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The "Reality-Based" Community Is Divorced From Reality

There has been much written recently in the blogosphere about the minimum wage given President Obama's call to raise the federal minimum from $7.25 an hour to $9.00. This follows the President's call for federal funding for universal preschool programs in the United States, supposedly because we "know" that such programs produce beneficial outcomes in kids who are in the programs versus kids who were never enrolled. Never mind that the evidence shows no such thing -- all we know is that a few, well-funded and unique preschool programs have been able to help a select group of kids -- no massive federal program has ever been shown to do the same.

Likewise, when it comes to the minimum wage, for some reason politicians, writers for magazines like The American Conservative Liberal, and even some economists insist on arguing for a minium wage even when both theory and evidence repeatedlty demonstrate that raising the wage will only hurt the employment prospects (and earnings potential) of teenagers and the low-skilled in general.

Now, all of this is amusing given the Left's so-called committment to "empirical evidence" and "science" and "just doing whatever works." In point of fact, Head Start doesn't work -- did President Obama propose to end it during his State of the Union speech? In point of fact, raising the minimum wage doesn't work to help teenage or low-skilled workers -- so why are Leftists pretending it does?

Finally, I thought I might use this post to answer one of our frequent critics/commenters who recently asked Paul in a comment:

"Indeed, only yesterday I read Krugman arguing for minimum wage increase on precisely this ground that people are not commodities that we simply apply supply and demand to them and their labor. I did think that there was weight in his argument. But on the Right, Krugman is routinely derided. So would you apply your own insight to the issue political economy of minimum wage?"

I will not pretend to speak for Paul, so do not take this post as anything other than my thoughts on this matter and my thoughts alone. However, I think many of us on the Right refuse to take Krugman the columnist seriously because he regularly uses his column to promote a tendentious understanding of basic economic and public policy ideas and he fails to treat his opponments with respect.

As for whether or not "people are commodities" -- of course I reject that characterization -- but that doesn't mean I don't believe there isn't a market for people's labor (i.e. the laws of supply and demand don't magically go away when we are talking about the market for labor). However, I acknowledge that there may be a prudential role for the government to get involved in this market to promote the common good, if it can do so without doing more harm than good.

BUT, the central libertarian critique of government intervention in markets is persuasive to me NOT due to their ideology, which I reject, but because they are so convincing when it comes down to the question of prudence -- the libertarians are usually right when it comes to the evidence about the efficacy of government action, or even worse, rhetoric about a problem versus market actors leff on their own (with only the most basic regulations in place to govern their transactions). So to answer you question, no I give no weight to the argument and think minimum wage laws are foolish and attack a problem that does not exist.

Any other questions?

Comments (55)

Your last link isn't working, maybe it's unemployed. I actually agreed with one of the NR commentators, which never happens, that Obama's proposal was more about providing free daycare for single parents. Which is based on the reality of being a divorced or never married parent and being unable to find work because of childcare demands.

Step 2,

Thanks for catching that link problem -- I fixed it.

Of course, if Obama wanted to provide "free daycare for single parents", one would have hoped he would have argued for the merits of such a policy rather than hiding behind empirically false claims.

I was largely with you until you said that "minimum wage laws attack a problem that does not exist". The problem the minimum wage is intended to address—working poor folks holding multiple minimum-wage jobs and still not being able to make ends meet—does indeed exist. I personally know enough folks like that to be sure that this is neither a media-fueled fiction (like the Republican "war on women") or a rare event talked up to serve an agenda (like Sandy Hook). These folks really are out there, and they're not uncommon.

Of course, the fact that the problem exists doesn't mean that a minimum wage is the correct solution.

Peace,
--Peter

The thing that gets me about the idea to move minimum wage to $9 is the argument used. Right there in front of the nation, Obama says that at less than $9.00 per hour, a full-time worker makes less than $18,000, which is effectively below the poverty level, you can't live on that, and THAT'S UNACCEPTABLE.

Nowhere is there an attempt to say why it's unacceptable, because of course it means an argument about substantive matters that liberals can't really win. To wit: some workers ARE NOT independent, they don't rely on their wages to support them, and their skills are not worth $9.00 in revenue to their employer. They don't have to live below the poverty level on $7.25 per hour if they are being supported by their parents. They shouldn't expect to support themselves when they haven't yet learned the skills necessary to represent a solid benefit to an employer worth their wage in increased revenue (which is probably consistent with not yet having learned the skills of true independence in other areas as well, so they shouldn't be left independent even apart from the economic issue). Society shouldn't expect to treat unskilled youths as atomic individuals independent of the family. Of course liberals silently are fine with destroying yet another aspect of social coherence rooted in the family, they just don't want to say it out loud. Well, we should shout it out loud.

There are jobs that are worth a real wage to an employer, but simply don't benefit him to the tune of $9.00 per hour. Actually, $9 the employer spends on wages for a new employer implies an additional 40% or so in employer payroll taxes, unemployment insurance, health insurance, and other overhead. So the actual cost to employer is around $12.60. There are jobs that a 16 year old can do that will produce a revenue of $6 to $9 per hour for the employer, but not $12.60. (That's absent any profit, by the way). Raising the minimum wage simply means those jobs will dry up. The employer CANNOT employ the 16 year old for that job, he will lose his shirt in the attempt. (Nor can he employ a former drug addict 30 year old for the same job - it is not the age of the employee, it is the amount of revenue the labor will return.

As for the subsidized day care: If Obama wants to subsidize day care by paying mothers to stay at home and take care of their own children, I will support this "nanny state" program. It isn't truly conservative, but it would tend to help reverse a horrible trend that has destroyed the integral family, so a liberal program like that is slightly justifiable - temporarily. If most mothers were at home 95% of the time, preschool aged children wouldn't need pre-school programs at all, they would be fine without any program. Arguably, pre-school programs simply replace what was lost with moms entering the work force with the kid at age 1 or 2. Here's the good thing: given the cost trade-offs in unsubsidized day care, commuting, higher health care costs, higher food bills (and more meals at restaurants), and extra taxes (at least payroll, usually more), many working moms only net around 10-15k per year - only barely worth the headaches. Give them even a modest subsidy to do their own day care, and there are a fair number who would jump at the chance to do what they wanted all along.

