Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays.

Spring 2002; Vol. 8, No. 1

Faith in  Mammon

Economics as Religion: From Samuelson to Chicago and Beyond by Robert H. Nelson (Penn State Press, 2001, xxvi + 378 pgs.)

Paul Samuelson has been called many things in his long career, but never before to my knowledge a theologian. But according to Robert Nelson in this excellent book, modern economics is bound inextricably with religion; and he takes Samuelson, the most influential American economist of the years after World War II, as a prime example of his thesis. By no means, though, does he confine his analysis to Samuelson. Frank Knight’s work, much more to Nelson’s liking, emphasized different theological themes. At first sight, Nelson’s view seems paradoxical to the point of absurdity: is not modern economics in essence scientific and mathematical? How then can it be religious?

One answer is to say, like Cornelius Van Til, that all disciplines are religious; but Nelson does not adopt this view. Is not Nelson, then, flying in the face of patent facts? Samuelson explicitly aimed at an economics modeled on the physical sciences: “Like most other professional economists, Samuelson presents his work, as he states in the first edition [of his textbook] in 1948, as a ‘science’ in the same category as ‘physical or biological sciences.’ . . . Samuelson believes that ‘there is only one valid reality in a given economic situation’ and professional economists are uniquely capable of revealing it. Ethical questions, however, belong in a separate realm, where subjective factors may dominate” (p. 49, quoting Samuelson). What could possibly be less religious than this? If physics is not religious, why is economics?

Nelson does not deny that Samuelson and his many neoclassical followers have devised elaborate mathematical models. But they do not stop with these. Quite the contrary, they believe that these models enable experts to guide a nation to prosperity; and here is where religion enters the scene. Nelson uses “religion” in a broad sense, so that any use of fundamental value judgments counts as “religious.” The models cannot be applied in the way Samuelson and his cohorts wish, absent certain value-impregnated assumptions, and Samuelson’s economics thus qualifies as religious.

A typical neoclassical economist would at this point leap up in anger. True enough, he will say, economists make, in practice, innocuous value judgments—e.g., “unemployment is bad” and “prosperity is good”—but these hardly affect the scientific character of their discipline. Nelson dissents, and shows to great effect that the neoclassical school cannot easily escape controversial “religious” views. We shall see later, though, that the imagined reply can be used by Austrians to deflect Nelson’s critique.

Nelson sets the stage for his account of Samuelson by calling to mind the economists of the Progressive Era. Like Murray Rothbard, he thinks that postmillennial Christianity influenced economists such as Richard Ely to think that they could help bring about the Kingdom of God on earth through rational planning.1 But even the more secularly minded economists of that time saw themselves as leaders of a new world order.

Our author finds Thorstein Veblen a perfect example. “Thus, as Veblen would write, control over the productive system should be assumed by ‘Production Engineers’ and ‘Production Economists.’ . . . As the ‘keepers of the community’s material welfare,’ they would be motivated not by a ‘commercial interest,’ but by a ‘common purpose.’ . . . Professional groups were thus to be the new priesthood of progressive religion” (p. 45).

A problem thwarted these economists’ ambitious aims. Central planning, far from having quasi-divine virtues, must inevitably fail. Would not economists who shared the grandiose ambitions of the progressives have to give up in despair? Samuelson found an escape. In his view, the elite could incorporate into their plans much more of the free market than had been previously thought possible or desirable. But to do this did not entail abandoning the goal of a directed society, since elite economists remained necessary. They had to fine-tune the economy, in Keynesian fashion, to prevent undue unemployment and inflation. 

Nelson includes some excellent pages showing that Keynes himself fully shared the messianic mindset of the progressives. “Like the early followers of Jesus in biblical times, Keynes thought that the arrival of the kingdom of heaven on earth was near at hand, to occur in perhaps one hundred years or so” (p. 31).

But our objection recurs. Even if Nelson has correctly identified Samuelson’s social goals, how does this show that his economic theory is in any way religious? Why is the analysis of more than biographical interest? Nelson responds that value judgments lie at the heart of neoclassical economics.

Basic to Samuelson’s fine-tuning plans is the use of deficit finance, which involves paying interest from one group of people to another. For Samuelson, internal debt has little importance. “Thus, most students were left with the simple idea that the national debt need be no concern because it is simply transferring money from one part of society to another. . . . This vision again is best regarded, not as an economic argument of substance, but an implicit value statement, another metaphor in the progressive poetry of Economics [Samuelson’s textbook]. Samuelson was implicitly saying that all Americans are united in one organic whole” (p. 95). In support of his view, Nelson notes that, “tucked away in an appendix,” Samuelson notes “major technical problems” with deficit finance (p. 94).

Nelson locates another, and much more pervasive, value judgment involved in Samuelson’s account of the economy. Samuelson maintains that the market, if adequately fine-tuned, best promotes efficiency, and is for that reason desirable; but here, surely, is no value-free, purely descriptive statement. “In the implicit theology of Economics, that which is good is now that which is efficient; conversely, evil is defined to be that which is inefficient. Samuelson is the heir to the progressive value system, often characterized by historians as the gospel of efficiency” (p. 76).

