Human Freedom and Market Freedom: The Austrian School of Economics and John Paul ii’s Augustinian Anthropology

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Human Freedom and Market Freedom: The Austrian School of Economics and John Paul II’s Augustinian Anthropology

Andrew Cuff (The Catholic University of America) and Joshua Harris (Institute for Christian Studies)

It has been said that although religion and art are closely related, “economics and art are strangers.”1 Culture and thought make up one sphere of human life, and exchange markets another. One sphere combines imagination with rationality to express transcendental truths; the other measures and determines the temporal dimension of human action. Indeed, the discipline of economics in its current form seems to have distanced itself as far as possible even from its historical designation as a “human science”. However there is at least one marked alternative to this trend of “objective bias”2 in economics that has enjoyed a resurgence in influence of late: namely, the Austrian school.

Austrian economics is marked by distinctives such as the subjective theory of value, “praxeology” (the science of human action, first and foremost) and its openness to “qualitative” research strategies. Hence, as some social philosophers have pointed out, its connection to art (and therefore, it would seem, to religion and ethics) is more readily discernible than it is for its rivals—especially given its emphasis on human freedom as a foundation for the success of any thriving social order.3 Human beings flourish as free human beings; thus, responsible economic leadership demands judgments based on a robust account of human freedom.

In order to provide this account, one needs only turn to the same source from whence arise the entire foundations of Western society. Whether in law, government, science, art, or any other pillar of our civilization, one can find roots and vestiges of the Christian intellectual and spiritual tradition. This belief system has been preserved through institutions such as (most particularly) the Church, the family, and “intermediate institutions” like the university or even the “public sphere” of contemporary liberal democratic social orders.4 When economic leaders and policymakers trade immediate material benefits for new systems which incentivize acts that controvert human nature, this brings about what Pope John Paul II calls systemic “alienation of human existence.”5 In his 1991 encyclical Centesimus Annus, he provides a spiritual perspective on the economic systems of his day which is still relevant in the light of the economic hardships and imbalances of the twenty-first century. The Pope emphasized most of all that economics should be all about the human freedom that is at the heart of Christian belief. Even an economic system like that of the Austrian school, though it stands out from other economic theories for its commitment to human freedom, must recognize that freedom is meaningless outside the context of Christian anthropology.

Austrian economics has always been a thorn in the side of mainstream theories precisely because it does not accommodate many economists’ desire for a properly “scientific” status.6 Although it would be a difficult and unfruitful task to point out the “first” Austrian economist, one could do worse than to say that Carl Menger’s insistence upon a subjective theory of value marks at least something like a fundamental trajectory for the school.7 Against objectivist or labor accounts of value that attempt to locate the value of a given commodity in the properties or production of the commodity itself, Menger argues the following:

Value is thus nothing inherent in goods, no property of them, nor an independent thing existing by itself. It is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.8

Assuming that individual agents in the market economy make decisions based upon what they value or do not value, it is easy to see why a theory of value is relevant for understanding market activity as a whole. From this basic idea—that economic value exists only in “the consciousness of men”—it follows that the decisions made by individual agents has a subjective or non-quantifiable character. Put simply, there is something about decision-making that escapes a “purely quantitative” or mathematical theory. While there are some significant (and problematic) differences, it seems that the Austrian subjective theory of value implies what Aristotle notes in the Nichomachean Ethics: namely, that “politics is not an exact science . . . it is a mark of the trained mind never to expect more precision in the treatment of any subject than the nature of that subject permits.”9

If there were already an emphasis on the “human element” (that which resists purely quantitative theories) of economics as a science in Menger’s subjective theory of value, such a recognition becomes even more explicit in perhaps the greatest Austrian economist, Ludwig von Mises. It is Mises, in fact, who cements the distinctive methodology of Austrian economics as the science of “praxeology”10—or the science of human action, first and foremost. For Mises, whose intellectual context reveals an unmistakably anti-Marxist and anti-positivist stance, it is incumbent upon the economist to avoid the mistake of relegating the problem of “theory choice” to the metric of empirical verifiability.11 This is impossible, for Mises, because the principles upon which such a metric would rely could not be “arrived upon” empirically.