Peter,

I suggest you check out that last link I just fixed in my post. If you do, you'll discover that of the 112,564,000 workers working full-time in this country (as of 2011) only 743,000 were working for the minimum wage (or 0.66%). So congratulations on knowing folks who by any standard criteria should be considered "uncommon."

Tony,

You make a number of excellent points, especially with respect to child care. I don't endorse everything this woman has to say, or her worldview, but she has some interesting things to say on the subject of universal preschool/child care and tends to agree with your take:

http://blog.penelopetrunk.com/2013/02/18/universal-preschool-is-bad-for-everyone/

I generally agree with the Austrians regarding practical problems.

It is like evolution--micro-evolution is sensible but macro is not.
Similarly, the libertarian ideas work in isolation but they approach to sheer nonsense when considered in larger political context.

"The American Conservative" is basically "The American Paleostinian," that's their organizing principle. everything else is window dressing.

funnily enough they share offices with "The American Prospect." anti-Israeli popular front i guess

How does Catholic social teaching inform the idea of a minimum wage? Doesn’t Catholicism support paying a fair wage to laborers (granting that people can argue quite a bit about what a “fair” wage is)?
I would like to see us (fat chance!) go back to a society where it’s normal for fathers to go out and earn a living and for mothers to stay home and raise the children. You would think that a fair wage would be consistent with this.
By the way, Ron Unz of TAC has proposed a high minimum wage ($12/ hour??, 14??) as a solution to the illegal alien problem.

By the way, Ron Unz of TAC has proposed a high minimum wage ($12/ hour??, 14??) as a solution to the illegal alien problem.

Employers of illegal aliens are already breaking the law by hiring them, so what is another law when it comes to paying them a lower than legal wage? This solution is as practical as thinking that someone already committed to murder is going to obey gun laws.

It's my opinion that minimum wage arguments arise from *the* central error of anti-market economic approaches--believing that we can make something out of nothing. For example, in the case of arguments for raising the minimum wage, the idea is that we can simply *make* it the case by good will that everyone makes at least x amount in real dollars and that the raise doesn't get eaten up by inflation, doesn't drive people out of the market who need jobs, and has more good consequences than bad. Hence, if we don't simply make it happen that all these people are employed for more real dollars, we must be lacking in good will or think that human beings are mere commodities whom we wish to exploit or something of the kind. Thomas Sowell hits the nail on the head with this type of thing: The vision of the anointed holds that there really are absolute solutions. Hence, if you don't support some proposed solution, or if you think it won't work out as intended, you must actually be a bad person.

The funny thing is that empirical outcomes, be they repeated ever so often, never seem to make the slightest dent in these beliefs. For example, the government has just declared that if you employ a worker 30 hours a week or more you must supply him with health insurance. *Absolutely predictably*, people are having their hours cut to just below 30 hours a week (and in the case of part-time college teachers, to even less than that, because it's impossible to calibrate hours exactly with class teaching loads) and hence ending up worse than before. I literally saw this called an "unexpected consequence" in one news article. No it isn't! Any free marketer worth his salt was predicting it _easily_ all along. But now it's unexpected. And of course, any employer who does this is viewed as evil, so the idea is just that we have to employ more punitive laws and rules to try to chase down the evil employers and force them to provide the benefit. That maybe we can't just make health-care support dollars out of nothing, and that this was the central error in the plan from the beginning, never occurs to the truly committed.

The minimum wage issue is exactly the same. The idea is that employers owe it to the world to employ all the same people, including the young and unskilled, at x level, that the real dollars can just be "found" somewhere and shifted over to the low-skill or beginning workers, and that all else will remain equal. Only *badness of heart* causes minimum wage laws not to work, so we'll keep trying them over and over again, however often they don't work the way we want them to.

Tony, I'm afraid I wouldn't support a plan to support women being at home with federal dollars. I think it sounds like a tar-baby. Let me add that in countries where there is such support, daycare or public schooling for the children *after* those couple or few years is *absolutely* expected, and women who don't go into the workforce at that point are considered pretty much bad citizens who have exploited the system and aren't "paying back." I think there's a reason for that--a sociological and perhaps even economic connection. There are other problems as well, such as to my mind the high probability, given everything else I've seen in the U.S., of greater governmental oversight of the home if being a homemaker is being directly subsidized.

believing that we can make something out of nothing.

Minimum wage laws are not making something out of nothing. It's making something out of legislation. Fiat bux!

H/T Zippy

I agree with Lydia. The best case is that the minimum wage causes a large temporary shock followed by a reversion to the status quo, just with higher numbers. The worst case is that people whose labor provides low marginal product suddenly find their jobs outlawed. Well, I guess for the left that isn't so bad, as it justifies a further expansion of the welfare state.

But if one believed the minimum wage were actually an efficacious policy (mind you, I'm not accusing any lefty of truly believing this), why $9? Why not $90? If we can legislate prosperity let's really go for it.

I remember back during the Bush years and the Iraq disaster when "Reality Based Community" had some justification behind it. It was a good line if nothing else. But oh how that has been squandered in the age of Obama. I guess it isn't surprising that it has been surreptitiously dropped.

why $9? Why not $90?

Matt,
I think they might say that people don’t need $90/hr to live on but they do need more than $7.25/hour.

Sure, they might say that, but of course there are lots of obvious answers. Here are a few:

1) You can't actually make them objectively richer simply by declaring that they must get $9 per hour, because the value of a dollar can and will change, and it will be partly changed _by_ the rise in the minimum wage. So it will all shake out in the not-too-distant future and swamp this rise in the minimum wage. Short version: You can't make something from nothing. You can't make people objectively more prosperous by legislative fiat.

2) There needs to be a place in our society for jobs for people who don't need to live on what they make, such as young people doing starter jobs or people working part-time. By raising the minimum wage across the board, you disregard the very existence of such people and make it likely that they will be locked out of the job market. That, in turn, will make it harder for them to get jobs later, because they will lack experience that they could have gotten with high school part-time jobs.

3) It's quite difficult to live on $9 per hour anyway, and as for supporting a family on that wage with a single wage-earner, pretty much impossible, even if the wage-earner can find a full-time job of 40 hours per week.

