Catholicism, Protestantism, and Capitalism

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Aug. 8, 1957, Murray N. Rothbard wrote to Richard C. Cornuelle
of the Volker Fund, strongly recommending Emil Kauder’s reseaches
into the Aristotelian background of marginal utility and Austrian
economic theory (Rothbard Papers). In a memo of February 1957,
“Catholicism, Protestantism, and Capitalism,” reproduced below,
Rothbard set down some thoughts on these matters. Rothbard’s letters
reveal an early and keen interest in the history of economic thought.
The memos he wrote for the Volker Fund, from the early fifties
down to 1962, on a large variety of books and scholarly journals,
show off his growing knowledge of the subject. In addition, Rothbard’s
dissertation director, Professor Joseph Dorfman, was an authority
on the history of American economic thought, and Rothbard was
very interested, among other matters, in American contributions
to the monetary debates of the early 19th century. Rothbard, as
much a historian as an economist, was well-placed, not only to
assess books for the Volker Fund, but also to grasp and synthesize
economic doctrines logically and in historical perspective. His
last major published work, his two-volume History
of Economic Thought

(1995) certainly stands as proof. ~ Joseph Stromberg

recent years, a group of scholars (most of whom might be called
"right-wing Catholics") have set about revising the
standard interpretation of the rise of economics and of capitalism,
which holds that, the thought, as well as laissez-faire economic
policies, which nurtured capitalism, developed as an outgrowth
of the casting off of medieval Catholic shackles. The modern spirit
of scientific inquiry defeated scholastic dogmatism and enabled
growth of a generally individualist and rationalist spirit; casting
off of Church authority led to a general individualism in all
fields; the Calvinist spirit and ethic, emphasizing the positive
value of hard work, thrift, and money-making, led to a flowering
of capitalism as compared to the effect of Catholic frowning on
money-making; laissez-faire economics grew in the Protestant atmosphere
of Britain (Adam Smith, etc.).

is, however, another side to the coin, and contrasting interpretations,
particularly in the fields of political philosophy (the effect
of natural law, for example) and economic thought, have appeared
in the last couple of years. For readings in this New School,
I would suggest: Joseph A Schumpeter, History
of Economic Analysis
(New York, 1954), esp. pp. 73–142;
Marjorie Grice-Hutchinson, The School of Salamanca (Oxford,
1952); Emil Kauder, "Genesis of the Marginal Utility Theory,"
Economic Journal (September 1953); Kauder, "Retarded
Acceptance of the Marginal Utility Theory," Quarterly
Journal of Economics (November 1953), and "Comment"
(August 1955); and Raymond de Roover, "Scholastic Economics:
Survival and Lasting Influence from the 16th Century
to Adam Smith," Quarterly Journal of Economics (May

revisionists have done little directly on one of the cornerstones
of the standard approach — Weber's Protestant
— but more than that by indirection. Recommended
is the critique of Weber by H. M. Robertson, Aspects
of Economic Individualism
(London, 1933). Robertson and
others have pointed out, for example, that capitalism really began
flourishing, not in Britain, but in 14th-century Italian
cities, i.e., in decidedly Catholic areas. In fact, the main point
of the Revisionist critique, in all the fields, is continuity
— that capitalism, liberalism, rationalism, economic thought,
etc. began long before Smith et al., and under Catholic
auspices. And that the later developments built on, and in some
cases retrogressed from, earlier Catholic views.

in fact, turns the Weber thesis1
on its own followers by attacking Smith and Ricardo for being
influenced by Protestantism to develop the "labor theory
of value." Schumpeter also leaned in this direction. The
brunt of this important new thesis is this: rather than saying
that Hume and Smith developed economic theory almost de novo,
economics had actually been developed, slowly but surely, over
the centuries by the Scholastics and by Italian and French Catholics
influenced by the Scholastics; that their economics was generally
individualist methodologically, and stressed utility theory, consumers'
sovereignty and market pricing, and that Smith really set back
economic thought by injecting the purely British doctrine of the
labor theory of value, thus throwing economics off the sound track
for a hundred years. Here I might add that the labor theory of
value has had many bad consequences. It, of course, paved the
way, quite logically, for Marx. Secondly, its emphasis on "costs
determining prices" has encouraged the view that businessmen
push up prices or that unions push up prices, rather than governmental
inflation of the money supply. Third, its emphasis on "objective,
inherent value" in goods led to "scientistic" attempts
to measure values, to stabilize them by government manipulation,