But the seeds of a more holistic picture of economics are sown in more than just the area of theory choice. According to Mises, praxeology itself—the study of human action—“cannot approach [its] subject if we disregard the meaning which acting man attaches to the situation, i.e., the given state of affairs, and to his behavior with regard to this situation.”12 This is because “[t]here are, in the field of economics, no constant relations.”13

If this is true of Mises, the grandfather of Austrian economics, it is truer for Friedrich Hayek—the Nobel Prize-winning foil to John Maynard Keynes and critic of other leading economists in the latter half of the twentieth century. As an Austrian, Hayek follows Mises and Menger in his insistence on the irreducibility of the subjective element of economic activity. Yet there are arguably even more resources for a hermeneutically conscious economic methodology in Hayek than there are in Mises. This is due in part to Hayek’s more developed understanding of the social embeddedness of the individual decision-maker.

Now it is obvious that Austrian free-market economics is more “individualist” than “communitarian” in its fundamental orientation. To deny this basic idea would be disingenuous in comparing it with other schools of thought. However, it would be equally or perhaps even more misleading to associate Hayek’s philosophical anthropology with a naïve atomism holding that human beings are isolated subjects at the most fundamental level.14 In fact, he goes out of his way to critique this tendency in what he calls the “rationalist” tradition of modern political philosophy, represented by John Locke and Jeremy Bentham, among others. For Hayek, the naïvely positive view of the “state of nature” that is explicit in the work of these two British philosophers operates on the mistaken assumption of an essentially non-social capacity for reason in human beings. This leads them to believe that reason is something that human beings have “naturally”—implying that social institutions are obstacles rather than catalysts for its development.15 This is very problematic, for Hayek, because the naïve picture of pre-institutional reason in the Rationalist tradition just cannot account for the concrete reality of social institutions and their deep, formative influence on individuals.16

For this reason and others, Hayek draws favorably from a different tradition, which he calls “anti-rationalist.” Represented by prominent figures of the Scottish Enlightenment such as David Hume and Adam Smith, this tradition’s approach to the question of reason and the state of nature is more plausible because it does not commit itself to the existence of an occult state of pure reason that is more primordial than what is plainly observable in the daily activity of the market economy.17 On this line of reasoning, because what is observable in market economies is always already bound up in a complex array of social institutions and their traditions, it is the more rational position to admit the positive relevance of those institutions in the development of the acting individual’s capacity to reason effectively:

[C]ivilisation was necessary to man’s development as a rational being, for ‘human reason has grown and can successfully operate’ only with and within the framework of morals, language and law. It follows that free institutions were not constructed to fit some rational conception of freedom. Free institutions evolved first, and conceptions of liberty came later as these institutions were studied.18

Hayek flips the rationalist narrative of “reason first, then institutions” on its head. Precisely the opposite is the case. The state of nature is not a realm in which autonomous subjectivity is the primordial condition of the human being; rather, institutions shape the irreducibly subjective nature of reason and human decision-making.

From the perspective of Christian anthropology, this socially thick concept of freedom and rationality is a great corrective to positivistic or “purely quantitative” accounts of human decision-making. Indeed, from a Christian perspective, the utter paucity of successful predictions of fluctuations in the national and global economy—not to mention the disastrous abundance of bad predictions—ought not to surprise anyone given the essentially non-quantifiable nature of the persons making the decisions. This is what the Austrian tradition explained here clearly gets right.

Problems arise, however, when we finally hear what Hayek’s actual definition of freedom is for the Austrian school: “Individual or personal freedom is the state in which a man is not subject to coercion by the arbitrary will of another or others.”19 Despite his insistence upon the social embeddedness of reason and, by extension, freedom, at day’s end Hayek still reverts back to the classic enlightenment concept of negative liberty. Freedom simply means the non-existence of coercion—nothing more. This move is something a robust Christian anthropology simply cannot accommodate, and it leaves Hayek’s positive construction of reason with no positive grounding in human freedom.20 The efficient and final causes of Austrian economics are out-of-sync.

Given this inconsistency in Hayek’s thought, it stands to benefit greatly from an Augustinian corrective, namely, Christian anthropology. Understanding the need for just such an economic theory that values and properly understands personhood, Pope John Paul II authored the encyclical Centesimus Annus to meet an urgent need for authoritative Catholic socio-political principles after the fall of Soviet communism.21 It is easy to see an encyclical like Leo XIII’s Rerum Novarum, which both Pius XI’s Quadragesimo Anno and John Paul II’s Centesimus Annus celebrate, as a predictable reiteration of the papacy’s medieval intrusion upon the autonomy of states. This may have been somewhat true for Rerum Novarum and Quadragesimo Anno, in the latter of which Pius XI boldy asserted that when Leo wrote Rerum Novarum, “the eyes of all...turned toward the chair of Peter, sacred repository of the fullness of truth wherein the words of salvation are dispensed to the whole world.”22 For Pius, the Vatican’s authority made it a dispensary of economic science, and not just for Catholics.

