Nelson is not attacking economics by calling it theological. Rather, he is arguing that the study of economics — whether the progressive variant of Paul Samuelson and his followers, the Chicago school, or the new institutional economics — rests on certain fundamental evaluations or value commitments. These, Nelson asserts, can best be understood as elements of religion, and the discursive elaboration of them can properly be called theology. The premise at work here is that religion is the source or foundation of the ultimate value commitments by which we lead our lives, including what things we study and how we study them.
Once we recognize great advantages to be had from a market system — and Nelson argues that the basic advantages of a market were understood well before Adam Smith, perhaps even in medieval times — any coherent thought about economics will have to deal with the fundamental market paradox. On the one hand, the market supposes, and encourages, people to act in pursuit of their individual self-interest. In Smith's famous words: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." On the other hand, the system will not work well if all people pursue self-interest in all situations: judges, for example, should enforce laws and contracts impartially rather than pursue their own self-interest as presented, say, by the highest bribe. Nelson's thesis is that economics in the narrowest technical sense cannot solve this dilemma. What can solve it is religion, which can permit the pursuit of self-interest in dealings that appropriately belong in the market but can forbid actions like deception and theft while promoting, in a deliberate sense, concern for our fellows and for the common good. Economics more broadly is a kind of secular religion that handles this market paradox through exhorting us on to an improved condition of life on earth through devotion to economic efficiency.
But not all economists are of the same faith, and Nelson takes the reader on a tour of the dismal science's pantheon. He compares the progressive economics of Paul Samuelson and John Maynard Keynes to the Catholic Church. Economic laymen spend most of their time in market activities, rationally pursuing their self-interests, just as the Catholic clergy recognizes that most of us will marry, have children, and devote ourselves mainly to this-worldly activities. But even as priests are needed to look after the higher goal of salvation, so the progressives argue, experts are needed — none more so than economists — to look after the comprehensive, long-range common good, which includes fine-tuning of the economy, honing governmental regulations, and the like.
By contrast, the Chicago school, originating from the influence of Frank Knight, embodied the Protestant, Calvinist sense that all human beings equally share in a fallen human nature, whose commonest expression is pursuit of self-interest. No superior class can be relied upon to pursue the common good, leaving the rest of us to spend our lives in eager pursuit of narrower self-interest. Therefore, the Chicago economists rejected the hope that politicians, or bureaucrats, or regulators — or economists in office— would solve the market paradox through their higher vocation. Instead, the use of coercive power must be restricted and the realm of the free market must be extended, as much as possible. But when we all pursue our narrow self-interests, Nelson asks, who will take care of the necessary conditions for the market to function well? Later developments in the Chicago school, which seek to extend the explanation of self-interest into every area of human behavior — even marriage and the family — make this problem all the more acute.
The new institutional economics addresses problems that were downplayed or by-passed in previous approaches. As Nelson puts it, whereas earlier Chicago economists tended to show why market transactions lead to unambiguous improvements, institutional economists focus on how these transactions take place, and especially on what tends to burden, obstruct, or distort them: asymmetrical information, opportunism, and the like. From such considerations, it turns out that what may matter most for a market's promotion of prosperity could well be cultural factors — beliefs, practices, virtues, and habits that produce and maintain trust, for example. If so, one can easily see that religion might indeed be the most important factor for economic success; and if economists are truly to understand their subject, they must understand culture and religion.
Although Nelson makes a strong case that economics cannot be a purely positive science of the sort that social science methodologists of the 1950s argued for, it is less clear why he seems to conclude that economics must therefore be a kind of religion, rather than saying that it is, or implies, a certain political or moral philosophy.
Perhaps he believes that positive or technical science is the only fully rational exercise of human reason. If so, then the value commitments underlying any particular employment of reason would rest on something distinct from reasoning: on feeling, emotion, religion, ideology, habituation, or whatever. Since by hypothesis all these would lack full rationality, Nelson may figure that he can invoke them all with the term religion. In my judgment, this would be an unfortunate decision to take, because it would discourage responsible efforts to distinguish better from worse reasoning in support of competing values.
In the final analysis, however, Nelson is more sensible. He seems content to urge economists, if they are to be better theologians, to learn the grounds of theological argumentation; to learn to distinguish better from worse arguments in theology. The path to this learning, I believe Nelson suggests, is philosophy. Accordingly, Nelson ends his book with the speculation that Frank Knight may turn out to be the most important economist of the twentieth century. Frank Knight was always a professor of philosophy and economics, and philosophy was always somehow first for him. Nelson worries that Knight's bleak Calvinist view of human nature might not go over well with Americans. But if Knight's philosophical views should prove sound, that concern could simply mean that his philosophical teaching needs to be presented in an appropriately rhetorical manner. It would not be the first time that rhetoric engaged in beneficial cooperation with philosophy.