Harry Veryser’s It Didn’t Have to Be This Way: Why Boom and Bust is Unnecessary and How the Austrian School of Economics Breaks the Cycle (Culture of Enterprise)
I recently posted an article about Fr Robert Sirico’s book in which he presented a moral case for the free economy, here. This provoked as strong a reaction as any I have posted. Many of the criticisms, it seemed to me, were aimed at views that we were assumed to hold (presumably because they imagine that everyone who was in favour of the free economy would think these things) even though it was not the case. For example, some suggested that Fr Sirico’s book and my article were undermined by the fact that John Paul II and others have argued for a just wage. Nowhere did I, and to the best of my recollection nowhere in his book, neither did Fr Sirico say anything to undermine the principle of justice in general or just wages in particular. In fact the opposite is true, right through the book it is apparent that the basic needs of the human person especially the poor are right at the forefront of Fr Sirico’s concerns. Speaking for myself, I do not want to see unjust wages at all. Some seemed to suggest that there is an inherent contradiction between a just wage and the free economy and whether we knew it or not, acceptance of the free economy was a rejection of a just wage. I do not see any such contradiction. Neither, it appears, does John Paul II otherwise he would not state that both are necessary and in harmony with each other, in the same section of Centesimus Annus.
I am happy to believe that I am wrong in this regard, and therefore misreading JPII. However, if I am to be convinced it would need someone to explain in more detail
Another criticism made was that the free economy ‘is not free’. This assertion was based upon the fact that some advocates of the free markets, such as Milton Freedman, had a post-Enlightenment and therefore a flawed understanding of what freedom is. The question that arises is this: is this flawed understanding of freedom intrinsic to the free economy? Or, put another way, does one have to have the post-Enlightenment understanding of freedom in order to be able to explain the free economy?
This would be a fair criticism if the economy was something created by those describing it. I see the economy as something not governed by a set of rules that are created by man, but an order that emerges spontaneously when there is a network of personal interactions. It is something that contains truths to be discovered rather than being a system that can be established made to behave in a particular way with rules set by economists or governments.
In advocating it, there is an assumption made: that a spontaneous order appears as a result of many personal interactions and that it does not need any human organisation (such as government) to direct it, except to protect personal freedom, private property, stable currency and efficient public services. This is the role of the state in regard to economics – to guarantee this security (not that this is the only prerequisite – the development of a free market depends upon the culture too for example). I do not see that true freedom, according to the traditional understanding, is ever in opposition to the principles of justice. Therefore the protection of freedom will also help to ensure justice (including a just wage).
The free economy is one in which there is a place for the family, community, charitable action and institutions; it is in accord with the principles of subsidiarity and the common good. This is because when people act in freedom all of these things flourish naturally within society.
In observing how the economy works, the understanding of freedom the observer holds is irrelevant and provided we believe that the source is accurate in other respects we can learn much from an such accounts of the economy even from people whose worldview is diametrically opposed to our own (by all accounts Carl Marx was one of the best economists of his time). When it comes to consideration of what will happen in the future, we should be more careful, for no present situation is precisely the same as any in the past and there will always be an element of judgment – and this will be affected by how we believe people. One should use judgment but on the whole general descriptions of what will happen in the future (such as might appear in a basic economics text book), based upon good observation on the past will helpful whatever the source, I suggest.
Consideration of what one ought to do in terms of economic policy is going a step further still: I would look here to someone who both understands deeply how the economy works, and shares the commitment to Catholic social teaching. Even then, even if the economist does not share this view but, other things being equal, the outcome he desires is in accord with CST, I would still listen to his proposal about how to achieve it.
In regard to freedom: those who understand what freedom really is, therefore, will be best set to understand and explain this order and are those whom I am most likely to trust in taking advice about what to do (although to my mind this does not mean that all others are completely useless as I have suggested). I take freedom to be that as defined in Catechism: the power, rooted in reason and will, to act or not to act, to do this or that, and so to perform deliberate actions on one’s own responsibility. By free will one shapes one’s own life. Human freedom is a force for growth and maturity in truth and goodness; it attains its perfection when directed toward God, our beatitude: this could be summarised as: ‘the capacity to choose the practical best’.
I have just read Harry Veryser’s book It Didn’t Have to be This Way – Why Boom and Bust is Unnecesary. Here is an account of the free economy in which the author is a committed Catholic who understands Catholic social teaching and explains how the two are compatible. One does not have to agree with Austrian economics if one is a Catholic, of course – I am not suggesting that Austrian economics is the only account of economics that is in accord with Catholic social teaching. Rather, just as with Fr Sirico’s book, a fresh set of criticisms that scrutinize the economics rather than adherence to Catholic teaching will have to be produced in order to undermine what he says. Certainly, one cannot criticise it on the basis of what Milton Friedman says, for Veryser differs from him and the Chicago school in a number of respects.
Verysers explanations are clear and readable and well worth reading for someone like me who is just starting to get to grips with all of this stuff.
In addressing the issue of the common good and the idea that a narrowly defined concept of self-interest governs the economy he writes the following:
‘Critics of free-market economics might scoff at associating free markets with the common good. Since the time of the Enlightenment, a powerful (but controversial) strain of economic thought has held that rational self-interest governs all economic activity. Adam Smith put forward this idea in the Wealth of Nations, where he wrote: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their self-interest. we address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” Adherents of the classical school carried forth this idea in the nineteenth century, and more recently Ayn Rand, Milton Friedman and many secular libertarians have popularized the concept of rational self-interest. The Austrian School is different, however. From the start, Austrian economists have challenged the idea that rational self-interest drives all economics…The Austrian school also recognises that the concept of rational self-interest became a barrier to thoughtful discussion of economics. Almost from the beginning critics used the notion of self-interest to pillory the field of economics. Clergymen, social critics and many others derided economics as the science of greed. Even with the profession, more and more people came to see economics as a science dealing strictly with material wealth, which in turn lead to an overemphasis on mathematical measurement.’ [p188]
‘The concept of self-interest comes up short in explaining how economic decisions are made because as ‘Austrians (and many others) have pointed out, the perspective is overly narrow. It fails to account for charitable instincts, decisions made to benefit one’s family or community, and other factors that inform human action. The focus on self-interest also obscures the true role and ambition of economics. It helped lead to a strictly mathematical approach to economics. Such an approach attempts to apply methods from theoretical sciences, which study things over which we have no control (such as the motion of the planets and the structure of the atom) to the study of human action – those things that we can control. Pablo Triana in his book Lecturing Birds on Flying, identifies a key cause of the recent financial crisis: “our blind devotion to theoretical concoctions (especially if sponsored by rigorous-looking individuals with PhDs from prestigious universities.)” Triana notes simply: “The math had its chance, and couldn’t have gone any wronger.” ‘ [p199]