However, John Paul II was a man of a different time and a different caliber than his predecessors, and although he strove to counter an even more violent struggle between unbridled capitalism and socialism than either Leo or Pius, he sought to do so through a methodology of “mediation” rather than contradiction or imposition.23 His revolutionary encyclical must certainly be understood through its historical context, for the state of many world powers in 1991 was essentially a row of crumbling edifices. However, because Centesimus Annus was commited to “mediation” between declining socialism and rising capitalism, rather than unmitigated support of one or the other, it provides us with many useful principles for public policy in the twenty-first century. This is especially true in the wake of the Global Financial Crisis of 2008, which has seen a dismantling of accepted theories and faulty predictions analogous to the crumbling walls of communism in the 1990s. This breakdown of western materialism, coupled with (for example) the simultaneous economic growth of China’s communist-dominated society, once more presents the Christian tradition with a contest between two ideologies, neither of which holds an adequate view of personhood, the foundation of any economic system which seeks to not only describe markets scientifically, but also to prescribe them ethically. Thankfully, John Paul II’s sophisticated solutions to the doomed economic systems of his own time are highly relevant to the policy failures of the present.

To better understand John Paul’s prescriptions, it is necessary to first understand on a basic level what the Christian tradition means by human value and human freedom. From the very beginning of creation, man was formed in the “image and likeness” of God, in a harmonious relationship with the divinity. Chiefly among its other aspects, Christian thought has always considered man’s rationality and free will to be the core of imago Dei. It was only through man’s fall and the introduction of sin that individualism (through pride, envy, greed, and other vices) and the fallen state of the reason and will (dominance of the passions and tendency toward disordered love) came about. In his infralapsarian state, man still retains the imago Dei through nature, but an imperfection or depravity (what Augustine called the privatio boni, a derogation from the Good that underlies reality) has been introduced to humanity which must be restored through grace, most particularly, the incarnation of Christ the God-man and the elevation of human nature. Some thinkers, even in the early patristic tradition, referred to this fallen aspect of human nature as the likeness of God, the similitudo Dei, whereas they categorized imago Dei as the aspect of human nature which was retained. Key to the imago Dei which mankind still possesses is his free will. As long as he lives, man can never be “totally depraved” because privatio boni is a movement toward nonexistence. Rather, free choice is at the center of existence because it makes it possible for man to be God-like—the final end of human existence.

It would be quite surprising to find that John Paul II had set out to prescribe political and economic principles to fully respect and cultivate personhood in Centesimus Annus without a clear sense of this Augustinian definition of human value and human freedom. Obviously, the opposite is true. The enlightenment concept of negative liberty espoused by Austrians such as Hayek—that is, freedom as “the ability to do what one wants without coercion”—is one of John Paul’s primary targets in his encyclical. Centesimus Annus castigates this idea of freedom, arguing that “an understanding of human freedom which detaches it from obedience to the truth... becomes self-love carried to the point of contempt for God and neighbour, a self-love which leads to an unbridled affirmation of self-interest and which refuses to be limited by any demand of justice.”24 Instead, at the center of John Paul’s vision of free society is a society founded on human rights and safeguarded against the alienation of persons.

Like the Christian definition of freedom, a paradigm shift must be made to understand the Christian definition of human rights. In the post-enlightenment era, it is all too easy to conflate the goals of contemporary liberal democracy with human rights proper. This is precisely why Centesimus Annus warns that when it comes to

“the right to life...the right to live in a united family and in a moral environment... the right to develop one's intelligence...the right to share in the work which makes wise use of the earth's material resources...the right freely to establish a family, to have and to rear children through the responsible exercise of one's sexuality... Even in countries with democratic forms of government, these rights are not always fully respected.”25

A proper understanding of human rights is the only way to prevent the alienation of persons, the reversal of means and ends in economic production. Marx defines alienation (Entfremdung) as the separation of created goods from the hands of the persons who created them.26 Catholic social teaching defines it as the separation of persons from the uncreated Good in whose image the person was created. Whereas the former focuses on the means of production that are historically specific to capitalist exchange, the latter diagnoses the problem more holistically—beyond simply the “economic realm” of human experience.