But has not Nelson here pressed his point too far? Is it really controversial to think efficiency better than its negation? If Nelson wants to call this a value judgment, so be it; but Samuelson’s resort to it hardly makes him a theologian. Our author is not yet defeated; he maintains that “efficiency” is a much more value-loaded concept than at first sight appears.

In their calculations of efficiency, Nelson claims, neoclassicals tend to take for granted that psychic costs and benefits are small. Thus, free trade earns high marks from economists for transfer of resources from less to more efficient uses. But what about those driven out of their jobs by requirements of efficient markets? Even if the “winners” can in good Pareto fashion compensate them for their financial losses, what about the psychic costs to them of the transition to new jobs? Why should these be ignored? And do not so-called “existence values” complicate the matter further? These concern the psychic benefits that some people gain from items in the environment. If these are included in one’s calculations, Nelson thinks it much less evident that Samuelsonian policies always promote efficiency. (I believe that Austrians have the resources to answer this point, but of this more later.)

If Nelson’s account of Samuelson hits the mark, what should be our response? Should economists endeavor to purge judgments in essence theological from their science? Not at all, our author says. Instead, they should become aware of their religious assumptions; and one economist serves him as a model of the required self-awareness. Frank Knight did not long for a utopia without scarcity, in the style of Keynes, nor did he think prosperity unproblematic, like Samuelson. 

Though Knight supported the free market, he did not do so because of the abundance of material goods it generated. “Ascetic discipline rather than the pursuit of happiness should guide conduct. [Don] Patinkin recalled from his classroom lectures ‘Knight’s commenting that from the long-run viewpoint . . . denial of wants was the only way that a definitive adjustment of wants to resources could be achieved’ ” (p. 131). Nelson maintains that here Knight embraced a secularized version of Calvinism, in spite of his overt opposition to Christianity.

If Knight held the pursuit of wealth in lower esteem than did Samuelson and his school, was not his support for the free market anomalous?2 After all, socialism has no problem in generating a dearth of consumer goods. Knight’s line of reasoning, in Nelson’s view, exhibits his theological sophistication. In a way parallel to the Christian doctrine of original sin, which strongly influenced him, Knight maintained that human beings inevitably come into conflict over values. 

Faced with such conflict, what can be done? Groups will be tempted to impose their wills on one another, and we seem fated to a perpetual struggle for power. Our best hope out of the impasse, according to Knight, was compromise; and here the free market was the essential instrument. “Rather than seeing competition as a benefit, Knight argues that the advantages of the market should be understood in terms of promoting a ‘pattern of cooperation’ among people who come together on a non-coercive basis for mutual advantage . . . the market minimizes the role of power in human interactions because in a market ‘there are no power relations.’ The market enables each person ‘to be the judge of his own values and of the use of his own means to achieve them’ ” (p. 136, quoting Knight).

 Nelson seems to me right to prefer Knight to Samuelson, but I think he has not shown the intriguing general thesis of his book to be true. As he sees matters, economics fundamentally reduces to a matter of competing value judgments; we face what Thomas Sowell has called “a conflict of visions.” Must economists simply choose the view of the world they prefer, e.g., Knight’s application of original sin over Samuelson’s millenarianism?

The author’s thesis rests on an insufficient diet of examples. Had he taken into account the Austrian School, he would I think be compelled to recognize that the case for scientific economics is stronger than he has made out. When I first presented his analysis of Samuelson, I suggested a possible line of reply for the neoclassicals: the value judgments that the economist uses are noncontroversial. The defense fell short when we undertook a more detailed account of Samuelson’s system. It proved crucially dependent on value judgments very much disputable.

Exactly this defense, as it seems to me, succeeds admirably for Austrian economics. Misesian economics incorporates none of the controversial value judgments so ably exposed by our author in his treatment of Samuelson. Obviously, Austrians do not assume that society is a single organic entity; to the contrary, methodological individualism is a prime tenet of the school. 

But does not Mises, like Samuelson and Friedman, assume without argument that wealth maximization is the supreme test of any economic system? No, Mises assumes only the hardly controversial claim that most people prefer a decent standard of life to extreme asceticism or death. In Mises’s view, capitalism is the only viable economic system; its main rivals, socialism and syndicalism, collapse into chaos. Neither is there available any intermediate system between socialism and capitalism, since interventionist measures fail from the standpoint of their own advocates. All this Mises claims to show by strictly scientific reasoning.

Thus, unlike Samuelson, Mises does not assume that psychic benefits or existence values are of little importance, as compared with material goods. He takes for granted only that people want a reasonable minimum of wealth; and one can hardly view this judgment as captive to a theological vision. 

1Nelson cites Rothbard on the secularized messianism of Marxism, but misses his work on postmillennial pietism (pp. 24–25).

2Nelson points out that Milton Friedman and other members of the Chicago School were much closer to Samuelson than to their teacher Knight in their uncritical advocacy of efficiency as a goal.



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