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Interview with Jesus Huerta de Soto
The Austrian Economics Newsletter

Summer 1997
Volume 17, Number 2

Jesús Huerta de Soto

The Spanish Roots of the Austrian School

An Interview with
Jesús Huerta de Soto

Jesús Huerta de Soto, professor or economics at the Complutense University of Madrid, is Spain's leading Austrian economist. As an author, translator, publisher, and teacher, he also ranks among the world's most active ambassadors for classical liberalism. He is the author of a Spanish work on economic calculation and the Austrian method, a treatise on money and banking, the introduction to the new Spanish edition of Human Action, and articles in monetary and history of thought journals in four languages, including The Review of Austrian Economics. He was interviewed following his keynote address at the 1997 Austrian Scholars Conference at Auburn University.

AEN: You made an extraordinary announcement today at the Austrian Scholars Conference. Can you share it with AEN readers?

de SOTO: First, I'd like to thank the Mises Institute for sponsoring this great conference. It is gratifying to see so many countries and disciplines represented, and I look forward to reading all the papers that are being presented.

My announcement was this: beginning this October, we are publishing The Collected Works of Ludwig von Mises. We have support from 300 private subscribers, as well as some help from free-market institutes in Spanish-speaking countries.

The Collected Works will total seven volumes, each one of them as thick as Human Action. The first volume, already in preparation, will be titled Monetary Theory and Economic Cycles. It will include The Theory of Money and Credit and other books and writings on the subject of money and business cycles.

The project is without precedent in the world, and it will be completed in four or five years. We are sure the Collected Works will be received favorably in the intellectual world, not only in Spain but also in Latin America. It is the best tribute we can pay to our master.

AEN: How does it happen that there is a ready market for these books?

de SOTO: The publication of Spanish translations of Mises's books began very early. In 1936, The Theory of Money and Credit and Hayek's Monetary Theory and the Trade Cycle appeared. But the influence of them was small due to the outbreak of the Spanish civil war that same year.

Real strides weren't made until 20 years later, when a young scholar named Joaquín Reig wrote his PhD thesis at the University of Madrid. Its title was "Modern Social Problems From the Point of View of Ludwig von Mises's Economic Thought." It was the first work written in Spain on Human Action, which had been published in the U.S. only eight years earlier.

Reig had met Mises and became one of his best friends and admirers. In fact, Mises acknowledges Dr. Reig's help in the "Preface" to the third edition of Human Action. Reig used to tell the story of how he asked Mises what he thought of Murray Rothbard's treatment of monopoly theory in Man, Economy, and State. The question was important considering the disorganized treatment of the subject in Human Action. Mises told Reig that "I agree with every word Professor Rothbard has written on the subject."

AEN: When did Human Action finally appear in Spain?

de SOTO: Reig's very good translation was published in 1960, but only with a great deal of difficulty. The censorship authorities deleted several paragraphs of the book which were considered politically dangerous for the regime of General Franco, who was then the Spanish dictator.

Since the 1960s, Joaquín Reig and his brother Luis had organized a weekly Austrian seminar that met every Thursday in their home. This seminar, which I attended, was responsible for the spread of Austrian ideas. Hayek even attended it several times. In these years, Reig also translated Bureaucracy, Liberalism, The Anticapitalistic Mentality, and Theory and History.

I received a chair in political economy at the Complutense University of Madrid in 1985. That's when the seminar left the Reig home and began to meet at the University. The most important Spanish universities are owned by the government. All professors are civil servants, who hold their chairs for life. But according to our Constitution, they can teach what they want with almost unlimited freedom. This system was used and abused by Marxists and socialists for many years. But since the early 1980s, it has also been used by free-market economists.

Complutense University is one of the oldest in Spain, founded in 1293. Today it has more than 100,000 students, and the law school where I teach has 17,000. I have been teaching the same course for twelve years with increasing success and popularity among the students. Human Action is the required textbook, and up to now more than 2,000 students have passed examinations on the book. All told, more than 15,000 copies of Reig's Spanish edition have been sold.

