WEBVTT NOTE Catholic Social Teaching and the Austrian School Revisited: A Reply to Thomas Storck 1 00:00:00.000 --> 00:00:05.000 A lot of times the differences that I seem to have with people like Thomas Stork 2 00:00:05.000 --> 00:00:08.920 is that we're in some ways talking about two different things. 3 00:00:08.920 --> 00:00:12.400 Now the phenomena that economics touches upon, 4 00:00:12.400 --> 00:00:17.800 so that would include money, banking, exchange, wages, prices, monopoly theory, 5 00:00:17.800 --> 00:00:19.440 whatever, 6 00:00:19.440 --> 00:00:23.320 all these things are themselves replete with moral significance. 7 00:00:23.320 --> 00:00:26.920 But the point is that the positive scientific statements 8 00:00:26.920 --> 00:00:28.560 about these phenomena 9 00:00:28.560 --> 00:00:33.120 that constitute the discipline of economics are themselves value neutral. 10 00:00:33.120 --> 00:00:36.920 So describing how fractional reserve banking works 11 00:00:36.920 --> 00:00:41.320 is a positive task, not a normative one. Discussing whether such a system is 12 00:00:41.320 --> 00:00:42.400 desirable 13 00:00:42.400 --> 00:00:46.560 is a normative task, but is qualitatively separate from describing the 14 00:00:46.560 --> 00:00:48.480 mechanics of that system. 15 00:00:48.480 --> 00:00:52.280 So you can't make an intelligent comment about the former unless you grasp the 16 00:00:52.280 --> 00:00:53.280 latter. 17 00:00:53.280 --> 00:00:57.960 So likewise economic policy may possess a moral dimension, 18 00:00:57.960 --> 00:01:02.860 But I suggest that no propositions of economic theory do. 19 00:01:02.860 --> 00:01:07.860 So for instance, if Frank Knight conceives of capital 20 00:01:07.860 --> 00:01:13.660 as being a homogeneous unit whose individual processes occur simultaneously 21 00:01:13.660 --> 00:01:19.360 and therefore can be understood without introducing the element of time into capital theory, 22 00:01:19.360 --> 00:01:22.260 I don't see the moral dimension of that. 23 00:01:22.260 --> 00:01:27.560 It might be wrong, it might be right, but it's not immoral. 24 00:01:27.560 --> 00:01:32.120 is a theoretical proposition. So likewise the Austrian view of capital, which is 25 00:01:32.120 --> 00:01:33.720 very different, 26 00:01:33.720 --> 00:01:36.880 is a different proposition theoretically, 27 00:01:36.880 --> 00:01:41.480 but there's no moral dimension to it. But yet to propose this, to make this 28 00:01:41.480 --> 00:01:45.340 what seems to me to be an elementary point, is to invite accusations of 29 00:01:45.340 --> 00:01:46.440 apostasy 30 00:01:46.440 --> 00:01:49.720 in effect. You know, don't you believe this is a moral science? 31 00:01:49.720 --> 00:01:53.760 If you don't believe that, then you're some kind of a, probably some kind of a nihilist. 32 00:01:53.760 --> 00:02:02.600 I mean, I've had every bizarre accusation thrown at me by people who just seems to be trying not to understand the fundamental point. 33 00:02:02.600 --> 00:02:10.000 So there's nothing in the deposit of faith that would resolve a disputed question like this, like differences in capital theory. 34 00:02:10.000 --> 00:02:21.000 Likewise, it is 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. 35 00:02:21.000 --> 00:02:29.760 They do not fall within the range of subjects on which any Catholic prelate has ever been understood to enjoy any particular insight or authority. 36 00:02:29.760 --> 00:02:36.960 Facts cannot be protested, defied or lectured to. They can only be learned and acted upon. 37 00:02:36.960 --> 00:02:41.700 There is no use in shaking our fists at the fact that price controls lead to shortages. 38 00:02:41.700 --> 00:02:47.400 All we can do is understand the phenomenon and be sure to bear it and other economic truths in mind 39 00:02:47.400 --> 00:02:52.200 if we want to make statements about the economy that are rational and useful. 