Kauder's interesting thesis is in two parts: one, that the above
was the historical course of events in economic thought; and two,
that the reason for this forgetting of utility theory and replacement
by a labor-cost theory was influence by the Protestant, as opposed
to the Catholic spirit.

maintains, first, that utility theory was developed to a high
degree by, first Aristotle, and then, the scholastics, particularly
the neglected late Spanish scholastics of the late 16th
and early 17th Centuries. Most historians have ignored
the late scholastics and their influence, at least until recently.
The standard idea is that the scholastics died out with the Middle
Ages, and the gap in between was peopled only by the mercantilists.
The mercantilists, however, were pro-statist ad hoc pamphleteers,
and contributed less to economics and to liberalism than the late
scholastics. (See DeRoover.)

on subjective values of individuals and utility was also continued
by the great Protestant political philosophers Grotius and Pufendorf,
who were directly influenced by the Spanish scholastics (also,
as we will see below, in the field of natural law), and by Italian
economists de Volterra (mid-16th century), Davanzatti
(late 16th), Montanari (late 17th), and
especially Galiani (about 1750). Theory was further developed
by Turgot and Condillac, French Catholics (mid-18th
century). By the time of the latter three, in fact, Kauder claims
that the "value paradox" (gold vs. iron) had been solved
by its utility theory, only to have Smith-Ricardo toss it away
and reestablish the value-paradox problem. (I might add that the
resultant holistic approach by Smith and Ricardo was subtly socialistic
in still a fourth way: it established the fashion of separating
Distribution from Production, and of talking only about groups
of factors instead of individual factors — labor instead of laborers.)

Kauder goes on to point out that the Italian-French subjective
value, utility theorists were Catholics, while the labor-value
theorists: Petty, Locke, and Smith were British Protestants. Kauder
attributes this precisely to the Calvinist emphasis on the divinity
of work, as opposed to Catholic thought, which only considered
work as a means to making a living. The Scholastics, then, were
free to come to the conclusion that the "just price"
was essentially the freely competitive price set on the market,
whereas the Protestant-influenced British had to say that the
fair price is the "natural" price where the "amount
of labor exchanged in each good is the same." DeRoover points
out that the late Spanish scholastics Domingo de Soto and Luis
de Molina both denounced as fallacious Duns Scotus' dictum that
the just price equals the cost of production plus a reasonable
profit. In fact, Smith and Locke were influenced both by the scholastic
stream which they acquired from their philosophic training, and
the Calvinist emphasis on the divinity of labor. It is true that
Smith believed that free competition would eventually bring market
prices around to the "just price," but it is evident
that a danger has been introduced — a danger that Marx fully exploited
(and, in fact, that lingers on in the imperfect competition theories,
which are akin to emphasis on some juster world where the "natural"
or "optimum" prices reign). Thomists, on the other hand,
always centered their economic studies on the consumer as the
Aristotelian "final cause" in the economic system, and
the ends of the consumer are "moderate pleasure-seeking."
By the 19th century, Kauder says, religious influences
on economic thought were not important. He does point out, however,
the importance of his strict Evangelical background for Alfred
Marshall. Marshall's father was a very strict Evangelical, and
the Evangelicals were strict Calvinist-revivalists. Perhaps this
is why Marshall resisted utility theory, and insisted on retaining
much of Ricardian cost-theory, which even yet persists as a result.

would like to add further comment, however. The most "dogmatic"
laissez-fairists in the 19th century were not the British,
but the French (Catholic) economists. Bastiat, Molinari,
etc. were much more rigorous than the ever-pragmatic English liberals.
Further, laissez faire theory was developed in fine flower by
the Catholic Physiocrats, who were directly influenced by natural
law-natural rights thought.

brings me to the second great influence of the Catholic scholastics
— the natural law, natural rights theory. Certainly natural law
was a great hindrance on state absolutism, and it began in Catholic
thought. Schumpeter points out that the divine right of kings
was a Protestant theory. The natural law, natural rights theory,
also came down from the scholastics to the French and British
moral-philosophers. The connection was obscured by the fact that
many of the 18th-century rationalists, being bitterly
anti-Catholic, refused to acknowledge their intellectual debt
to Catholic thinkers. Schumpeter, in fact, claims that individualism
began in Catholic thought. Thus: "society was treated (by
Aquinas) as a thoroughly human affair, and moreover, as a mere
agglomeration of individuals brought together by their mundane
needs… the ruler's power was derived from the people… by delegation.
The people are the sovereign and an unworthy ruler may be deposed.
Duns Scotus came still nearer to adopting a social-contract theory
of the state. This… argument is remarkably individualist, utilitarian,
and rationalist…."2 Schumpeter
also stresses Aquinas' defense of private property. Schumpeter
particularly mentions the anti-statist spirit of the scholastic
Juan de Mariana, 1599. He also treats their adoption of the market
price as essentially the just price, utility theory, subjective
value, etc. He says that while Aristotle and Scotus believed the
normal competitive price was the just one, the later Spanish
scholastics identified the market price with any competitive price,
e. g., Luis de Molina. They also had a gold standard theory, and
opposed debasement. Schumpeter also says that de Lugo developed
a risk-theory of business profits, which, of course, was only
fully developed at the turn of the twentieth century and later.3

