ECText
Economy and Christianity
in the Postmodern Era
Richard A. Stanford
All rights reserved. No part of this book may be reproduced, stored, or transmitted by any means—whether auditory, graphic, mechanical, or electronic—without written permission of the author, except in the case of brief excerpts used in critical articles and reviews.
CONTENTS
Preface
PART 1. POSTMODERNITY AND BEYOND
1. The Postmodern Epoch
2. Ideology in Transition
3. Comparing Economic Systems
4. The Death of Capitalism
5. Gift Economy
PART 2. LIBERTY IN POLITICS, ECONOMICS, AND RELIGION
6. Liberty
7. Liberalism, Conservatism, and Social Justice
8. The Political Economy of Liberalism and Conservatism
PART 3. POSTMODERN ELEMENTS IN ECONOMICS AND THEOLOGY
9. Origins of Economy and Economics
10. Understanding the Way the Economic World Works
11. Methodology in Economics and Theology
12. Postmodern Elements in Economic Thought
13. Reality in Economic and Postmodern Thought
14. Values in Economic and Postmodern Thought
PART 4. GOVERNMENT ROLES IN THE ECONOMY
15. Economizing Questions in Capitalism and Socialism
16. The Role of Government in a Market Economy
17. Perceptions of Market Failure
18. Government Efforts to Fix Market Failures
19. Government Failure in Addressing Market Failure
20. How Much Government?
PART 5. CONCLUSIONS
21. Conclusions
Glossary of Terms Used in This Book
Return to START Menu
PREFACE
Early in the third millennium of the Common Era, we seem to be at a crossroads of intellectual and cultural thought. The general consensus among cultural and intellectual commentators is that the Modern epoch ended around the middle of the twentieth century and it has been supplanted by the Postmodern epoch. But the Postmodern epoch itself may be coming to an end with the opening of a so-called “Post-Postmodern” era. This on-going process of cultural transformation has implications for both economy and Christianity.
In this book, the term “economy” refers to a society’s
institutional arrangements for allocating its scarce resources, producing goods
and services, and distributing them to its population. The term
“economics” refers to the study of economic relationships, i.e., descriptions
of economic phenomena, theories about how they work, and policies to manage
them. Terms for many other disciplines that study their subject matters end
in “-ology”, e.g., theology, sociology,
cosmology. A parallel term ending in “-ology”
to mean the study of economic matters would be “econology”,
but this term has not supplanted “economics” in popular usage.
Thesis
The thesis of this book is that late-twentieth century
Postmodern and Communitarian cultural and ideological transformations of
American society pose serious challenges to the survival and vitality of
capitalism as a form of economic organization in the twenty-first
century. They also threaten Christianity unless there occur
a revival of religious faith and associated religious values and a renewal of
the importance of family and religious institutions for inculcating those
values to succeeding generations.
Much of Postmodern literature only describes the
cultural and ideological transformations that have taken place in American
society during the second half of the twentieth century. The causes of
the Postmodern cultural and ideological
transformations are the subjects of continuing debate among social scientists,
cultural anthropologists, and philosophers. I do not in this book try to
explain why such a cultural transformation has taken place. Rather, my
more modest goal is only to assess the impact of it upon intersections of
economy and religion as the twenty-first century continues to unfold.
An underlying theme of this book is the importance of
liberty to economics and religion. Liberty is
central to religious practice in a market economy housed within a democratic
polity. Religious liberty benefits from the enterprise freedom and
consumer sovereignty of the market economy, not only in terms of whether to
participate actively in religious observances, but also in the personal
volition of income earners to make contributions to churches, charities, and
other eleemosynary institutions. The importance of liberty both to
individuals and to social interaction is one of the few concepts upon which
both Modernists and Postmodernists usually can agree.
Since I am not trained as a theologian, I will not try to speak authoritatively about theological matters per se. My effort will be directed toward examining Postmodern era intersections of economy and religion in America purely from the perspective of a trained economist who is a professing Christian. Even though I am not trained as a theologian, I am nonetheless a seeker of theological truth, but such an admission does not in any sense make me unique. Anyone who deliberately and honestly attempts to understand divinity is a seeker of truth about the nature of deity and the practice of religion in the contemporary environment. My particular quest is of course filtered by my graduate training as an economist. This also does not make me unique, only rare since it seems that few with economic training are inclined to delve into theological issues.
By the beginning of the third millennium of the Common Era (C.E.), humankind had compiled a massive amount of scholarship about the perceived or revealed nature of the deity, the practice of religion, political economy, and the Postmodern cultural environment. This mass contains within itself many incongruities and disagreements, so there is no universally accepted "truth" about the existence or nature of God or how to go about worshiping God. A necessary qualification to this statement is that each religion and denomination may perceive itself to have achieved the true perspective.
Economists often tell their students in introductory courses that
economics is a way of thinking about the world, the way it is, and the way it
works. This way of thinking seems to filter perceptions of all phenomena
experienced by one who has studied economics at all seriously. One who has
taken a graduate degree in economics can hardly think about social, political,
cultural, or even religious matters without applying the "economic way of
thinking" to an understanding of them. Perhaps this is the
"economist's disease".
Organization of the Book
As a platform for departure into the examination of the appropriate role of government in regard to economy and religion, the chapters in Part 1 lay out the characteristics of the post-World War II movements called Postmodernism and Communitarianism.
Liberty is crucial both to the functioning of economy and to the practice of religion. The chapters in Part 2 elaborate the importance of liberty to both the functioning of market economy and the practice of religion.
The Postmodern transformation of American culture has crept into both economic and religious discourse. Chapters in Part 3 identify Postmodern elements in present day economic discourse that have implications for the practice of religion in America.
Part 4, the final section of the book, offers conclusions with respect to
intersections of economics and religion, Postmodern
implications for economic matters, and the role of the government in the
economy.
Debt of Gratitude
In the writing and editing of this volume, I owe a deep debt of gratitude
to Dr. Edgar V. McKnight, my colleague in retirement and Professor Emeritus of
the Department of Religion at Furman University. Dr. McKnight has
patiently devoted untold hours and energy in making suggestions about content
and organization, and in correcting my misconceptions in regard to divinity,
theology, and the practice of religion in the world today.
Richard A. Stanford
February, 2011
PART 1. POSTMODERNITY AND BEYOND
Intellectual and cultural epochs come and go. Some last for centuries, others last only a few decades. Early in the third millennium of the Common Era, just when it seemed that the “Postmodern” epoch had completely displaced the Modern epoch and was here to stay, Postmodernity seems to be falling out of fashion. The new era, for want of a better name, is being called “post-Postmodern”. Neither term is imaginative, exciting, or informative. The chapters in Part 1 lay out the characteristics of the post-World War II movements called Postmodernism and Communitarianism.
1. THE POSTMODERN EPOCH
Critics and commentators have outlined a progression of cultural epochs from the ancient understandings of the workings of the world through the Medieval Age, Enlightenment, Modern, Postmodern, and now post-Postmodern eras. What follows is a brief and admittedly superficial overview of the aspects of the epochal progression that pertain to economics and religion early in the twenty-first century.