4) People who do need to support themselves or a family by working minimum-wage jobs need as many options as possible. The more you raise the minimum wage, the more you restrict options for them. It's not joyous to piece together several part-time jobs to make a go of life, but it's good if at least those jobs are there _to_ piece together. If employers are motivated to cut out such jobs, even the people who (unlike the teenagers) were using them as part of their livelihood are likely to suffer and be driven further into dependency on government handouts.

Lydia, I was being at least partly facetious in my "proposal", since Obama and the rest of the left wouldn't remotely consider the idea. Yeah, I agree it would have all those problems.

How does Catholic social teaching inform the idea of a minimum wage?

Bruce, if you mean true, principled teaching, it says it's not a good idea. If you mean "social teaching according to bleeding heart fools and clergy", probably half of them support it.

The encyclicals, from Rerum Novarum to Centessimus Annus, make it clear that private property is a deep, gravely important principle of human society and thus a free system of exchange of goods, and of goods for services, is implied by the natural law. Free means what it sounds like, free: you should not constrain agreements to exchange by outside parameters that unwind the very principles of the system. The minimum wage does this: it makes it impossible for an employer to freely employ a person for a job that returns less in revenue than that minimum wage. Which also damages the capacity of other exchanges to fairly and appropriately find their natural price of equal value.

To the problem of having bread-winners and family men earning below a family-supporting wage, the solution is not to pass a law paying them more. The solution is to (a) arrange better possibility (better incentives, better human virtues, and thus better opportunities of gaining these) of such persons actually performing the requirements of jobs that generate the comparable revenue, and (b) arrange for there to be enough jobs that actually generate comparable revenue for all those who are both willing and able to perform such work as will support their living wage. NEITHER of these mechanisms is properly pushed by a minimum wage.

Doesn’t Catholicism support paying a fair wage to laborers

Yes, but note: Catholicism does not support paying a LIVING wage to each and every individual. A fair wage is never, never a wage that exceeds the amount of revenue benefit to the employer from that very job (on a general basis, not on an hour by hour basis). If a job is only worth $3/h in what it generates, it is not worth a $4/h wage no matter how many people the worker has to support.

The "living wage" theorists are flat wrong about the theory when they apply it to every worker. Society is never has been and never will be organized in such a way that each person available for work needs to support his own livelihood by that work, and therefore there is no principled basis to apply a "living wage" concept across the board. The people who are unskilled, mentally handicapped, and otherwise unable to help produce much wealth with their labor should not expect the wage system to be dis-organized to support them anyway, doing so distorts the rest of the market. Their support should normally come in other forms of social arrangement, such as families, churches, and community centers. That's what principled Catholic teaching says.

Minimum wage and other such laws may make no sense in a society run by Catholic principles but in a capitalist society, there are other possibilities. There it may be possible for a capitalist to gather a revenue of 50$ by a worker and pay him only $5.
I do think the Church allows for worker exploitation in capitalist societies.

Note: "capitalist" is meant in Chestertonian sense.

Thanks for the reply Tony. It seems to me that a Catholic tycoon might be morally obliged to pay a fair/just wage and doing so for a father supporting a family might be an act of charity. But maybe it's an entirely different thing for government to force a minimum wage.

Employers of illegal aliens are already breaking the law by hiring them, so what is another law when it comes to paying them a lower than legal wage?

Well you can read the whole thing if you want:

http://www.theamericanconservative.com/articles/immigration-republicans-and-the-end-of-white-america-singlepage/

It's only about 10,000,000 words after all.

But basically the argument is that farm jobs of the type done by illegal immigrants are jobs that Americans don't want to do. Unz puts it in terms of money--the jobs don't pay enough at the current minimum wage, so we should raise minimum wage to make them more attractive.

Unz doesn't actually care about illegal immigration so it's all a little disingenuous, but he does have a point. The primary conflict is of Americans being unwilling to work these jobs for the wages offered, not that Americans are willing but the jobs are not profitable to employers because of the minimum wage. I think it's a little simplistic though. The unwillingness to work farm and meatpacking jobs from Americans stems from a lot of cultural and logistical factors as well as the simple economic calculation that Unz focuses on. In the past, farm jobs could be done by high school or college kids on a break or part time. For a young American today though, why would they work a rather lousy job that will earn him negative respect from his peers, in a field that he probably doesn't have any connection with anyway (how many people grow up near farms anymore)?

Some legal reforms would be useful. Relaxing child labor laws, minimum wage laws, maybe even anti-discrimination laws. But I don't see those things directly leading to people jettisoning their disdain of manual labor and the people who perform it, or recreating the kind of society where spending summers working on a local farm is just something most normal people could be expected to do at some point.

One could just as easily argue that raising minimum wage will motivate _more_ employers to hire illegals. If doing it the legal way is going to be made more expensive and they can get away with doing it the illegal way (as many of them can) by hiring illegals, it becomes more attractive to do the latter when the minimum wage is higher. There is no "minimum illegal wage," so the wage they could pay to illegals won't go up while the wage they would have to pay to hire Americans will go up. One cay say that is simplistic reasoning as well, but it makes to my mind *at least* as much sense as--okay, I think it makes _more_ sense than saying that raising the minimum wage will reduce the hiring of illegal immigrants by attracting more Americans to the jobs.

"their disdain of manual labor and the people who perform it":

This is an attitude that Americans would do well to shake off. This type of work, by the sweat of one's brow, has great inherent dignity, and while perhaps, due to increasing mechanisation, it is of modest economic value, it should be greatly respected.

One cay say that is simplistic reasoning as well, but it makes to my mind *at least* as much sense as--okay, I think it makes _more_ sense than saying that raising the minimum wage will reduce the hiring of illegal immigrants by attracting more Americans to the jobs.

No, Lydia, what you suggest is not just probable, it does in fact happen. One has to wonder at the moral sense of the politician proposing the opposite: is he angling to cause an increase in illegal immigration? Is he proposing this on account of a damaged economy causing a drop in illegals coming here for work?

but in a capitalist society, there are other possibilities. There it may be possible for a capitalist to gather a revenue of 50$ by a worker and pay him only $5.