AEN: Does your department accept the Austrian School as a legitimate alternative?

de SOTO: At one time, no. But this has changed in the last twelve years. We now have a PhD seminar on Austrian economics, we participate in outside programs on law and economics, and every year we guide foreign students who come to Spain in research topics. We recently had a two-day conference on Mises sponsored by the city of Madrid and the minister of education, Esperanza Aguirre. It attracted 300 professors and students and received generous media coverage.

In the U.S., you have debates among Austrians, with different people emphasizing different aspects of Mises, Hayek, and Rothbard. For example, I've been following the debate on economic calculation under socialism very closely. I have not reached a final conclusion. But I do tend to believe that Mises's and Hayek's arguments are two sides of the same coin.

For our part, we are trying to forge a synthesis between the rationalism and utilitarianism of Mises, the Aristotelian natural law position of Rothbard, and the evolutionary approach of Hayek. In my banking courses, I emphasize the 100 percent reserve ratio, consistent with an old tradition of Spanish law on fungible demand deposits, which is still in force.

AEN: Judging from the many books you've brought here, publishing has been crucial to the spread of the Austrian School in Spain.

de SOTO: Apart from the collected works of Mises and Hayek, I edit a separate series called the New Collection of Liberty. Up to March of this year, 20 volumes have been published, the last of which was a Spanish translation of Raimondo Cubeddu's important book The Philosophy of the Austrian School.

Among the books are titles by Rothbard, Kirzner, Mises, Hayek, Bruno Leoni, Wilhelm Röpke, and a 50th anniversary edition of Hazlitt's Economics in One Lesson, which has an introduction by Llewellyn H. Rockwell, Jr. Future projects include Hans-Hermann Hoppe's The Economics and Ethics of Private Property and Bruce Benson's The Enterprise of Law. Most important, we are publishing a translation of Rothbard's Austrian Perspective on the History of Economic Thought. It will appear with my introduction in one large volume in 1998.

AEN: Did you ever meet Rothbard?

de SOTO: Before I completed my PhD in Spain, I received a grant to come to the United States to study. Hayek wrote a letter of recommendation for me to Stanford University, which admitted me to its MBA program. To my delight, Rothbard was there on fellowship with the Institute for Humane Studies, and we spent many wonderful days together, discussing, among other things, his manuscript for The Ethics of Liberty. I will always treasure the early draft he gave me.

He knew everything about Spain, all the details of the geography and the history, and especially the ideological factions in the Spanish Civil War. He was opposed to Franco, of course, but even more opposed to the Republican Communist Party. I agreed entirely. One of the worst things the communists did was kill all the anarchists. My grandfather used to say, "those anarchists are fine people." In a way, they were more sympathetic to market and private business than were the socialist and conservatives, who really hated the classical liberals.

The last time I saw Rothbard was at the Mont Pelerin Society meetings in Rio de Janeiro in 1993. We organized a lecture tour for him in Spain and Portugal, which was to take place in the second half of 1995. It was to culminate at the University of Salamanca, the birthplace of the Austrian School. Sadly, Rothbard was not able to visit Spain nor his beloved Salamanca. However, I am sure he would be very happy about the size of this gathering here today, and would be even happier about the growing ties between Austrians on both sides of the Atlantic.

AEN: It still seems somewhat revisionist to describe Spain as the birthplace of the Austrian School.

de SOTO: Yes, but it is accurate. To focus solely on Vienna is far too narrow. We tend to think, like all moderns, that only the new has value. To study the old is mere archaeology. But in economics and philosophy, it's the other way around. Most great ideas have already been thought by someone else in the past, including the most fundamental Austrian ideas.