Centesimus Annus outlines three concrete principles of an economic respect for personhood which are not limited by the form of government, but which as ethical standards transcend political formulae. First, market freedom must be cast as one small aspect of true human freedom. Second, human freedom must be protected by a “strong juridical framework” and appeal to an objective standard of ethics. Third, the agents responsible for this framework should be committed to the principle of subsidiarity, that affairs should always be managed by the least centralized (competent) authority. Since 1991, these three principles (along with the whole of Centesimus Annus) have been interpreted within three distinct schools of thought: the neo-conservative school, the progressive school, and what Matthew Shadle calls the “communitarian” school.27

The neo-conservatives, represented by thinkers such as Michael Novak, Richard John Neuhaus, and George Weigel, tend to emphasize the encyclical’s affirmation of market freedom and condemnation of arbitrary wealth redistribution. As Novak wrote in his 1993 book The Catholic Ethic and the Spirit of Capitalism, “We are all capitalist now, even the Pope.”28 The neo-conservative triumphalism and inattention to the meaning of human freedom on non-economic levels in Centesimus Annus tends toward a neglect of the state’s role in the “strong juridical framework” needed to uphold the ethical standards of a free society.29 No space is given, for example, to the encyclical’s warnings about “conditions of ruthlessness” that often harm the condition of the poor in a situation of unbridled competition.30 And although the neo-conservatives favor decentralization in terms of federal restrictions on commerce, they forget that subsidiarity can also be infringed upon by national and multinational corporations wielding political power through media, lobbying, and political action committees. For these reasons, the neo-conservative interpretation makes important points about the pro-Austrian elements of Centesimus Annus, but falls short by not considering its overall message.

The neo-conservative perspective is diametrically opposed by progressives such as Richard McBrien, Arthur Jones, and Charles Wilber in opinion pieces for the National Catholic Reporter, as well as John Pawlikowski in his study of John Paul II’s speech series on interpreting Centesimus Annus.31 Some scholars, like John Coleman, even go beyond progressive interpretation of the encyclical and actually fault Centesimus Annus itself for not voicing clearer support for state prevention of capitalism’s tendency toward materialism.32 In general, these progressives support greater centralization and power to the State, and so they tend to downplay the encyclical’s condemnation of the Social Assistance State and the State’s tendency to “neutralize” Christian cultures into dangerous secularism.33 Their emphasis on the State’s responsibility of protecting human labor rights is certainly in the spirit of the encyclical, but their tendency toward aggressive centralization policies robs other institutions (like family, Church, and individual) of the very rights that they want the State to protect—most notably, the right to autonomy. Such a disregard for subsidiarity is just another example of the alienation that John Paul was writing against.

The third major school of interpretation, the communitarian school, is not a middle path between conservativism and progressivism, but more accurately a higher path. Led by David Schindler, the communitarians begin by pointing out that the neoconservatives base their interpretation on a “public choice” anthropology, the view that mankind is essentially a homo economicus, making economically predictable choices in the closed sphere of economics.34 Yet economics is not a closed sphere, as Schindler points out, and if homo economicus were a real person, he would be nothing more than a sociopath.35 Furthermore, if the economic sphere is separate from the cultural sphere, the domain of the Church is prohibited from the scientifically descriptive province of economics—the prescriptive ethics at the heart of Centesimus Annus is made impossible in this bipartite world. Neoconservativism fails to provide a robust account of human nature, and therefore misunderstands the nature of society, a misunderstanding that communitarians have carefully refuted.