Gian, there are all sorts of possibilities, and somewhere I am sure you will find isolated instances of almost everything. In practice, though, we have neither a pure unrestrained "capitalist" system nor a pure "socialist" system, but a mixed system that partakes of features of both. There is certainly a significant amount of restraint on the markets by law, but at least in America only some services are rendered by government-controlled entities. (Utilities, roads, and police protection are the major ones.)

It seems to me that a Catholic tycoon might be morally obliged to pay a fair/just wage and doing so for a father supporting a family might be an act of charity. But maybe it's an entirely different thing for government to force a minimum wage.

Bruce, you are right to point out that having government set the minimum wage is completely different from the wage coming from the private sector.

I have said it before, but I will repeat it: for a good, moral, Christian employer, he would generally aim to match up the talent and industriousness of an employee, the job the employee is asked to do, and the responsibilities the employee must satisfy outside of work. Such a coordination of levels cannot be done without active cooperation between the employee and the employer. If an employee has a growing family, he better (in terms of basic human responsibility) be the sort of person who is actually capable of handling a growing family (some people are not). And if he can meet such responsibilities at home, he should be similarly capable of such responsibilities and tasks at work - or get educated so he is. A smart and humane employer would WANT to employ all of his skills and capabilities, thereby getting the most possible use out of him, and thus would WANT to make sure he is doing a job that challenges his capabilities without exceeding them. And such a job, in the normal course, should also be pulling in for the employer sufficient revenue that the employer could pay that employee a wage that is suited to supporting that growing family (and still have profit left over). If the employer cannot find such a job for the employee that uses all his talents, that employer either is not sufficiently skilled (or efficient) in managing the marketplace of labor, or he is not a good employer for this particular employee, and the employee should look elsewhere for a job, find a boss/manager who DOES know how to provide meaningful work for him. In the ideal economy, there are enough jobs around demanding that kind of family-supporting level of responsibilities, and employers should be trying to design their business systems to create josb of that size in their companies, jobs that match responsibilities in the job (and thus to responsibilities at home) to remuneration levels. However, ALL of that requires that people choose, of their own free will, to align their home levels of need/requirements with the level of output they are planning to give at work. And to learn/grow their personal capacity for work to be capable of that.

But basically the argument is that farm jobs of the type done by illegal immigrants are jobs that Americans don't want to do. Unz puts it in terms of money--the jobs don't pay enough at the current minimum wage, so we should raise minimum wage to make them more attractive.

Unz doesn't actually care about illegal immigration so it's all a little disingenuous, but he does have a point. The primary conflict is of Americans being unwilling to work these jobs for the wages offered, not that Americans are willing but the jobs are not profitable to employers because of the minimum wage...For a young American today though, why would they work a rather lousy job that will earn him negative respect from his peers, in a field that he probably doesn't have any connection with anyway (how many people grow up near farms anymore)?

If there were no minimum wage, and there were strictly enforced immigration law, farmers and American laborers would in fact work out an equilibrium point for the labor. For jobs that few are willing to do at low price, a prospective employer will either raise his wage offered or do without. Whether that's $2.50/hr or $12.00/hr, he faces the same basic mechanism, either he figures out how to reconstruct the job so it generates enough revenue to attract a laborer, or do it himself (in effect making himself poorly paid for scut work).

All the other social factors will eventually meld to provide a consistent result. There is not really all that much social price to being a menial worker on a farm that buying everyone a round of beer won't help solve, and that means the social price is amenable to the wage offered.

One of the important problem aspects of law setting minimum wage is the way it ignores the bedrock fact that the marketplace of goods and services is not a perfect, uniform market. It veritably consists of variation up and down all over the place. Take a simple barter arrangement offered on Craigslist: someone is willing to part with a boat, they want a motorcycle in return. Let's say that eventually a barter partner is found: a 6 yr old Waverunner for a 3 yr old 750 cc Honda. It turns out that the boat-seller is willing to part with it because he is moving away from his home near the shore, and he knows his opportunities to use it will be lower than before - the boat is worth less than it used to be TO HIM. The motorcycle owner hurt his ankle 6 months ago, and the doctor says he may never regain adequate use of it to ride the bike again - so the value TO HIM for the bike is lowered. IN each case, the value changed not from market conditions, but from personal conditions. In each case, some other kind of recreation vehicle became more attractive, more valued. The exchange was easy. For each party, the machine they gave up was worth less than the machine they got.

However, if you checked with "price experts", the so-called "price" of the boat should have been higher than the price of the motorcycle. So, what happened? Did the boat owner lose? No, the "real, actual" market price is always just an average of many, many actual sale transactions, some higher, some lower. The fact that someone is an outlier on the list of sale exchanges does not mean it was a bad transaction. It was fine, if both people got something they valued at least as much as how they valued what they gave up. And that is inherently subject to variation from person to person. To a potato farmer who has a barn full of potatoes, he isn't going to be interested in receiving potatoes for some of his labor, he already has more than he can eat. To him, he would gladly give away potatoes that he won't eat - his excess - for some of a corn farmer's excess, but not for another potato farmer's so called "equal value" (in the market place) amount of potatoes. The value placed in the general market is the end result of trying to average a large number of past transactions for the object, and guesstimate from that average a relative equilibrium point - what people are likely to find an acceptable price - but in actual fact you find many people unwilling to buy at that price where they might be willing to buy at a lower price, and vice versa you also find many people buying at that price who might have been willing to buy at a slightly higher price too. The actual market of purchases shows continually that "the price" is not a price that everyone accepts, and some people would rather do without than buy at that price.

Same is true of labor. There isn't, and CAN'T BE, any minimum "true" value of an hour of labor. To a 12 year old given the chance of either riding bikes all Saturday with his friends, or helping Dad build a shed for 8 hours for $20 in return, some will chose to ride bikes, some to work on the shed. Few 18-year olds would choose the shed, but that's because they value their work-time differently.

the "real, actual" market price is always just an average of many, many actual sale transactions

And how it is related to the just price that Catholic tradition talks about?

Tony,
I give you an example. Suppose I want to buy something, say a used car. And I offer $1.
Then am I offering a just price? Are my intentions rightly ordered?

This example (with $0 instead of $1) was actually offered by an Austrian at Crisis site to illustrate price-discovery. The buyer begins with $0 and the seller actually or subconsciously wants $1 Trillion.
And they discover some price in the middle.