the 18th-century natural-rights theory was much more
individualistic and libertarian than the scholastic version, there
is a definite continuity here, too. The same is true for Rationalism,
reason having been the main device used by Aquinas, and reason
having been fought by Protestants, who place their theology —
and their ethic — on a more emotional, or direct Revelation, basis.

may sum up the Case for Catholicism as follows: (1) Smith's laissez-faire
and natural law views descended from the late Scholastics, and
from the Catholic Physiocrats; (2) the Catholics had developed
marginal utility, subjective value economics, and the idea that
the just price was the market price, while the British Protestants
grafted on a dangerous and ultimately highly statist labor theory
of value, influenced by Calvinism; (3) some of the most "dogmatic"
laissez-faire theorists have been Catholics: from the Physiocrats
to Bastiat; (4) capitalism began in the Catholic Italian cities
of the 14th century; (5) Natural rights and other rationalist
views descended from the Scholastics.

I would also recommend, for a chilling example of Protestant-Calvinist
influence leading to a philosophy of altruist socialism, reading
Melvin Richter, "T. H. Green and His Audience: Liberalism
as a Surrogate Faith" Review of Politics (October,

tangential to this particular memo, I would also highly recommend
Erik von Kuehnelt-Leddihn, Liberty
or Equality
(Caldwell, Id., 1952), the main gist of which
is the thesis that Catholicism makes for a libertarian spirit
(albeit "anti-democratic") while Protestantism makes
for socialism, totalitarianism, and a collectivist spirit. One
example is Kuehnelt-Leddihn's assertion that the Catholic belief
in reason and truth tend toward "extremism" and "radicalism,"
while Protestant emphasis on intuition leads to belief in compromise,
Gallup-polling, etc.

von Mises' view on the Max Weber thesis should be mentioned here:
namely, that Weber reversed the true causal pattern, i.e. that
capitalism came in first, and that the Calvinists adapted their
teachings to the growing influence of the bourgeoisie — rather
than the other way round.

am not prepared to say that the Protestant case should be thrown
overboard completely and Catholic view adopted wholly. But it
seems evident that the story is far more complex than the standard
view believes. Certainly, the Revisionists supply an excellent
corrective.4 On the specific questions of utility
theory and Adam Smith, I can enter an endorsement of the revisionists.
I have felt for a long time that Adam Smith has been considerably
overrated as a laissez-faire stalwart.

(all supplied by the editor)

  1. Cf. Randall Collins, a Weberian sociologist, who has also inverted
    the Weber thesis while using Max Weber’s methods of historical
    reconstruction; see Collins’s Weberian
    Sociological Theory
    (Cambridge, UK: Cambridge University
    Press, 1986), where he writes: "Christendom was the main
    Weberian revolution, creating the institutional forms within
    which capitalism could emerge. The Protestant Reformation is
    just a particular crisis at the end of a long-term cycle; it
    gave rise to a second takeoff, which we mistakenly see
    as the first" (p. 76).

  2. Joseph
    A. Schumpeter, History
    of Economic Analysis
    (New York: Oxford University Press,
    1954) pp. 91–92.
  3. See
    especially, Alejandro A. Chafuen, Faith
    and Liberty: The Economic Thought of the Late Scholastics

    (Lanham, MD: Lexington Books, 2003).
  4. Rothbard
    later developed this line of attack at great length; see Murray
    N. Rothbard, Economic
    Thought Before Adam Smith: An Austrian Perspective on the History
    of Economic Thought
    , I (Cheltenham, UK: Edward Elgar,
    1995), p. 31–175.

N. Rothbard (1926–1995), the founder of modern libertarianism
and the dean of the Austrian School of economics, was the author
of The
Ethics of Liberty
and For
a New Liberty
and many
other books and articles
. He was also academic vice president
of the Ludwig von Mises Institute and the Center for Libertarian
Studies, and the editor – with Lew Rockwell – of The
Rothbard-Rockwell Report

Rothbard Archives

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