On the other hand, although stridently critical of neoconservatism, the communitarian school are not properly “progressive” interpreters of John Paul II. Willam Cavanaugh’s communitarian perspective rejects unbridled market freedom on the grounds that it is too consistent with the Austrian negative view of liberty, but simultaneously opposes the Social Assistance State and constricting economic policies that Centesimus Annus warns do not make enough of human freedom.36 He argues that structures which essentially take advantage of free-market political systems, yet maintain intra-institutional cooperation between laborers, management, and consumers, manifest the highest degree of respect for personhood, especially in terms of incentivizing virtue. This virtue-oriented methodology is the essence of the communitarian approach to economics in general, and most plainly exhibits the three major principles of Centesimus Annus delineated above. Market freedom cannot be allowed to dominate or eliminate personal freedom, and both are subject to an idea of freedom as encouraging action which aspires to be virtuous. The objective standard for this idea of virtuousness, and thus the foundation of John Paul’s “strong juridical framework,” is Church teaching and its influence on the culture. Subsidiarity is an automatic function of the others-centered “society of community,” which focuses on the virtue of “receptivity” and an Ich und Du paradigm of existence.37 These communitarian concepts maintain a radical adherence to the Augustinian anthropology, and like the present study, propose a variety of possible instantiations of this tradition in today’s economic situation. Hence it most realistically embodies John Paul II’s claim in his encyclical that “the Church has no models to present; models that are real and truly effective can only arise within the framework of different historical situations.”38

Five major agents, or institutions, which exist in every society are given the responsibility in Centesimus Annus of protecting against the alienation of human existence: State, Church, families, “intermediate communities,” and individuals. The first two of these institutions are often cast in opposition to each other, especially in America and other thoroughly western countries, although increasingly worldwide. Stripping society of its spiritual institutions in these countries is often seen as a positive move away from radical ideologies toward a more ideal, neutral secular state. In reality, societies continue to ignore Friedrich Nietzsche’s warnings39 and insist upon, for example, jurisprudence without objective justice, social assistance with no clear understanding of basic human needs, and education with no agreement about what should be taught. One of the most valuable principles set out in Centesimus Annus is that

“The Church’s specific and decisive contribution to true culture” is to foster man’s “capacity for self-control, personal sacrifice, solidarity and readiness to promote the common preaching the truth about the creation of the world, which God has placed in human hands so that people may make it fruitful and more perfect through their work; and by preaching the truth about the Redemption, whereby the Son of God has saved mankind and at the same time has united all people, making them responsible for one another...Love for made concrete in the promotion of justice.”40

If the Church promotes justice, self-control, solidarity, and other virtues, it promotes them within the context of a culture, making it inextricable from society. In fact, “all human activity,” the encyclical states, “takes place within a culture and interacts with culture.”41 This clearly includes religious activity, but in a certain sense, religious activity also includes everything else. The Church plays a vital role in the society of community, for one, by acting as a Traditionskern, or carrier of the intellectual, artistic, and spiritual legacy that no society can exist without.

This severance has brought about the increasing destruction of the other three agents for protecting personhood; families, “intermediate communities,” and individuals. Centesimus Annus calls family the “first and fundamental structure”...wherein “man receives his first formative ideas about truth and goodness, and learns what it means to love and to be loved, and thus what it actually means to be a person.” If society becomes overdetermined by economic exchange, and acquisition of material wealth is seen as a good in and for itself, it is impossible to understand the true essence of childbearing, which is an act of self-gift. If families are not sustained by the moral witness of the Church, the individual is not protected in his formative stages, and he develops in such a state that concepts like the “alienation of existence” mean nothing to him. Children coming from broken families know all too well that alienation is more or less the status quo. They grow up to become the individuals who act within the economic structures that John Paul calls “intermediate communities” that, it is hoped, authentically defend human personhood. Instead of developing “as real communities of persons and strengthen[ing] the social fabric, preventing society from becoming an anonymous and impersonal mass,” these intermediate communities break down and disband in a tragic mirror image of the families from which their constituents arose. Neighborhood programs, common-interest groups, city councils and committees, labor unions, and other intermediate communities ultimately end up doing more harm than good if they have no common goal and unified mission based on Christian anthropology. In the end, every individual and social group comes from a family, an institution which the “neutral” secular State has failed to protect and promote. The Church, on the other hand, as a witness to all of human history, protects families with the same message of peace and justice whereby it protects individuals, governments, and other institutions.

From this Augustinian perspective, the Austrian account of human action with which we began is helpful insofar as it supplies convincing reasons to think that centralized state planning is ultimately doomed to failure. As Hayek and others have shown, price signals that arise from the voluntary exchange of scarce resources in a marketplace are extremely efficient means of coordinating information in any given society. Distortions of these price signals by the artificial lowering of interest rates, regulatory capture and other interventionist policy cause misleading bubbles, as was clearly seen in the housing crisis of 2008.42 The bursting of these bubbles hurts the poor and marginalized in profoundly terrible ways.