Ancient peoples perceived that the universe was created and controlled by God (or gods), and all unexplained phenomena were attributed to divine causation. The Western Medieval worldview differed from the Ancient view in that God appeared to follow consistent patterns that became regarded as “natural law”. The Enlightenment of the late-seventeenth and eighteenth centuries shifted understanding of causation from subjective judgment and emotion to objective reason and rationality. The Enlightenment was the precursor to the so-called Modern epoch that most commentators describe as coincident with Industrial Revolution in the West and continuing to mid-twentieth century. The Modern epoch entailed the optimistic belief that the application of science and technology to industry could bring about a better world. The ideals of Modernity[1] included equality, democracy, freedom, and human rights.
Table 1 is a modified version of tables exhibited at the website “Modern vs. Postmodern Culture”.[2] The left side of Table 1 details selected Modern epoch characteristics that pertain to economics and religion and will be referred to in subsequent chapters. There are other characteristics of the Modern epoch pertaining to art, architecture, social relationships, and historical and literary criticism that are not represented in Table 1.
Table 1. A
continuum between extreme Modernity and extreme Postmodernity:
Modernity [ - -
- - -
- - -
- - -
- - -
+ - -
- - -
- - -
- - -
- - - ] Postmodernity
|
At
their extreme, Modernists . . . |
At
their extreme, Postmodernists . . . |
|
1.
believe that
objective knowledge (facts, observation, and exercise of logic) can explain
reality in an absolute sense; |
1.
believe that
“facts” and “truth” are specific to circumstances and influenced by the
observers, so only qualified explanations of reality are possible; |
|
2.
trust what they
perceive to be absolute truth, e.g., that God created the universe and that
God sent his Son to save humanity; |
2.
reject absolute
truth and point out that reputed “truths” are based upon assumptions; |
|
3.
seek objective
knowledge (religious, scientific, historical, etc.) that supports their
absolutist doctrine; |
3.
revise
doctrines (religious, scientific, historical, etc.) to include or reflect new
knowledge; |
|
4. believe in the power of the individual to determine his own welfare; |
4. conceive of contemporary culture as a spectacle before which the individual is powerless; |
|
|
|
6.
regard
industrialization as a vehicle to improve human welfare; |
6.
regard
industrialization as a destructive province of capitalist elites; |
|
7.
subscribe to
“grand narratives”, e.g., the Bible, the Industrial Revolution, the rise of
capitalism, the Marxist schema of social transformation; |
7.
reject “grand
narratives”, including Judeo-Christian myth stories, theories of capitalism,
socialism; |
|
|
|
9.
are ethical
absolutists who base beliefs, values, and hope on revealed doctrine
(orthodoxy); |
9.
are ethical
relativists who base beliefs, values, and hope on socially agreed “standards”
that may change; |
|
10.
believe that
society should follow religious or cultural standards that are considered
inherently correct; |
10.
believe that
society should grant them rights to set their own standards and values; |
|
11.
accept
doctrinal creed or logical proposition; |
11.
emphasize
story, personal discovery, journey; |
|
12.
desire to see
all embrace their absolutist doctrines; |
12.
celebrate a
diversity of post-modern spirituality; |
|
|
|
14.
believe that
contact with "other gods" is forbidden and that personal peace and
oneness can come only through their god; |
14.
believe that
other gods and cultures can produce ultimate peace and oneness to their
believers; |
|
15.
regard church as the people of their god worldwide, saved
by faith, filled with their god’s spirit, and living by his word. |
15.
regard church as an evolving organization continually in
need of revisioning and reconstruction to serve the
needs of the changing culture. |
Prior to World War II, many Western economies were primarily industrial in the sense that half or more of their total employments was in manufacturing industry, and half or so of the value of their gross outputs (Gross Domestic Products) consisted of manufactured goods. In the early post-World War II years, many of the formerly industrial economies of the West made the transition to become principally service economies in which less than half of their employments and outputs were accounted for by industry. By the turn of the third millennium, less than twenty percent of US employment was engaged in manufacturing, but the US manufacturing output continued to be the largest in the world, in 2009 accounting for more than 20 percent of global manufacturing output.[3]
Coincident with this
transition, a movement among European continental philosophers began to
question the ability of industrial capitalism to continually bring about
material improvement and emotional well being for their societies. They
also focused upon negatives that they perceived were brought by industrial
capitalism during the twentieth century: the Great Depression, two world wars
and a “cold war”, the Holocaust, the prospect of nuclear annihilation, and ever
more unequal distributions of income. By the last quarter of the
twentieth century they had begun to exhibit a rising skepticism concerning
absolutism in science and religion.
Social commentators perceived that the cultural milieu of the late-twentieth century was becoming characterized by skepticism, ethical relativity, permissiveness, religious pluralism, and a victimhood mentality (i.e., everyone is a victim, no one is responsible, and society is to blame for anything bad that happens).[4] Crime and vandalism were on the increase. Expectations were rising that government should ensure that all of society’s needs are met and that government should prevent any from suffering harm or discomfort. For want of a better term, the emerging era became known by the rather unimaginative term “postmodern” to distinguish it from the Modern epoch prior to WWII.
The foundations of the
so-called “Postmodern epoch” were laid during the nineteenth century by German
and Austrian philosophers Karl Marx, Sigmund Freud, and Friedrich Nietzsche,
and during the early twentieth century by French philosophers Jean-Francois Lyotard, Michel Foucault, and Jacques Derrida.[5]
In describing the present-day content of Postmodern thought, Edward W. Younkins says that
Many of today's leading intellectuals are postmodernists who accede to the ideas of anti-realism, skepticism, subjectivism, relativism, pragmatism, collectivism, egalitarianism, altruism, anti-individualism, the world as conflictual and contradictory, and emotions, instincts, and feelings as better and deeper guides to action than reason.[6]
Newspaper columnists add envy, resentment, self-righteousness, and outrage to this list. Thomas Sowell says that, “There was a time when most Americans would have resented the suggestion that they wanted someone else to pay their bills. But now, envy and resentment have been cultivated to the point where even people who contribute nothing to society feel that they have a right to a ‘fair share’ of what others have produced.”[7] Leonard Pitts says, “So much of what purports to be political discourse these days is instead this primal scream of self-righteousness and outrage.”[8]
Postmodernity has its detractors. M. J. Braun spoofs the physics quest for a unified theory of both cosmology and particle physics, i.e., a “unified theory of everything”, in a piece entitled "Postmodernism: A Unified Theory of All the Trouble in the World".[9] Edward W. Younkins, in a comment entitled “The Plague of Postmodernism”, says that “Postmodernism is the irrational response of today's intellectuals to the failure of socialism both in theory and in practice.“[10] Steve Mizrach surveys criticisms of postmodernism in his comment entitled “Talking pomo: An analysis of the postmodern movement”:
[Marxists] feel that postmodernism is a diversionary tactic, the last ditch of a late capitalism in the process of dying. …. Non-Marxist critics of postmodernism abound, too. The right wing foams at the mouth at the way it dovetails with multiculturalism, feminism, 'direct democracy,' the ‘communitarian’ movement, and some concerns they see as left-wing. The right-wingers feel that postmodernism is the last-ditch effort of a dying left wing.”[11]
Some commentators are uncertain whether postmodernity is a real phenomenon or only an expression of the hopes of certain cultural philosophers for transition to a utopian form of collective social organization. Nikolai Wenzel alludes to Postmodernism as a "cute way of interpreting literature, to the delight of sadistic faculty and the terror of students."[12] But he also says that Postmodernism is "more than a mere academic parlor-game, more than a technical and obscure fad for the salons of Europe, more than a fancy for a select few high priests at departments of cultural studies and English at scattered US universities."[13] Steven Yates is not hesitant to label Postmodernism a “racket” in a "hostile academic market" in which university academic departments "hire clones of themselves" to promote a collectivist agenda.[14] Both of these commentators acknowledge that the postmodern mindset has crept into Western intellectual thought to the point of influencing commercial decision-making and political policy, and it even shows up in various Christian literatures.