One of the main contributions of Rothbard was to show that the pre-history of the Austrian School could be looked for in the works of the Spanish scholastics during the "Siglo de Oro Español," the Spanish Golden Century, which ran from the reign of Carlos V in the 16th century through the 17th century. Rothbard first developed this theory in his 1974 paper delivered at the South Royalton Conference, published two years later in The Foundations of Modern Austrian Economics.

AEN: Yet even this insight has a pre-history.

de SOTO: Of course. Joseph Schumpeter argued this point in his 1954 History of Economic Analysis. Also in the 1950s, Hayek had met the great Italian scholar Bruno Leoni, author of Freedom and the Law, who convinced Hayek that the intellectual origins of classical liberalism should be sought in Mediterranean Europe, not Scotland. This led Hayek to change his research program dating back to his first legal studies at the London School of Economics. Later, one of Hayek's pupils, Marjorie Grice-Hutchinson (now Baroness Marjorie von Schlippenbach) translated the main texts of the scholastics.

There is a quotation in Bruno Leoni's book from Cicero, in which Cato says Roman law is the most perfect law of all because it hasn't been created by any one mind. It has not been constructed. It is a result of a process to which many minds have contributed their wisdom. The lawyers don't make the law; they discover it and can improve it only slowly.

Leoni convinced Hayek of his thesis. You can see this by comparing Hayek's more Scottish-oriented Constitution of Liberty with his Mediterranean-oriented series, Law, Legislation, and Liberty. In this series, Hayek freely quotes the scholastics on economics.

And I have a letter from Hayek dated January 7, 1979, in which Hayek asks us to read Rothbard's article. He says that Rothbard and Marjorie Grice-Hutchinson "demonstrate that the basic principles of the theory of the competitive market were worked out by the Spanish scholastics of the 16th century and that economic liberalism was not designed by the Calvinists but by the Spanish Jesuits."

AEN: Who were these Spanish ancestors of the Austrian School?

de SOTO: Most of them taught morals and theology at the University of Salamanca, a medieval city located 150 miles to the northwest of Madrid, close to the border with Portugal. They were mainly Dominicans or Jesuits, and their view on economics closely parallels that stressed by Carl Menger more than 300 years later.

One of my favorites is Diego de Covarrubias y Leyva, who set forth the subjective theory of value. He wrote that "the value of an article does not depend on its essential nature, but on the subjective estimation of men, even if that estimation is foolish." He was born in 1512, and served as bishop of Segovia and minister of King Philip II. Today, in the museum of the Spanish painter El Greco in Toledo, there is a stunning portrait of him. Carl Menger quotes Covarrubias's 1560 treatise on monetary depreciation.

Another important Salamancan is Luis Saravia de la Calle, the first thinker to demonstrate that prices determine costs, not the other way around. He wrote that "those who measure the just price by the labor, costs, and risk incurred by the person who deals in the merchandise are greatly in error. The just price is found not by counting the cost but by common estimation." He was also a fierce critic of fractional-reserve banking, arguing that fees should be paid to bankers for keeping gold under custody.

AEN: Now we can get to your article in The Review of Austrian Economics (Vol. 9, no. 2) on this subject.

de SOTO: The banking theories of the Salamancans is not something that Rothbard considered at great length in his history of thought. But there is quite a lot of material here. In fact, in their internal debates, they prefigured the 19th-century British banking debates. The Salamancans were led to study banking by observing the corrupt relationship between banking and government, which depended most fundamentally on legal protection of fractional reserves.

The Salamancans were opposed to all forms of inflation. For example there was Martín Azpilcueta Navarro. He was born in 1493, lived for 94 years, and is specially famous for explaining the quantity theory of money in his 1556 book, Commentary of Exchanges (I own a first edition!), writing that "money is worth more where and when it is lacking than where and when it is in abundance."

Navarro opposed fractional reserves and made a clear distinction between loan banking and deposit banking. The banker, he said, should be the "warden, depositor, and guarantor" of monies in his possession. He said there can be no valid contract between the depositor and the banker that allows for fractional reserves. If such a contract were made, all parties would be guilty of fraud.