However, as we have tried to show in this paper, the Augustinian anthropology exemplified by John Paul cannot allow for a purely negative, hands-off approach to the marketplace. It is the worst kind of dogmatism to think that negative liberty and unfettered exchange always yield the most desirable resource creation and distribution for a given society. Plato and Aristotle warned us already that such extreme democratic inclinations tend to yield a “tyranny of the many.” In this sense, paradoxically, the overburdensome state about which Austrians complain ultimately results from the concrete activity of their own unguided markets. The two need each other, in a sense.

In light of this analysis, we suggest measures that do indeed harness the productive power of the markets by reducing harmful regulatory matrices for small businesses. Small businesses and multinational corporations ought not to be grouped under the same category of business “in general” because, frankly, they offer two entirely different exchange models affecting society. The language of virtue specific to Christian anthropology offers us resources for making this distinction, since a just society is interested in cultivating the sort of exchange that is built on trust which exceeds what purely negative liberty can offer. Consumers may choose to interact with a small business out of the freedom, properly understood, that such a choice can exhibit—the sacrifice of corporate convenience for small-business relationships is not a freedom from coercion but a freedom from utilitarian dogma.

Because economic justice depends on the local development of industry and culture, we suggest via the principle of subsidiarity that local governments be vested with more responsibility than state and national governments for enacting policy measures. Localized power allows for more careful attention to cultural developments in specific areas, which can in turn manifest the particular instantiations of universal goods such as human dignity and solidarity in imaginative ways. Taxation and regulatory structures at this local level can and ought to be encouraged for public goods that are not readily amenable in the democratic process of the market. Again, the distinction between local government regulations and state and national government regulations is made by way of the language of the positive cultivation of virtue—not by the negative preservation of abstract liberty. Regulation at the local level and regulation at the national level are simply not the same, as the normative principle of subsidiarity suggests.

Finally, and most importantly, we suggest that the cultural centers from which our laws derive their historical intelligibility—the church, most notably—be encouraged as centers of public good. Therefore the free exercise of public religious commitment ought not to face secular discouragement on behalf of the state. On the contrary, communities of faith ought to be seen as important cultivators of the virtues necessary to sustain an economic order based on trust between religious and non-religious people alike. This can be directly deduced for obvious reasons from our reliance upon John Paul’s Augustinian anthropology, but it is also a brute historical reality that cannot be ignored. Even our most secular principles of justice such as liberty and equality owe their existence historically to the Christian imagination with which we are concerned here.

In conclusion, then, we have argued that the Christian anthropology articulated in John Paul’s Centesimus Annus provides some sorely needed perspective on the topic of economic methodology and, more specifically, a robust concept of human freedom. As the Pope remarks near the end of the encyclical, “the Church finds herself still facing ‘new things’ and new challenges. The centenary celebration should therefore confirm the commitment of all people of good will and of believers in particular.”43 Indeed, it could just as easily be said that humanity too finds itself facing new challenges; for, as Henri de Lubac reminds us, the Church is the new humanity.

We began this paper with a short historical trajectory of the Austrian school of economics, which has proved to be a formidable, influential voice in popular and academic discussions about economic policy—especially since the 2008 crash in the United States financial system. Without failing to note the positive contributions that Austrian economics brings to these discussions, from our perspective of Christian anthropology there is still much to be desired in the Austrian acceptance of so-called negative liberty as a concept of human freedom.

Drawing from Centesimus Annus, we concluded that negative liberty can never be an adequate concept of human freedom precisely because it operates on mistaken assumptions about who human beings are, most fundamentally. The pursuit of justice—which includes explicit concerns about the social and material conditions of human dignity—is inseparable from the formation of persons even in market-driven societies. This alternative anthropological account is able to explain and encourage the essential role of intimate social institutions such as the family as something quite different than the voluntary association of otherwise autonomous individuals. Finally, we have noted some responses to the Austrian school in the form of neoconservative and progressive alternatives. If our reading of Centesimus Annus is correct, however, these alternatives end up as two sides of the same liberal democratic coin. We have tried to articulate an elusive “third way” beyond these two sides of the spectrum in the form of communitarian reciprocity. The encouragement of local governance and intermediate institutions is indispensible towards this end, and both the entrepreneurial virtues of the free market and the discerning presence of government as a guide for public goods are necessary means.

There are few debates that are as confusing, frustrating and even depressing as the debate over what kind of economic arrangements are necessary for human flourishing. Without pretending to have all the answers, we believe that John Paul’s Christian anthropology provides us with some extremely rich resources for present and future struggles against the rampant injustice we find and will continue to find in all corners of the globe.

