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Redeeming Economics: Rediscovering the Missing Element

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“The scope of Mueller’s intellectual ambition in this book is truly astonishing, as is the scope of the research involved. . . . People should invest the time needed to read, absorb, and promote this important book.”
Jennifer Roback Morse, Ph.D.

“Groundbreaking.”
The Washington Examiner

“Mueller points out, the family is the fundamental productive unit. It produces a nation’s most valuable resource: human beings, hopefully socialized ones. . . . There is much hype about the ...

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Overview

“The scope of Mueller’s intellectual ambition in this book is truly astonishing, as is the scope of the research involved. . . . People should invest the time needed to read, absorb, and promote this important book.”
Jennifer Roback Morse, Ph.D.

“Groundbreaking.”
The Washington Examiner

“Mueller points out, the family is the fundamental productive unit. It produces a nation’s most valuable resource: human beings, hopefully socialized ones. . . . There is much hype about the conflict between economic and social conservatives. But if Mueller is right, the two visions are basically complementary. . . . His writing does suggest some of the weaknesses of modern conservatism. . . . Conservatives may need to outgrow Adam Smith and develop a newer, deeper understanding of economics, the family and justice.”
Daily Herald (Utah)

“Mueller opens discussion on essential topics for people of all faiths, political orientations , and worldviews and does so in ways that probe the limits of rational choice and foster interdisciplinary conversation.”
Choice

 Economics is primed for a revolution, says respected economic forecaster John D. Mueller. To make this leap forward will require looking backward, for as Redeeming Economics reveals, the most important element of economic theory has been ignored for more than two centuries. 

Since the great Adam Smith tore down this pillar of economic thought, economic theory has had no way to account for a fundamental aspect of human experience: the social relationships that define us, the loves (and hates) that motivate and distinguish us as persons. In trying to reduce human behavior to mere exchanges, modern economists have lost sight of how these essential motivations are expressed: as gifts (or their opposite, crimes). Mueller makes economics whole again, masterfully reapplying economic thought as articulated by Aristotle, Augustine, and Aquinas. 

Contrarian and compelling, Redeeming Economics covers everything from unemployment, to inflation, to the economics of parenthood, to the greatest geopolitical challenge facing the United States, to flaws in the mega-bestseller Freakonomics, to the author’s illuminating exchange with the controversial philosopher Peter Singer. 

 

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Product Details

  • ISBN-13: 9781932236941
  • Publisher: ISI Books
  • Publication date: 10/18/2010
  • Series: Culture of Enterprise
  • Edition description: 1
  • Pages: 400
  • Product dimensions: 6.40 (w) x 9.10 (h) x 1.70 (d)

Meet the Author

John D. Mueller is director of the Economics and Ethics Program at the Ethics and Public Policy Center, and president of LBMC LLC, a firm specializing in economic and financial-market forecasting and economic policy analysis. Mueller’s articles have appeared in the Wall Street Journal, the Weekly Standard, the Washington Post, and the Harvard Business Review. He and his wife live in Washington, D.C.

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Table of Contents

Contents

Introduction: Rediscovering the Missing Element in Economics....................1
Chapter 1: Smithology and Its Discontents....................11
Chapter 2: Scholastic Economics (c. 1250–1776)....................17
Chapter 3: Classical Economics (1776–1871)....................49
Chapter 4: Neoclassical Economics (1871–c. 2000)....................77
Chapter 5: Neo-Scholastic Economics (c. 2000–)....................107
Chapter 6: The "Mother's Problem" and Augustine's Solution....................133
Chapter 7: The Success and Failure of Neoclassical Economics....................155
Chapter 8: An Empirical Test: Fatherhood and Homicide....................175
Chapter 9: The Moral Implications of Scarcity: The Good Samaritan Paradigm....................189
Chapter 10: Marriage, the "First Natural Bond of Human Society"....................203
Chapter 11: Why Do Parents Give Children "Existence, Rearing, and Instruction"?....................231
Chapter 12: How Neo-Scholastic Economics Explains Our Life Earnings and Spending....................245
Chapter 13: Saving America's Infant Industry....................275
Chapter 14: The Theory of American Public Choice....................283
Chapter 15: Injustice in Exchange: Unemployment....................303
Chapter 16: Injustice in Exchange: Inflation....................327
Chapter 17: The Three Worldviews....................355
Notes....................367
Acknowledgments....................451
Index....................453
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First Chapter

Redeeming Economics

Rediscovering the Missing Element
By John D. Mueller

ISI Books

Copyright © 2010 John D. Mueller
All right reserved.

