Another post in our long line of "What We Are Reading": this time, summer reading on John D. Mueller's "Redeeming Economics".
First, the author: John D. Mueller is the The Lehrman Institute Fellow in Economics at the Ethics and Public Policy Center. He was an economics advisor to Jack Kemp and helped write some of the Republican bills during the Reagan years. He has also been a market advisor to businesses for decades. He has abiding contact with both scholarly and real-world economic activity, and has been in the thick of things affecting policy. He is someone whose capstone work bears some attention.
The theme of “Redeeming Economics overall is to present the basic pattern for a new (and old) paradigm of economics, which he terms “Neo-Scholastic economics.” He insists that it really is a scholastic theory he is just brushing off for refurbishment, and I am a little skeptical of that, though there is no doubt that he relies heavily on prior work.
The book divides largely into first a general survey of prior economic thought, and then a proposal of how to go forward fixing the problems, difficulties, and errors of the past. Not that he is trying to be absolutely comprehensive, he isn’t. He is proposing a path for other economists to use, to get their hands dirty and solve specific problems in policy, market structures, etc. His survey of the history of economics just hits the highlights of most of the heavy players, going into enough detail to grasp the big picture but not spending a ton of time on any one of them. Although this is a serious book, it is not a tome written for scholars alone, Mr. Mueller is writing for the intelligent everyman. And he succeeds – this is truly readable. This won’t drill you into sleep at every third page, as books like “The Unintended Reformation” will, it is quite lively and engaging.
He presents a brilliant synthesis of the best thoughts about man as he relates to the production, exchange, and distribution of goods in society, drawn from everyone from Aristotle straight through to the Austrian school. He manages to do so in a briskly moving book that hits enough depth to give experts room to don deep-sea scuba gear and go exploring, while allowing the amateur to merely dip their toes into the water without plumbing the deeps (many of the technical details and formulas are relegated to chapter endnotes, which are quite extensive). An important facet of this book is that Mueller considers economics to be a field of study that is not set apart from the understanding of man, what man is, and what makes him good. In this book you will find man considered as a moral agent, not merely as an economic agent, (or maybe that in principle being an economic agent just is acting as a moral agent, whether you want to or not).
Fundamentally, Mueller is claiming that instead of just 2 basic economic functions with which Adam Smith tried to simplify economic theory (production and exchange) which is called “classic” economics, or the 3 functions that the “neoclassics” claimed (adding utility into the 2 Smith allowed), there are 4 functions necessary for adequate understanding – the 3 above plus the “distribution function.” Augustine recognized this in his own thought on the meaning of goods in the world, and St. Thomas picked up on it, added clarifications, and later scholastics developed the concepts still more. Adam Smith simply chucked 2 of the required functions, in order to simplify and because he was ideologically committed to a view of man that did not permit them. According to Mueller, Adam Smith was a Stoic, (not a Christian at all), and while he accepted that men would make so-called choices for personal gain, at root he thought man is constrained to those choices by the “world spirit” which aims at a different goal than what the individual men aim at (the so-called “dead hand”).
To go into the 4 functions in a little detail: production: choices made so as to produce something (either an object or a service);
Exchange: choices made as to give up one thing for another;
Utility: the conditions that determine willingness to exchange at determinate amounts;
Distribution: choices as consuming a good or to give it to another (or to take it from another – crime is subject to modeling by such a “distribution function”)
The importance of the last, the distribution function, cannot be ignored by anyone who has a family and raises kids, it is always necessary to constantly make choices about who is to get which resources you have, be it bedrooms or the last cookie in the package after everyone has had 2, not just by the philanthropist giving to a university. The fact is that economics generally has ignored this as largely unimportant, and generally the theories are unable to account for different actual real-world results because of it. Mr. Mueller identifies that theory needs to take up the 4 functions in each of 3 different levels of approach: the level of the individual person, the level of the family and/or the business firm, and the level of the whole polity. While a complete system will integrate all of these together, each level can be studied somewhat on its own for important development.
Mueller takes up Augustine’s theory of use and enjoyment of things in the world (to put it simply: that THINGS are to be used for the final good, and only the final good is to be enjoyed properly speaking), and lays it out in terms an economist will understand. He adds in significant doses of more modern thought, such as Leo XIII’s addition to economics, including the fundamental claim of both capital and labor to a portion of the profits of production. Augustine initiated and JPII improved upon understanding the choice to love and serve persons as such, identifying persons as ends and not as means to be used, rather than choosing to love pleasure or physical goods as final ends. Here are some of the noteworthy distinctions he mentions or explains, sometimes with breathtaking briefness.