40 00:02:52.200 --> 00:02:55.760 Now, if a bishop's conference proposes an intervention into the economy whose 41 00:02:55.760 --> 00:02:58.860 promised results cannot occur 42 00:02:58.860 --> 00:03:01.920 because it takes no heed of these restraints, 43 00:03:01.920 --> 00:03:05.760 we have the problem that I identified in my book The Church and the Market, 44 00:03:05.760 --> 00:03:09.880 but that Stork either ignores or thinks cannot arise, which is 45 00:03:09.880 --> 00:03:13.000 a faulty grasp of economic theory leads in turn 46 00:03:13.000 --> 00:03:16.200 to ill-considered economic proposals that will have the opposite of their 47 00:03:16.200 --> 00:03:17.920 and their intended effect. 48 00:03:17.920 --> 00:03:22.520 It is obviously within the realm of possibility that such a thing could occur, and in my own 49 00:03:22.520 --> 00:03:25.600 work I've suggested that it in fact has occurred. 50 00:03:25.600 --> 00:03:32.080 The advice of the American bishops on the economy has been distinctly unhelpful. 51 00:03:32.080 --> 00:03:37.360 But the point is it is at least a possibility and scholars need to address it. 52 00:03:37.360 --> 00:03:38.880 Stork does not address it. 53 00:03:38.880 --> 00:03:42.920 Now I realize I'm not providing you with a copy of his paper, but I will upon request 54 00:03:42.920 --> 00:03:45.800 if the CSSR permits me to. 55 00:03:45.800 --> 00:03:50.500 But by failing to address this question, Stork leaves us with a tangle of logical fallacies 56 00:03:50.500 --> 00:03:56.960 and gratuitous assumptions. So he has accused, as I said, Bill Lucky, of disloyalty for wondering 57 00:03:56.960 --> 00:04:03.240 about the effectiveness of some policies proposed by various prelates, or the unstated assumptions 58 00:04:03.240 --> 00:04:08.000 themselves at odds with economic theory that lie behind so much of what prelates have said 59 00:04:08.000 --> 00:04:14.120 about the economy. But it is nonsensical to concede on the one hand, as Stork in passing 60 00:04:14.120 --> 00:04:20.600 does, citing Pius XI, that the mechanics of economics lie beyond the Church's competence, 61 00:04:20.600 --> 00:04:24.960 but on the other hand to claim that the recommendations prelates make for the express purpose of increasing 62 00:04:24.960 --> 00:04:29.900 human welfare will necessarily accomplish their stated goals and are necessarily good 63 00:04:29.900 --> 00:04:35.000 and wise. These statements cannot both be true. If someone can make infallibly good 64 00:04:35.000 --> 00:04:39.440 economic policy without having to know the first thing about the discipline itself, then 65 00:04:39.440 --> 00:04:44.780 and economics should be abandoned as a field of study forthwith. 66 00:04:44.780 --> 00:04:50.740 And then, I've had many, many other things on this line of argument, 67 00:04:50.740 --> 00:04:53.060 but I think we get the point. 68 00:04:53.060 --> 00:04:58.040 Well, Stork's view is that the best school of thought and what we should seek to resurrect 69 00:04:58.040 --> 00:05:05.200 is the German historical school. 70 00:05:05.200 --> 00:05:08.200 Thank you, everybody. Good night. 71 00:05:08.200 --> 00:05:15.600 Now, let's suppose, though, that the German Historical School has declared the winner. 72 00:05:15.600 --> 00:05:19.000 This is the school of thought you've got to belong to as a Catholic, 73 00:05:19.000 --> 00:05:22.800 or you're going to get nasty emails written about you sent to your college president. 74 00:05:22.800 --> 00:05:24.200 Let's suppose that's the case. 75 00:05:24.200 --> 00:05:28.200 So does that mean that people who belong to any other school 76 00:05:28.200 --> 00:05:31.200 are now outside Catholic communion from now on? 77 00:05:31.200 --> 00:05:35.100 Would economists then be disciplined for continuing to debate capital theory? 78 00:05:35.100 --> 00:05:37.740 Long after that's been foreclosed. 79 00:05:37.740 --> 00:05:43.620 Now he may say, well, no, no, no, academic freedom would permit this to continue. 80 00:05:43.620 --> 00:05:49.340 Well, thanks for your generosity. But when economists of competing schools of thought 81 00:05:49.340 --> 00:05:53.580 arrive at theoretical conclusions 82 00:05:53.580 --> 00:05:57.300 that do not seem to imply the policy prescriptions 83 00:05:57.300 --> 00:06:00.740 that Stork seems to believe the Catholic faith itself demands, 84 00:06:00.740 --> 00:06:05.060 what would happen then? Well, no answer is provided because as usual the 85 00:06:05.060 --> 00:06:09.460 the question is never raised. 