ISBN: 978-1-932236-94-1


Chapter One

Smithology and Its Discontents

Disaster quietly befell the field of economics one day in 1972, when the University of Chicago's economics department, acting on a motion culminating a long campaign by Professor George J. Stigler (1911–91), abolished the requirement that Ph.D. candidates learn the history of economic theory before being granted a degree. The economics departments at most other major universities quickly followed suit.

This decision has had three far-reaching consequences.

First, for more than three decades, American economists have been educated in substantial ignorance of the history of their discipline.

Second, economics professors not only lost touch with the history of economic theory but were suddenly free—almost invited—to fill the vacuum by creating "Whig histories of economics" and foisting them on their students. A Whig history tries to read history backward. It views the past as a grand ascent to the pinnacle of the present—on which, of course, we ourselves triumphantly stand. A Whig history of economics begins by identifying some modern school of economics—like the Chicago or the Keynesian—as the unsurpassable culmination of economic theory, and it interprets the past in that school's terms. The actual originators of important theories, if recognized at all, are claimed as "forerunners"—as "proto-Chicagoans" or "proto-Keynesians," according to the taste of the historian.

Third, severing the contact between economists-in-training and the history of economic theory greatly narrowed the range of economists' approaches to modern economic problems. Thus, the economics profession now finds itself in a predicament from which it can be rescued only by being reconnected to its historical roots—specifically, its Scholastic heritage. In this chapter, I'll begin to explain why that's the case. The problem begins with Adam Smith.

When Adam Smith Became "Founder" of Economics

From the mid-nineteenth to the mid-twentieth centuries, economists—even specialists in the history of economics—had an idea of their subject much like Saul Steinberg's "View of the World from 9th Avenue," the famous poster that depicts Manhattan's Ninth, Tenth, and Eleventh avenues in exquisite detail, right down to the fire hydrants, while the rest of the world consists of vast blank areas labeled "Jersey" or "Japan." For years, textbooks would start their discussions of modern economics with Adam Smith, while in the hazy distance lay the eighteenth-century "physiocrats" and "mercantilists."

This peculiar historiography of economics began to change radically in 1954, when Joseph Schumpeter's History of Economic Analysis was published. Schumpeter's History demolished what we might call "Smythology," the peculiar kind of Whig history of economics that attributes to Adam Smith mythical achievements, such as being the founder of economics or one of its essential elements. Schumpeter correctly noted that it was not until 1848, when John Stuart Mill's Principles of Political Economy was published, that Adam Smith was "invested with the insignia of 'founder'—which none of his contemporaries would have thought of bestowing on him—and ... earlier economists moved into the role of 'precursors' in whom it was just wonderful to discover what nevertheless remained Smith's ideas." Schumpeter concluded: "The fact is that the Wealth of Nations does not contain a single analytic idea, principle or method that was entirely new in 1776."

Analysis literally means "breaking down." We ordinarily use the word as a synonym for theory, because we use theory to break down complicated realities into their simplest elements, and then combine these elements to build up an explanation that corresponds satisfactorily to the reality it seeks to explain. But Schumpeter distinguishes economic analysis, which according to his definition is scientific, from economic thought, which he describes as mostly uninformed opinion: "the sum total of all the opinions and desires concerning economic subjects that, in any given time and place, float in the public mind." According to Schumpeter, "the history of economic thought starts from the records of the national theocracies of antiquity," but "the history of economic analysis begins only with the Greeks."

Even among the Greeks, says Schumpeter, economic analysis is confined almost entirely to Aristotle, whose work on the subject Schumpeter describes as "decorous, pedestrian, slightly mediocre, and more than slightly pompous common sense." He concludes:

Aristotle based his economic analysis squarely upon wants and their satisfaction. Starting from the economy of a self-sufficient household, he then introduced division of labor, barter, and, as a means of overcoming the difficulties of direct barter, money—the error of confusing wealth with money duly coming in for stricture. There is no theory of "distribution." This—presumably the extract from a large literature that has been lost—constitutes the Greek bequest, so far as economic theory is concerned. We shall follow its fortunes right to A. Smith's Wealth of Nations, the first five chapters of which are but developments of the same line of reasoning.

