Redeeming Economics, a review

23 Jun

John D. Mueller, an economist with a strong natural law, neo-scholastic, Thomist, Roman Catholic, background has written a very good book (though a bit over my head at times) challenging conventional economic theory.  In Redeeming Economics: Rediscovering the Missing Element, he argues that Neo-Classical economics, the dominant theoretical paradigm in economic analysis, is missing an important element.  The missing element explains why modern economic science has a difficult time explaining many behaviors that do not fit utility-maximization theory (the notion that every human being makes decision with the aim of maximizing personal ‘utility’ or satisfaction or well-fare).  For instance, economists he says have failed to explain (many have just ignored) the ‘mother’s dilemma’ because her actions and the calculus she uses fall outside of utility-maximization theory.  If a mother has a short supply of milk (say a pint) how does she divide it up between a hungry baby, hungry cat, an essential ingredient to make a meal, herself, and two other older children?  Her actions, he says, are not explicable by conventional theory.  Conventional theory suggests that she decides how to divide up the pint of milk by calculating how much utility each recipient would bring her.  Then she ‘exchanges’ each portion of distributed milk for whatever utility those recipients can offer her.  According to Mueller, this is empirically false and theoretically vacuous.  He explains why his neo-scholastic economic theory fits the facts better and more comprehensively, in this scenario and others, here:

“Instead of always doing only one thing — maximizing the utility to herself of various persons and things — a mother is always doing two things: weighing the importance to herself of persons as ends, and of things like milk as means to serve those persons.  She solves the problem of allocating quantities of milk essentially by multiplying the relative significance of each user of milk, times her estimate of the value of each use of milk to those persons.  She distributes milk or other scare goods only to those who have a positive significance to her, and she does so in proportion to their relative significance.  This means that almost everyone in the world receives a zero significance.  Rather than increasing the mother’s utility, her love determines how much value or utility to herself of the scarce means she is willing to sacrifice…Love always involves sacrifice.

“If the neo-scholastic approach implies a new economic description of everything related to love (such a fertility, worship, bequests, and charitable contributions, etc.), it also suggests a new theory of hate; for example, of crime.  The [neo-classical] approach to crime assumes that everyone has the same basic preferences but that some people commit crimes because the utility of their prospective rewards [exceed the expected losses in utility if caught]… The Neo-Scholastic hypothesis is that crime, like love, is essentially not a weighing of utilities but a weighing of persons: thus, it is always a moral decision.  If love means distributing some good to some person and selfishness means distributing all of one’s goods to oneself (giving everyone else a zero significance in that distribution), a crime consists in depriving some person of a good that belongs to him or her — giving that person a negative significance in the distribution of gods.  [So] the neo-scholastic approach implies that there should be an inverse simultaneous relationship between the birth rates and the homicide rate, since these involve diametrically opposite attitudes toward other persons; the ‘economic approach to human behavior’ predicts no such relationship. [Mueller later shows that this inverse relationship is real and strong].

[What about the domestic economy? Can we describe choices there in the same way that we describe choices individuals make in the marketplace, as classical economic theory suggests?]  Mueller: “In the prevailing theory of the household, domestic life is a series of exchanges, a market; in the neo-scholastic view, domestic life is recognized as an oasis from the market, in which many if not most actions are gifts rather than exchanges…[Modern economics can’t explain the mother’s actions or thinking because] neo-classical economics has no way to describe gifts except by assuming that they are disguised exchanges.”

He summarizes his approach and how it adds to (perhaps ‘completes’ is a better word) in the following passage (p. 107).  He writes, “neo-scholastic approach will retain the modernized theories of (ordinal) utility and (general) equilibrium and the cumulative advances in the theory of production (which recognize human and nonhuman capital, and each in both its tangible and intangible forms).  But above all, neo-scholastic economics will devise a modernized mathematical version of the Scholastic theory of final distribution — specifically, one that incorporates descriptions of personal gifts (and crimes) and of distributive justice in the family, business firm, charitable foundation, and government.”  Essentially, Mueller argues (drawing from Augustine and Aquinas) that neo-scholastic economics will better explain two empirical realities in a person’s economic calculus.  It will describe first the fact that persons weigh the significance (in terms of love and hate) of other persons when making decisions regarding them (whether to vandalize them, sacrifice for them, ignore them, or enter into economic exchanges with them).  Mueller calls this the “choice of persons as ends.”  “If I love several people equally with myself, I’ll divide my property or income equally among all such persons, including myself (p. 143).  Secondly, a person must choose between scarce means of expressing varying degrees of love or significance to other people.  “After deciding the shares by which to distribute her own wealth or income between herself and the other persons she loves, the next question facing the mother is which particular goods she will provide to express her love for herself and the other persons (relatively).  She orders her preferences for such goods according tot heir usefulness in satisfying the wants of the person who are the end or purpose of her actions.   So the mother solves her problem (milk scarcity and multiple demanders) like this: “… the mother combines both sets of preferences described by Augustine: her preferences for persons as ends, which she expresses by distributing goods among them, and her preferences for other things as means for those persons, which she expresses by her selection of those goods.”  The new ideas that Mueller is suggesting is basically this (drawn from Augustine).  “… it requires us to begin by acknowledging the fact that we always act on two kinds of preferences [rather than the one, utility maximizing preference]: preferences for persons as ends [not merely means to one’s own utility] and preferences for other things as means [not persons].

In this post (taken mostly from Mueller’s chapter 5 in his book), I only tried to show briefly how Mueller’s neo-scholastic approach adds to and is different from classical economic theory (the kind that both liberals via Keynes and conservatives via supply-side or public choice theory use when formulating policy proposals).  In a follow-up post, I want to take up his discussion of the social consequences of abortion (applied neo-scholastic economic analysis).  He is basically going to argue that since the economic dynamic is fundamentally different in the household than it is in the marketplace, and since families are critical units in the wider economy, affecting everything from crime to social security, understanding the unique nature (missing element) of household economic activity is essential to sound public policy.

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  1. Redeeming Freakonomics « thereformedmind - July 12, 2011

    […] found in Augustine and Aquinas and Aristotle but excluded in standard economic theory : see my blog post on […]

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