1 Willa Cather, "Escapism" (1936), in Stories, Poems, and Other Writings (New York: Library of America, 1992), 972.

2 For a developed account of “objective bias” in economics, see: Don Lavoie, “The Interpretive Dimension of Economics: Science, Hermeneutics, and Praxeology,” Review of Austrian Economics 24 (2011), 93. The article was originally published by the Center for the Study of Market Processes in 1985.

3 See: Virgil Storr, “On the Hermeneutics Debate,” Review of Austrian Economics 24.2 (2011), 85-89.

4 See: Torrance Kirby, Persuastion and Converstion: Essays on Religion, Politics, and the Public Sphere (Boston: Brill, 2013), 72.

5 Centesimus Annus, 41.

6 See: Raj Chetty, “Yes, Economics is a Science,” The New York Times (Oct 2013):

7 See: Henri-Simon Bloch, “Carl Menger: The Founder of the Austrian School,” Journal of Political Economy 48.3 (June 1940), 428.

8 Carl Menger, The Principles of Economics (Washington, D.C.: Institute for Humane Studies, 1976), 120-21.

9 Aristotle, Ethics (New York: Penguin Books, 1976), 1094b.

10 This is not to say that Austrian economics as a school adopts Mises’ method of praxeology “across the board.” On the contrary, as even the hermeneutical turn shows, the proper methodology of Austrian economics is and has been a subject of intense debate. See: Bruce J. Caldwell, “Praxeology and its critics: an appraisal,” History of Political Economy 16.3 (1984), 363.

11 See: R.A. Gonce, “Natural Law and Ludwig von Mises’ Praxeology and Economic Science,” Southern Economic Journal 39.4 (1973), 490.

12 Ludwig von Mises, Human Action: A Treatise on Economics (San Francisco: Fox and Wilkes, 1963), 26.

13 Ibid., 55.

14 In Individualism and the Economic Order, for example, Hayek distances himself from “essentialist individualism,” which he takes to be the mistaken assumption that human beings in the state of nature are hermetically-sealed subjectivities. The “true individualism” that Hayek endorses understands the “individual” in terms of a necessary abstraction from her original state of social embeddedness. See: Friedrich Hayek, Individualism and the Economic Order (Chicago: University of Chicago Press, 1948), 6.

15 The following passage from Locke’s Second Treatise is a good example of the position Hayek is critiquing: “To understand political power right, and derive it from its original, we must consider, what state all men are naturally in, and that is, a state of perfect freedom to order their actions, and dispose of their possessions and persons, as they think fit, within the bounds of the law of nature, without asking leave, or depending upon the will of any other man.” John Locke, Second Treatise of Civil Government, Chapter II.

16 See: Eugene F. Miller, Hayek’s Constitution of Liberty (London: Institute of Economic Affairs, 2010), 43

17 Although there are places in Hume’s oeuvre in which he allows for a priori reasoning, there is no question that “taste” or “sentiment” is the more primordial reality in matters that are relevant for individual decision-making in the market economy: “It is evident that none of the rules of composition are fixed by reasonings a priori, or can be esteemed abstract conclusions of the understanding.” David Hume, Essays: Moral, Political and Literary (Indianapolis: Liberty Fund, 1985), 231.

18 Friedrich Hayek, Constitution of Liberty, 60.

19 Ibid., 11.

20 Bob Goudzwaard has emphasized this sober perspective on recent developments in the Austrian school—namely, that Austrianism correctly avoids the reductionism of positivism without recognizing its own indebtedness to the same enlightenment presuppositions. See Bob Goudzwaard, “A Response to Novak’s ‘Human Dignity and Personal Liberty’,” Journal of Markets and Morality 5.1 (2002), 122-23.

21 Principles, though not institutions. John Paul, unlike Leo XIII in Rerum Novarum and Pius XI in Quadragesimo Anno, did not propose to impress institutional authority upon governmental bodies, but rather set up ethical principles of good government, and posit the church as the spiritual authority over these principles.

22 Quadragesimo Anno, 7.

23 Daniel Finn, “Commentary on Centesimus Annus,” in Modern Catholic Social Teaching: Commentaries and Interpretations, Kenneth R. Himes, O.F.M., ed., Lisa Sowle Cahill, et al., assoc. ed. (Washington, D.C.: Georgetown University Press, 2005), 436.