More sympathetic to fractional reserve money was Luis de Molina, who was the first to argue that bank deposits should be considered part of the money supply. But he confused loans and deposits, and didn't understand how fractional reserves are inherently destabilizing. So Navarro and de la Calle were a kind of Currency School, and very distrustful of banking and anything less than 100 percent reserves, while de Molina and Juan de Lugo, like the Banking School, were more tolerant of fractional reserves.

AEN: Beyond history of thought, do you plan to enter the debate among Austrians about reserve ratios?

de SOTO: I've written a long paper defending the 100 percent reserve position against George Selgin's theory of monetary equilibrium. His theory is that when the demand for fiduciary media increases or decreases, banks should be free to respond by expanding or contracting credit. These actions don't create investment distortions because banks are responding to prior changes in demand. With this theory, Selgin seems to be reviving the old "needs of trade" doctrine of the Banking School. And like Keynesians, free bankers seem fixated on short-term unilateral mutations in the demand for money.

But they don't deal with the prospect that the changes in money demand are not always exogenous to the free banking system, but can be determined endogenously as well. Banks themselves may manipulate the supply of money because it's in their interest to do so, so long as they can avoid runs. And this new supply can create its own demand and provoke economic cycles. History bears this out. Free banking theory doesn't take account of this because it is exclusively a macroeconomic theory.

AEN: As with banking, was the Salamancan political position generally pro-free market?

de SOTO: They tended to defend libertarian positions across the board. For example, Francisco de Victoria is widely seen as the founder of international law. He revived the idea that natural law is morally superior to the might of the state. Then Juan de Mariana condemned any government debasement of coins as sheer robbery, and suggested that any individual citizen may assassinate a ruler who imposes taxes without the people's consent. The only place Mariana erred was in his condemnation of bullfighting, but since I am the grandson of a famous bullfighter, I'm not impartial.

AEN: Is the Spanish-Austrian link anything beyond an accident of history?

de SOTO: Let's remember that in the 16th century, Emperor Charles V, the King of Spain, sent his brother Ferdinand I to be the King of "Austria," which etymologically means "Eastern Part of the Empire," which comprised most of Continental Europe. The only exception was France, then an isolated island surrounded by Spanish forces.

The economic, political, and cultural relations between Austria and Spain continued for several centuries. Carl Menger rediscovered and took up this continental Catholic tradition of Spanish scholastic thought that was by then almost forgotten.

AEN: Well, what happened to this tradition that it had to be rediscovered?

de SOTO: Adam Smith and his followers came to dominate economic thought, ending the development of the subjectivist school, which not only supported the free market consistently, but also understood it theoretically. The tradition was kept alive in France in the writings of Cantillon, Turgot, and Say, and some knowledge made it to England via the writings of Protestant natural law theorists Samuel Pufendorf and Hugo Grotius.

But in Spain, we experienced the years of decadence in the 18th and 19th centuries, with the last of the Habsburgs and the beginnings of the Bourbons from France. The statism of Philip IV led him to attempt to organize a vast empire and control it from Madrid, an inherently unviable project.

The scholastics were against this statism, of course, but they were disregarded and their tradition was lost. There was also the problem that they wrote in Latin, so there was a language barrier. In addition, there is the British-promoted Black Legend, which tended to discredit anything Catholic and Spanish for two centuries. Ironically, the Reformation actually set back the cause of free-market economics. The church had long been a vital equilibrating power to the state. As the church declined, so did the wisdom of its best economic theorists, while the power of the state and the influence of its apologists grew.

AEN: Why did it take an Austrian to rediscover Spanish economics?

de SOTO: The books of the scholastics were typically published in Brussels and in Italy, and they were sent to Spain and to Vienna. So they made inroads this way. There is also a scholastic tradition of thought in Austria which is, after all, 90 percent Catholic.

