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Redeeming Economics: Rediscovering the Missing Element

(ISI Books, 2010)

John D. MuellerDirector, Economics and Ethics Program

Ethics and Public Policy Center (www.eppc.org)

President, LBMC LLC (www.lbmcllc.com)

Tocqueville Forum and Society of Catholic Social ScientistsGeorgetown University, Washington, D.C., 20 October 2010

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What is Economics About?

Well, what do people do all day?* Order in doing:

1. “Planting and building”: production

2. “Buying and selling”: exchange

3. “Marrying and giving in marriage”: distribution

4. “Eating and drinking”: use (consumption)

*Luke 18: 27-28

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Economics as human providenceOrder in planning: 1. For whom? 2. What? and 3. How (shall I

provide)?

1. For whom: Augustine’s theory of personal gifts/crimes, Aristotle’s theory of distributive justice (distribution)

2. What: Augustine’s theory of utility (consumption)

3. How (a): Aristotle’s theory of production—of and by (i.) people and (ii.) property

4. How (b): Aristotle’s “justice in exchange” (equilibrium)

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Economics a branch of moral philosophy

Man is naturally a ‘rational,’ ‘matrimonial,’ and ‘political animal’ (Aristotle)

Moral philosophy therefore chiefly concerns individual, domestic, and political providence = foresight = prudence = economy (Aquinas)

Economy: Gr. oikos (household) + nomos (rule or management)

Hence:1. Personal economy2. Domestic economy (family, business, charity) 3. Political economy

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How the Structure of Economics Has Changed (1): Simplified

Element

Outline

Distribution Consumption Production Exchange

Scholastic (1250-1776)

Thomas Aquinas

Yes Yes Yes Yes

Classical (1776-1871)

Adam Smith

No No Yes Yes

Neoclassical (1871-c. 2000)

Jevons, Menger, Walras

No Yes Yes Yes

Neoscholastic (c. 2000- ?)

Scholastic outline,

elements updated

Yes Yes Yes Yes

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How the Structure of Economics Has Changed (2): Detail

Element

Outline

Distribution

(Gifts/crimes & distributive justice)

Consumption

(type of utility)

Production

(people/property)

Equilibrium (“justice in exchange”)

Scholastic Yes/Yes Yes (ordinal) Yes/Yes Yes

Classical No/No No Yes/No*

(*“labor theory”)

Yes

Neoclassical Austrian (Menger)

British (Jevons)

Chicago (Schultz)

Lausanne (Walras)

No/No

No/No

No/No

No/No

No/No

Yes (mixed)

ordinal

cardinal

cardinal

ordinal

Mixed

No**/Yes

No*/Yes

Yes/Yes

No**/Yes

(**“stork theory”)

Mixed

No (Mises)

Yes

Yes

Yes

‘Neoscholastic’ Yes/Yes Yes (ordinal) Yes/Yes Yes

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Augustine’s Personal EconomyPremises: 1. All persons motivated by love of some person(s). 2. Love is willing some good to some person (Aristotle). 3. We express personal love/hate by our distribution of goods.

Descriptive (“positive”): Outer Acts toward:Kind of love Inner Act Self OthersOrdinate Benevolence Utility Beneficence (Gifts)Inordinate Malevolence Vice Maleficence (Crime)

Prescriptive (“normative”): Two Great Commandments*Standard of benevolence (“goodwill”): negative Golden Rule (“Do

not do unto others” = Aristotle’s ‘justice in exchange’)Standard of beneficence (“doing good”): positive Golden Rule

(“Do unto others” = personal gifts, distributive justice)*”Love . . . God with all your heart” (Deut. 6:5); “love your neighbor as

yourself” (Lev. 19:18)

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0% 50% 100% 150% 200%

Allocation of own wealth to own use

0

1

2

3

4

5

6

7

8

9

10

Per

sons

love

d eq

ually

(in

clud

ing

se

lf)

Augustine's 'Personal Distribution Function'Personal gifts/crimes are proportional to one's love/hate for the persons

.