It was obvious in my mind that the market participants never do start (even subconsciously) with absurd extremes. They do have some idea of the just price and they bargain around that.

For a buyer to offer less than the just price in his mind would be to attempt to defraud the seller and same for the seller.

These disorders in the intention may not matter for the immediate price discovery but they would weaken the bonds of trust in a society.

Consider too the so-called price-gouging situation. In response to a sudden scarcity, the seller increases price of some essential good. Now, consider his intention. Does he intend at his own profit or does it intend the good of society (it is good that society be informed of the shortage and the goods go where they are most needed and not wasted otherwise)?

Either way he serves the society but if his intentions are not pure or rightly ordered, this weakens social bonds. And the purely economic models do not take this into account and thus are incomplete.

The buyers too need to have right intentions. Thus we appreciate the wisdom of the ancients that only the actions that intend at the good of the City are commendable.

Consider too the so-called price-gouging situation. In response to a sudden scarcity, the seller increases price of some essential good.

I suppose you think it's obviously better if the seller simply sells away what supply he has, at the price extant prior to the scarcity, to the first handful of buyers? Since the price system is nothing but capitalist imposture, maybe it ought to be distant bureaucrats setting the prices. They'll surely do better.

Now, consider his intention. Does he intend at his own profit or does it intend the good of society?

A mixture of both, I'd guess. Since when does the Christian philosophy posit unmixed motives?

I will note that, at least in America, whenever grave disaster strikes, there is an almost instant surge in individuals and firms simply giving away basic necessities. Not infrequently these nefarious economic agents are able to deliver the goods faster than the beloved State with all its apparatus of compassionate bureaucrats.

And how it is related to the just price that Catholic tradition talks about?

I am unaware of a "just price" tradition for exchanges of goods, other than the more general traditional teaching: do what is just.

I give you an example. Suppose I want to buy something, say a used car. And I offer $1. Then am I offering a just price? Are my intentions rightly ordered?

(a) there are some used cars that are worth just that, $1. Offering that is just. (b) Offering isn't completing a sale. It is an initial stage toward a sale. It is not an ill-conceived first stage unless it is intentionally designed to arrive at an known unjust final result.

It was obvious ...They do have some idea of the just price and they bargain around that.

Correction: they have some idea of the going price that consists of a middling value of the large bulk of transactions for that object. In many ways "the going price" is, exactly, a fair approximation of a just result - more so, the evener playing field is, i.e. the more both parties have full knowledge of all factors, and are free to buy or not buy, etc. Notice how well that fits in with the general definition of the free human act: having due knowledge of the conditions, not being coerced or constrained, etc.

For a buyer to offer less than the just price in his mind would be to attempt to defraud the seller and same for the seller.

You are assuming either (1) a situation where the transaction is explicitly a straight-up, take-it-or-leave-it proposition with the first offer, or (2) the buyer is constrained in some way so that he is not free to make a counter-offer (and thus the take-it-or-leave-it is implicit). But that's just saying that the transaction is not truly free. Yes, the more an exchange departs from a freely consented act, the more the participants must make special efforts to avoid evil intentions added thereto. Like, for instance, a person selling water bottles after a hurricane and fresh running water is knocked out - he will have a harder time figuring out how to price his water without immoral gouging. There can be legitimate reasons to raise the price somewhat, (increased cost of getting the water because he has to drive 30 miles for it) without gouging. The "fair price" is changed by extant conditions even apart from the fact that people will literally kill if they can't get some any other way.

And the purely economic models do not take this into account and thus are incomplete.

If you mean the models that ignore man as a moral creature, I agree. That's one of the reasons I and others at this site have taken the Austrians to task so often. I have never said that the ONLY condition for a "fair" price is that the 2 parties agree on the price. Other factors come in, and factors that constrain one party (scarcity of water) is something that will affect the approach to a fair price.

Now, consider his intention. Does he intend at his own profit or does it intend the good of society?

You are placing the question as an unnecessary opposition. Admittedly, many agents in the market act as if that's the only way to look at the question - it's either my gain and their loss, or it's their gain and my loss. But that is a fundamentally naive (and finally incoherent) view of social man in his economic sphere. When Bob has more potatoes than he can use for himself, and Pete has more lumber than he can use himself, they exchange their own excess (which they each value less than the part that is not excess) for the other's excess goods. The exchange does BOTH of them good, they are both better off after than before. Since Pete got potatoes worth more (to him) than his excess lumber was to him, he gains by the exchange. Since Bill got lumber worth more (to him) than the excess potatoes he wasn't going to eat no matter what, he gains by the exchange. Win-win is the essence of useful (and just) exchange.

In general, in a fair marketplace when people make free exchanges, each party makes an assumption that the other party knows what he is doing and can adequately measure his own best interests. It is when information is being hidden, and the form of the goods is being disguised to prevent real knowledge, that the exchange is not reasonable and (at least) one party is guilty of unjust practices (see: derivatives). Or, when the marketplace itself is being skewed by major factors, such as government (minimum wage, forced payments for things many people don't want), or implicit monopolies, that too creates injustices - the people are NOT FREE to make rational choices for their own interest, they are not free to properly find and express the value they would have for a good independent of unnaturally constrained circumstances. It's not a free market.

But to get back to the false dichotomy: in principle, pursuing the best price you can get while following all of the other just principles needed for truly free exchanges - including giving each other full knowledge of the conditions, not constraining people's choices, etc - also lends toward overall market efficiency and thus to the common good. That is to say, within certain limits, seeking a good deal is part and parcel with the common good represented by a free marketplace.

By the way, Gian: use are using the word "capitalism" with a built-in equivocation. You should stop that. On the one hand, sometimes capitalism simply refers to the concept of careful accumulation (investment) of tools and other resources as the means of making more goods, and the efficient application of many laborers to that accumulation, where both the investor and the laborer are due a part of the new wealth generated. That's generic "capitalism" without any added accretions or connotations. In this sense, the term itself implies neither that the investing and laboring is well done nor that it is abusive, it is neutral and allows both possibilities. It neither implies that it is done on grand scales nor on small, it describes either. It neither implies the investor works mainly in goods nor mainly in money, it can be anything.