24 CA, 17. For a fuller understanding of the Catholic definition of human freedom, John Paul refers his readers in a footnote to Leo XIII, Encyclical Letter Libertas Praestantissimum, 10: loc. cit., 224-226.

25 CA, 47.

26 “Under these economic conditions this realization of labor appears as loss of realization for the workers; objectivication as loss of the object and bondage to it; appropriation as estrangement, as alienation.” Karl Marx, Economic and Philosophic Manuscripts of 1844 (Moscow: Progress Publishers, 1959), 29.

27 Shadle gives this name to the recent wave of nouvelle theologie thinkers like David Schindler and those who write for the Communio journal. Matthew Shadle, “Twenty Years of Interpreting Centesimus Annus on the Economy,” Journal of Catholic Social Thought. Volume 9, Issue 1, Winter 2012, 171-191.

28 Michael Novak, The Catholic Ethic and the Spirit of Capitalism (New York: Free Press, 1993), 101.

29 Shadle, 177.

30 Centesimus Annus, 33.

31 Richard P. McBrien, “Capitalists Should Worry About Pope,” National Catholic Reporter 18 September 1992: 2. Arthur Jones, "Pope Conjures Up Tantalizing Alternatives to Capitalism." National Catholic Reporter 28 (8 November 1991) 20. Charles K. Wilber, “Argument that the Pope Baptized Capitalism Holds No Water,” National Catholic Reporter 7 June, 1991: 10. John T. Pawlikowski, “Government and Economic Solidarity: The View from the Catholic Social Encyclicals,” Bridges: An Interdisciplinary Journal of Theology, Philosophy, History,and Science 7 (2000): 288-91.

32 John A. Coleman, S.J., “Centesimus Annus: Who Got the Stronger Penance?” No Heaven Without Earth, ed. Johann Baptist Metz and Edward C. Scchillebeeckx (Philadelphia: Trinity, 1991) xi-xii.

33 Centesimus Annus, 47, 51.

34 Indeed, Samuel Gregg uses this terminology and suggests that such a view of anthropology is consistent with human experience. He is not ignorant of the fact that homo economicus and homo sapiens are distinct from one another, but argues that an understanding of homo economicus is equivalent to an understanding of homo sapiens, at least as far as this understanding pertains to the economic decision matrix of homo sapiens. In other words, homo economicus can provide a comprehensive model of rationality in these “economic” situations. Gregg’s thinking relies on a hard separation between the economic sphere and other spheres of human action. Samuel Gregg, Economic Thinking for the Theologically Minded (Lanham, MD: University Pres of America, 2001), 13-14.

35 David Schindler, “’Homelessness’ and Market Liberalism: Toward an Economic Culture of Gift and Gratitude.” In Wealth, Poverty, and Human Destiny, ed. Doug Bandow and David L. Schindler (Wilmington, DE: ISI Books, 2003), 359. Also Shadle, pp. 184-185. The idea that homo economicus is not an adequate theory of human personhood was a major theme at the 1990 meeting of Nobel Prize-winning economists of all stripes and countries (including F. A. Hayek) with Pope John Paul II at the Pontifical Council for Justice and Peace. See Finn, 441.

36 William T. Cavanaugh, Being Consumed: Economics and Christian Desire (Grand Rapids, MI: Eerdmans, 2008), passim.

37 This description of what I have termed the “society of community” is found in Adrian Walker, “The Poverty of Liberal Economics,” Wealth, Poverty, and Human Destiny, ed. Doug Bandow and David L. Schindler (Wilmington, DE: ISI Books, 2003).

38 Centesimus Annus, 43.

39 Nietzsche famously decries the Englischen Flachkopfen (literally, “English flatheads”) of his time for thinking that Christian historical developments such as liberty and equality can be upheld without the recognition of the Christian God. See: Friedrich Nietzsche, Twilight of the Idols (Indianapolis, IN: Hackett Publishing, 1997), 53.

40 Centesimus Annus, 51, 58.

41 Ibid, 51.

42 For more on interest rates and the Austrian theory of the business cycle, see Jerry H. Tempelman, “Austrian Business Cycle Theory and the Global Financial Crisis: Confessions of a Mainstream Economist,” Quarterly Journal of Austrian Economics 13.1 (Spring 2010), 4.

43 Centesimus Annus, 61.

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