Tuesday, December 1, 2015

Enthusiasm, XII: Damning Economics


In the previous posting in this series we noted that G.K. Chesterton, Ronald Knox, and Fulton Sheen (in common with Mortimer Adler), traced many — if not all — of today’s “philosophical mistakes” and the failure of common sense in academia and elsewhere to the abandonment of Aristotelian-Thomism.  In its place there has been an almost universal reliance on a distorted Platonism. This is achieved by exaggerating and twisting the thought of Augustine of Hippo.   By this means the principles of reason are jettisoned and a reliance on personal will substituted as the basis of the natural law and the principles of a just social order.  This is usually in the form of a personal interpretation of something accepted on faith as God’s Will.

Mueller: Exaggerating Augustine.
As a case in point, let us take a brief look at a book that seems to have enjoyed a certain vogue among academics and intelligentsia, especially Catholics.  This is Dr. John D. Mueller’s Redeeming Economics (2010).

The book received glowing reviews and endorsements from people who really should have known better had they read even the first few pages of the text from an Aristotelian-Thomist perspective.  The Acknowledgments section reads like an honor role of prominent neo-Chestertonians and neo-distributists.  And yet on opening the book to page 2 we read,

“Most complications in economics result from the fact that [Adam] Smith’s revision was an oversimplification.  In the 1870s, about a century after Smith’s Wealth of Nations, “neoclassical” economists recognized shortcomings in Smith’s theory.  They led the third revolution in economics by restoring one of the elements Smith had dropped: Augustine’s theory of utility, which describes consumption.  But they did not reinstitute the other.

“The fourth revolution is now upon us and will (I hope) finish what the last one started, by reintegrating the most important original element: the one that accounts for the social relationships that define us, the loves (and hates) that motivate and distinguish us as human beings.  In trying to reduce human behavior to exchanges, modern economists have forgotten how these essential motivations are expressed, which is as personal or collective gifts (and their opposite, crimes).”  (John D. Mueller, Redeeming Economics: Rediscovering the Missing Element. Wilmington, Delaware: ISI Books, 2010, 2.)

In this short passage on the second page of text of Mueller’s book we see not only a rejection of Aristotelian-Thomism and the first principle of reason through redefinition of basic terms (such as human being, gift, and crime), but some astounding historical revisions and misstatements of fact.

Sir Robert Peel, Currency School Co-Founder.
To begin, Mueller seems oblivious to the fact that his analysis of Adam Smith’s economics is based on a principle the exact opposite of the one Smith used.  Mueller uses the Currency Principle common to Keynesian, Monetarist/Chicago, and Austrian economics.  In the 1870s, after a generation of conflict  (beginning with the British Bank Charter Act of 1844), the Currency Principle ousted the Banking Principle on which the “Smithian” school of classical economics is based.  Mueller is comparing apples and oranges.

To explain very briefly, everything else being equal, the Banking Principle is that the price level, the number of transactions, and the “velocity of money” (the average number of times each unit of currency is spent in the accounting period) determine the amount of money in the economy.  The Currency Principle is that the amount of money in the economy determines the price level, the number of transactions, and the velocity of money.


The Currency Principle thus changes the dependent variable M (the quantity of money) in the following "Quantity Theory of Money" equation to an independent variable.  The three independent variables, V (the velocity of money), P (the price level), and Q (the number of transactions) are transformed (or “re-edited”) into dependent variables — which is utter nonsense, mathematically speaking:

M x V = P x Q

Mueller’s use of the wrong framework for analysis, however, while deplorable, might be chalked up to ignorance or misunderstanding, and would therefore be excusable.  This is Mortimer Adler’s first “error behind the errors” we quoted in the previous posting in this series.

That is, Mueller’s error in this regard might be excusable if he did not also make an error so great for anyone writing on economics that it boggles the mind.  Mueller claims that Smith eliminated consumption and distribution from economics:

Smith: Consumption is the only purpose of production.
“[Smith] eliminated the Scholastic theories of consumption and final distribution, launching ‘classical’ economics with production and exchange alone.  At the same time, he claimed that Aristotle’s theory of production could be pared to a single factor: labor.” (Ibid.)

This is simply not true.  Smith built his entire theory of economics on a single fundamental principle: “Consumption is the sole end and purpose of all production.” (Adam Smith, The Wealth of Nations, 1776, III.viii.)  This is the basis of what became known as “Say’s Law of Markets,” which is itself the basis of classical Banking Principle economics. (The “law” is named for Say not because he developed it, but because he gave it its clearest expression).

For Smith, there is no other reason to engage in economic activity except to produce marketable goods and services for one’s personal consumption or to exchange for goods and services to consume.  Smith’s “invisible hand” relies on the (disproved) assumption that the rich can only consume if they exchange their wealth for the productions of the labor, land, and capital of the poor.  Mueller, however, claims that Smith eliminated consumption from consideration!