Assuming that the Postmodern worldview differs significantly from the Modern worldview and is influencing Western societies, some details of Postmodern thought that pertain specifically to economy and religion are summarized in the right side of Table 1 and will be referred to in subsequent chapters. Table 1 is constructed to enable row-wise comparisons of views between Modernists and Postmodernists. At the top of the table is a representation of a continuum between views of extreme Modernity and extreme Postmodernity. Intellectuals may define and comment upon the extremes, but the point of this continuum is that not all people in Western societies have adopted philosophical positions at either extreme, but rather may be somewhere between the extremes. Religious fundamentalists likely are closer to the Modernity extreme on the left end of the continuum. People who perceive themselves to be liberal and “liberated” from the constraints of doctrine and absolutist social values may put themselves closer to the Postmodernity extreme on the right end of the continuum. Many people will find themselves gradually moving in one direction or the other as they mature and as their social associations and perceptions change. There likely are generational differences in that people of older generations may tend to be closer to the Modernity extreme, while many in their child, grandchild, and subsequent generations may occupy social thought positions ever closer to the Postmodernity extreme. Great social transformations often take multiple generations to complete.
Postmodern commentators have generally favored socialism as the preferred form of economic organization to achieve distributional justice. It is ironic that toward the end of the twentieth century, many postmodern thinkers had come to a begrudging acknowledgement that the “end of history”[15] likely will include market economy as envisioned by Adam Smith in An Inquiry Into the Nature and Causes of the Wealth of Nations (1776) instead of the utopian communism envisioned by Karl Marx in Das Kapital (1867). The bases for the grudging acceptance of capitalism are threefold: the realization that capitalism is highest-level emergent form of economic organization, that capitalism has outperformed all other economic systems that have been tried, and that some form of capitalism is the natural fall-back position for societies that have experimented with other economic systems that have failed.
Early in the twenty-first century, Postmodernity’s extreme subjectivity, pessimism, ethical relativism, pluralistic tolerance of other religious traditions, and rejection of absolute truth seemed to produce a cultural malaise which weakened the “social glue” that binds society together. Some cultural commentators concluded that the fragmentation, pessimism, criticism, and nihilism of the Postmodern epoch is falling out of fashion, and that a new era refocusing on eternal truths and faith in them has begun to unfold. Some were even beginning to admit that ancient religious traditions continued to have relevance in spite of Postmodernists’ efforts to define them away. There also emerged an implicit recognition that many traditional pre-Modern beliefs that had been relegated by Postmodernists to the historical scrap heap had persisted through the optimistic Modern epoch and even survived the nihilistic Postmodern epoch. People again were feeling the need for more substantial bases of value in their lives. Positive themes identified in the new era are faith, trust, dialogue, and sincerity.
Cultural commentators have introduced various terms to describe the new era of the twenty-first century, including trans-modernism, pseudo-modernism, late-capitalism, the “New Sincerity,” and post-millennialism. But the least-imaginative descriptor, “post-postmodern,” seems to have stuck.* As with any newly emerging cultural orientation, it is difficult both to name it and to discern all of the emerging views and beliefs that ultimately may define it. And of course it remains to be seen whether post-Postmodernity has enough staying power that it can be regarded as a true “epoch”, or will it be only a passing intellectual fancy that withers on the vine after a few years. In any case, as with theories, it takes an epoch to displace and epoch.
Nikolai Wenzel doesn't use any of the terms that have been proposed for the post-Postmodern era, but he says that "parallel to the post-modern rejection of modernity's bold aims, there is emerging a pre-modern religious radicalization in the West" in the form of a "significant migration towards more fundamentalist churches, especially in the US."[16] But post-Postmodern thought is not exclusively the province of Christian fundamentalism. Its influence stretches into mainstream American religious thought and practice as well.
Many cultural commentators have recognized that if a post-Postmodern era is indeed unfolding, a simple reversion to the pre-Postmodern views of religious orthodoxy is not feasible. The main reason is that there has been a general social acceptance of pluralism with its polycentric orientation and its tolerance of views and beliefs that differ from those held by individuals. The absolutist Christian view of the pre-Modern era held that Jesus is the “only way” to the Father. Christian fundamentalists stubbornly held to this view through the Postmodern epoch and on into the twenty-first century.
James Halteman has pointed to the task for economists who are Christians in the unfolding post-Postmodern era:
As Christian economists we need to have a vision of how the balance of reason and subjectivity can be restored. We need to build on our belief in a God who cares, a world that has a purpose beyond itself, a freedom that is constrained by divine l[eg]acy, and a balance between reason and subjectivity that can lead to a fulfilling and meaningful life. To do this we need to build communities of faith that live out these challenges, not as hidden enclaves of purity, but as lighthouses to a stormy sea. . . . .
For Christians the task of fleshing out in community a faith tradition that provides an example of an effective social glue is more important than finding a generalized “Christian model” that will be preached as a systemic solution.[17]
Halteman has posed the crucial challenge for twenty-first
century Christians. The essays and meditations in this volume explore
possibilities for meeting the post-Postmodern challenge of providing an effective “social glue” to replace that which seems to
have lost its binding power during the Postmodern era.
___________
*In a New York Times column dated December 12, 2025, Thomas Friedman says,
(https://www.nytimes.com/2025/12/12/opinion/tom-friedman-david-brooks-polycene.html?campaign_id=39&context=audio&emc=edit_ty_20251212&instance_id=167855&nl=opinion-today®i_id=74240569&segment_id=212169&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
Chapter 1 Endnotes:
[1] Some writers use the terms “modernism” and “postmodernism”. I prefer to use the corresponding terms ending with “-ity” rather than “-ism” on the assumption that “-isms” often refer to advocative ideologies, whereas “-itys” are more simply descriptions of states or conditions of thought that are not necessarily advocative.
[2] http://www.crossroad.to/charts/postmodernity-2.htm.
[3] Mark J. Perry, “The Truth About U.S. Manufacturing”, The Wall Street Journal, February 25, 2011, p. A13.
[4] Barry Spurr says that postmodernism is a political phenomenon deriving from a culture of resentment and victimhood, “Focus on Postmodernism: What is the difference between King Lear and Ginger Meggs?”, MercatorNet, June 2, 2006, http://www.mercatornet.com/articles/view/focus_on_postmodernism_what_is_the_difference_between_king_lear_and_ginger_/.
[5] Luther Tweeten and Carl Zulauf have provided an excellent discussion of the history and philosophical background of postmodernism in a paper presented to the 1999 annual meeting of the Agricultural and Applied Economics Association, “The Challenge of Postmodernism to Applied Economics”, http://aede.osu.edu/programs/anderson/papers_old/The%20Challenge%20of%20Postmodernism%20to%20Applied%20Economics.pdf.
[6] Edward W. Younkins, “The Plague of Postmodernism, http://www.quebecoislibre.org/04/041215-9.htm.
[7] Thomas Sowell, “Dismantling America, Part II”, August 18, 2010, http://jewishworldreview.com/cols/sowell081810.php3.
