Book Reviews

323 A REVIEWER'S NOTEBOOK Religious Thought and Economic Society by John Chamberlain W hen Jacob Viner of the University of Chicago and Princeton Universi ty died, he left four chapters of an unfinished work called Religious Thought and Economic Society. Two scholars, Jacques Melitz and Donald Winch, have pieced togeth er the Viner work for publication by the Duke University Press of Durham, North Carolina (211 pages, $21.95). What strikes one at once in reading the Vin er text is the essential worldliness of the early church fathers. Though they often counseled perfection, they had no illusions about the av erage man's capacity for martyrdom. Saint Au gustine had been a sinner himself. Besides, there was a paradox involved. It was all very well for an occasional individual to sell all he had to feed the poor, but what if everybody were to do the same? Production would cease, and there would soon be nothing to give away.

The poor would really be reduced to scratch ing to keep alive. So the early Christian fathers, being practi cal men, counseled sharing. They did not seek to make the sharing compulsory-that would dry up incentives, and there would be less to share. What they wanted was a system that would yield a maximum of voluntary alms. This naturally opened the doors to capitalist thinkers, though the word "capitalism" was not used. The rich merchant was to be encouraged as the best possible source of alms. In the Re naissance the rich merchant came into his own. The patricians of the Renaissance paid tribute to the excellence of man instead of stressing the degradation resulting from original sin. Says Viner, the merchant class "maintained that the life of virtue was within the reach of the ordinary run of mankind and was a plea surable one ... virtue was to be pursued for its own sake or for its benefit to others, indepen dently of its contribution to religious salvation or for its obligatoriness as a religious duty."

Material things, sacred and profane art, fine craftsmanship, the embellishment of palaces, churches, and cities were more to be admired than the ascetic life of "passive contemplation or pious resignation." Thomas Aquinas was against usury, but it is one thing to frown upon charging interest on cash loans and another to condemn selling for credit at a higher price. Since most buyers are unable to pay cash, if wholesalers were to refuse to sell at credit their sales would shrink. Soon there would be no business at all. Viner devotes many pages to the quarrels in France between "rigorists" and "laxists." But just who were the rigorists and who were the laxists is not always clear. The Jansenists pro fessed to believe in a strict condemnation of usury; the Jesuits did not. But the two oppos ing schools of thought were equally casuistic about loans to merchants to help them do busi ness.

Since Viner was obviously convinced that capitalist practices were fairly well defined even in the Middle Ages, he tangles with the theory promulgated by Max Weber and R. H. Tawney that it was Calvinism that set the spirit of capitalism going. When Venetians and Genoans began adventuring on the Mediter ranean after the Saracen enemies of Christiani324 THE FREEMAN • AUGUST 1989 ty had been pushed back, the spirit of trade quickly moved over the passes from Italy to South Germany. Banking was elaborated in South Germany. All of this happened before the time of the Protestant Reformation. To believe that the "geist" of capitalism orig inated in Calvin's Geneva or John Knox's Scot land ignores some palpable geographic facts. As Viner says: the prosperity of Holland in the seventeenth century aroused the interest of writers in other countries, and various explanations were offered. Sir WilliamTemple singled out for emphasis the industry and thrift of the Dutch, but attributed most "national cus toms" to "unseen, or unobserved natural causes or necessities."The only characteris tics of this kind which he identified in the Dutch case were poverty in natural re sources and density of population. He makes no mention of a religious factor. Some time before 1618, Sir Walter Raleigh singled out Holland, together with the Hanse towns and Denmark, as countries which surpassed England in commerce. He does not mention that all these countries were Protestant ....

Sir Josiah Child attributed the superiority of the Dutch in trade to a wide range of cus toms, institutions, and patterns of economic behavior and laws. His only reference to a religious factor is his inclusion of "toleration of different opinions in matters of religion" as contributing to Dutch prosperity by at tracting to Holland industrious and rich dis senters from other countries. There is only an incidental reason to connect religion with the rise of capitalism in anything Sir William Temple and Sir Walter Raleigh or Josiah Child noticed in Holland. What stands out is the fact that the Dutch government was willing to leave people alone. In short, laissez faire. A better title to the incomplete Viner book would have been Human Nature and Eco nomic Society. The church fathers and scholas tics quoted by Viner were reasonable men who knew that alms would be forthcoming out of a plenty that would still allow scope for individu al pleasure. We are less generous in our under standing of human nature today than was the PETER BRUEGEL,THE ELDER case before we began to legislate welfare by compulsion. No compulsion was necessary to provide education in Britain or America in the eighteenth and nineteenth centuries. Schools were built and maintained by churches and pri vate associations. More hospitals were built in England before the days of compulsory health services.