86 00:06:09.460 --> 00:06:13.280 Now we don't learn exactly what Stork's brand of economics really is. His paper 87 00:06:13.280 --> 00:06:16.940 is about showing how all other schools of economics are faulty. He doesn't 88 00:06:16.940 --> 00:06:20.500 bother addressing the Austrian School, needless to say, except in a footnote 89 00:06:20.500 --> 00:06:25.820 somewhere, to say that it's pretty much kind of like neoclassical economics. 90 00:06:25.820 --> 00:06:30.600 So, I mean, this guy's getting an article published in a scholarly journal. 91 00:06:30.600 --> 00:06:32.740 But anyway, 92 00:06:32.740 --> 00:06:36.540 Most of his general complaints about economics are, like one of them is that 93 00:06:36.540 --> 00:06:40.600 economics assumes that people are motivated entirely by 94 00:06:40.600 --> 00:06:43.700 the cunyary interests and this and that. I mean, this is 95 00:06:43.700 --> 00:06:46.280 obviously not true of the Austrian School, but 96 00:06:46.280 --> 00:06:49.000 by not mentioning the Austrian School, he avoids that little 97 00:06:49.000 --> 00:06:53.800 problem, a little crimp in his thesis. So instead, he just lists each defective 98 00:06:53.800 --> 00:06:55.720 school of thought in turn and then just 99 00:06:55.720 --> 00:06:58.940 throws his hands in the air at the insufferable fools he has to deal with 100 00:06:58.940 --> 00:07:01.420 in this world. 101 00:07:01.420 --> 00:07:03.640 he even goes so far as to say 102 00:07:03.640 --> 00:07:08.860 quote the premise behind the ubiquitous demand curve of mainstream economics 103 00:07:08.860 --> 00:07:13.080 is to make the maximization of income the fundamental principle not only of 104 00:07:13.080 --> 00:07:20.740 the economy but of society and of life itself 105 00:07:20.740 --> 00:07:24.700 i mean now it's it's dubious enough to claim that a tool of economic analysis 106 00:07:24.700 --> 00:07:29.180 was intended to describe the fundamental principle of society 107 00:07:29.180 --> 00:07:31.680 But of life itself? 108 00:07:31.680 --> 00:07:35.640 I don't know of a school of economics that taught that. 109 00:07:35.640 --> 00:07:40.200 So he then gives a few, and I know I have only a few minutes, but he gives a few examples 110 00:07:40.200 --> 00:07:43.060 of problems that he believes can't be solved 111 00:07:43.060 --> 00:07:46.320 by mainstream economics. Now, I never thought I'd be in a position where I would be 112 00:07:46.320 --> 00:07:49.060 defending neoclassical economics. 113 00:07:49.060 --> 00:07:52.880 There are criticisms to be made of it, but he's not finding them. 114 00:07:52.880 --> 00:07:58.000 The few semi-sensible things you can find, that's what he wants to attack, basically. 115 00:07:58.000 --> 00:08:02.600 So one of them is, he gives the example of a group of merchants who enjoy 116 00:08:02.600 --> 00:08:05.480 a lot of leisure, let's say a lot of leisure, more leisure than the average 117 00:08:05.480 --> 00:08:09.720 person does, and they're not working to maximize their monetary income. And so he 118 00:08:09.720 --> 00:08:14.320 says, well this defies the constraints of neoclassical economics. 119 00:08:14.320 --> 00:08:18.000 But even neoclassical economics understands that leisure is a consumer 120 00:08:18.000 --> 00:08:20.280 good. People enjoy it. 121 00:08:20.280 --> 00:08:23.160 And so the neoclassicals can in fact 122 00:08:23.160 --> 00:08:26.340 and have in fact incorporated this, so this is not 123 00:08:26.340 --> 00:08:30.540 You know, there, I solved your problem. Leisure is a consumer... I mean, no one ever denied that. 124 00:08:30.540 --> 00:08:37.420 He also tries to deny the ubiquitous emphasis among economists on scarcity. 125 00:08:37.420 --> 00:08:39.860 He tries to claim that, well, you know, look, 126 00:08:39.860 --> 00:08:44.820 according to you economists, you know, the world is full of all these scarce goods, 127 00:08:44.820 --> 00:08:47.260 and people always want more and more and more. 128 00:08:47.260 --> 00:08:51.580 Whereas, in fact, you know, a lot of people are perfectly satisfied with the goods they have, so that disproves... 129 00:08:51.580 --> 00:08:53.380 that disproves scarcity. 130 00:08:53.380 --> 00:08:58.300 And again, if you think I'm exaggerating that, I absolutely promise you that is his point. 