For more than a century now economics has been advanced and practiced as a science, on the model of physics and mathematics. It was not always so. From Adam Smith’s Inquiry into the Nature and the Causes of the Wealth of Nations in 1776 until well after the publication of John Stuart Mill’s Principles of Political Economy in 1848, economics was viewed as a branch of moral philosophy astonishingly underdeveloped by earlier philosophers. It seems hardly possible, yet it is true, that before the time of Adam Smith no classic author”not Aristotle, not Aquinas, not Bacon nor Descartes”had asked about the cause of the wealth of nations in any sustained and fruitful way. Such an inquiry may well have been of great social utility, had it been successfully pursued in earlier, poorer centuries. But the problems of political order and the rule of law were of such importance”neither person nor property being safe from marauders, brigands, and feuding princes, whether in Europe or in other places on the planet”that the development of economics required the prior development of politics and law.

During our own century, a school of economics much disdained by the leaders and the general run of professionals in the field (who were more and more attracted to the scientific model, and particularly to the strengths and beauties of mathematics) has restored economics as a field worthy of investigation by moral philosophy. The school is known as the Austrian School, the school of “classical liberals” or, in F. A. Hayek’s preferred description, “Whigs.” Let me state the accomplishment of these Whigs starkly: As a result of the inquiries of the Austrian School, it has become clear that economics is at least as much a branch of moral philosophy and the liberal arts as it is a science.

This result was the fruit of three investigative strategies favored by the Austrian School. The first strategy was to attend to the subject in economic activities as well as the “objective” factors of production. “Why did economists fail to recognize that incentives remain relevant in all choice settings?” asked Nobel Prize-winner James M. Buchanan in 1991. “Why did so many economists overlook the psychology of value, which locates evaluation in persons, not in goods? . . . Why was there a near total failure to incorporate the creative potential of human choice in models of human interaction?” Taking advantage of cross-cultural studies of the work ethic, social trust, individual initiative, willingness to risk, patterns of cooperation, and other moral habits”together with studies in decision and game theory on the dilemmas that acting subjects typically face”the Whig economists have been able to focus attention on incentives, values, information, and choice, both private and public, including activities of deliberation, reflection, and selection.

The second of the Austrian strategies was to inquire into the concept of human action. The idea was to deepen both our understanding of economic action and its relationships with the other sorts of human actions. Actions begin in choice, and thus Ludwig von Mises opens his classic work Human Action: A Treatise on Economics : “Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option.” But humans not only act, they tend to act in patterns”in economic actions as well as political, religious, and cultural”and the Whig inquiry involved at least rudimentary inquiries not only into atomic human action considered in isolation, but also into characteristic actions or habits or virtues, and thus ultimately into a theory of human character.

The third Austrian strategy was to isolate and highlight the efficient cause of economic activity, the dynamic factor in economics”the habit of enterprise. The source of creativity, invention, even revolution in the way economic activities are carried out, this habit is the engine of change in economic development. Consider the recent experience of Central Europe: Some countries tried to move from socialism to capitalism by abolishing price controls, some began to respect and protect rights to private property, and some even began to permit the private pursuit and accumulation of profit. But even all these together no more constitute an active, capitalist economy than dry wood and air constitute a fire. Socialism inculcates in its people a debilitating passivity, and a formerly socialist people might well have waited for the state to do something else, without doing anything themselves. Capitalism did not properly begin until acting subjects looked around, noticed what could be done, and seized the initiative. In Poland, for example, half a million new small businesses were begun in the first six months after the Revolution of 1989. That is what made the transformation real.

These three Austrian strategies”attending to the human subject, investigating the sources of human actions, and emphasizing the habit of enterprise”have led in the last thirty years to a new focus on “human capital.” The term “human capital” calls attention to acts of insight such as the entrepreneur noticing significant points that others fail to see: it thus stresses intellectual skills. But while many people have bright ideas, only some of them have the other qualities necessary for entrepreneurship”the moral qualities, such as boldness, leadership, know-how, tolerance for risk, sound practical judgment, executive skills, the ability to inspire trust in others, and realism. Human capital, even taking into account only matters of economic significance, is a concept of broad moral range. In recent years, in fact, the most interesting developments in the field of economics have come with the new attention paid to moral factors in economic progress. For some generations, so long as traditional Jewish and Christian moral values held sway in the West, such moral factors could operate as silent partners in economic analysis, being everywhere taken for granted. Their current absence has brought to consciousness their earlier unappreciated presence, as economists have rediscovered with a vengeance the moral dimensions of human capital in both cultural and personal contexts.

Two or three decades ago, it was frequently remarked that the systems described as “capitalist” and the systems described as “socialist” were asymmetrical, for socialism named a unitary system in which one set of leaders made all the key economic, political, and moral decisions, while capitalism was the name of an economic system only, capable of being combined with any number of political and moral systems. A man might be willing to die a romantic death defending democracy, but no one is willing to die for an economic system. That would be a confusion of means and ends”and, anyway, there isn’t much romantic about capitalism. So it was said.

The truth in the aphorism is that the weakness of socialism lay in its dangerous concentration of power”opening up enormous possibilities for the abuse of power to which many socialist governments succumbed, certainly, but also stripping human capital from private citizens. Pope John Paul II has written that the fatal flaw in socialist anthropology was its atheism, but he had in mind a particular kind of atheism: the atheism that sees man as a flat creature of matter and the will-to-power only, without spirit or soul, and ultimately unfree at his core. Even without theism, many Western classical liberals had an image of human beings as free and self-determining, with all individuals living out a story of weighty moral significance not only for their personal destiny but for the culture as a whole. In short, the ultimate drama in economics is acted out in the arena of human capital.

This humanistic turn in economics, first made by the great Austrian economists of our century, seems to have gone largely unobserved outside of the field of economics, even by humanists. But if economics is not only a science, if it is also a way of looking at reality and a way of thinking (a fact suggested by recent economists’ success at borrowing insights and methods from philosophy, law, anthropology, psychology, religion, and even art), then modern economics offers enormous resources for future generations of thinkers”and the possibilities for a new synthesis are immense.

In this light, there seems to be emerging in economics something like a universal science, a science of humans qua humans, in all our variety but also in certain invariant relations to human experience. Every human being on earth is an acting subject, capable of reflection and choice, a spirited animal capable of activities and a range of consciousness no other animal matches, aware of both universal community and unique personal meaning, faced with scarcity and sensing the impulse to inquire, create, trade and barter, and better our condition.

In the twenty-first century, economics has a great deal to teach us, and much of it complementary to the wisdom we have learned down through history. It is the vocation of economics to help us to be better women and men; to make better choices; to see more clearly what our alternatives are, and their comparative costs and advantages; to invest shrewdly in our fellows and in ourselves; and to use our freedom more advantageously and wisely. Economics is a noble vocation. It is also, I am arguing, a humanistic vocation.

Michael Novak holds the George Frederick Jewett Chair in Religion and Public Policy at the American Enterprise Institute. His latest book is The Fire of Invention (Rowman & Littlefield).

Articles by Michael Novak

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