By Father John Flynn, LC
ROME, SEPT. 18, 2011 (Zenit.org).- With an economic crisis that never seems to end and financial markets ever more volatile, it is an appropriate time to consider if anything is lacking in economic theory.
John D. Mueller did just that in a book published late last year titled: “Redeeming Economics: Rediscovering the Missing Element” (ISI Books). He argued that Adam Smith made a fundamental mistake in his economic theory, rendering it incomplete and unable to properly account for human behavior.
Mueller, currently the director of the Economics and Ethics Program at the Ethics and Public Policy Center, starts by tracing the main developments in economic theory. According to Mueller, Thomas Aquinas brought about a revolution in economics by synthesizing the ideas of Aristotle and St. Augustine.
Aquinas viewed economic activity as falling into four categories: production, exchange, distribution and consumption. It was Aquinas who for the first time in human history provided a complete description of human economic action, noted Mueller.
Centuries later Adam Smith brought about another revolution in economic thought, but he dropped two of the four categories of Aquinas. He eliminated the theory of consumption and of final distribution, in what came to be known as the classical theory of economics, which centered on production and exchange.
Production in particular was in need of a new approach because, as Mueller explained, by the 18th century — Smith’s era — a theory was needed to explain sustained economic growth. During the time of Aquinas and in the 12th and 13th centuries, there was relative prosperity, but the 14th-century plagues and the subsequent implosion of Europe made the previous prosperity seem like an exception and the idea of explaining growth was a foreign one.
In the century after Smith’s innovative theory, economists realized that his ideas were insufficient and so in the latter part of the 19th century the neoclassical economists restored the element of consumption with a modernized theory of utility. By utility they meant the relation between a person and a thing in terms of our order of preference for goods.
After his survey of the development of economic theory, Mueller affirmed that we will soon witness the emergence of a new school of economic thought, which he termed new natural law or neo-Scholastic economists.
This will happen, he said, because current economic ideas do not fully account for the empirical facts of human economic behavior. The most important contribution of this new school will be to devise a modernized version of the Scholastic theory of final distribution. This will incorporate descriptions of personal gifts, and crimes, and distributive justice in the family, business, charitable foundations and government.
According to Mueller the fundamental conceptual problem behind existing economic theory is that it cannot explain love and how this affects utility. By contrast the new approach will be premised on the idea that all human action is motivated by love.
Mueller demonstrated the nature of love and how it impacts by quoting from G. K. Chesterton, who said: “A man is fortunate in marrying the woman he loves, but he is even more fortunate in loving the woman he marries.” Only human persons, Mueller commented, can love in both of these ways at the same time.
It is not egoism or altruism that explains our actions, Mueller affirmed. With love there is both love of self and along with it love for other persons. The love for another person is the source of the value of any goods used by any person.
In our choices we select the person or persons who will be the purpose of our actions. All economic action therefore involves a gift either to oneself or to some other person. This means that in economic theory, love is not an emotion nor a pure weighing of utility, but rather a weighing of persons. So what we allocate to another person is better understood as a gift rather than an exchange.
This new approach also has implications for how we understand crime, Mueller added. According to current economic theory there is the assumption that everyone has the same basic preferences but some people commit crimes because the perceived utility of the reward for crime outweighs the losses if they are caught.
Although this does have weight, Mueller argued that this does not explain why the vast majority of people, even in poor environments, do not commit crimes. The neo-Scholastic position is that crime is essentially not a weighing of utilities, but of persons.
So, if love means distributing some good to another person and selfishness means distributing all of one’s goods to oneself, a crime consists in depriving some person of a good and giving that person a negative significance in the distribution of goods.
Economic theory of households and business will also have to be re-written in the light of this new approach, Mueller continued. The prevailing approach is to consider that a household exists as a means to provide for a division of labor. Two adults marry so that each can increase their utility, understood as pleasure or satisfaction.
By contrast the neo-Scholastic assumption is that the main economic purpose of a household is the procreation, education and maintenance of human beings. This means a household is built around the union between a man and a woman.
Neo-Classical economics fails to explain why so many people marry because it is mistaken to assume that everyone’s preferences are either the same or purely selfish, Mueller observed. The neo-Scholastic view is more satisfactory as it considers that marriage is better considered in terms of a series of mutual gifts rather than exchanges.
This is apparent when events affect the married persons unequally, for example, an accident or illness that involves only one of the couple. If the union were based solely on utility it would not survive such events.
A new look is also needed for political economy, Mueller added. Current theory in welfare economics views politicians as governing society much in the same way a parent presides over a household.
A serious problem with this approach is that it provides no set of principles for deciding questions about income distribution. In effect what happens is that everything is reduced to a battle of raw political power between the political groupings that stand to gain or lose from policy decisions.
In concluding Mueller contended that economic theory is fundamentally based on our understanding of human nature and the created world. Things haven’t changed much since the time of St. Paul, he noted, referring to a passage in the Acts of the Apostles (Acts 17:18) where Paul debated with Epicurian and Stoic philosophers.
Quoting from Benedict XVI’s encyclical Caritas in Veritate Mueller observed that in the Pope’s summary of the three prevailing world views, not much has changed in 2,000 years.
Believers, the Pope observed, believe that the world does not derive from some blind chance – Epicurianism — nor from some strict necessity — Stoicism — but from God’s plan, living as a family under the Creator’s watchful eye (No. 57).
It will be interesting to see if Mueller’s prediction about a new school of economic thought turns out to be correct. Certainly, however, economics that is based on a more profound and accurate understanding of human nature is a step forward.