How the ‘A-Team’ Redeems Modern Economics

Redeeming Economics: Rediscovering the Missing Element

  • John D. Mueller
  • ISI Books, 2010; 452 pages, $27.95

John Mueller’sRedeeming Economics is an impressive achievement, really three books in one. Mueller rewrites the history of economics in the first book. In the second book, Mueller expands the concerns of economics, in the light of his historical reinterpretation. The third book proposes and critiques public policies through the lens of the theory developed in book 2. Readers of The Family in America will probably be most interested in book 3. But Mueller’s most lasting contribution to the well-being of the American family may well be book 2. His expansion of the concerns of economics has the potential to give economists as well as social conservatives the analytical tools needed to defend the family on its own terms, rather than as a special case of a contract.

The scope of Mueller’s intellectual ambition in this book is truly astonishing, as is the scope of the research involved in all three of his projects. The combination of these three books creates an edifice Mueller calls “neoscholastic economics.” As the real challenge for this book will be to get people to read all three “books,” I trust this review will convey a sense of why people should invest the time needed to read, absorb, and promote this important book.

Book 1: Rewriting the History of Economics

Modern scholars tend to believe that discipline of economics began with Adam Smith. However, this a-historical reading of the subject is corrected by Mueller, who insists that we have to bring on the entire “A-Team” to really grasp the history of economics: not just Adam Smith, but also Aristotle, Augustine, and Aquinas. In this respect, Mueller stands with no less an authority than Joseph Schumpeter, author of the twentieth century’s most comprehensive history of economics. Schumpeter argues that the real founders of modern economics were the “scholastic doctors” of the Middle Ages. These natural law philosophers had worked out all the elements of economic analysis; Smith simply coordinated them. Schumpeter further claims that “The Wealth of Nations does not contain a single analytic idea, principle or method that was entirely new in 1776,” and Mueller fully agrees. Most modern economists, who instinctively venerate both Smith and Schumpeter, are innocent of Schumpeter’s somewhat heretical views on Smith.

Mueller believes that the questions the scholastics raised reveal their sophistication. Aquinas’s theory had four elements: production, exchange, distribution, and consumption. Smith dropped consumption and distribution, leaving only production and exchange as the proper domain of economics. According to Mueller, Smith appealed to his contemporaries because he over-simplified Aquinas’s synthesis of Aristotle and Augustine. Aristotle argued that every community follows some principle in distributing its common goods, some principle that defines what the Greek philosopher considers “distributive justice.” Augustine expanded this theory by adding to it a theory of “personal distribution.” Each person decides “to whom” or “for whom” he is distributing his goods. Humans always act with some person in mind, even if it is only the actor himself. We give to people we love; we sell to or exchange with people we don’t.

Smith’s famous declaration about the butcher and the baker acting solely out of self-interest eliminates Augustine’s theory of distribution. Smith’s contention that everything is done out of some redefined self-interest collapses a real and valuable distinction between gifts and exchanges. Mueller claims that Augustine’s theory of distribution could have shown why the butcher and the baker give their wares to their own children, and sell them to everyone else.

Book 2: Expanding the Concerns of Economic Theory

This historical analysis sets the stage for Mueller’s own contribution. He redefines economics as “the science of human providence—personal, domestic and political—for oneself and other persons, using scarce means that have alternative uses.” He offers an outline of a theory of how people divide their goods between gifts and personal consumption. The theory of distribution is a theory of gifts to people one cares for, crimes against people one has no regard for, and exchanges with everyone else. Mueller calls this “neoscholastic economics.”

He introduces a simple problem, adapted from neoclassical economist Philip Wicksteed. Neoclassical analysis often begins with Robinson Crusoe, alone on his island, allocating scarce resources with no companions or relationships. By contrast, Wicksteed invites us to consider the problem of a mother, a person “loaded with social relationships and complications.” The “mother’s problem” is to explain the behavior of the typical mother (circa 1910) in her home as she tries to maximize the value of her family’s resources. How might she allocate a single scarce commodity—milk—among alternative uses? “In the usual routine, milk may be wanted for the baby, for the other children, for a pudding, for tea or coffee, and for the cat.” According to Mueller, neoclassical economic theory could provide the solution in the special case in which all the milk was for her own use. She should begin with the most urgent use—that is, the use with the highest marginal utility—and as the urgency of this need is diminished by the application of milk, continue to the next most urgent, and so on. But, Mueller continues:

The mother’s actual problem is quite different, and unanswerable by neoclassical economics, since she is dealing not only with her own preference but also with the preferences of several other users of milk. Her problem is twofold: not only to estimate the preferences of each user, but also to decide how much weight to give to those preferences. Should she give the same weight, other things being equal, to her own preferences, those of her husband, each of her own children, a neighbor’s child and the family cat?