Then there is the other sense, a system of unrestrained power in the hands of investors to manipulate the marketplace and the government, where investing is mainly in terms of money simply making more money without any further object (especially, speculating and high-end banking, and ever-enlarging corporations swallowing up small entities). This "finance capitalism" is one of the possible ways the generic capitalism can play out, but not the only one, and so it is described by more terms, the accretion of more words like "finance" to distinguish it.

Practically everyone at this site agrees that the latter form of capitalism is bad. Using that fact to smear the notion "capitalism" with a hated connotation of greed and rapaciousness is an equivocation that will damage the ability to speak clearly and advance the discussion. So don't do it.

Tony
1) Capitalism I always mean in the sense of Chesterton-an economic system dominated by large employers and where ordinary people are generally employed in great concerns.

2) Win-win is the essence of useful (and just) exchange
This is the economic orthodoxy. The critique is in that the self-seeking exchanges are vitiated. Your Bob and Pete are intent on their personal good only. The good of the second party is merely incidental.
This, ancients held and it was held till the trans-valuation of 18C that launched the Industrial Age, is not conducive to the social cohesion. Private vice does not transmute to social virtue.

The City can not be built out of self-seeking behavior. Tocqueville had commented that Americans were better than their philosophy. The ideal was self-interest but the practice was sacrifice.

3) The commandment to love the neighbor is not abrogated in commercial transactions. It may sound hopelessly naive but it is the only way to built a lasting society, i.e. lasting more than a few generations. You have to think why the self-interested behavior was severely censured in all known societies.

Paul Cella,
I am aware of the your point. In fact, I had it down in the next line itself that you apparently did not read.
it is good that society be informed of the shortage and the goods go where they are most needed and not wasted otherwise.

there is an almost instant surge in individuals and firms simply giving away basic necessities
See Tocqueville note above. Americans are better than their official philosophy.

Capitalism I always mean in the sense of Chesterton-an economic system dominated by large employers and where ordinary people are generally employed in great concerns.

Does the state count? In our capitalism it is more than an enormous employer; its accumulated capital (in pension funds, bond issues, appropriations, etc) forms the framework of our disordered securities trade, which leads our whole political economy by its nose.

Chesterton, by the way, knew little about securities, economic modeling, or modern corporate governance. Applying his wisdom to modern circumstances requires some considerable effort: not least because one has to gain knowledge and understanding of the current working-out of our political economy before one can bring the Chestertonian insights to bear.

The City can not be built out of self-seeking behavior.

Who said it can? Where in the American system is so base a notion expounded? Where is it in six purposes of the Constitution -- union, justice, tranquility, defense, welfare, and the blessings of liberty? Where do we hear of it in Lincoln's Lyceum Address, or his Temperance Address, or his Inaugurals? Where is it in the discipline and integrity of Silent Cal? Where do we see Reagan constructing a theory of America as premised purely on self-seeking behavior?

I suspect you are again engaging in a reductionism that springs from your bitter disagreements with certain latter-day espousers of conservative views. To that I can only repeat that we're not here to answer for latter-day espousers of those views.

This is the economic orthodoxy. The critique is in that the self-seeking exchanges are vitiated. Your Bob and Pete are intent on their personal good only. The good of the second party is merely incidental. This, ancients held and it was held till the trans-valuation of 18C that launched the Industrial Age, is not conducive to the social cohesion.

Well, you're wrong. It is possible for both Bill and Pete to enter into the described exchange with hatred for each other and finalize the deal out of self-love alone, but nothing about the form of the exchange requires it. Likewise, it is possible for both of them to enter into the exact same exchange with high friendship for each other, and only agree to the exchange when they are convinced their friend isn't merely willing to accept the terms of a not-so-great deal, but is eager to accept the deal as being clearly better for both parties. In the latter situation, the friendship is strengthened and their love is employed in mutual benefit. THE FORM OF THE EXCHANGE does not preclude either option, it is (at worst)* neutral to that, it is what is in the heart of these men that determines whether the described exchange is for love or for greed.

What I have described is the very core of all true partnerships that ever existed (whether pre- or post-capitalism, whether formalized in express terms or informal, whether long-lasting or ad-hoc momentary partnerships for one specific goal). The fact that both parties benefit more than they would have acting alone, and both parties are capable of foreseeing and of willing both their own benefit as well as the other's benefit is part of what makes human nature to be SOCIAL, and likewise is what makes true charity to be a calling for every single person. It is, as well, what makes true marriage to be a holy joy: each spouse delights in giving and being given freely, with mutual benefit in constant attendance. The mutual benefit isn't accidental, nor is it the SOLE object, but rather it is intentional without being the only intention.

What Gian is describing is the least-common-denominator so-called "society" of a dog-eat-dog world, with only accidental gain ever being granted to another person, a world of greed gone wild. It is a world invented by demons, frankly. It not the vision of men like JPII, or Benedict XVI, who wrote as I have above about marriage and about society.

*[In fact, what we find (absent contravening external causes) in actual commerce, associations, and other joint endeavors, is that the more we engage in even accidentally mutually beneficial activities with another, the less likely is it that original hatred will remain - the sheer operation of finding and performing mutually beneficial actions, even if started out of self-love alone, generally breaks down barriers and results in a modicum of friendship. Man's social nature makes the backwards pressure from "doing together" from a pre-requisite "agreeing with each other" eventually implies "being agreeable to each other". ]

Well said, Tony.

That innate sociality is evident even in Adam Smith, a thinker I'm sure Gian detests. A particularly fascinating recent discussion of Smith in light of classical virtue is Ryan Patrick Hanley's book:

http://www.amazon.com/Smith-Character-Virtue-Patrick-Hanley/dp/0521449294

I second Paul's second of Tony's excellent comment. That both are better off and that this is a good thing, not a matter of "greed" but one type of social glue, is the central insight of much free-market thinking. It is opposed to zero-sum game thinking based on a kind of bizarre Kantian ethics that "it's only good if it hurts" and that no act that benefits oneself, done at all _because_ it benefits oneself, can be good.

As Tony points out, this sort of punitive ethics would make marriage and even much friendship impossible. In fact, the only good marriages would be bad marriages on such a view--in other words, the only marriages that would be virtuous would be those in which both spouses were unhappy, which they entered for the sake of suffering. Anything else would be regarded as "selfish" or "greedy."