[8] Leonard Pitts, “A flagrantly reasonable conservative”, Miami Herald, August 22, 2010, http://www.miamiherald.com/2010/08/22/1787010/a-flagrantly-reasonable-conservative.html.
[9]
M. J. Braun, "Postmodernism: A Unified Theory of All the Trouble in the
World", American
Thinker, May 2, 2010, http://www.americanthinker.com/2010/05/postmodernism_a_unified_theory.html.
[10] Younkins.
[11] Steve Mizrach, “Talking pomo: An analysis of the postmodern movement”, http://www2.fiu.edu/~mizrachs/pomo.html.
[12] Nikolai Wenzel, "Postmodernism and Its Discontents: Whither Constitutionalism After God and Reason?" New Perspectives on Political Economy, Volume 4, Number 2, 2008, p. 179, http://pcpe.libinst.cz/nppe/4_2/nppe4_2_4.pdf.
[13] Wenzel, p. 160.
[14] Steven Yates, “A Thinker’s Guide to Postmodernism (Or: Anatomy of an Academic Racket)”, http://www.lewrockwell.com/yates/yates74.html.
[15] This is a term coined by Francis Fukuyama in his book The End of History and the Last Man, Free Press, 1992).
[16] Wenzel, p. 160.
[17] James Halteman, “The Role of Values in Post-Modern Economics,” paper presented at the 1994 annual meeting of the Association of Christian Economists, http://www.gordon.edu/ace/pdf/halteman_valuesinpomo.pdf.
BACK TO CONTENTS
2. IDEOLOGY IN TRANSITION
The exposition of Postmodern cultural transition may have gained a lot of traction in the post-World War II era, but it is “not the only game in town.” “Communitarianism” began to be discussed during the last quarter of the twentieth century in reaction to John Rawls' 1971 book entitled A Theory of Justice.[2] Since the present work is about religion and economics, this chapter is focused upon an economics-based exposition of communitarianism in George C. Lodge’s 1975 book entitled The New American Ideology.[3] Lodge, a professor at the Harvard Business School, theorized that the ideology underlying American society is in transition away from its historical basis in Lockean individualism and toward European-style communitarianism. Although Lodge did not use the language of Postmodernity, what follows is a reconsideration of his thesis in light of early twentieth-century Progressivism and late twentieth century Postmodern thought. I have taken the liberty to use Lodge’s phraseology in the following discussion.
A common meaning of the term “ideology” is a value orientation that
advocates a relationship of political power or economic interest
between
social groups. Such an ideology usually entails a program of
political
action, e.g., communism, socialism, capitalism. Lodge uses a
non-advocative
definition of ideology as a collection of ideas that underlie a good
community,
i.e., the society's values that govern the ways in which its members
behave
and relate to one another. Lodge says that a community depends
upon
a common approach to values and some agreement as to how those values
are
to be made operational in the real world.
The Emergence of Communitarianism
Lodge defines communitarianism as an ideology in which individuals finding meaning and fulfillment as members of the communities of which they are a part. In such communities enjoyment is found in the use of things that are not possessed as property. At the macro level (the whole society) such communities usually enable a planning role for the state to influence the allocation of resources that can meet community needs.
Lodge describes the dominant ideology of the ancient world as a primitive form of communitarianism. He explains that as populations grew and people began to live in close proximity to one another in what would become Europe, the community and its needs became ever more important relative to those of the individual. Individuals derived fulfillment and self-respect as members of the community of which they were a part. It became the role of property to promote the community welfare and to provide the economic goods needed by the community. Communitarianism evolved from its primitive state during medieval times to its late-twentieth century European form characterized by a focus upon community needs and a strong role for the state to play in defining and meeting those needs.
The ruinous wars among European nation states during the seventeenth
through early twentieth centuries may render suspect Lodge’s narrative
of the emergence of European communitarianism. However, in the
wake
of World War II and in an effort to avert future wars among European
neighbors,
a half-dozen European nation states in 1951 formed the European Coal
and
Steel Community. Over the next half century this fledgling
organization
morphed into the European Common Market, the European Community, and
finally
the European Union encompassing twenty-seven nation states. The
European
Union at the turn of the third millennium may be the clearest
manifestation
of a macro-scale communitarian society as envisioned by Lodge.
Locke’s Ideology of Individualism
In contrast to the European experience, English philosopher John Locke's ideas about individualism[4] became the foundational ideology on the North American continent during the eighteenth and nineteenth centuries. Rugged individualism was essential to survival and success in the opening of American frontiers. In order to survive on the frontier, the individual had to exercise entrepreneurship by innovating and assuming risk. Individualism underlay the Declaration of Independence and the Constitution of the United States where Lodge says that it strengthened the sanctity of contract and the guarantee of equality of opportunity.
Lodge describes the eighteenth and nineteenth century Americanized version of Lockean ideology:
• Property rights are the best guarantee of individual rights to assure freedom from the predatory powers of the sovereign.
• Competition is essential to ensure that property is controlled by individual proprietors competing in an open market to serve consumer needs.
• Since the only reason for the existence of the state is to
protect
the private rights of the individuals who comprise its society, the
state
should be limited to serving this function.
Although present-day historians give little attention to the Progressive Movement of the 1880 to 1920 period, a careful examination of the tenets of Progressivism suggest that the roots of the American version of communitarianism lie in the Progressive Movement. The Progressive Movement was a post-Civil War effort by American social reformers to address the perceived ills brought on by the Industrial Revolution, the advent of modern capitalism, and the rise of corporations. American presidents Theodore Roosevelt and Woodrow Wilson were prominent Progressives. Although the Progressive era nominally ended around 1920, President Franklin Roosevelt’s “New Deal” depression recovery programs of the 1930s, President Lyndon Johnson’s “War on Poverty” and “Great Society” social programs during the 1960s, and President Barack Obama’s early twenty-first century programs to alleviate recession and restructure American society have followed in the Progressive tradition.
The political agenda of the 1880-1920 Progressive Movement included dealing with monopolistic control of markets, exploitation of workers, child labor, political corruption, and treatment of the poor, the mentally ill, and women. Political accomplishments of the Progressive era include passage of the Sherman Antitrust Act (1890), the Federal Reserve Act (1913), and the Clayton Antitrust Act (1914); amendments to the Constitution that provided for the enfranchisement of women (1920) and the prohibition of the production and sale of alcoholic beverages (1920, repealed in 1933); and the creation of a number of regulatory agencies, including the Interstate Commerce Commission (1887), the Food and Drug Administration (1906), and the Federal Trade Commission (1914).
Modern era thinkers placed great faith in the ability of science to improve human welfare. Progressives also value scientific advancement, but to be used for its political ends. Progressives rejected most of the other tenets of the Modern era. In his paper on “The Progressive Movement and the Transformation of American Politics”, Thomas West identifies beliefs commonly held by Progressives[1]:
Justice, rights, and freedom:
• there are no natural rights, only rights conferred by government;
• views of right and wrong are tied to particular times and specific circumstances;
• freedom is not a gift of God or nature, but of the state.
• consent of the governed and social contract are supplanted by the sovereignty of the state;
• the state is divine, the private sector is the realm of selfishness and oppression.
