Opinion

Edward Hadas

Economics for Christmas

By Edward Hadas
December 5, 2012

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.

Comments
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You state that “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.”

——————

Are you serious? This is the standard line of the wealthy class who believe not in “obligation” backed by the force of law, but in “donating” their money to charities they feel worthy.

As you indicate at the beginning, the reality of man is what John Stuart Mill described — man is “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’, which is why we have laws to protect society.

Religion is NOT enough. In fact, many of the most horrific crimes against humanity have been committed in the name of one’s religion.

You are demeaning the very concept of Christmas with this article, attempting to mix a quasi-religious holiday — quasi-religious since they took “Christ” out of Christmas many decades ago, so that now it has become “Xmas”, which is an indication of how far we have drifted from your bullshit about “Christmas economics”.

I have said this to your before, and I will repeat it again — mixing economics and “morals” of any kind is a dangerous mixture.

Posted by Gordon2352 | Report as abusive
 

Excellent article, very enlightening.

The world will be better if it operates this way. People voluntarily being good instead of people letting out the vices, urges and animal instincts inside them, and then the all-knowing surveillance government comes in and restore its version of “justice” using all the surveillance knowledge it has collected and the law.

They don’t realize the information they have is severely limited. There will be things deep inside that they don’t even know that they don’t know.

Posted by trevorh | Report as abusive
 

Mr Hadas — this is all very intriguing but where do I go to learn more? Here’s all I was able to find: http://cssronline.org/CSSR/Archival/2003  /symposium–Montes%2520article.pdf .

It is certainly long past time that we stopped encouraging people to bring out their inner scrooge. Someday, and I hope sooner rather than later, Friedman and Hyek will be looked on as Lysenko was eventually in the USSR.

Posted by Sanity-Monger | Report as abusive
 

As an economist it makes me sad that so many of my colleagues perpetuate the idea that economic theory says that people are only out to get as much money and stuff for themselves as they can and to hell with everyone else. Economics as I know it says that people maximize the abstract well being they get from any activity (or inactivity), called their utility. Economists tend to focus on monetary decisions because they are easy to measure, whereas the good feeling I get from making someone else happy is very difficult to measure. Economics doesn’t predict that everyone will be a Scrooge, it just predicts that people who get little positive utility from the joy of others will be.

Posted by UUUberMan | Report as abusive
 

I can only but wonder what Christ himself would have to say about ‘Christmas Economics’.

Posted by BidnisMan | Report as abusive
 

Hey, this from the guy who tried to mix / analogize Economics and Sex.

Will you shut it already? If you had any answers we’d all be rich and the economic crisis would be solved. The only economics going on here is the money you’re getting paid to write this dribble.

Posted by Foxdrake_360 | Report as abusive
 

In contrast to Adam Smith’s famous “It is not from the benevolence of the butcher, the brewer, or the baker,” etc. we read on interesting account of the economy of the church goers found in the ancient record of the Book of Mormon. It describes conditions in their civilization about 100 B.C. as follows:

“And when the priests left their labor to impart the word of God unto the people, the people also left their labors to hear the word of God. And when the priest had imparted unto them the word of God they all returned again diligently unto their labors; and the priest, not esteeming himself above his hearers, for the preacher was no better than the hearer, neither was the teacher any better than the learner; and thus they were all equal, and they did all labor, every man according to his strength.

“And they did impart of their substance, every man according to that which he had, to the poor, and the needy, and the sick, and the afflicted; and they did not wear costly apparel, yet they were neat and comely.

“And thus they did establish the affairs of the church; and thus they began to have continual peace again, notwithstanding all their persecutions.

“And now, because of the steadiness of the church they began to be exceedingly rich, having abundance of all things whatsoever they stood in need—an abundance of flocks and herds, and fatlings of every kind, and also abundance of grain, and of gold, and of silver, and of precious things, and abundance of silk and fine-twined linen, and all manner of good homely cloth.

“And thus, in their prosperous circumstances, they did not send away any who were naked, or that were hungry, or that were athirst, or that were sick, or that had not been nourished; and they did not set their hearts upon riches; therefore they were liberal to all, both old and young, both bond and free, both male and female, whether out of the church or in the church, having no respect to persons as to those who stood in need.”

Now that is a Christmas Economy!

Posted by CoastEconomist | Report as abusive
 

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