Even so, a Spanish Catholic writer did solve the "paradox of value" 27 years before Carl Menger. His name was Jaime Balmes. He was born in Catalonia in 1810 and died in 1848. During his short life, he became the most important Thomist philosopher in Spain. In 1844, he published an article called "The True Idea of Value; or Thoughts on the Origin, Nature, and Variety of Prices."

Balmes asks, why is a precious stone worth more than bread? And he answers, that the value of a thing is in its utility so that "there is a necessary relation between the increase or decrease in value, and the shortage or abundance of a thing."

AEN: In what way can Austrians use the writings of the Salamancans today?

de SOTO: A few years ago, a group of scholars took it upon themselves to translate all the main works of the Salamancans into Spanish. They are making these writings widely available, and many scholars are now aware that these great thinkers were all libertarians. And this has begun to change the status of the Austrian School in Spain. It has helped root it in history and thereby has given it a more substantial intellectual foundation.

Not too many years ago, I was just one guy in a university teaching unfamiliar literature. Now I am seen as representing a school that foretold the failure of socialism, and as a spokesman for the greatest thinkers from Spain's past. And this is happening at the same time that Spain is struggling to free its own markets from the welfare morass.

AEN: To assist that effort, you've produced a plan to reform Spain's system of social security.

de SOTO: This problem of guaranteed old-age pensions is significant in all western countries. In every case, the liabilities are enormous but demographics have made them essentially unpayable except through intolerably high taxes. Before we can know what to do about these systems, we have to understand their inherent contradictions.

First, these systems purport to be about saving money, but in fact they discourage savings. The taxes they require take the place of what would otherwise be private savings. And they encourage people to believe they will be taken care of in the future and therefore they don't need to save. Empirically, then, the rise of social security has paradoxically coincided with huge declines in savings. This fall in savings then drives up interest rates and reduces overall investment in ways we cannot account for.

Second, no matter what the law says about how employees and employers share the burden of contributing to the system, from an economic point of view, the worker pays the whole tax. Mises first developed this insight in Socialism, where he said social insurance contributions always come at the expense of wages.

Third, the system is based on general and indiscriminate institutional aggression against the citizenry and thereby attacks freedom itself. This in turn inhibits the creative development of entrepreneurial discovery, new financial modes of savings, and the efficient use of property. The resulting misdirection of labor and capital is incalculably huge.

Fourth, the system cannot work as both insurance and welfare, because these are incompatible concepts. Private insurance is based on the principle that benefits are linked with contributions. Welfare is based on need. With ever-declining returns, the "insurance" element of the system is aborting the "welfare" element, and vice versa.

And why do we have these systems? Supposedly because some people would not be able to provide for themselves. But this is like saying that because a small number of people can't get food, everyone in the whole population should be forced to eat in government canteens.

AEN: Is your reform plan based on the Chilean experience?

de SOTO: We have to remember that the liabilities in Chile's system were very small as compared with Spain's and the U.S.'s. They had been largely inflated away and what remained were paid out of budget surpluses. So the Chile analogy only takes us so far. Our problems are much more difficult to solve.

In the transition period, the present working payers pay for present beneficiaries as well as save for their own retirement. The key is that the new savings should be entirely private and be controlled completely by the individual. It cannot be a forced program.

We must allow those who want to go outside the system to do so, paying no taxes into it and taking no benefits out of it. That must be the long-term goal, and I expect most people would take this option. In my plan, our transition period allows for a 50 percent tax cut today in exchange for forgoing all claims on future benefits. Also, taxes must never be raised to pay for the transition. It's too tempting for politicians to use the language of privatization to mask what is essentially a tax-funded bailout of an already failed system.

AEN: Can a similar transition strategy be used to dismantle medical socialism?

de SOTO: Spain's system is more statist than the U.S.'s. Almost the whole of the medical sector is government controlled. I'm advocating a plan that would encourage the further development of a private system by use of tax cuts. Anyone who spends his own money on medical services can deduct that from his tax liability. This prevents people from paying health care twice.

