Monday, October 20, 2014

Economics for Ecclesiastics, I: A Problem


Recently a regular reader of this blog sent us a copy of Michael Severance’s article, “Economics for Ecclesiastics.”  Severance is Operations Manager of the Acton Institute for the Study of Religion and Liberty in Rome, and can see first hand some of the problems that crop up when religious leaders do not have a sufficient grasp of economics.

That being said, we would agree that ecclesiastics need to know something about economics, and that a course in economics would be very useful to help them understand the fundamentals.  There is, however, in our opinion, a serious problem with the program Severance described as being offered in London for religious people and taught by some of the top people in the field.

It is Keynesian.

We believe this is a mistake on two grounds.  First, the course as described focuses on quantitative analysis based on questionable assumptions, when what non-economists need is a solid grounding on sound principles consistent with the natural moral law, and presented in a way that non-economists can grasp easily.

Keynesian economics does not provide this.  Instead, Keynes employed increasingly complex mathematical formulae based on bare assertions in a fruitless effort to force the system to comply with his desired ends.  People and politicians tend to go along with Keynesian prescriptions because they think it will get them what they want or need, but the promises often end up either empty, or with a catch that forces people to accept otherwise unacceptable compromises.

Reading through Keynes’s major works, e.g., The Economic Consequences of the Peace (1919), A Treatise on Money (1930), and The General Theory of Employment, Interest, and Money (1936), one is struck by the number of unsupported assertions Keynes made that are key to his arguments.  To take only one example of this from each of the three books listed,

The Economic Consequences of the Peace.  “The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before [World War I], could never have come about in a Society where wealth was divided equitably.” (John Maynard Keynes, The Economic Consequences of the Peace, II.iii.)

A Treatise on Money.  “It is a peculiar characteristic of money contracts that it is the State or Community not only which enforces delivery, but also which decides what it is that must be delivered as a lawful or customary discharge of a contract which has been concluded in terms of the money-of-account. The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time — when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of money has been reached that Knapp’s Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realized.”  (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)

The General Theory of Employment, Interest, and Money.  “So far as I know, everyone is agreed that saving means the excess of income over expenditures on consumption.” (John Maynard Keynes, The General Theory of Employment, Interest, and Money.  II.6.ii.)

Keynes did not make any arguments to prove these assertions, nor did he present any evidence to support them.  He simply declared that they are true, and built his entire theory on them.

This was particularly egregious in the case of the definition of “saving” in the General Theory.  Having declared that no one defines saving in any other way than his, a few pages later Keynes attempted to disprove the claims of people who, he declared, were foolish enough not to accept his definition of saving!  The violation of the first principle of reason — the law of contradiction — was completely ignored.

We used Keynesian Paul Samuelson’s text at Notre Dame.  All we can remember is that none of it made any sense.  The only way we got through the course with a passing grade was to memorize everything.

Years later we finally realized that it didn’t make sense because Keynes consistently violated common sense, redefined terms at will, and insisted that the end justifies the means, even if you have to change the fundamental precepts of the natural law in order to reach the desired goal.  He covered up deficiencies in his reasoning (or lack thereof) with increasingly complex graphs and formulae.

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