131 00:08:58.300 --> 00:09:02.100 That, you know, for example, we have monastic communities. 132 00:09:02.100 --> 00:09:05.780 You know, we've got people who are perfectly content with the goods they have, 133 00:09:05.780 --> 00:09:09.940 and they're not continually working to get more and more goods. 134 00:09:09.940 --> 00:09:13.860 I'm sorry, I'm sort of explaining. And by the way, in attacking the idea of scarcity, 135 00:09:13.860 --> 00:09:15.980 he goes after Paul Samuelson, 136 00:09:15.980 --> 00:09:19.620 who actually the one sensible thing you can find in Paul Samuelson 137 00:09:19.620 --> 00:09:22.880 is the argument that, you know, if we were living in an 138 00:09:22.880 --> 00:09:52.880 The Eden of Affluence, he says, there would be no economic goods, because everything would be in super abundance, and he says that, you know, until we get there, you know, we're still going to want to produce more and more and more, and for Stork, this is just, I think this just shows how materialistic we economists are, but now I have to defend, is it fine? Okay, go good, wow, I have more time than I thought, now I have to defend Paul Samuelson, why is he doing this to me? Because the point Samuelson is making in effect is that, is there any family 139 00:09:52.880 --> 00:10:04.880 Is there a family on earth who wouldn't prefer to be able to send his child to college on the fruits of one month's labor instead of years and years and years worth of labor? Is there anyone? 140 00:10:04.880 --> 00:10:08.880 Well, in effect, that just shows that that's an empirical example of the existence of scarcity. 141 00:10:08.880 --> 00:10:16.880 But of course, from a praxeological point of view, scarcity is simply implied in the very fact of human action and the nature of the world. 142 00:10:16.880 --> 00:10:20.880 I can't possibly fulfill all the ends I have in mind simultaneously 143 00:10:20.880 --> 00:10:23.880 because of scarcity, the scarcity of my own time and my own body. 144 00:10:23.880 --> 00:10:25.880 I can't do everything at once. 145 00:10:25.880 --> 00:10:29.880 So scarcity is a necessary fact of life. 146 00:10:29.880 --> 00:10:31.880 It doesn't mean that we're all... 147 00:10:31.880 --> 00:10:34.880 All we want to do is buy, as George Reason would say, 148 00:10:34.880 --> 00:10:41.880 you know, a yacht and then a plane and then a yacht on which I can land my plane. 149 00:10:41.880 --> 00:10:43.880 All right. 150 00:10:43.880 --> 00:11:00.880 So then we learn that economists leave power out of the equation because, you know, some groups in society have more power than others and so that will interfere with the functioning of the free market, that you won't get all these, your cute little models won't really conform to reality. 151 00:11:00.880 --> 00:11:10.880 Well, a neoclassical economist will reply to this by saying that their supply and demand analysis factors this stuff in. 152 00:11:10.880 --> 00:11:19.880 It's meant to be an analytical conduit through which all these factors are incorporated, and so they include all the circumstances of human life. 153 00:11:19.880 --> 00:11:26.880 So suppose, for example, you have people who are attached to one particular town, and that town has one major industry, and that industry goes sour. 154 00:11:26.880 --> 00:11:31.880 Well, let's suppose the inhabitants of this town feel really sentimentally attached to it. 155 00:11:31.880 --> 00:11:35.880 They might not necessarily want to leave. They might be willing to take really, really low wages 156 00:11:35.880 --> 00:11:39.880 if it means they can nevertheless stay in that town where they're attached. 157 00:11:39.880 --> 00:11:44.880 Okay, so their attachment to the town is then factored into the supply and demand analysis. 158 00:11:44.880 --> 00:11:46.880 They're willing to accept lower wages. 159 00:11:46.880 --> 00:11:49.880 Again, this is not a problem for a neoclassical. 