AEN: And these ideas are getting a hearing?

de SOTO: Last year we had elections, and the socialist candidate lost out in favor of 44-year old José María Aznar. He is surrounded by a new wave of politicians and advisers who have been reading authors like Mises, Hayek, and Rothbard. They are classical liberals. I have been advising Aznar's Popular party for 12 years, always defending the most hard-core libertarian position. Though Aznar's libertarian people are still a minority in the parliament, tremendous progress is being made. Capital gains taxes have been reduced from 56 percent to 20 percent. Corporate taxes and income taxes are down as well.

The next big challenge will be in the labor sector. When the socialist government took charge 14 years ago, none of General Franco's socialistic labor legislation was touched. The law requires that any business that lets an employee go must pay a very high lump sum to the employee totaling wages for 1,260 days. As a result, business does not want to hire. It can't afford to speculate that way. In addition, unemployment benefits are 90 percent of salaries, so there is little incentive to seek new employment.

AEN: What's a reasonable change that is politically possible right now?

de SOTO: For starters, we are attempting to reduce the required lump-sum payment for firing by half, and, when valid cause can be established, by more than half. The mandatory lump sum should never be beyond one year's salary. Of course that's far too high. I've suggested that all these details should be strictly a matter of contract. If an employee wants a large pension or lump sum in case of being fired, he accepts smaller wages now, or vice versa. It should be up to those parties to make the exchange, not the government.

This idea, like much of what we free marketeers want, will be a long time coming. But we look for progress where we can make it. The center of gravity continues to shift in our direction, so that is an encouraging sign.

For example, military service is going to be made voluntary. Up to now it has been compulsory and it lasted one year. Young men would waste time, use drugs, chauffeur the generals, or whatever. More than 200,000 young people were losing one year of productive time. So by regaining this time, the overall wealth of the country will increase.

AEN: Do you think these kids should be in school instead?

de SOTO: Not necessarily because that could be an intellectual malinvestment, which often happens when education is subsidized by the state. The "human capital" theory of Gary Becker would seem to imply that the more you learn in school the more valuable you are to society. The obvious conclusion is that government should pay for everyone's schooling to make society richer.

I entirely disagree with Becker. Because it's government money involved, there is no way to calculate economically whether education is a good investment or not. Most probably it is not. People spend years studying things that have no use for them. Neoclassical theory tends to treat capital in general this way: there is no good or bad capital investment; it's all just capital. And in some ways, the malinvestment of intellectual capital is even worse than the waste brought about through other resource misallocation.

AEN: Do you see a contradiction between your theoretical ideals and modest reform proposals?

de SOTO: The biggest danger of libertarian strategy is to fall into day-to-day political pragmatism. It is easy to forget the final objectives because of the supposed political impossibility of achieving them in the short run. Our programs and goals become blurred and our intellectuals are co-opted by the government.

The way to prevent this from happening is to adopt a dual strategy. On one hand, we must be open and honest about our goals and constantly educate the public about why our final objective is best for society. On the other, we should support any short-term policies which get us closer to our goals. That way, when our short-term goals are accomplished, there is no retreat. We can march on with full confidence that people understand that more needs to be done.

AEN: How did you come in contact with the Austrian School?

de SOTO: When I was 16 years old, I took a very strong liking to economics generally. I would comb the bookstores for every economics text I could find. I thought I had read them all until I went to a book fair one day and saw one I didn't know about. It was Human Action. I like books the thicker the better, so I immediately bought a copy. I was amazed at its power from the outset.

One of my father's friends found me reading Mises one day, and invited me to join the Reig seminar I mentioned earlier. They were surprised that I knew the book as well or better than the other members. Next I read Man, Economy, and State. Then over the years I steadily increased my knowledge.