• government should protect the poor and other victims of capitalism through redistribution of wealth;
• government should manage the corporate sphere to avert victimization of the poor by the wealthy;
• government should exercise control over the details of commerce and production by dictating prices, methods of manufacture, and practices of the banking system;
• government should protect the environment through conservation of resources;
• government should provide "spiritual uplift" through subsidy and promotion of the arts and culture.
• scientifically and politically advanced nations should pursue international expansionism to foster law, order, righteousness, and peace (justifications for imperialism);
• only wise leaders educated in the social and natural sciences at the top universities should govern;
• private sphere productive activity should be managed by government agencies staffed by experts trained in advanced science.
American Ideological Transition
The Progressive Movement of the early twentieth century in America set the stage for what Lodge describes as an ideological transition from nineteenth-century Lockean individualism toward a European-style communitarianism during the post-World War II era. Lodge identifies a number of phenomena that have been instrumental in the American ideological transition: industrialization, urbanization, immigration, growth in the numbers and sizes of corporations, and unprecedented technological innovation. The Progressive Movement of the early twentieth century and the "Great Depression" of the 1930s resulted in an ever-expanding role for government in the American economy. Lodge notes that this expanding governmental role attained intellectual legitimacy with the publication of John Maynard Keynes' The General Theory of Employment, Interest, and Money (1936). The increasing urbanization of the American population after WWII led to expressions of increasing community needs in the form of public goods that are not produced by market economy.
Lodge says that corporations in the United States played roles in creating circumstances that have eroded individualism and induced communitarianism. In contrast to the historical perception of the corporation as the property of its shareholders who commission a management team to administer the corporate property to the benefit of shareholders, communitarianism has taken the form of consensus as the source of managerial authority.
Lodge notes that private property has ceased to be very important in the emerging American communitarian ideology. People realize enjoyment from the use of rented or leased things (apartments, furniture, appliances, electronic devices, automobiles) that do not have to be possessed as property. Rather than the survival of the fittest in the traditional Darwinian sense, in the emerging communitarianism of the late-twentieth century the right to own property has been replaced by an assumed right to comfortable survival, i.e., to enjoy adequate income, health, and other benefits associated with membership in the American community. The desirability of membership in the American community is evidenced by the continuing and increasing influx of immigrants, legal and otherwise, but such “membership” in the American community doesn’t necessarily require US citizenship.
In legislating rights (“entitlements”) to the benefits of community membership, American democratic polity has weakened the nexus between working and eating. By virtue of membership in the community, welfare safety nets have accorded community members the right to eat whether or how much they are willing to work. The continuing enrichment of welfare benefits is reputed to have impaired both work incentives and the drive to entrepreneurship as the vehicle for achieving survival.
A concomitant of declining entrepreneurship is increasing bureaucratization in the management of business organizations. Lodge says that businesses have ceased to be "enterprises" and have become simply productive organizations that are to be managed only in a routine sense. And with the emergence of consensus as the chief decision-making vehicle, even the need for management in the sense of authoritarian direction may become passé.
This emerging American communitarian ideology is characterized by an expanded process of planning to allocate resources in place of competitive market allocation, and by an ever-expanding role for the state as the agent to accomplish and implement the necessary planning.
According to Lodge, even as the underlying ideology is changing,
American
society still indulges in the rhetoric of its old ideology of
individualism,
and still attempts to cling to the tenets of the old ideology in spite
of the realities of social change. The consequences of an
American
societal reluctance to accept or even recognize the realities of
ideological
change are confusion over the roles of individuals, institutions, and
the
state, and a questioning of institutional legitimacy and
authority.
The institutions whose legitimacy and authority are most at question
are
large corporations and government itself.
Postmodernity or an Alternative?
Lodge presents a vision of American ideological transformation that is coincident with Postmodern cultural transformation. Locke’s concept of individualism dates to the Modern epoch, but it is not clear whether Lodge’s thesis about the twentieth century American transition to a communitarian ideology is a complement of Postmodern thought or an alternative to it.[5] There are many contrasts and a few overlaps. Elements of both visions ring true. They differ in terms of social cohesion, but they come to similar conclusions in regard to the role of the state.
• Individualism plays a key role in both Postmodern thought and in Lodge’s thesis. Postmodern thought takes individualism to an extreme in the form of intense subjectivity of needs and wants. In Lodge’s thesis, individualism is suppressed by the rising importance of community needs.
• Lodge says that a community depends upon a common approach to values and some agreement as to how those values are to be made operational in the real world. He implies that a community’s collection of values emerges and stabilizes over a long period of time. This is consistent with Modern era belief in absolute values, but it is in conflict with the Postmodern notion that values should be subjectively determined and that socially agreed values and behavior standards must change in response to culture changes.
• Lodge implies that a transition to a communitarian ideology entails increasing social cohesion within the community. Postmodernists perceive Western society to be suffering ever more fragmentation and social disintegration.
• The increasing planning and regulatory role of the state in the American transition to a communitarian ideology is congruent with Postmodern advocacy of increased governmental regulation of market economy to correct its faults.
• Lodge’s observation of the diminishing desire to own private property and the increasing use of property to meet community needs is consistent with the Postmodern advocacy of the socialization of the ownership of property.
Lodge’s thesis culminates in a socially cohesive community that relies upon shared values that have been proven by the test of time. In this sense, Lodge’s perception of a communitarian ideology may be more applicable to micro-level communities than to the larger society. Although the European Union continues to exhibit the stresses and strains of ethnic and nationalistic diversity, it has demonstrated a modicum of social cohesion at the international level.
Both communitarian ideology and postmodern thought envision an ever-increasing role for the state to play in the economy. The communitarian requirement is for the state to undertake an ever-expanding role in perceiving community needs and planning for their provision. The postmodern requirement is for the state to undertake an ever-expanding regulatory role to offset or correct the flaws of market capitalism. The postmodern and communitarian agendas converge in that unregulated market economy fails to provide public goods that meet community needs.
In both visions, economic growth can be expected to slow as society
loses its entrepreneurial drive, as it becomes bogged down in
bureaucratic
decision-making in both the public and private sectors, and as
government
takes an ever-greater decision-making role in the economic realm.
Some may hope for a post-Postmodern cultural transformation to rescue
future
societies from both of the extreme conclusions.
Post-Postmodern Cultural Transformation
What might a post-Postmodern cultural transformation look like? It is much too early in a post-Postmodern era to try to make definitive statements, but it is probably safe to predict that further cultural transformation of American society will depend upon politics and religion as the twenty-first century continues to unfold.
It is only a conjecture that if liberal political interests should continue to dominate American politics, further progression toward communitarianism likely will ensue with an ever-expanding role for government planning to meet perceived community needs.
It is also only a conjecture that should the forces of conservatism capture the American political apparatus, a post-Postmodern cultural reversion toward a more Lockean ideology may follow. However, much of the Progressive and communitarian agendas of the twentieth century have been institutionalized by law and are likely to persist. A more conservative American polity may constrain the growth of the taxing, spending, planning, and regulatory functions of government, and thereby facilitate the restart and acceleration of the economic growth process. If ballooning government budgets force the trimming of welfare entitlements, American society could experience something of a revival of personal responsibility for individual and family welfare. Critical enabling conditions for such a transformation would include a revival of religious faith and associated religious values, and a renewal of the importance of family and religious institutions for inculcating those values to succeeding generations.
