ECONOMICS, FINANCE AND THE GOOD
A CONCEPTUAL CRISIS: MILAN SEMINAR
Excerpted from a seminar given at the Università Cattolica del Sacro Cuore (ASERI) in MIlan, Italy
A fair number of economists, especially in Italy, are unhappy about the philosophical underpinnings of their discipline. They chafe at the sharply constrained set of motivations allowed in the dominant “neoclassical” model. Correctly, they sense that a study based on the equilibrium of abstract numerical concepts such as marginal supply and demand cannot provide a reasonable foundation on which to build a truly human study. Justifiably, they sometimes go further in their complaints. The neoclassical calculations of “utility functions” are not merely excessively abstract; they are based on an unpleasant and inaccurate picture of human nature. The simple maximization of pleasure or some ill-defined substitute is not a worthy goal for men made in the image of God, or indeed a realistic description of the actual workings of human nature.
Considering the current popularity of economics as an academic study and the grave attention paid to economic matters by politicians and journalists, philosophers might be expected to see in the discipline’s conceptual shortcomings what its practitioners would call an under-served market. In fact, though, few trained philosophers have tried to rouse the profession from its foolish dogmatic slumbers. Perhaps the near-indifference has something to do with the nature of philosophy these days. Utilitarians, for example, are all too willing to accept the conventional economic view of men. Or perhaps the philosophy-shortage is in part a vestige of the longstanding mutual antipathy between those who love the transcendental and those who happily wrestle with purely worldly concerns. In any case, disgruntled professional economists are largely left to their own philosophical devices.
I am neither a real philosopher nor a real economist, but I have some training in, and a great enthusiasm for, the former discipline and several decades of experience in the latter. The two have come together in a book, Human Goods, Economic Evils: A Moral Approach to the Dismal Science, which was published in 2007. My philosophical questions about economics are those that arise in the Aristotelian and Christian traditions: What does economic activity consist of? What goods does it aim at? By what standards should an economic arrangement be evaluated? Economists generally find such questions generally excessively theoretical. The issues, however, are quite practical. Without considering what we are and should be trying to do when we are being “economic”, we cannot possibly get this part of our life right. Individuals, social organisations and governments can all profit from clearer economic thinking.
That rigorous attention should start with the description of economic activity. I find that many professional economists offer descriptions which are confused, incomplete or unrealistic. The weakness can largely be blamed on bad training. Just as doctors are trained to look at physical symptoms and tailors to look at cloth, economists are trained to look at numbers and markets. That would be fine if economic activity was well described in those terms. It is not.
Let me start with numbers. The economists’ numerical enthusiasm is two-fold: for both abstract functions and statistical analysis. Statistics can certainly be useful, and I suppose there is room for some functions somewhere, but mathematics is basically unhelpful in the study of men. That should hardly be surprising. Men are primarily transcendental, not calculative. They are largely guided by non-numerical considerations: the search for the immeasurable goods of love, friendship, beauty, truth, comfort, fame, wisdom and holiness. A claim that love can be measured by the number of sexual partners or encounters would be rejected out of hand (I hope). The economic claim that “prosperity” or “comfort” can be measured in euros makes no more sense and should be equally firmly rejected.
I will skip over the many absurdities of trying to impose firm numbers on the multifaceted and shifting economic world. The damage done by such foolishness is less important than the richer picture of economic reality which is provided by stripping out the counting. Once the search for numerical precision is abandoned, money can be treated realistically: not as a flawless arbiter of value, but as a useful tool and a sociological symbol. When the economists’ field of study is approached without numerical blinders, such crucial activities as the unpaid labour of mothers and self-sufficient farmers can receive the respect they deserve. Concepts such as abundance and want can be discussed as they should be – in moral and social terms.
Many social sciences have the number-problem. The market-problem is largely limited to economics. Catholics should be especially wary of the “freedom” in so-called free markets, but you do not have to be Catholic to reject the description of modern industrial economies as primarily based on “markets”. The economists’ markets – interactions of individualistic, competitive and self-interested economic actors – are actually very hard to find. Most people work either at home or in large organisations – companies, universities, hospitals. Many work in the many branches and agencies of government, which plays a model dominant non-market economic role. Domestic work is clearly a non-market activity, but so is most work inside supposedly market-based organisations. As entities, these may be competitive and self-interested (if entities can have such attributes), but for the people who compose them, they are primarily hierarchical organisations which promote a unified and cooperative striving towards a variety of goods. Looking at modern economies as a whole, while competition is present, it plays a less significant role than laws, regulations and customs.
In reality, there are far more sacrifice, trust, cooperation and co-ordination in the modern economy than anything like the self-interest – inaccurately described in the language of economics as “rationality” – which is said to guide the supposedly normal market form of economic activity. The modern economy works because hundreds of thousands of perfect strangers can be trusted. They will be sufficiently responsible and reliable for airplanes to fly safely, for goods in stores to correspond to the descriptions on the label, for promises to be kept and so forth.
The monetary standard and the market ideal are not the only misleading tools of economic perception. Economists almost always think in terms of scarcity, but modern industrial economies are best analysed in terms of abundance. Economic growth, often used as an index of success, is described too much too simply. Capital is generally posited as being in opposition to labour, but cannot be (as Pope John Paul II grasped but did not always make clear).
The list could be extended, but I hope the thrust of the argument is already clear. Once the faulty guidelines are abandoned, the economic world will look quite different. Overall, modern industrial economies look much friendlier. A good starting place for this clearer vision is at the very beginning – the definition of economic activity.
Humans are the protagonists of economics. The machines and money, the stuff produced and the environment created and destroyed are all secondary to the human drama of labour and consumption.