The difference between properly public goods and “quasi-public” goods. Public goods are those that are enjoyed equally by all persons in the polity, not by some only. An easy one to point to would be: safety. Everyone benefits from having a safe city (even criminals). Quasi-public goods, on the other hand, can benefit some groups without benefiting everyone. A tax deduction for solar panels might be good public policy, but its direct benefit is only to those who can manage to put up panels. A road is always in a specific place, and it can greatly benefit those who live near it or pass over it, but it does not directly benefit those who will never drive on it. The advantage of distinguishing these kinds of state objectives is this: we commonly think of some goods as things we have a “right” to, and that the state is obliged to work to make come to fruition. Normally these will be “public” goods properly so-called. If all goals of the state are thrown in together under the notion “public goods”, one will miss the fact that there are legitimate objects of the state that not everyone will enjoy equally, and that are not actually “rights” as we usually think of them. (This can fall as hard on some pet conservative wishes for state subsidy as on liberal ones, which Mueller is quick to point out.)
Another: We are called to express 2 kinds of good will toward men, distinguished as benevolence and beneficence. Since physical goods are limited and finite (or “scarce”), it is impossible to give of your substance literally to every person in the world and actually improve their lot. But it is possible to will the good for every person in the world, especially the highest good of all, union with God, as such good will is not a material thing. On the other hand, it is possible to do a corporally good work for some men, without doing it for all men, and this is how we undertake to consider the use of our worldly goods.
In the story of the Good Samaritan, Christ does not have the good guy give everything he has for the injured victim, nor even half his wealth: love of neighbor is pegged with a limiting standard. The Good Sam gives the inn-keeper a certain reasonable amount, measured to the victim’s immediate need, and not everything.
[I suggest that to understand this, first, a “neighbor” is, literally, someone near you. Not everybody is near you. Moreover, some are very near while others are less near. St. Thomas explains, then, that those who are nearer have a greater call on your generosity. Secondly, Christ’s expression of the second great commandment uses a benchmark to understand how to love your neighbor: as yourself. Not that you love your neighbor in EXACTLY the same way as you love yourself (or you would feed him when you are hungry, or take a bath when he is filthy), as he is not you; rather, love him on the same basis as you love yourself: as a person made in the image of God. Taking these two together, then, you properly take good care of yourself out of love for God’s image in you, and you take care of your spouse and family who are almost a second skin to you, and you take care of your extended family, neighbors in lesser ways, and so on. Mueller uses a great example using the philosopher Peter Singer, whose philosophy denies this explicitly (claiming instead that nearness is irrelevant), but who actually carries this Christian perspective of differentiated beneficence out in practice rather than practicing his own (incoherent) philosophical teachings in distributing wealth. ]
By the way, the difference between benevolence and beneficence, I think, helps solve an earlier debate here, about whether for-profit exchanges in the market of themselves hold a predisposition toward greed and disorder, toward love of neighbor, or are basically neutral. I think that Mr. Mueller would say that while for profit exchanges always leave room for greed, they are not bent that way naturally: the mere fact of the exchange being essentially voluntary makes an underlying benevolence between the two parties the normal model of transaction, in which outright gift is not intended (so there is no formal beneficence), but indirect beneficence is implicit: He is doing me good by granting to me something, a box of X, that I need more than I need $10, while I am doing him good by granting him $10 which he values more than he values that surplus box of X (using marginal valuation principles).
Another critical point Mueller makes is that having children isn’t merely a moral and spiritual choice, it is a social and economic one: if labor is essential to the successful transformation of capital assets into new wealth, then getting and preparing a new generation of labor is essential to the economy. Thus to fairly deal with labor as a whole, the state needs to think about labor-generating in ways like to how it thinks about promotion of capital put into production. Just as having entrepreneurs making jobs is critical to an economy, having families make children is necessary to the economy. A social and economic model that relegates children to a barely acceptable afterthought (witness some European countries with a far below replacement level fertility rate) is a social model fraught with long-term economic suicide.