Mueller’s assertion that Smith eliminated everything except human labor as a factor of production is also completely untrue.  For Smith, there are three factors of production.  These are land (the return to which is rent), labor (the return to which is wages), and capital (the return to which is interest).

Jean-Baptiste Say
In binary economics, land and capital are combined as the non-human factor of production, “capital,” while the human factor is termed labor.  Both Smithian classical economics and Kelsonian binary economics, however, recognize that — contrary to Mueller’s assertion about Smith — labor is not the sole factor of production.  Neither Jean-Baptiste Say’s theories nor Louis Kelso’s restoration of Say’s Law make sense if labor is considered the sole factor of production, as generations of baffled Currency Principle economists have demonstrated.

Ricardo: human labor the sole source of value
It was, in fact, David Ricardo (whose theories Mueller also garbles) who claimed to be correcting Smith by positing labor as the sole factor of production where Smith listed land, labor, and capital (David Ricardo, The Principles of Political Economy and Taxation (1817).  London: J.M. Dent and Sons, Ltd., 1973, 5-32).  Thus, to Ricardo, land is a “cost-free factor of production” because it was not produced by human labor (ibid., 33-45).  Capital (to Ricardo, a form of accumulated labor), only enhances labor and is not independently productive.

Karl Marx and Henry George used Ricardo’s labor theory of value and theory of rent to justify their claim that labor is due the totality of production.  Anything else constitutes “surplus value” stolen from either the worker or the consumer.

We noted Mueller’s redefinitions of basic concepts, something he does throughout his book with money, banking, credit, finance, property, and a host of other terms.  We’re concerned here, however, with the redefinitions Mueller gives on the second page of his book, i.e., human being, gift, and crime, as these are presented as the foundation of his theories.  Fortunately for the length of this posting, we can deal with these very briefly by giving the correct definitions.

Msgr. Ryan: major philosophical error.
Human Being.  Contrary to Mueller’s assertion that human beings are defined by their social relationships (a collectivist concept) or their loves and hates (a sophistry that makes some people more, and others less than human), every human being has an analogously complete capacity to acquire and develop virtue and vice — Mueller’s “loves and hates.”  Human beings are human beings because they have this capacity to acquire and develop virtue and vice, not because they have acquired and developed virtue and vice.  Using Mueller’s definition, a newborn or a fetus, if defined as human on the basis of virtue and vice acquired and developed, would not be considered human.  As we have seen, this is similar to the error that Msgr. John A. Ryan made when he asserted that human beings have the right to private property because the welfare of the human person exists.  No, human beings have the right to private property because the human person exists.

Gifts are free, not forced.
Gift.  Mueller appears to claim that people are required to give “gifts,” or they are guilty of “crimes.”  Black’s Law Dictionary, however, defines gift as “A voluntary transfer of private property without consideration.”  No one, therefore, can be required to give a gift, for a gift is voluntary and the giver receives nothing in return as a condition of the gift (i.e., consideration) — or it is by definition not a gift.  To talk of replacing exchange with gift both assumes a fundamental change in human nature and inserts a contradiction, for it would require that people produce with no expectation of benefiting from their efforts, and at the same time have an expectation of receiving “gifts” in exchange for what they give others.

Crime.  By making “crime” the opposite of “gift,” Mueller implies that not giving a gift makes one guilty of a crime.  Black’s Law Dictionary, however, defines "crime" as “A positive or negative act in violation of penal law; an offense against the State.”  In other words, in Mueller’s framework, if you fail to give a “gift” voluntarily, the State steps in and forces you to do so under threat of punishment.

Adler: You can't argue with nonsense.
Fortunately, this is not a review of Mueller’s book, although Redeeming Economics is an excellent illustration of the fact that there is a great deal of nonsense floating around in addition to truth and falsehood.  Because Mueller goes outside the Aristotelian-Thomist framework in his analysis, to correct or even explain the multitude of errors in Redeeming Economics is not only outside the scope of this series, it would be an onerous, thankless, and (ultimately) pointless task, as Knox, Adler, Sheen, and Chesterton suggest.  Mueller’s principles and assumptions are simply too far from reality — from the common sense of Aristotelian-Thomism — for any attempt at argument to be effective.  As Chesterton put it when explaining Aquinas’s reliance on reason in debate,

“It is no good to tell an atheist that he is an atheist; or to charge a denier of immortality with the infamy of denying it; or to imagine that one can force an opponent to admit he is wrong, by proving that he is wrong on somebody else’s principles, but not on his own. After the great example of St. Thomas, the principle stands, or ought always to have stood established; that we must either not argue with a man at all, or we must argue on his grounds and not ours. We may do other things instead of arguing, according to our views of what actions are morally permissible; but if we argue we must argue “on the reasons and statements of the philosophers themselves.”  (Chesterton, The “Dumb Ox,” op. cit., 95-96.)

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