After the common sense of Viner's early chapters about the church fathers, I had looked forward to reading the fourth chapter on Max Weber and the thesis that capitalism had been particularly fostered by the "Puritan ethic." But the chapter is so clogged with unfa miliar names (Bishop Herbert Thorndike, Sir Peter Pett, Robert Robinson, Charles Dav enant, C. Weiss, Israel Worsley, to cite a few) that it is almost impossible to follow the tan gential arguments. One has to hold fast to the proposition that Weber's thesis applies only to "the ascetic types of Protestantism." Weber's "silent" omission of Geneva (Calvin's city) and Scotland (John Knox's territory) from the list of the "ascetics" was, says Viner, "not inadver tent." The spirit of capitalism was not equally present in all Calvinist.countries. Contrariwise, it was often present in Catholic countries. Things depended on human nature acting on local traditions. Neither Weber in Germany nor R. H. Tawney in England had a "lock" on any all-inclusivelaw. D TIME AND PUBLICPOLICY by T. Alexander Smith University of Tennessee Press, P.O. Box 250, Ithaca, NY 14850 1988.299 pages. $29.95 cloth Reviewed by Israel M. Kirzner T.

. Alexander Smith, a professor of politi cal science at the University of Ten• nessee, has written an impressive book. It is a book that ranges across several so cial science disciplines, particularly economics, sociology, and politics-but also involves psy chology, philosophy, and history. This review is written from the narrow perspective of an "Austrian" economist (whose objectivity is, it must be confessed, perhaps compromised in the book's favor by its author's embrace of the Austrian tradition in economics, and by his general endorsement of free market policies.) The major thesis of the book can be stated simply. Modern societies, partly as a result of various sociological forces, partly as a result of welfare-state policies and majoritarian "promissory politics," are systematically biased toward the short run: "Our time horizons have changed radically in the modern era." This bias, the author claims, poses a serious danger for society's long run health and viability.

Where we ought to be pursuing courses of ac tion that recognize the long run benefits of bourgeois values, frugality, thrift, and self-re straint, there in fact are powerful political and social forces that lead us, as voters and as politicians, to place greater emphasis on short run, fleeting, and ephemeral benefits. What is required, Smith maintains, is a pattern of insti tutional reform that will encourage long range planning, and the willingness to forgo instant gratification for the sake of future goals. This thesis is developed in eight chapters of well-written prose enriched by a scholarly ap paratus modestly concealed in the endnotes, reflecting an extraordinarily wide range of reading and study. Although this reviewer has several quibbles to express as an economist, as a citizen he finds the overall thrust of the book-especially in its development of themes in sociology and politics-highly persuasive OTHER BOOKS 325 and important. Although at least some eco nomic aspects of Smith's argument have been developed before (for example, Henry Haz litt's classic Economics in One Lesson critique of interventionism is based on the idea that the "art of economics consists in looking not mere ly at the immediate but at the longer effects of any act or policy .... "), the book's reinforce ment of its economic insights by reference to sociology, and to political institutions, adds up to an innovative and powerful case for the free market and the rule of law.

My quibbles will at first seem minor ones, yet on reflection they turn out to be quite dis turbing to the economist. The economist who appreciates the social usefulness of free mar kets, and also understands the importance of the time profiles of production and consump tion, will argue that a key virtue of the market economy is that it stimulates economic growth to reflect, with reasonable faithfulness, the wishes of the individual market participants. In other words, the market generates volumes and rates of capital accumulation and depreci ation which reflect the time preferences of the citizens in their capacities of consumers and potential investors. Smith's position seems, if I read him correctly, to argue for the free market economy because it is likely to generate a time profile of savings, capital-using production, and consumption which is faithful to what (in Smith's judgment) is the "correct" allocation between present and future. Smith sees the economy as sliding into a miasma of instant gratification-at a time when it ought to be planning prudently for capital replacement and long term growth.

One would like to think that Smith's view of the "correct" allocation over time expresses what he believes to be the true wishes of the public. Yet certain parts of the book-notably chapter two, where the author notes and de plores the modern abandonment of bourgeois values-suggest that he really does hope for a set of institutions which will not permit citizens to exercise their unhealthily high time prefer ences. This way of thinking may be eminently defensible from a variety of perspectives, but the economist (who sees the virtue of markets to lie in their respect for citizens' preferences, no matter how degenerate and "wrong" they 326 THE FREEMAN • AUGUST 1989 may be) feels uncomfortable with it. This discomfort is only deepened by our noticing that Smith, throughout the book, de plores the sacrifice of the future for the pre sent-never recognizing, it would appear, that beyond some point, surely, additional provision for the future may be entirely too costly for a present generation. Surely Smith does not wish us to postpone all present consumption to the future? Which future? Next year, next century, next millennium? Granted that our present in stitutions have biased us so strongly in the di rection of instant gratification that our imme diate social and political agenda may be usefully focused upon urging greater attention to the future. Nonetheless, one would have ex pected some mention of the free market's ca pacity to avoid, not only a time profile tilted too much toward the present, but also one tilt ed too much toward the future. What the Aus trian emphasis on time allocation depends on is not so much any admiration for the bour geois virtues of frugality and thrift per se, as an understanding of the need for thrift in order to achieve preferred future consumption goals.