Start with labour. (English offers a choice between “labour” and “work” – I use labour because it has a more human ring.) Labour is what men and women do to humanise the created world. It is, to use a justifiably elevated vocabulary, a human offering or gift to the world. We put our bodies, minds and hearts at the service of the physical world and of each other.
Some of the service to the world is productive. We convert the world which is made available to us into stuff that we can use or enjoy. The recalcitrant ground is made to produce grain and the wild forces of nature are tamed to create telephones and power plants. Those are mighty tasks, which entail not only the hard toils of physical manipulation but also numerous crafts of organisation and analysis.
Some of the world-service is caring. (In a poetic vein, such activity can be called labours of love.) We bear and raise children (I like to think of the pairing of productive and reproductive labour); we try to keep weak bodies healthy; we soothe troubled minds; we spread knowledge; we keep order in our communities and the world.
Some labour is transcendental. We worship God; we search for truth and beauty; we sacrifice our lives from some greater good.
Labour is one of the ways men become and express who they are. It is, to use a philosophical distinction much loved by Pope John Paul II, more about being than about having. The being of labour, in line with the late pope’s view of human nature, is basically generous; people give of themselves for the sake of the humanised world. Labour is also effective. Thanks to labour, a human world – clothing, cooked food, paths, fields, towns, satellites – has been created out of impersonal creation. Labour, organised and divided, has been particularly effective in modern times.
Labour is also imperfect in many ways. We cannot force or cajole the world to do all that we wish; we are often unwilling to give all the labour we could or should; we refuse to cooperate with others in their gifts; we damage the world.
In short, labour is good but imperfect. That should hardly surprise, as men are good but weak in every aspect of their fallen nature.
The counterpart to labour is consumption. While labour is men’s gift to the world, consumption is the humanised world’s gift to men. It is the absorption of the world into human experience. In some consumption, the world-stuff is literally absorbed and humanised. When I eat a piece of meat (nature humanised by the farm, the cooking and the serving), it becomes a piece of me. More often, I merely make use of the humanised world. I wear clothing, read a book, live in a house, drive a car. Consumed stuff may quickly be used up (the original meaning of the English word “consumption”) in use, or it may be used for centuries.
Consumption, like labour, is good. Without a certain amount, we cannot live at all. Without a certain larger amount, we cannot live out our callings of love and service. We are perhaps less defined by our consumption than by our labour, but our arrays of food, clothing and housing help express who we are. Consumption can also help us make higher goods tangible. Catholics recognise the metaphysical meaning of the physical in their sacraments. Everyone can join into the communities created by shared meals, beautiful objects and the common comforts of a village of city. Consumption, like labour, can also be bad. There can be too little available to allow men to thrive – a universal problem until the advent of modern industry. There can also be too much consumption, or more precisely too much can be expected from consumption. That greed has been present since the Fall of man, and has taken a new form – consumerism – in the widespread excess of industrial economies.
Labour and consumption are broadly reciprocal activities. There is a metabolism of gift, of men to the world and from the world to men. The two flows are not, however, perfectly reciprocal. Caring and transcendental labours do not lead directly to consumption in the way that productive labours always do. The two are not morally identical either. Consumption is crucial when it is a question of life and death, but loses its moral weight once more consumption leads only to greater comfort, not more life, health or knowledge (a loss of value that is dimly recognised in the discipline of happiness economics). Labour offers more potential for the exercise of virtue, but also more for alienation from the divine image which men should reflect.
This description of economic activity in human and ethical terms has been no more than a sketch. I have only hinted at the next stage of the argument – the creation of hierarchy of economic goods. Without such an ordered list, it is impossible to get economic activity and organisation right. The full “moralisation” of the discipline requires serious thought about what is good for men – the human goods – and which economic activities can be expected to contribute to these goods. It also requires some attention to the internal economic order to ensure that communities organise their labour and consumption in ways which are both just and supportive of the good. The full moralisation will require a great deal of work, the labour of many men over many years. I hope that my book provides a helpful step in this intellectual development.
The ongoing financial crisis, which I study carefully as a professional commentator, provides an excellent example of the danger of ignoring the ethical dimension in economic descriptions and policies.
Finance is not, as often claimed, chiefly concerned with profits. It is primarily a technique for using the monetary system to express social solidarity. The money I deposit in a bank account or invest in a security represents a sharing of my resources with the community – with the firms which borrow from the bank or which issue the security. My financial sharing is not purely a gift, though; in a well run financial system, I am able to reclaim the resources (perhaps after some delay) and receive some sort of income while the sharing lasts.
The genius of the modern financial system is that it relies on and develops the human desire to work together for the common good but takes the human inability to be perfectly generous into account. For the system to work well, the rewards for sharing must be neither too small to entice or so large that greed is encouraged to grow. Further, unless those who labour within the financial system are carefully supervised, the large sums of money (representing large claims on resources) which pass through their hands will nourish the noxious forces of greed and recklessness.
This moral portrayal of the financial industry does not lead directly to specific guidelines for bank regulation. It does, however, make clear why there are so many more financial crises than industrial breakdowns. The greed and foolishness of bakers, automakers and airlines are constrained by careful regulation and a well established ethos of quality and service. In finance, such regulation needs to be particularly firm, for all involved but especially for those in the industry, because money has an especially powerful intoxicating effect on men’s moral faculties. In fact though, financial regulations have almost always been inadequate, and “free market” economists deserve much blame for encouraging a loosening of these regulations over the last generation.
I do not think the current financial crisis will destroy industrial economies. They are built on too firm a foundation of trust for that. The reconstruction of the financial economy can, however, be an opportunity for economists to make more room in their discipline for a pearl of great price – the good.
Picture: Lorenzetti Ambrogio, Fresco of Good and Bad Government in the Palazzo Pubblico, Siena (detail: 'Justizia Commutativa')