160 00:11:49.880 --> 00:11:53.880 There are problems for neoclassical economists. That isn't one of them. 161 00:11:53.880 --> 00:12:23.880 And in fact, the idea that power can influence things, well I mean this is, Carl Menger acknowledges this in his price theory, that the determination of prices, it does matter how many buyers, how many sellers and so on, and the more of each you have, the less is the range of indeterminacy along which prices will be decided only by bargaining, in which case power does play a role. And of course, needless to say, Stork then takes the view 162 00:12:23.880 --> 00:12:29.280 that power differentials in society, such as laborers versus capital, the terms in which 163 00:12:29.280 --> 00:12:34.920 he thinks, influence wage rates, so that's why we need labor unions, because the laborers 164 00:12:34.920 --> 00:12:40.280 don't have as much bargaining power, and that's an argument that I've answered in the church 165 00:12:40.280 --> 00:12:44.520 and the market and in my 33 questions. 166 00:12:44.520 --> 00:12:48.820 But now I'll just give one final quick example, he says this also, here's another reputation 167 00:12:48.820 --> 00:12:53.160 of neoclassical economics, he says, he talks about fishermen in Nova Scotia and he says 168 00:12:53.160 --> 00:12:57.320 is that in Nova Scotia, fishermen were getting two cents for their product, but in Boston 169 00:12:57.320 --> 00:13:01.520 they could get fifteen cents. So the middlemen and the local dealers were exploiting the 170 00:13:01.520 --> 00:13:07.400 fishermen, Stork says, and these power relations are not accounted for in the standard economic 171 00:13:07.400 --> 00:13:12.380 account of the market. Well the truth is exactly the opposite because by the end of his example 172 00:13:12.380 --> 00:13:17.520 by the way, the Nova Scotia fishermen have figured this out and have themselves worked 173 00:13:17.520 --> 00:13:22.800 out an arrangement where they themselves supply the product in Boston and they start to arbitrage 174 00:13:22.800 --> 00:13:28.960 are arbitraged away the gains that the middleman makes, and by the way, of course, it's taken for granted here that middlemen are evil, 175 00:13:28.960 --> 00:13:34.560 because they add no value to the product, so anything they're skimming off is just wicked. 176 00:13:34.560 --> 00:13:43.920 But the point is that, okay, maybe they were earning some type of, you know, excessive profit in some sense, you know, sort of unsustainably so. 177 00:13:43.920 --> 00:13:48.560 So, okay, that's arbitraged away by the fishermen themselves. By the end of his own example, 178 00:13:48.560 --> 00:13:52.960 They have themselves started to supply it to Boston and now they're getting these gains. 179 00:13:52.960 --> 00:13:55.240 And he says, but this just shows the market doesn't work. 180 00:13:55.240 --> 00:13:59.760 That's how the market works, is through the arbitrage process. 181 00:13:59.760 --> 00:14:04.760 So in effect, although he criticizes neoclassical economists for a million reasons and because 182 00:14:04.760 --> 00:14:09.520 of their unrealistic models of perfect competition, now he's on to something. 183 00:14:09.520 --> 00:14:14.480 Well then he criticized the market because at this particular snapshot of time, it didn't 184 00:14:14.480 --> 00:14:17.760 correspond to the model because there was the possibility for arbitrage. 185 00:14:17.760 --> 00:14:24.760 Okay, well, at any particular snapshot a lot of things are going on, but eventually you saw this gain arbitraged away. 186 00:14:24.760 --> 00:14:32.760 Well, now I'm pretty much, that's pretty much my time, but I have many other things to say, 187 00:14:32.760 --> 00:14:41.760 because I go through and explain the Austrian School to him, in effect, to show that this is a school that really doesn't have the shortcomings you're talking about. 188 00:14:41.760 --> 00:14:49.760 By the end, he's saying, well, maybe the one superficially plausibly attractive school for a Catholic is the Chicago School. 189 00:14:49.760 --> 00:14:55.760 I don't even know if I want to read what the rationale for that is, but in The Church and the Market, I explain that to the contrary, 190 00:14:55.760 --> 00:15:03.760 there's a lot about the Chicago School that should be appalling to a Catholic if you're looking at the practical implications of what they're saying. 191 00:15:03.760 --> 00:15:10.760 But anyway, that's what I have time for. The paper will be out next year, and down with Thomas Stork. 192 00:15:10.760 --> 00:15:12.760 Thank you very much.