This aspect of Austrian understanding does not emerge unobscured in Smith's book. Related to this complaint must be a certain unease which an Austrian economist feels at Smith's lengthy (and generally sound) discus sion of Say's Law in chapter seven. One comes away from this chapter with the impression that Smith wishes us to see Say's Law as teach ing the primacy of production over consump tion, of supply over demand. But our apprecia tion for the profoundly valid insights embodied in Say's Law should surely not (at any rate not for Austrian economists!) take us in that direc tion. To recognize that general overproduction is, in the proper sense, impossible, does not re quire us to say that "supply is the driving force behind 'demand"'-for Austrians the reverse, properly interpreted, is closer to the truth. Keynes' error was, for Austrians, not his em phasis on demand, but his belief that "aggre gate demand" can be deficient in equilibrium.

For Austrians an appreciation for the need to save is not based on any virtue of abstinence, but on the desire to consume, more extensive ly, in the future. Several further related quibbles: Smith has learnt his Austrian economics well, and with a great deal of depth. Yet he appears not to see that much of his thesis does not really depend on Austrian insights. To be sure, his superb third chapter represents classic Austrian and Rothbardian deployment of a Crusoe example to illustrate the meaning and importance of the time profile of production and consumption activities. But one does not have to be an Aus trian to appreciate the importance of planning and saving for the future. Certainly one does not have to have a sophisticated Misesian ap preciation for the a priori quality of positive time preference to accept Smith's thesis. By over-emphasizing the Austrian route by which he apparently arrived at his understanding of the importance of the time dimension, Smith may have unnecessarily limited its potential significance for economists following different approaches. (This Austrian economist men tions this point somewhat diffidently: it must seem loutish to sniff at Smith's appreciation for Austrian economics-so frequently ignored!) Nor, one may respectfully submit, is the Austrian economist's appreciation for the sub tleties and complexities of time quite captured by Smith's treatment of it. Although Smith makes occasional mention of the· problems of uncertainty and knowledge introduced by the circumstance that human action occurs in irre versible time, the overall thrust of his book emphasizes only the one dimension: the need to allocate scarce resources between the pre sent and the future. Primordially important though this dimension certainly is, it is a little unfortunate that the book somehow conveys the impression that, by developing its central thesis, the place of time in economic policy has been fully and completely dealt with. For Aus trians, surely, far more needs to be discussed and explained, including especially the role of competitive processes, the role of en trepreneurial discovery, and the complications these introduce into propositions concerning the effectiveness of markets.

But these are mere economist's quibbles. The larger picture presented by the book relies heavily on insights concerning sociology and politics which impressed this lay reader greatly. Smith has undoubtedly put his finger on a cen tral weakness of modern political systems.

There can be no question that the future eco nomic and political well-being of society de pends significantly on our being able to disen tangle ourselves from the web of forces which, as Smith brilliantly shows, distort our focus, mistakenly and tragically, toward the present and immediate future. Smith's book deserves a wide readership and careful thought and dis cussion. D Dr. Kirzner is a professor of economics at New York University. MEMOIRS OF AN UNREGULATED ECONOMIST by George J. Stigler BasicBooks, 10 E. 53rd Street, New York,NY 10022• 1988 228 pages • $17.95cloth. Reviewedby RichardM. Ebeling B est-selling novels and popular movies never seem to have an economist as the hero. An archaeologist or an architect, an over-the-hill newspaper man, an inebriated detective-all seem to fit the bill. Even the book versio~ of Death Wish has an accountant as the protagonist. But an economist? What can be ex citing ~bout supply and demand, the quantity theory ~f money, or the intricacies of public utili ty regulation? A work of fiction, at least, can ex aggerate the truth. But what can one look for ward to from an economist's autobiography?

Economists are boring, right? Wrong! George Stigler is a leading member of the Chicago school of economics and the 1982 recipi ent of the Nobel Memorial Prize in Economic Science. His intellectual autobiography, Mem oirs of an UnregulatedEconomist, proves that there is life after Econ 101 and that economics is far from being a dismal science. In telling his own story, Professor Stigler does a masterful job of weaving in the history of 20th century American economics. In the late 1940s, many economists and most intellectuals were convinced that large d<>.ses of social planning and government intervention were both desirable and the inevitable waves of the future-the only things that would save America from falling back into the abyss of the Great Depression of the 1930s. Forty years later it is socialism and interOTHER BOOKS 327 ventionism that are on the defensive, with the market economy and individual liberty once again the rising ideals. To a great extent the radi cal shift in ideological direction has been due to the Chicago School, and this is the real story in Stigler's book.