Wicksteed concludes that the solution to the mother’s problem lies outside economic theory. “No one would regard the principles upon which I balance the claims of devotion to God against those of friendship, or of either against the indulgence of my aesthetic appetites, as within the range of economic science.” But Mueller believes this leaves an unacceptably large hole in economic analysis. As Wicksteed observes, “Her doings in the market-place and her doings at home are . . . part of one continuous process of administration of resources, guided by the same fundamental principle; and it is the home problem that dominates the market problem and gives it its ultimate meaning” (emphasis added). Mueller believes that Wicksteed’s neoclassical followers like Gary Becker do not have a satisfactory unified theory any more than Wicksteed did. Economists, claims Mueller,

declare the answer a matter of normative or moral judgments that economists qua economists cannot make. But this is an unacceptable dodge. It leaves economists with a fundamentally analytical or ‘positive’ failure: Neoclassical economics does not provide a coherent, empirically verifiable description of how people actually choose-rightly or wrongly—to distribute the use of their resources, whether as individual persons, as members of a family household, or as a society under the same government.

Mueller solves this problem by resurrecting Augustine’s theory of gifts to supplement the theory of exchange. Mueller’s revision of economics should be of interest to those who are dissatisfied with the current treatment of the family by economists. Economists tend to view the family as a special case of the market, marriage as a special case of a contract, and children as a special kind of consumer durable. Mueller’s revision allows economists to view the human family as a social institution in its own right, not simply a special case of something else.

This revision of economics should also interest those who care about human liberty. Economists currently divide society into the “private sector” and the “public sector.” Decisions that do not have significant spillover effects on other people are the proper domain of the “private sector,” and everything left over becomes the concern of the “public sector,” by default. This dichotomy has made it difficult to resist the lure of the state takeover of the wide scope of human activity that can be plausibly argued as affecting other people. Mueller’s synthesis brings a third sector more clearly into view: the social sector. In the social sector, people interact with each other without contracts or explicit exchanges. Instead, people give gifts, transfers of resources with no implicit or explicit expectation of reciprocity. The family quite obviously operates in this realm of the gift. This social realm has been squeezed by a combination of the market and the state partially because the people who should be its natural defenders have no vocabulary with which to defend it.

The enemies of the state who ought to resist state encroachment of the family’s domain have been reduced to treating the family as a special case of the market. This rhetorical strategy has made it difficult to do justice to the deep human need for personal connections, a need that cannot be satisfied by commercial relationships. At the same time, the enemies of the market who ought to defend the family against commercialization have typically offered the government as the only alternative. These critics have been blind to the state’s encroachment on the proper domain of the family and the accompanying replacement of family bonds with impersonal government transfers and bureaucratic control. Mueller’s synthesis allows us to see the genuinely social arena of human life, where people are more than autonomous individuals, and where actions nevertheless remain none of the government’s business.

Book 3: Proposing and Critiquing Public Policies

The third “book” consists of policy analysis based on the expanded economic theory. Mueller’s targets include the usual fiscal topics like taxation, unemployment, inflation, and social security, as well as topics usually considered social issues like abortion, fertility, and marriage. He contrasts the neoclassical approach with his own neoscholastic approach. In the neoclassical approach to public policy, “politicians preside over society in the same way that a parent presides over the household.” Mueller thinks this is unsatisfactory. Unlike a mother, who makes personal distinctions amongst the family members in accordance with her “love” for them and her perception of their needs, the policy maker “must treat them (hungry babies) all exactly the same.”

By contrast, the neoscholastic framework uses the Thomistic distinction between benevolence, or good will, which can be extended to everyone in the world, and beneficence, or doing good, which cannot. We can always avoid harming others, which is why there are no exceptions to the moral prohibitions against theft and murder. But scarce goods cannot be shared with everyone, simply due to the fact of scarcity. And, as Thomas Aquinas taught, what is inherently impossible is not morally binding. This leads to the policy insight that “enforcement of negative rights is inherently practicable, because to refrain from harming another person incurs no cost. . . . Positive rights, in contrast, can never extend further than the ability to pay for them.” Hence, the neoscholastic framework recognizes that scarcity in the public sector plays out quite differently from scarcity in the private sector.

Some of Mueller’s policy conclusions will seem familiar and unexceptional. Others will be quite surprising, such as his argument that the real solution to the Social Security crisis is to lower, not raise, the payroll tax. He also insists that the government should stop raiding Social Security funds to pay for other, non-Social Security programs. But do not judge the book by one policy proposal or another. A book of this scope is not going to convince everyone on every analytical or policy point. For instance, I am not convinced that his analytical “distribution function” and the accompanying graph is doing the work he thinks it is doing. But it would be a mistake to look in the index for your favorite public policy and then dismiss the whole book if you don’t like what Mueller has to say about that particular issue. Instead, look at the entire book and be astonished that one person has something to say about such a broad range of topics, and that so much of what he says does makes sense.

My hope is that Redeeming Economics will inspire a generation of doctoral theses and monographs, systematically working out the analysis of preferences for persons and rigorously testing the new hypotheses such analysis would generate. Mueller’s analytical structure has the potential to humanize wide swaths of public policy-making. This is contribution enough for one book, even a book that is really three in one.

Dr. Morse taught economics at Yale and George Mason University. She is the foundress and president of the Ruth Institute, a project of the National Organization for Marriage, in San Marcos, California.