.

.

Gif ts (express love)

Crimes (express hate)

Selfishness (assumed by Adam Smithand neoclassical economics)

9

10

<15 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 >65

Age

0%

5%

10%

15%

20%

25%

30%

35%

% o

f to

tal

Women having abortions Arrestees for murder Arrestees for a ll crimes

Source: arrestees (2001), FBI; abortions (2000), CDC

Age Distribution of Arresteesvs. Women Having Abortions

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363738394041

424344 4546

474849505152535455565758596061626364

6566

67 68 69 7071

7273 7475767778 79 808182838485 86878889 90 91929394959697989900

3 4 5 6 7 8 9 10 11 12

Homicide Rate per 100,000

1

2

3

4

Eco

nom

ic f

athe

rhoo

d

R-square = 0.904 # pts = 65 y = 19.6x̂ -1.17

Fatherhood vs. Homicide: 90% Tradeoff1936-2000

Divine Economy (Metaphysics): The Three World Views

1. Biblically orthodox natural law: God freely created man as a rational animal though sinning person: free to choose persons as ends, other things as means (AAA’s*)

2. Stoic pantheism: Cosmos one big rational animal, God its immanent soul; man a puppet manipulated by “invisible hand” to “ends ... no part of his intention” (Adam Smith)

3. Epicurean materialism: no Creator or providence, only “matter and chance”; man a clever animal choosing means, not ends: reason “slave of the passions” (Hume)

Thus the “Choice of 1776”: Created Equal—Or Not?* Aristotle + Augustine, first integrated by Aquinas

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Supplemental charts

Three keys to understanding Adam Smith

1. Moral Newtonianism

2. Philosophical Stoicism

3. Rhetorical sophistry

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Adam Smith’s moral Newtonianism

Smith aimed, as he put it in an unpublished manuscript, “to see the phenomena which we reckoned the most unaccountable all deduced from some principle (commonly a well-known) and all united in one chain.” EPS

A former student summarized: “His Theory of Moral Sentiments founded on sympathy, a very ingenious attempt to account for the principal phenomena in the moral world from this one general principle, like that of gravity in the natural world.” Smith, TMS I.i.3.4,

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Thomas Reid on Smith’s conception of ‘sympathy’

“I conceive this meaning of the word Sympathy is altogether new & that if one had not a hypothes[is] to serve by it he would never have dreamed that it is Sympathy that makes us blush for the impudence and rudeness of another.”

--J.C. Stewart-Robertson and D.F. Norton, “Thomas Reid on Adam Smith’s Theory of Morals”

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Adam Smith on Stoic metaphysics

In Stoic philosophy, as Smith put it, “the whole of Nature” was believed “to be animated by a Universal Deity, to be itself a Divinity, an Animal…whose body was the solid and sensible parts of Nature, and whose soul was that aetherial Fire, which penetrated and actuated the whole.”

-- Smith, “Essays on Philosophical Subjects” [1795]

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How Adam Smith regarded and was perceived by Christians

In a letter dated August 14, 1776, Smith wrote: "Poor David Hume is dying very fast, but with great chearfulness and good humour and with more real resignation to the necessary course of things, than any Whining Christian ever dyed with pretended resignation to the Will of God.“

“Boswell said ‘it was strange to me to find my old Professor in London, a professed infidel with a bag wig.’” Ross, The Life of Adam Smith, 251.

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Aristotle vs. Smith on rhetoric

Aristotle: “In Rhetoric, as in Dialectic, we should be able to argue on either side of a question; not with a view to putting both sides into practice—we must not advocate evil—but in order that no aspect of the case may escape us, and that if our opponents make unfair use of the arguments, we may be able to refute them.”

Adam Smith: “The Rhetoricall [discourse] again endeavours by all means to perswade us; and for this purpose magnifies all the arguments on one side and diminishes or conceals those that might be brought on the side contrary to that which it is designed that we should favour.” LRBL, 62