Stigler did his graduate work in economics at the University of Chicago in the 1930s. He stud ied with such leading figures as Frank Knight, Ja cob Viner, and Henry Simons. Though they were far from being radical advocates of laissez-faire, in the collectivist environment of the New Deal in America and Fascism and Communism in Eu rope, these economists instilled in their students an appreciation of the price system and a com petitive market order. And they warned of what collectivism could mean for the loss of political and civil liberties. Their teaching left its mark on Stigler and others like Milton Friedman. In the 1950s, these influences gelled into the "ChIcago School." Stigler's contributions have been in the area of micro-economics, I.e., the theory of markets and prices. He devoted his energy to the economics of information, the theory of monopoly, and the theory of government regulation. Economists have long worked with an economic model of "perfect competition" in which agents are as sumed to possess full and perfect knowledge, and markets are assumed to adjust immediately to any and all changes. This model has been an easy target for critics of capitalism. Stigler demonstrat ed how markets enable individuals with less than perfect knowledge to search for information about the qualities of goods and the prices at which they may be obtained; he further showed how competitive forces tend to bring supplies and demands into balance through this informa tion-search process.

He also challenged the long-held assumption among many economists that when markets are less than "perfect," monopolistic forces tend to exist all over the economy, with consumer inter ests sacrificed for the benefit of a few, big, highly concentrated firms and industries. In a series of theoretical and empirical studies, Stigler was able to prove that as long as government doesn't be stow privileges guaranteeing producers protec tion from competition, the market economy is an inherently rivalrous arena, and one that is very responsive to changing consumer demands.

328 THE FREEMAN • AUGUST 1989 Finally, Stigler pioneered research in the field of government regulatory policy. The standard view, again, was that certain industries are inher ently uncompetitive; therefore, it was believed necessary for government to regulate their pric ing and production policies for the public good. Stigler argued that rather than serving the public good, regulatory agencies invariably came under the control of the industries they were to regu late. All the economic incentives were for the regulated companies to devote time and re sources to "capture" the agencies, and then use them to limit entry into their market and to set prices favorable to themselves. Stigler demon strated that when left free from government oversight, these sectors of the economy were usu ally as open and competitive as any other. The drama of the tale is in Stigler's telling. He explains the different views and schools of thought; he introduces the reader to the compet ing personalities and their conflicts over a 50-year period; and most important, he escapes from the abstract language and arguments of the rarefied economics journals. Thus, the general reader can follow the intellectual odyssey in terms that flesh out the theoretical and policy debates of the past several decades. Stigler doesn't limit himself to developments in his own fields of interest. He also describes the evolution of the Chicago School monetary tradition, beginning in the 1930s, through the writings of Milton Friedman, right up to the current theory of Rational Expec tations. And he explains the Chicago School's ex tension of the logic of economics to new areas such as the economics of crime, the family, and race relations.

As a member of a rival school in economicsthe Austrian School-the present reviewer is tempted to raise a number of questions and ob jections to the approach of the Chicago School. While the Chicago economists have emphasized the vigor of competitive forces, they have failed to analyze to any real extent the focal point of that competitive process-the entrepreneur. While they have tried to develop a theory of in formational search in the market, they have failed to grapple with the real problem of imper fect knowledge, Le., how do market agents form expectational judgments when the uncertainty they face cannot be reduced to simple statistical probabilities? And finally, Stigler says that eco nomics can be applied to a wide array of areas and problems because "Economics is the study of purposive behavior involving choice." Yet, the frequent tendency by Chicago economists to re duce all economic phenomena to a purely quanti tative dimension often has resulted in many es sential human elements of "purposive behavior"

being excluded from their analysis. But these may be considered family squabbles among free market economists. George Stigler, and the Chicago School he has helped to create and nurture, have changed the shape of eco nomics in the United States and increasingly around the world. The economic planners and in terventionists are losing the intellectual battle ev erywhere, and a major portion of the credit be longs to the set of ideas so eloquently described in this book. Ted Thrner may not buy the rights to turn it into a cable movie special, but it cer tainly is a story in which the economist is the hero. D ProfessorEbelingholds the Ludwig von Mises Chair in Economicsat HillsdaleCollege. Freeman Study Guide Pilot Project If you are a secondaryschool teacher, college or universityprofessor,or adult discussiongroup leader, we inviteyou to take part in a pilot project involving study guides for three issues of The Freeman, 1989-90. Home schoolersare also encouragedto participate.Please contact FEE by Au gust 31, attentionJanetteBrown, Pilot Project.