AEN: It would seem surprising that economics would be so intensely attractive to you at such a young age.

de SOTO: My family business is life insurance, which is the only trait I have in common with John Maynard Keynes who in the 1930s chaired the National Mutual Life Assurance Society of London. This is a very traditional business, having evolved for 200 years without any state intervention. Working with my father I naturally became interested in money, finance, and economic institutions. I wanted to be an actuary. I was very good at mathematics.

But I soon began to realize that what works for actuaries, which deals with life and death probabilities, cannot work in economic theory because there are no constants in human action. There is creativity, change, choice, and discovery, but there are no fixed correspondents that allow the creation of functions.

Hans Mayer made a very interesting argument, which has appeared in Israel Kirzner's collection of Austrian writings. Mayer argued that supply and demand curves cannot reflect reality because the information necessary to construct them can only be provided over time by the entrepreneurial process. That information never appears at the same time, as the mathematics require that we assume. It was an argument he took from Mises and further developed. But Mayer was a political chameleon, especially during those crucial years before World War II, and as a consequence he was not highly regarded by Mises.

AEN: Keynes apparently did not draw the same lessons about human action from working in the insurance business.

de SOTO: It turns out that Keynes not only corrupted economics. He also corrupted the practices of life insurance. He broke with the traditional policies of his company by valuing assets at market value instead of historical value. In the short term, it gave him an enormous competitive advantage. Keynes was able to distribute dividends to his clients against unrealized capital gains.

When the stock market was going up, it was wonderful. But when the Great Depression arrived, his company nearly went bankrupt. Both the British and the American insurance industries are suffering from his disastrous departure from tradition. On the continent it is still the practice to value assets at historical cost and only pay dividends against realized capital gains.

AEN: You have given the Mises Institute a picture of King Juan Carlos holding a book by Mises. Is he a Misesian?

de SOTO: I wouldn't say that, but he likes free markets and understands that we have radical opinions on the subject. Every year we invite him to a fair that commemorates new books, and he is kind enough to come. Considering that he didn't study at the University of Chicago, he is more pro-Austrian than one might expect. You never know what individuals or types of groups are going to be attracted to the Austrian School.

AEN: For example, the influence of the Austrians via the Salamancans on the modern Catholic church.

de SOTO: The Catholic church is like a huge transatlantic ocean liner. If you turn the wheel to the right, the boat moves slowly, slowly, and eventually begins to change direction.

There is a powerful Catholic group in Spain called Opus Dei. It is very close to the Pope and it is very pro-business. Someone in the order read the works of Hayek, saw him as very pro business, and sent out a message to the entire organization: Opus Dei should back the Austrians.

All of a sudden, all my books were being read by everyone in the order, and I began to lecture to their priests and members. In fact, I recently read a PhD thesis written on Mises and Hayek by a leading member of Opus Dei.

AEN: The Pope seems to be correct on many economic issues, but labor unions seem to be a sticking point with him.

de SOTO: In his writings, the Pope often uses the word "labor" when he really means "human action." When he says labor is creative, labor is entrepreneurial, labor is productive, he is not talking about unions. He is referring to the idea of economic action in exchange.

Of course, the church can be wrong, as it was for many years on the question of interest, as Rothbard shows in his History of Thought.

The opinions of the church on economic issues should be taken seriously, but they do not impact on matters of the faith. By the way, on my wall, I have a nice picture of Hayek with the current Pope.

AEN: Do you think economists should take religion more seriously than they have?

de SOTO: Certainly. Religion plays an important role in the life of an economy. It transmits from generation to generation certain patterns of behavior and moral traditions that are essential for the rule of law, which makes economic exchange possible. For example, if contracts are not kept, society can fall apart. Religion, not the state, is the primary means for imparting to us a sense of our obligations to keep our promises and to respect the property of others.

AEN: Have any economists ever been declared saints?

de SOTO: Two scholastics, in fact. Two economists among the scholastics became saints: San Bernardino of Siena and his great student San Antonino of Florence. Let's hope they will not be the last.