God has granted me a reprieve. Seven whole days have passed without a major American state abolishing marriage, or a Catholic hero dying prematurely at 98. That frees me up to return to the happy task of unfolding a layman’s understanding of the market economy, viewed through the lens of Christian ethics and prudent political philosophy. There is no better way to sum up the life work of Wilhelm Röpke, whose encyclopedic knowledge of European history and profound commitment to human dignity made him the best expositor of economic science in the 20th century. No other theorist understood so deeply the complexity and fragility of Western civilization, which alone made possible the invention of political liberty and a free economy. No other defender of Western values had such a clear empirical and theoretical account of what recent thinkers had learned about how men pool their labor and work to steward the goods of the earth.
Too commonly, the enthusiasts for a new and useful discovery oversell its importance, to the point of elevating it from insight to ideology. From Descartes and Bacon to Darwin and Freud, the tale of modernist monomania is a long and dismal one. Having found a new and possibly useful plant in the jungle, they decide that it shall henceforth be our dietary staple, so they break out the herbicide and spray aspersions on all the old, hardy trees whose fruits have long sustained human thought. Conversely, those who rightly prize the rich, intertwined undergrowth of traditional knowledge react with alarm to the prospect of ideological monoculture, so they try to pull up the new plant, root and branch. In the tussle between innovative cranks and intellectual preservationists, the real but limited value of the new growth is alternately trumpeted and pooh-poohed.
Orthodox. Faithful. Free.
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This principle helps explain the long love/hate relationship that the Church has had with the “new” idea that was classical liberalism, and its economic component, free-market capitalism. Popes have issued a series of authoritative but non-infallible documents responding to the re-emergence of liberty in the modern age — the resurrection of the liberty treasured by the Saxons and claimed by barons in the Magna Carta, and its extension to every citizen. Perhaps the iciest answer to the libertarian impulse came in Bl. Pius IX’s Syllabus of Errors, and the closest thing to a warm embrace in Bl. John Paul II’s Centesimus Annus. The verdict of history and the effort of patient thought can sift out the edible mushrooms from the toadstools. The experience of state-worship in the blood-soaked 20th century led John Paul to enfold within his personalism a strong account of political and economic freedom — within the prudent limits implied by concern for the common good. In the work of Röpke, we find a profound analysis of history, economics, and culture that closely reflects John Paul’s sane Christian humanism.
Röpke was at once a social conservative and an Austrian economist. It’s worth taking the time to unpack the latter unfamiliar epithet. Austrian economics was born as a brave dissent against the deterministic, materialistic theories of human work that arose in the 18th and 19th centuries, with their roots in Hegel, Marx, or a number of radical nationalists. While its insightful analyses of how men work together to build wealth for their families in many ways echoed the “classical” economics of Adam Smith and Frederic Bastiat — which social Darwinists had shorn of its moral content and made into something monstrous — the new economics was a vast improvement over its ancestor in that it rejected a key intellectual error that had beguiled previous thinkers: the labor theory of value. Given that prices are the essential “data” by which consumers inform producers how much of something to make, they are at the very heart of human cooperation. It’s critical to understand why some things cost more than others. Since man’s work and thought are what transform things like inedible wheat into fettucine alfredo, it seemed only natural to thinkers like Ricardo and later Marx that we should value objects based on how much of this work and thought had gone into them — as if work were the gold content that was added to an otherwise valueless coin.
However, this theory did a poor job of explaining the actual prices that emerge in an open market; some items that required comparatively little effort (let’s say, suddenly fashionable hats) in fact command higher prices than the fruit of enormous labor (for instance, brilliant but difficult novels). To compare apples with apples, a cheaply made but well-written comedy like the brilliant Office Space may outsell a hugely expensive, carefully researched historical drama like Heaven’s Gate. While those of us on the outside may detect an apparent injustice here, in fact such outcomes are merely the fruit of adults making their own decisions about which products they really want.
In other words, economic value is subjective — it’s determined by each of us, as free and morally responsible subjects. This fact is one of many that Marx overlooked or would not accept. Because he believed that the value of a product was objective, and could be quantified by adding up the labor of those who’d helped to make it, when the real market prices didn’t match up with what the workers deserved, Marx considered this an injustice. Still worse were the profits that entrepreneurs collected on top of what it cost them to pay the workers and keep the lights on at the factory; whatever business owners gained beyond that he dubbed “exploitation.” In a socialist economy, he promised, such exploitation would end. The workers would control the means of production and reap all the profits, and prices would be set by the state to properly reward human efforts.