These considerations imply three possible prospects for the further cultural transformation of American society:
• further progression toward communitarianism characterized by an ever greater planning role for government to identify and provide for community needs; or
• a post-Postmodern reversion to a more Lockean ideology of individualism, personal responsibility, and a more limited role for government.
Communitarian Ideology at the Micro Level
Communitarian ideology may be more important at the micro level of local organizations than at the macro level of a whole society.
The local church may be the epitome of a communitarian society at a micro level. Church memberships are self-selected on the basis of a number of criteria, two of which are mission and a shared set of values. Members who find that they no longer share the expressed values and mission of their church are free to leave that church and to seek another church that is more closely aligned with their own values and goals (consistent with Postmodern thought). The self-selection characteristic renders church membership relatively homogeneous with respect to shared values and mission so that social cohesion within a church membership usually is strong. A verse of a hymn entitled “Partners in Ministry” expresses the communitarian nature of the church:
Moving in our midst these days,
Weaving all our lives together;
Joined in ministry and praise.
We are pilgrims; we are partners,
Brothers, sisters, neighbors, friends.
We will do the work God gives us,
Faithfully serving to the end.[6]
Most social, professional, and voluntary charitable organizations also exhibit communitarian characteristics in that they have self-selected memberships and are based on shared values. The social cohesion within such organizations depends upon the degree to which the goal of the organization is compelling and the strength of commitment of members to the organization’s goal.
The family may also exhibit the communitarian characteristics of social cohesion and shared values. Membership is automatic by birth, but either parent may depart the family community by divorce or death, and children usually depart the nuclear family as they mature. The degree of social cohesion within the family depends upon parental agreement or dominance, and the discipline that is imposed upon the children by the parent figure(s). The family may be nuclear consisting of only parent(s) and children (natural and/or adopted), or extended to include grandparents, grandchildren, aunts, uncles, cousins, etc. The social cohesion of an extended family may center upon a dominant patriarch or matriarch.
The ensuing social fragmentation, the breakdown of the family, and declining church attendance have been instrumental forces in bringing about the ethical relativity, permissiveness, victimhood mentality, and increasing crime and vandalism that have characterized the Postmodern era. As noted above, a revival of religious faith and associated religious values, and a renewal of the importance of family and religious institutions for inculcating those values to succeeding generations, would be crucial to a post-Postmodern emergence of a more civil ideology characterized by responsibility, honor, respect, and tolerance.
It may seem unlikely and perhaps ironic that social structures
exhibiting
communitarian characteristics should be instrumental in transmitting a
more individualistic and self-reliant post-Postmodern ideology. The
fact
that the local church and the family entail shared values and high
social
cohesion doesn’t necessarily mean that they are the foundations of
communitarianism
at the macro level, i.e., the level of the whole society. The
family
is the first and principal venue for forming and conveying values to
succeeding
generations. The church stands just behind the family in forming,
conveying, and reinforcing values. If we are indeed entering a
post-Postmodern
era, any ideological and cultural transformation must begin with family
and church.
Chapter 2 Endnotes:
[1] Thomas West, “The Progressive Movement and the Transformation of American Politics”, The Heritage Foundation, July 18, 2007, http://www.heritage.org/research/reports/2007/07/the-progressive-movement-and-the-transformation-of-american-politics.
[2] John Rawls, A Theory of Justice, Harvard University Press, 1971. A good discussion of the idea of communitarianism and the late-twentieth century movement may be found in Daniel Bell’s entry in the Stanford Encyclopedia of Philosophy, http://plato.stanford.edu/archives/fall2010/entries/communitarianism/ and at http://plato.stanford.edu/entries/communitarianism/).
[3] George C. Lodge, The New American Ideology, Alfred A. Knopf, New York, 1975.
[4] John Locke, Two Treatises of Government, 1689.
[5] See Steve Mizrach’s discussion of criticisms of postmodernism in “Talking pomo: An analysis of the postmodern movement”, http://www2.fiu.edu/~mizrachs/pomo.html.
[6] Donna M. Forrester, “Partners in Ministry”, 1998; First Baptist Church Hymnal, Greenville, SC, 2000; sung to the tune “Holy Manna” by William Moore, 1825.
3. COMPARING ECONOMIC SYSTEMS
Both Postmodern and Communitarian thought envision fundamental changes in the structure of the economy and the role of government in it. The purpose of this chapter is to consider implications for religious practice of the alternative forms of economic systems that societies may choose.
“Comparative Economic Systems” (CES) was a standard course title in
the course listings of undergraduate economics departments in US colleges
and universities prior to about 1990. The principal subject matter
of a CES course was a comparison of the organization and functions of the
two types of economic systems seemingly joined in mortal combat after World
War II and during the so-called “cold war” era.
Capitalism Contested
The grand contest between market capitalism and authoritarian socialism, begun in 1917 with the Bolshevik Revolution in Russia, came to an end in 1989 with the demise of the Soviet Union. The Soviet experiment with authoritarian socialism failed because of inherent inefficiencies of centralized direction, ever worsening bureaucratic morass, and fiscal "bankruptcy" precipitated by the Soviet effort to match the American "cold war" military buildup. With the final discrediting of authoritarian socialism, market capitalism stood as the clear winner. Since 1989, most of the former historically planned economies (HPEs) have been attempting, with varying degrees of success, to resurrect or establish functional market economies. HPEs are said to be in transition from central control of their economies toward decentralized functioning as market economies.
In the wake of the demise of the Soviet Union, CES courses disappeared from many economics department course listings because the competition between market capitalism and authoritarian socialism seemingly had been settled. Few new editions of CES textbooks were written. Socialism had failed; capitalism was still standing. The contest was over. What was left to compare? Only around the turn of the third millennium did the subject matter of CES begin to reappear in economic department course listings, often in the guise of a new course title, “Transition Economies”, with focus upon the HPEs.
Karl Marx in Das Kapital identified a number of different systems for organizing an economy: communalism, tribalism, feudalism, capitalism, socialism, and communism. The first four of these are a succession of naturally emerging stages of ever-greater sophistication and complexity. Capitalism, the "end-game" of this natural progression, is also the default form of economic organization in the sense that it is the form of economic organization that a society will end up with unless the society makes a deliberate choice of some other form of economic organization. Market capitalism can be described as a combination of private ownership of the means of production coupled with dispersed and participatory decision making through markets.
Marx thought that societies inevitably would choose an alternative to market capitalism. He hypothesized that capitalism would exhibit an ever sharper dichotomization of society into a property-owning class of capitalists and a propertyless laboring class. Worsening class conflict would culminate in violent revolution of the laboring class to overthrow the capitalist class in order to establish a "dictatorship of the proletariat." Authoritarian socialism, Marx's "dictatorship of the proletariat" can be described as a combination of state ownership of the means of production coupled with centralized decision making.
The Marxian schema beyond capitalism has not happened, at least not in the industrial societies of Western Europe where Marx anticipated it. It didn't occur to Marx that the revolution would come in the near-feudalistic state of Czarist Russia. It was never very successful there because Russia simply had not first passed through a capitalist phase. The Soviet authorities found that they had to accumulate a stock of capital before they could make progress in the socialist quest to achieve efficient production through managerial rationalization. In the end, a faulty incentive system and bureaucratic excesses coupled with efforts to match the American "star wars" military expenditures brought the socialist experiment to an end. Today, virtually all of the former constituent states of the Soviet Union as well as its former client states are hastening to privatize state-owned assets and establish working market economies.