So far, one might suspect that (a) I agree with everything Mueller says, and that (b) he is a dyed in the wool, maybe even knee-jerk conservative. Neither would be accurate. As to the first, there are some places in the book where Mueller’s argument is pretty thin. I cannot tell whether this is because he (as he does repeatedly) is just presenting as a terse one-paragraph summary a hint of a long, well-developed concept that he could write a lengthy essay on, or whether he is really being somewhat cursory in his own analysis because he has not yet considered a matter in full detail. To take one example, I mention that he employs Leo XIII’s teaching that both labor and the capitalist are due a portion of the profits from production of new wealth. In fact he more or less mentions it and moves on without any development. What Mueller does NOT do is get into any kind of careful discussion of the relative allocation. At one point, somewhat well along in the book, he makes what appears to be a descriptive comment that globally (across different times and industries) the allocation seems to be about 2/3 to labor and 1/3 to capital. Then he seems to consider that as sufficient to indicate a sort of normative way to allocate profits. I feel that this is being just a little glib: in addition to the obvious practical problem that some means of production are simply much more labor intensive than others (so that perhaps in some industries the allocation should differ greatly some others), there is the grittier problem that there is little reason to think, in general, that the market has been just and fair between labor and capital, so there is no basis for thinking the historical average represents justice. At least not without a much heavier-hitting argument than a mere allusion to an historical average. And generally I tend to think the average of the just allocation is much heavier toward labor than that.
Unlike most conservatives, (especially knee-jerk ones), Mr. Mueller is not unhappy with the prospect of generational wealth transfers, such as through taxes. He starts out with a basic, almost blindingly obvious truth, that generational wealth transfer is an utterly necessary part of human life: parents pay for children for 20 years. Then he makes an argument (briefly, frustratingly so) that a socially constructed generational wealth transfer arrangement for the elderly is also reasonable, and provides somewhat more in depth an argument for being wary of trying to provide basic care for the elderly out of their earlier savings rather than out of direct pay-as-you-go transfers like Social Security: such a savings arrangement of necessity withholds wealth that would otherwise be available to put into raising and training “new labor”, i.e. children, and it is arguable that there is actually a better overall return on having children than on saving the money until retirement. I am pretty sure I think that this oversimplifies the human perspective, but it is a very pro-life, pro-human, pro-creative sort of position. In any case, Mr. Mueller is strongly in favor of Social Security once it is reformed by proper attention to all 4 of the functions necessary for economics. And this represents an overall principle: the state needs to consider the work of producing and preparing and maintaining labor on a similar footing as that of capital, and must treat both equitably. Champions of laborers should feel pleased with Mueller’s overall treatment, though they may carp at the details.
Perhaps the most controversial policy conclusions Mr. Mueller comes to are in the political arena of monetary policy and global finance. He explains (briefly, as he does everything else) the international monetary reliance on the dollar as a unit of exchange, involving foreign exchange reserves, as being roughly comparable (in larger scale) to domestic fractional reserve banking – i.e. just inventing new dollars out of thin air to lend to other countries for their “reserves”. The whole arrangement is, according to him, fundamentally unstable and is directly the cause of our wild cycles of bubbles and bursts that we get in our economy. I had a general, vague sense that this was the case, though quite without the detailed knowledge Mueller has to back up the opinion. Mueller’s solution is to simply go back to the gold standard. The point is not that there is something abstractly essential to gold, but that there needs to be a real, actual thing of (somewhat stable) value as the linchpin underlying all the money, i.e. all the promises of future value transfers. (Personally, I wonder whether we could construct a system based on several metals instead of just one as the underlying referent of value, say gold, platinum, rhodium, iridium, and osmium. Consider a “standard” bullion of 10 kilos, made up of 20% of each metal. I would think that this would be more stable – as the world production or practical use of just one of them changed the others would tend to dampen out the swings in value. But obviously such a concept is even more debatable than simply a return to a hard currency.) In any case, he backs up his argument with analysis of long term economic activity related to monetary policy (all the way back to the 1700’s).
It will take real economists with access to tons of data to take on John Mueller’s thesis and validate (or disprove) his claims in detail. He presents plenty of cold, hard analysis for economists to sink their teeth into, his thesis is utterly “falsifiable” in that sense. If they think he is nutty, they can get to work and run the numbers to show that he is wrong. But he deserves their attention, he deserves their putting that time in to check his claims.
For my part, I strongly recommend that our readers to take a glance at John Mueller’s “Redeeming Economics.” Even if you are not heavily inclined to economics, this book is worthwhile because it gives excellent insights into human social nature, and because it is written with the intelligent layman in mind, any person who is ready to read analytically and critically – virtually the DEFINITION of W4 readers.