Written by Edward Hadas, Economics Editor at Reuters Breakingviews
The Christmas season is a particularly good time to think about the fundamental weaknesses of conventional economic theory. Frenzied shopping for gifts cannot easily be reconciled with the standard model’s dour “economic man”, a creature who “who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial”, in the classic definition of John Stuart Mill. The joyful Christmas season is also a good period to offer praise for a line of economic thinking which draws on a much more flattering view of human nature.
Historically, this approach has been closely associated with the Catholic Church, but “Catholic Economics” is a misleading title, since the thinking is not denominational – for example, Justin Welby, the incoming leader of the Church of England, is a fan. It is not really religious; many atheists would reject the conventional assumption that people always and everywhere calculate their selfish advantage. In honour of the season, I will use “Christmas economics” to describe this anti-Scrooge analysis, which is based on what might be called the Christmas economic person. Unlike the simple and narrowly rational economic man, this is a complicated creature, largely motivated by the desire to be and to do good, but also prone to greed and foolishness. That combination is illogical, but it is realistic; people always show a frustrating mix of virtue and vice.
A comparison shows the advantages of Christmas economics over the standard approach. Consider the difference between the conventional idea of a market and “giving in order to acquire”, a phrase used by Pope Benedict XVI in his Caritas in Veritate. Note that the economists’ market is not a physical place to shop, like a supermarket. It is a conceptual place where purely self-interested economic men trade with one another until they are all as satisfied as they possibly can be, a state known as equilibrium.
It is certainly possible to analyse the real economy as if it were mostly made up of many approximations of these egoists’ markets, but the picture is unattractive. To start, such markets are universally disappointing. Since each participant is assumed to want as attractive a deal as possible – consumers want lower prices and workers higher wages, while producers want higher prices and lower wages – no wishes can ever be fully gratified. More profoundly, these economic agents are dreadful people, utterly lacking in the spirit of fair play, let alone that of generosity.
This market model has been sharply criticised ever since it first made its appearance, but a coherent alternative has been lacking. Enter the idea of a relationship founded upon mutual gifts, with some accommodation for greed. This “logic of exchange” begins with two attributes of human nature. Generosity leads me to offer my skills, money, products or whatever else I can give to the world. The desire for justice leads me to want a fair return for these gifts.
In this view, economic relations should basically be satisfying to all. If everyone is looking for a fair deal, then the deals struck will indeed be fair. Thus exchange becomes not a divisive search for individual advantage, but a common exercise of virtue. If there is enough trust, then precise contracts, which conventional economists consider the normal market relationship, are superfluous. Sadly, such trust is often lacking. Along with the constructive powers of generosity and justice, the disruptive force of greed plays a role in these exchanges. The desire to obtain an unfairly favourable deal erodes trust and leads to discord, not the economists’ equilibrium.
Christmas economics includes more than roughly equal exchanges. It also takes in “a logic of public obligation”, in which taxes and government services are considered expressions of generosity, and “quota of gratuitousness and communion”, the generous spirit behind voluntary work, debt forgiveness and the striving for professional excellence without consideration of possible rewards.
The Christmas view is certainly more complimentary about human nature than the economists’ one. Is it also more realistic? In my experience, the shift from one perspective to the other is a bit like the adjustment to a much stronger pair of glasses; at first everything is blurry and there are headaches, but after a while the world looks much clearer. The new perspective makes better sense of the industrial economy, which relies extensively on shared commitments and fair dealing. It provides a clearer explanation of why selfish people are so damaging in the workplace. It helps explain why financial markets, which typically allow greed full rein, are so prone to disaster. It considers sacrificial labour – of parents for children, employees for colleagues or company, and soldiers for their country – to be normal, rather than an aberration.
My seasonal wish: that Christmas economics receives the attention it so richly deserves.
This blog post is used with kind permission of the author and first appeared on blogs.reuters.com.
About the author
Edward Hadas writes about macroeconomics, markets and metals for Reuters Breakingviews. Before becoming a journalist, he worked for 20 years as an equity analyst in Europe and the US. His book, “Human Good, Economic Evils: A Moral Approach to the Dismal Science” is published by ISI Books in Wilmington, Delaware. He has also written a course-book about political philosophy for the Maryvale Institute in Birmingham. Edward has degrees from Columbia University, Wadham College, Oxford and the State University of New York at Binghamton. He has a website, edwardhadas.com.