This is the economic orthodoxy. The critique is in that the self-seeking exchanges are vitiated. Your Bob and Pete are intent on their personal good only.

Let me give you a real-world example of my own that shows otherwise. 10 years ago my first minivan was dying a slow death, and was no longer reliable, so I bought another car. At that time that meant we had 3 cars and only 2 drivers, so I wanted to unload the minivan. But I didn't want to junk it and get $100 for it, I figured it was worth more than that as long as it ran - an indeterminate period. However, I knew it was dying, and I couldn't imagine selling it to a complete stranger without telling him "well, it's transmission is slowly dying, there is no telling whether it will last 3 days or 2 years." Nor could I see a stranger buying such a car for any decent price with both of us being happy about the price, because of the large uncertainty. At best, I figured that the car should be worth between $50 and $100 per month of continued use, and I wasn't going to trust a complete stranger to keep paying me "as long as it worked". So I thought, I better sell it to a friend, who knows me and that I won't stiff him, and just let him pay me for each month it works. So I passed word around, and sure enough a friend had better use of the car than I did ( which was none), at $50 per month. I ended up getting a much better deal than taking it to a junk yard, and he ended up getting a much better deal than buying a more expensive car merely to be sure he wasn't getting ripped off. And that deal ONLY HAPPENED because of our friendship wherein we were satisfied that each party was looking out for each other as well as for ourselves.

If only you'd thought to securitize that exotic debt contract and sell it to a bank, Tony . . .

Now you tell me...

Lydia,
Self-interest, sufficiently enlightened, consists in common good.
Thus, looking out for another's good implies self-denial only in zero-sum situation.

You are told to love your neighbor, even though he is your customer. So how could you look at your own good merely and leaving his good to the invisible hand? His good must be your conscious intention.

And not merely his, otherwise we will get the situation where the remunerations of the Historian-politician were justified by many on the Right-that they signed a contract,
Or ruinous contracts of public sector unions with the City are justified, again by many on the Right-well, they signed the contract.

No, all contracts and transactions are vitiated when the common good i.e. the good of the State in not consciously intended. For most private contracts, it may not matter much, I suppose, but the principle must be kept.

Against, the baker of Adam Smith, we posit the the bridle-maker of Aristotle. "He aims at ease and agility in the cavalryman, the cavalryman at victory in war and victory in war at the freedom and glory of the polis. Each small action is connected through a long chain of final causality to the greater good."
The quote from the Emancipation of Avarice, Edward Skidelsky, First Things, May 2012.

Paul Cella,
What Gian is describing is the least-common-denominator so-called "society" of a dog-eat-dog world, with only accidental gain ever being granted to another person

Was this not the vision of Adam Smith?. However, I may be wrong if you say about this book and I would greatly appreciate if you could discuss this book in a post.

Paul Cella,
Chesterton knew how economists pervert reality by ignoring intentions. See this passage from the Utopia of Usurers, chap The War on Holidays:
The special emblematic Employer of to-day, especially the Model Employer (who is
the worst sort) has in his starved and evil heart a sincere hatred of
holidays. I do not mean that he necessarily wants all his workmen to
work until they drop; that only occurs when he happens to be stupid as
well as wicked. I do not mean to say that he is necessarily unwilling to
grant what he would call "decent hours of labour." He may treat men like
dirt; but if you want to make money, even out of dirt, you must let
it lie fallow by some rotation of rest. He may treat men as dogs, but
unless he is a lunatic he will for certain periods let sleeping dogs
lie.

But humane and reasonable hours for labour have nothing whatever to do
with the idea of holidays. It is not even a question of ten hours day
and eight-hours day; it is not a question of cutting down leisure to
the space necessary for food, sleep and exercise. If the modern employer
came to the conclusion, for some reason or other, that he could get most
out of his men by working them hard for only two hours a day, his whole
mental attitude would still be foreign and hostile to holidays. For his
whole mental attitude is that the passive time and the active time are
alike useful for him and his business
. All is, indeed, grist that
comes to his mill, including the millers. His slaves still serve him in
unconsciousness, as dogs still hunt in slumber.
--------------------------------------------------------------------------
we're not here to answer for latter-day espousers of those views.
But why not, since you defend the liberal economics against the Left, and do
so without acknowledging that the liberal economics has been critiqued from a Catholic
perspective as well.

Tony,
I do not see where you are disagreeing with me and why you call this wrong
ancients held and it was held till the trans-valuation of 18C that launched the Industrial Age, is not conducive to the social cohesion.
since you yourself say
both parties are capable of foreseeing and of willing both their own benefit as well as the other's benefit is part of what makes human nature to be SOCIAL

The mutual benefit isn't accidental, nor is it the SOLE object, but rather it is intentional without being the only intention

I agree but in the liberal economics following Adam Smith, the mutual benefit is supposed to be entirely accidental. This is the whole point of invisible hand-that self-interested behavior promotes public welfare.

I answer that materially it might, but spiritually, it would never and would weaken the social bonds leading to the decay of the society that promoted or condoned such actions.

So you simply can not reconcile Aquinas with Adam Smith, at least not so simply. You must presume bonds of friendship existing in the society along with self-interest seeking, At once you assume friendship, then self-interest is rendered moot.

Oh, baloney, friendship doesn't render self-interest moot. What nonsense. This is exactly the kind of zero-sum thinking I was talking about above. Tony and his friend worked out their deal on the van for reasons of _both_ self-interest and friendship. The friendship allowed them to trust each other, but the self-interest was the reason why they bothered with the transaction at all! That's why Tony didn't go to some friend who didn't need a van and say, "Hey, friend, why not sacrifice yourself for me by giving me two hundred bucks for a dying van you don't want? After all, we're friends, and friendship renders self-interest moot."

Gian, a philosophy prof of mine once told me that one of the problems with modern capitalist economics was that it concentrated almost exclusively on The Wealth of Nations while ignoring Smith's Theory of Moral Sentiments. Apparently there are some things in the latter work which temper the ideas in the former. I've never taken the time to verify that observation, but I can say that the prof in question was a conservative of the Richard Weaver/Russell Kirk type, and thus neither a Leftist market-basher nor a Right-liberal market-worshiper. IOW, he had no particular economic axe to grind.