After Aristotle, there is what Schumpeter calls the "Great Gap," which encompasses the period between the death of Aristotle and the work of Thomas Aquinas in the thirteenth century. Insofar as anyone deserves the title of founder of economics, according to Schumpeter, it was the "Scholastic doctors" of the Middle Ages: that is, professors teaching in the newly established European universities. He singles out Aquinas not so much for his contributions to economic analysis—which Schumpeter describes (wrongly) as "strictly Aristotelian"—as for taking the "earliest and most important step" in establishing the ground rules for modern scientific analysis. Of the later (fourteenth- to seventeenth-century) Scholastics, Schumpeter says that "while the economic sociology of the Scholastic doctors of this period was, in substance, not more than thirteenth-century doctrine worked out more fully, the 'pure' economics which they handed down to laical successors was practically, in its entirety, their own creation. It is within their systems of moral theology and law that economics gained definite if not separate existence." In particular, "the Aristotelian distinction between value in use and value in exchange was deepened and developed into a fragmentary but genuine subjective or utility theory, of exchange value or price for which there was no analogue in either Aristotle or St. Thomas, though there was in both what we may describe as a pointer."

From these beginnings, according to Schumpeter, the Scholastic doctors fashioned all the basic analytical tools that Smith found at hand when he wrote the Wealth of Nations. What, then, in Schumpeter's view, was Smith's achievement? "The scholastics and the natural-law philosophers," he asserts, "|had worked out all the elements of" economic analysis; Smith simply undertook "the task of co-ordinating them." He was but one of a growing number of "systematizers" who were working during this period to integrate the inherited tools of economic analysis. But, Schumpeter argues, Smith's synthesis left much to be desired. The analyses of Anne-Robert-Jacques Turgot, Baron de Laune (1727–87) in France and Cesare Beccaria (1738–94) in Italy were both superior to Smith's Wealth of Nations. In fact, what is commonly called Smith's labor theory of value turned out to be "a time- and labor-consuming detour" on the way to a workable theory of value and prices.

John Stuart Mill was painfully premature in announcing—at the same time that he was anointing Adam Smith the founder of economics—that "[h]appily, there is nothing in the laws of Value which remains for the present or any future writer to clear up; the theory of the subject is complete: the only difficulty to be overcome is that of so stating it as to solve by anticipation the chief perplexities which occur in applying it." Actually, at the time Mill was writing, what lay ahead were at least two more decades of confusing debate, after which Smith's labor theory of value was finally scrapped and replaced with a modernized version of the Scholastic theory of economic value. As Schumpeter wrote, Smith is to blame "for much that is unsatisfactory in the economic theory of the subsequent hundred years, and for many controversies that would have been unnecessary had he summed up in a different manner." Schumpeter estimated that Smith's scheme actually retarded the development of economic analysis by more than eighty years.

As we will see, Schumpeter's conclusion that "the Wealth of Nations does not contain a single analytic idea, principle or method that was entirely new in 1776" is sustained by the evidence. Thanks to Schumpeter, it is no longer possible for any serious history of economics to begin with Adam Smith (or his immediate predecessors), thus leaving out Aristotle and the Scholastic doctors.

However, Schumpeter's narrative leaves us with two puzzles. First, if Aristotle's and Aquinas's economic theories were essentially the same, why were there no Aristotelian "economists" after Aristotle, in either ancient Greece or Rome? Conversely, why was there a long and continuous tradition of Scholastic economists after Thomas Aquinas, many coming "nearer than does any other group to having been the 'founders' of scientific economics"? The answer is that Scholastic economics was not, in fact, strictly Aristotelian. Aquinas added something important to Aristotle, something that he found in St. Augustine.

Second, if Adam Smith's synthesis was inferior to that of at least two of his contemporaries, how did Smith become so influential? The answer, I think, is that rather than merely synthesizing the work of previous economic thinkers, as Schumpeter believed, Smith radically simplified and rearranged the whole outline of economic theory—in a way that made it easier to develop two of its essential elements but harder or even impossible to develop the others. The simplicity of Smith's theory accounts for his appeal among classical economists; but because it was an oversimplification, it necessitated another rearrangement of the outline of economic theory, a project begun but not completed by the neoclassical economists who followed.