The principal reason that the socialist revolution never occurred in the industrial countries of Western Europe where Marx expected it is that their societies found a mutuality of interests. Workers became capitalists through their pension funds, and capitalists became hired managers working for the shareholders. Today in these countries and the United States, the ownership of corporate shares is widely dispersed, both to pension funds and to individual persons. It is doubtful that a Marxian-style revolution ever will be a realistic prospect for the United States or the market economies of Western Europe.
During the 1930s and '40s, an authoritarian variant of capitalism, fascism,
was implemented in Spain, Italy, Germany, and Japan. Fascism couples private
ownership of the means of production with centralized determination of
the answers to the fundamental economizing question. Although Fascism nominally
was banished from the world stage by the victorious Allies in 1945, variants
of it can still be found in certain third-world countries.
The Bible on Economic Systems
Since market capitalism seems to have withstood all onslaughts, one might well ask, “Is God a capitalist?” A good friend and colleague who is a political scientist says that I make God out to be a capitalist. Although he says it in jest, perhaps this is a good point at which to confront the charge.
It is noted in Acts 2:44 and 4:32 that members of the early church pooled their possessions and held all things in common. In Acts 2:44, they “parted” (distributed) to all according to need, thereby establishing a model for socialism. Given the proclivities of Christians to altruistic giving and sharing the wealth, an equally good question might be "Isn't God a Socialist?"
The Judeo-Christian Bible provides no guidance in the selection of an economic system, perhaps because economic systems were not topics of discussion in biblical times, or perhaps because God simply leaves this matter to human discretion. In any case, the Bible does not contain the words "capitalism", "socialism", or any other term that might be construed as a form of economic organization.
There are certain proxy words for capitalism that do appear in the Bible. Markets are central to private enterprise capitalism. Biblical references to markets, trade, and merchants suggest that people have been engaging in trade nearly from the beginning of time, and that markets were the normal venues for conducting trade. There is no suggestion that an economic system based upon markets is per se undesirable or inappropriate. The extensive reliance upon markets for distribution of goods and allocation of resources during biblical times confirms the existence of private property since one must have a property right in something in order to sell it.
Merchants were the instrumental agents on the seller's side of biblical markets, just as they are in modern markets. Although most of the references to merchants are neutral, in Hosea 12:7 the writer says that "The merchant uses dishonest scales; he loves to defraud." (NIV) It is not clear whether this should be taken as a reference to all merchants, or to one particular merchant. In Isaiah 23:8 the merchants of Tyre are described as “princes, whose traders are renowned in the earth”; in Matthew 13:45 Jesus says that “the kingdom of heaven is like a merchant looking for fine pearls.”
Postmodernists abjure what they call “grand narratives”, including not
only the creation myth stories and resurrection accounts in the Judeo-Christian
Bible, but also expositions of the rise of capitalism and the prospects
for socialism to replace it. Late in the Postmodern era, postmodern
thinkers seemed to come to a grudging acceptance of capitalism for a number
of reasons. One is that capitalism is the highest-level emergent
form of economic organization. Another is that alternative systems
that have been tried have failed. Capitalism is the system upon which
societies have fallen back when they have experimented with fascism, socialism,
and other forms of economic organization. Capitalism has out-performed
all other economic systems in generating economic growth that has improved
material human welfare by increasing per capita incomes.
Virtues and Problems of Capitalism
Several factors commend market capitalism as the economic system of choice.
• Except to maintain the "rules of the game," market capitalism does not require the exercise of centralized authority unless its market mechanisms do not function satisfactorily (a charge that is commonly leveled by Postmoderns and other critics of capitalism).
• Competitive market participation makes for "consumer sovereignty" rather than state sovereignty. In competitive markets consumers dictate to producers what to produce.
• Indeed, as long as markets yield a socially satisfactory mix of consumer
goods and services, no central direction or coordination is needed; the
system "works itself".
• The incentive structure of market capitalism contains a mechanism
that automatically pursues economic efficiency.
• Because of private ownership of property in capitalism, the problem of "dipping from a common pool" is avoided.
• Perhaps the most important aspect is that market capitalism is the
economic system that provides best venue for the exercise of both economic
and religious liberty.
• Markets may fail to recognize some costs and some benefits. Markets tend to overproduce goods causing “spillover costs” and underproduce goods providing “spillover benefits”.
• Markets won't produce "public goods" because they are too expensive for single consumers to purchase, because individual consumers cannot exclude others from the use of them, and because it is difficult for consumers to meaningfully assess their benefits relative to their market prices.
• In a market economy, competitive conditions may be impaired when some producers are able to attain monopoly power or position.
• Market economies naturally entail some degree of instability in the form of cyclical expansion and contraction, with attendant episodes of unemployment and inflation.
It is likely that God leaves economic arrangements in this material world entirely to human discovery and discretion. Market capitalism may be only the end stage in economic system evolution from primitive communalism through tribalism and feudalism. But it is the economic system that society gets if it does not make a deliberate choice of an alternative form. The two most prominent of the alternatives that have been tried during the twentieth century, fascism and authoritarian socialism, require deliberate political choice effected through the ballot box or by revolution, but both have been demonstrated by historical experience to be even more flawed than is capitalism.
President George W. Bush, in a speech to the Manhattan Institute, defended
U.S.-style "free-market" capitalism as the best hope to cure the world's
financial problems and promote prosperity in both developed and developing
nations:
Chapter 3 Endnotes:
[1] George W. Bush, "The Surest Path Back to Prosperity," The Wall Street Journal, November 15-16, 2008, p. A11.
4. THE DEATH OF CAPITALISM
Humans have been trading with one another from nearly the beginning of their existence on earth. Chapter 25 of the book of Genesis relates the exchange of a birthright for bread and pottage between brothers Esau and Jacob.
Market economy has continued to emerge and survive through the ages. It may be tempting for thinkers on the political right to argue that capitalism must be ordained of God. But in their saner moments they surely must recognize that capitalism and all other forms of economic organization are purely human organizational contrivances.
During the twentieth century, capitalism has been the fallback economic system when experiments with others have failed. This begs the question of whether it has endured by God's acquiescence. But the recent tribulations of market-organized economies makes one wonder if God's tolerance of humankind's longest-surviving form of economic organization may be coming to an end.
The end of capitalism has been foretold almost from the beginning of its identification by Karl Marx in Das Kapital (1867) as a form of economic organization characterized by investment in capital for profit. Marx himself hypothesized that internal contradictions of capitalism (bourgeoisie exploitation of the proletariat) would bring about its end. It would terminate in violent revolution as the proletariat rose up against the capital-owning bourgeoisie that would be replaced by a dictatorship of the proletariat.
During the financial turbulence of late 2008, there has been a revival of assertions of the death of capitalism, or at least "American style capitalism". The cover of the October 18th edition of The Economist shows a relief of a mortally wounded lion with the caption "Capitalism at Bay".[1] The cover of the October 27 issue of Business Week depicts images of Henry Paulson and Ben Bernanke with the caption "The Future of Kapitalism".[2] Anthony Faiola, a Washington Post staff writer, posted a news analysis piece in which he asserted, "The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism.”[3] Speaking in Toulon, France, on September 25, French president Nicolas Sarkozy said, "Self-regulation as a way of solving all problems is finished. Laissez-faire is finished. The all-powerful market that always knows best is finished."[4] He asserted "The present crisis must incite us to refound capitalism on the basis of ethics and work."
