited examination of actual economic behavior or a cursory examination of human nature and which excludes certain important factors, such as culture or the relative power of different groups in the economy, and thereafter simply deduces how economies are supposed to function based on that model. Admittedly the Austrian school eschews the attempts of the neoclassical school to use mathematics to make itself seem more scientific, but most observers consider the Austrians to fall under the head of what I call deductive economics and to be closest to the mainstream of all the alternative schools. Austrians, however, do not seem to like this characterization, and this may explain the tone of Woods’ piece, still more of his strange rant against me, which he delivered last spring at the Mises Institute.
Woods begins his reply by saying that Catholic “supporters and opponents of the market economy often talk past each other. The difficulty they encounter derives from a confusion over the very nature of economics. The phenomena that economics touches upon, which include money, banking, exchange, prices, wages, monopoly theory, and many other topics, are themselves replete with moral significance. But the positive, scientific statements about these phenomena that constitute the discipline of economics are necessarily value neutral.” This of course is true, but largely beside the point. For the chief point of my paper was that in the course of their pronouncements about economic morality, the popes necessarily make certain observations about economic phenomena, especially about the behavior of economic actors. And it would be hard to imagine them doing otherwise. Thus one of the points of contention is exactly over these “scientific statements.” Deductive economics claims that economies behave in certain ways and as a result they make certain statements which they suppose to be scientific, while other schools deny this. The main point of my paper was that the economic analysis which the popes employ in the course of their moral teaching seems to agree more with the latter schools than with the mainstream and Austrian approaches. So when Woods writes, “Describing the workings of fractional-reserve banking is a positive task, not a normative one. Discussing whether such a system is desirable is a normative task, and qualitatively separate from explaining the mechanics of that system,” this is true, but only if we are in agreement about how to describe a particular economic phenomenon. There would probably be little disagreement about his example here, about how fractional-reserve banking operates. But this is hardly true of all economic behavior or phenomena.
Woods then brings up another irrelevant example. He writes: “Frank Knight conceived of capital as a homogeneous unit whose individual processes occurred synchronously. . . . F.A. Hayek . . . conceives of capital as a series of time-consuming stages of higher and lower order. . . . Nothing in the Deposit of Faith even comes close to deciding this and countless other important economic questions one way or the other.” Fine, but again entirely irrelevant. Certainly there are points of economics on which no pope would dream of pronouncing—but does it follow that popes can never pronounce on any point of economic phenomena?
After this, Woods makes a statement that goes to the heart of the fundamental question of what competence does the Church have in the area of economics. “It is of course not ‘dissent’ merely to observe that the cause-and-effect relationships that constitute the theoretical edifice of economics are not a matter of faith and morals. They simply do not fall within the range of subjects on which a Catholic prelate is endowed with special insight or authority. Catholic laity cannot head up petition drives against them. They are facts of life. Facts cannot be protested, defied, or lectured to; they can only be learned and acted upon.” Again Woods is both irrelevant and begs the question. By definition the popes cannot pronounce outside the area of their competence, nor can they assert something contrary to fact. I do not dispute that. But what are the limits of their competence, and who gets to decide? Thomas Woods? Orthodox Catholics have protested about attempts to erect a so-called parallel magisterium, e.g., a magisterium of theologians to sit in judgment on the magisterium of pope and bishops. But here we have a magisterium of economists, competent it seems to pronounce in an area of moral teaching that the popes claim as a legitimate arena for their own teaching. Woods does not like the fact that I have found what he calls “an obscure paper of mine” in which he wrote: “The primary difficulty with much of what has fallen under the heading of Catholic social teaching since Pope Leo XIII’s Rerum Novarum (1891) is that it assumes without argument that the force of human will suffices to resolve economic questions, and that reason and the conclusions of economic law can be safely neglected, even scorned.” But is this not the entire argument in a nutshell? Who gets to decide about the apparently ironclad “conclusions of economic law”? Or for that matter, of the conclusions of psychology or of philosophy?