Chapter Two

Scholastic Economics (c. 1250–1776)

Scholastic economic theory might be called AAA economics, because its basic formula is Aristotle + Augustine = Aquinas. The best way to understand the relation of these three to one another and to economic theory is to begin with Thomas Aquinas's selection and integration of the basic elements or "first things" of economic theory: his descriptive or "positive" economics. After asking how and why Aquinas's description differs from Aristotle's, we will briefly consider the applications made by later Scholastics, and finally summarize their prescriptive or "normative" Scholastic economic theory.

The Scholastic Outline of Economic Theory

Surprisingly, economic theory is integral to Thomas Aquinas's comprehensive description of the human person. The whole of economic theory can be reconstructed from four elements that Aquinas first gathered together, deriving them from just two sources, Aristotle and Augustine. Aquinas's genius lies in his recognition that an adequate picture of human nature required combining the insights of both men. Furthermore, Aquinas's synthesis contains the first complete statement in history of what is involved in any human economic action, a description that is not only formally complete but also valid at any level—from a single person, to a family, business, or nonprofit foundation, to a nation under a single government, to the entire world economy. It is helpful to state the Scholastic outline of economic theory in three ways: first from the commonsense point of view of a noneconomist, then from the point of view of an economist, and finally from its historical sources.

First, the commonsense explanation: What is economic theory about? Well, as the title of a delightful children's book asks, What Do People Do All Day? Jesus once noted (as an astute empirical observation, not divine revelation) that since the days of Noah and Lot, people have been doing—and presumably will continue to do for as long as there are humans on earth—four kinds of things. He gave these examples: "planting and building," "buying and selling," "marrying and being given in marriage," and "eating and drinking." In other words, we human beings produce, exchange, give (or distribute), and use (or consume) our human and nonhuman goods.

That's the usual order ill action, but not in planning. Thomas Aquinas realized that rather than four different acts, these verbs actually constitute four essential aspects of every economic act. Whether I want to consume something (after, in effect, making it a "gift" to myself) or give it to someone else to consume, I must first produce it or else produce something else and exchange it for the item I wish to use or give away. Aquinas integrated these four basic elements of economic theory into a coherent outline. Moreover, rather than being "strictly Aristotelian," as Schumpeter believed, Aquinas subordinated Aristotle's thought on these matters to Augustine's.

Recall my suggestion in the introduction to this book that economies is essentially a theory of providence. Every human economic action raises three basic questions: First, for whom shall I provide? Second, what shall I provide? And third, how shall I provide it? Any adequate economic theory must answer these three questions. This will require either three or four answers, depending on whether exchange is involved.

To grasp the logic, take an everyday example: What happens when someone plans, prepares, and serves a pot-roast dinner for family and friends? The question "For whom?" must be answered to explain why these particular persons—out of all others—were chosen to consume the dinner. And the answer is that the host prefers them to all others (at least for this purpose) and expresses that preference by sharing with them this meal.

The question "What?" must be answered in order to explain the fact that a pot roast, rather than, say, eggplant casserole, is being served. (The host might well prefer eggplant casserole, if she were cooking only for herself, but she also knows or guesses the preferences of the people she has invited to share the meal. Hence the pot roast.)

The question "How?" must be answered to explain the otherwise mysterious fact that pot roast actually materializes on the table. But this answer is not as simple as the first two, depending on whether the family has had to produce and exchange other things in order to get the pot roast. If there is no exchange, the household produces out of its own resources not only the total amount but also the exact variety of each good consumed by its members. This might happen, say, on a cattle ranch where potatoes and vegetables are also raised. The "How?" answer would explain where the cow came from, how it was raised and slaughtered, how the meat was dressed, how the potatoes, onions, and carrots were grown, and all the other steps needed to prepare and serve the meal.

But when exchange is involved—as of course it usually is—the family's members first produce something that they think other producers will value more highly than the good that they have produced, and then they exchange the products for mutual benefit. Now, we do not typically barter sides of beef for consulting services. We almost always use money (or claims on it) as our "medium" of exchange. Such exchanges require us to answer a two-step question: first, what goods or services were produced and sold to acquire the money with which to purchase the dinner ingredients that the host family did not itself produce? And second, how did the purchases allow the grocery store to pay its employees, the rancher, the farmer, and everyone else in order that they all might realize their own very different dinner plans for the same evening?

(Continues...)



Excerpted from Redeeming Economics by John D. Mueller Copyright © 2010 by John D. Mueller. Excerpted by permission of ISI Books. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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