Dubbed “Austrian” because its key proponents were Habsburg subjects who rejected the primacy of the nation, the social class, or the Volk, the innovative economic thought that emerged under good Kaiser Franz Josef was focused squarely on the person and his nature as a rational, free adult. The pioneer of Austrian economics was theorist Carl Menger, who was followed by well-known analysts like Ludwig von Mises, Friedrich Hayek, and Röpke. Instead of looking at the economy as a vast, mysterious machine intended to build up the wealth of an abstraction (like the race or the nation), the Austrians started small — with the factors that influence each one of us in his daily decisions of how and where to work, which products to buy, how much to save or invest. Even though human behavior can often prove irrational, such decisions can be analyzed and to a large degree understood, because there is indeed (as the great philosophers taught) a stable human nature, with a hierarchy of needs and wants, and broadly predictable patterns of behavior.
For instance, the Austrians pointed out, if the state inflates the currency, then money left in the bank will quickly lose its value, and people will spend rather than save — unless the banks offer such high interest rates that savings keep up with inflation. John Maynard Keynes taught governments to exploit this economic precept, igniting short-term growth by encouraging people to spend rather than save. This economic trick, which can prove briefly useful in fighting off recessions, has become the central tactic of postwar Western governments — with the long-term result that the virtue of thrift has almost disappeared; we live more and more for the moment and assume that the future will take care of itself, or else that public assistance will bail us out of a crisis. (We learned in 2008 that this is as true for investment bankers as improvident workers.) This attitude is not what Our Lord intended when He told us to “take no thought for the morrow.”
The most important part of understanding how prices work is the idea of “marginal utility.” Before this piece of jargon sends you racing for the “Back” button, let me explain it in terms of bourbon.
Let’s say you’ve given up drinking for Lent, and a friend who’d read The Bad Catholic’s Guide to Wine, Whiskey and Song informs you that, in the Western Church, Sundays aren’t part of Lent, and you actually shouldn’t continue your penances then. Every Sunday is, in fact, a little Easter, and deserves to be marked by leisure, prayer, and some festivity. Delighted, you make your way to the nearest tavern. That first glass of Basil Hayden bourbon you bring to your lips will taste like the nectar of the gods. The second will make less of an impression, and if you unwisely kept drinking for several hours, at some point the prospect of one more glass will make your stomach turn. The utility of that first glass of bourbon was much higher to you than the second or the seventh. In theory, you might have been willing to pay $15 for the first shot, but only $5 for the last one.
However, no businessman (mercifully) can read your mind and shift the prices to match exactly what you’re willing to pay each time. Instead, he must set it low enough to match the last drink you’re willing to buy, when your craving for a drink is at its margin, or limit. So the price of any product is set by the marginal utility felt by the consumer — the amount they’re willing to pay for that very last drink. Increase the supply — for instance, by opening up an equally comfy but cheaper bar next door — and that price will fall. All this, because the value of a glass of bourbon is subject to our decisions. That is, it’s subjective.
Even using that term to describe how the price of whiskey fluctuates is likely to raise some Catholics’ hackles. We oppose subjectivism in morality and philosophy, rightly seeing it as an individualistic dodge that denies the stubborn truths of the natural law and reason. (Eric Metaxas did a brilliant job eviscerating the related error, Relativism, in his essay for Disorientation, a college students’ primer I edited.) But we should not make the crass mistake (which I did until a student set me straight) of assuming that the same word means the same thing in different disciplines. When we say that a family home has risen or fallen in value, that really has nothing to do with “family values.” Likewise, when we say that prices are created by our subjective decisions over what we value more — that last glass of bourbon or the $5 bill in our pockets — it has no bearing whatsoever on our faith in objective truth.
Indeed, in a little irony, the Austrian school tends to be rather dogmatic about insisting that its tenets are logically provable. In other words, the fact that prices reflect our subjective choices is objectively true, whether Marxists like it or not. An economic system that refuses to acknowledge how human beings express their moment-to-moment preferences will massively fail to help them achieve their goals. Applied consistently, it will yield only famines and tyranny; cobbled together piecemeal, as in the programs of European socialists and American liberals, such a system grows an ever-larger apparatus of government, hiring ever more managers to tamp down the chaos created by its irrationality and waste. The more holes you drill in the bottom of the boat, the more sailors you need to bail.