You also may be aware that Edward Skidelsky has written a book with his father on the subject you mention called How Much is Enough?: Money and the Good Life. Also insightful is the chapter on economics in Brad Gregory's The Unintended Reformation.

Lydia,
But Tony was friends before the exchange. Exchanges in themselves have no tendency to produce friendship. Friendship, classically speaking, is born when two see the same truth, are possessed by this truth and adore it. Friendship is a spiritual thing and is embarrassed by material considerations.
Read Four Loves of CS Lewis.

Do we believe with Hayek that social order is a byproduct of the exchanges or that social order is prior and even defines what exchanges would take place?
Self-interest is a cultural--a Bedouin might regard having ten children as the greatest self-interest while an American liberal might regard the same as greatest burden.
For a Hindu self-interest might lie more in doing rites for the good rebirth of his ancestors.
So there is no way self-interest and thus exchanges for the pursuit of self-interest can be defined
prior to the social order in any way.
Hayek's is in class of evolutionary views. But those that think that the Perfect precedes the imperfect should not buy into it.

NM,
Adam Smith naturally presumes the bonds of friendship that exist in the society. He did not realize that the idea of invisible hand is corrosive, since the corrosion is spiritual and works slowly.

But it is an uncomfortable subject to raise with right-liberals since they would rather the 18C discontinuity did not exist.

Exchanges in themselves have no tendency to produce friendship.

Actually, they do. As witness the friendly relationship I have developed over the years with the checkers, baggers, and manager at my local grocery store. And in Tony's case, the small matter of the agreement he made with his friend was just another in innumerable strands of interaction and trust between them. The deal they worked out was yet another instance to both of them of the fact that they could trust each other and could work together. People who are observant can give uncountable further examples from their daily lives.

What's amusing here is that you are arguing on the other thread that home schooling is bad because insufficiently social, yet you have a distinctly anti-social view of the *very social* realm of the market of barter and exchange. You refuse to acknowledge the way that it creates cooperation and trust.

"He did not realize that the idea of invisible hand is corrosive"

I thought about that this morning when I heard that 280+ companies have come out against DOMA, their chief argument being that basically it's bad for business.

Exchanges in themselves have no tendency to produce friendship.

That really is an extraordinary claim. Does Gian have no contact with local businesses where he lives? Does he frequent no eateries where the proprietor knows his name or even remembers his face? The frigidity of his commercial relations must be something to observe.

It is as if commerce could be prescinded from social relationships and analyzed in perfect scientistic abstraction.

So there is no way self-interest and thus exchanges for the pursuit of self-interest can be defined
prior to the social order in any way.

That's a fascinating statement, since you are so defining it exactly.

And, as always, there is the huge question of the diminution of liberty when we regulate self-interest from the central authority. Perhaps Congress could add a few thousand more pages to the Dodd-Frank Act mandating that every banker establish in formal affidavit that his personal friendship with each and every depositor.

if commerce could be prescinded from social relationships and analyzed in perfect scientistic abstraction
But this is exactly what economists do!. Hayekians claim that the social order is consequent to the market exchanges. This is precisely in line with the general evolutionary worldview in which the imperfect necessarily precedes the perfect.

Also, friendship must not be confused with friendliness. I gave the definition above. Friendship i.e. philia , necessary for a State to exist, grows out of the matrix of comradeship (that exists whenever men work together) when two persons discover that they see and care about a common truth.

I again say that you presume the bonds of friendship but the economists do not. They claim that the glue, that holds a State together, arises out of the market exchanges. Shouldn't they be called on it?

And it is not a little thing. The Adam Smith link had Adam Smith himself warn that a commercial society leads to alienation. Alienation is not a little thing; it is the suicide of the State.

Lydia,
home schooling is bad
I never said so or even implied. I maintain that it may be a necessary evil for the beleaguered Christians.
It is hardly possible to rear and educate a child on your own. Having a community of like-minded families makes it much more easy. That is all I am saying. I do wonder if there are no adequate Catholic schools in Germany.

Friendship, classically speaking, is born when two see the same truth, are possessed by this truth and adore it.

Um, I think the classical idea is: a friend is "another self". It isn't enough that 2 people "possess" the same truth, they must also see each other, there must be a likeness between them that both SEE to form the basis of the friendship.

Friendship is a spiritual thing and is embarrassed by material considerations. Read Four Loves of CS Lewis.

Nonsense and balderdash. I have read The Four Loves, and it doesn't say that. Friendship is born in the very midst of "material considerations". It partakes of all facets of material life - eating and sleeping and working and playing and praying. It's just that's its substance isn't made of these material considerations: a friendship may begin because 2 people share the same illness and participate in the same regimen of care to beat it, but it isn't the illness that is the bond of friendship. Here's something that Lewis does say:

The mark of Friendship is not that help will be given when the pinch comes (of course it will) but that, having been given, it makes no difference at all.

If men were indeed angels, friendship would not involve material considerations. Since men are, instead, (rational) animals, there can be no true friendship without being true in regarding each other's physicality as well as each other's spirit.

So there is no way self-interest and thus exchanges for the pursuit of self-interest can be defined prior to the social order in any way.

Gian, you posit these crazy, incredible statements without a shred of support, for all the world as if they were self-evident or something. That's not conversing, it's spouting off. If you think this is true, show why someone should follow you in thinking it true, don't just posit it. Your style here gets more and more declarative, as if you laying down law to subjects. That's not helpful, and few are going to bother paying attention to that sort of stuff.

And, if fact, your comment isn't true: humans have personal interests that are defined in the context of society, and they also have personal interests that exists independently of social structures. The good of eating food isn't wholly social-based, it is a good prior to supposing any specific social order.

All men share human nature, which human nature implies certain things are good for men no matter what sort of society is formed: food, knowledge, and friendship are goods in ALL societies; I don't need to first find out which specific form of society you live in to know that food or friendship is a good for you in that society.

By the way, "friendliness" can certainly grow into deeper friendship. Moreover, friendliness is nothing to sneeze at. It is extremely helpful for social cohesion, especially insofar as it is related to trust. "Social capital" is one phrase. And mutually beneficial market transactions between individuals increase social capital.

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