The laissez faire advocated by Adam Smith in The Wealth of Nations always was an ideal, but American capitalism has never been pure, unregulated laissez faire. Smith himself identified a number of legitimate functions for government in a market economy. Government has been involved in the operation of the American economy almost from the moment of the founding of the Republic in setting weights and measures, providing money, establishing a system of contract law, subsidizing canals, roads, and railroads, etc. The practicality of American capitalism has been a workable blend of market economy and government involvement.
Marx in Das Kapital speculated that human nature could be overcome in solving the economic problem (the juxtaposition of insatiable human wants against scarcity in nature). He reasoned that capitalist production could be rationalized to increase the flow of goods and services and that people could be conditioned to no longer want what they did not have or what other people had. In the latter case, Marx thought that human nature could be overcome by a political process of indoctrination. That Marx misperceived this aspect of human nature is attested by the failure of authoritarian socialism almost everywhere that it has been tried.
In like fashion, it is a misperception that the natural human proclivity to "truck, barter, and exchange" (Adam Smith's phraseology) can be overcome by law or circumstances. The fact that people have traded with one another from the beginning of human existence suggests God's tolerance of market economy even if it is not ordained by God himself. In an editorial commentary in Barron's, Thomas G. Donlan asserts that "Capitalism--investment for profit--is universal. Neither politics nor revolution can kill it.”[5] Just as Mark Twain quipped that "The report of my death is an exaggeration," the proclamation of the death of capitalism is at least premature, if not greatly exaggerated.
Markets persisted even in the Soviet Union, despite concerted efforts to eliminate them. Any economic system must address four fundamental economizing questions: what should be produced, how should the product mix be produced, by whom should it be produced, and to whom should the output be distributed. In addressing these questions the Soviets, during their seventy-year grand experiment with authoritarian socialism, attempted to eliminate all remaining vestiges of capitalism. They came close to achieving complete authoritarian control in regard to the "what" and "how" questions, but they failed miserably in accomplishing their objective with respect to the "by whom" and "to whom" questions. The sheer complexity of a multimillion person population continued to require reliance on markets to allocate resources and distribute the output of their economy.
Capitalism, the most advanced naturally-emerging form of economic organization, may not be dead, but it likely will continue to morph into forms that will meet the needs of generations to come. This morphing process may present a long-run problem for capitalism. Marx predicted that violent revolution would establish a "dictatorship of the proletariat", but this never happened in any of the market economies of Western nations because of an emerging mutuality of interest between employees and the owners of the capital that the workers used. Workers became owners of capital through their pension funds, and the managers of capital themselves became employees. But there is a danger that in a democratic polity the morphing process will entail a gradual drift toward socialism. This process, which has been described as "socialism through the back door" and "stealth socialism", may occur so gradually as to be unnoticed until some future generation wakes up to the realization that Marx's conclusion was correct even though his specified route to it was wrong.
Indeed, the efforts of the Bush Administration to address the financial
turbulence beginning in 2008 have already resulted in a significant socialization
of finance and industry in the United States. The Obama Administration
has continued to move the U.S. economy further along the route toward socialism
with the provision of universal health care, expanded regulation of finance
and industry, and governmental acquisition of ownership shares in the automobile
and other major American industries.
Chapter 4 Endnotes:
[1] The Economist, October 18, 2008, cover showing a relief of a mortally wounded lion with the caption "Capitalism at Bay".
[2] Business Week , October 27, 2008, cover depicting images of Henry Paulson and Ben Bernanke with the caption "The Future of Kapitalism".
[3] Anthony Faiola, “The End of American Capitalism?", Washington Post, October 10, 2008.
[4] Nicolas Sarkozy, http://euobserver.com/9/26814/?rk=1.
[5] Thomas G. Donlan, “The Crash must Come," Barron's, October 27, 2008, p. 58.
5. GIFT ECONOMY
Several Postmodern thinkers have advocated replacing both market capitalism and authoritarian forms of economic organization with a “gift economy”. The concept of a gift economy has emerged more at the hands of anthropologists than economists. It seems that there are numerous examples of what economists might have called a "transfer economy" in the primitive societies usually studied by anthropologists.
Anthropological literature contains accounts of various tribal and feudal
societies within which a wealthy member, often the tribal chief or lord
of manor, provided sustenance and other bequests to members of the local
community, and in so doing achieved and maintained elevated status within
the community. Such "gifting" may have served as the basis of allegiance
and loyalty. It could preserve the status of authority and control
as long as the benefactor was able to continue the beneficence.
Gifts in the Modern Economy
Eric Raymond argues that gift cultures are predicated upon material abundance.[1] In contrast, market-based economies have arisen to deal with allocating resources and distributing product through trade in an environment of material scarcity.
Most transactions in a modern market economy are of the quid pro quo nature, i.e., a two-way (bilateral) exchange of values, "this for that." A "transfer" is a one-way (unilateral) flow of value from one party to another with no counter flow of value, "quid non quo". Such transfers may occur at the individual level or the international level. Examples of individual-level transfers include birthday and Christmas gifts and charitable contributions. Contributions to support foreign mission efforts are international transfers. Foreign aid is a so-called "unilateral transfer" of purchasing power, commodities, weapons and ordinance, etc., from one government to another.
In modern market-based economies, status has traditionally been ascribed
to members of society on the basis of education, earning power, and inherited
or accumulated wealth. Lewis Hyde points out that in a gift economy, status
is accorded to those who give the most to others.[2] In the early twenty-first
century, people like Michael Bloomberg and Bill and Melinda Gates have been
socially acclaimed not only because of their great accumulations of wealth,
but also for their generosity in giving away substantial portions of their
wealth. To the extent that status ascription by giving becomes more prominent,
education, earning power, and inheritance will recede as bases of social
status. This leaves ever less room for those at the lower ends of the income/wealth
spectrum to achieve social status. For churches and other charitable organizations
to take advantage of status ascription by giving, ways will have to be
found to make public both the identities of the givers and the amounts
given.
True Gifts
A "true gift" is a unilateral transfer of value that does not incur any obligation to reciprocate to the giver. "Gifts" that are predicated upon the expectation of a return gift or which elicit a return gift are actually quid pro quo transactions, possibly with a delay built in between the original gift and the reciprocal gift.
Within a household, the sustenance provided by parents to their offspring is usually construed as a true gift, but it may not be a true gift if there is a hope on the part of the parents that the offspring who mature to adulthood will reciprocate care and sustenance to the parents in their dotages. Aside from expectation of care during old age, parental sustenance may be a true gift to offspring even if it creates an obligation on the part of the children to "pay it forward" to their offspring in subsequent generations.
If the motivation to donate to a charity or contribute to a church is
a "feel-good" effect in return, it can be argued that such donations and
contributions are not true gifts, but rather implicit quid pro quo
transactions. From the perspective of the economic theory of consumer behavior,
it is rational for a person to incur the cost of doing something only if
he or she can expect the same or greater value in return. People often
assist neighbors during times of need with the expectation that the neighbors
would do the same for them in their times of need. Such neighborly assistance
would also be a form of implicit quid pro quo transactions rather than
true gifts. What about the Old Testament dictum of an eye for an eye and
a tooth for a tooth? How do Jesus' teachings bear upon this? Do unto others...,
...turn the other cheek, the rich young ruler instructed to give away all,
the good Samaritan, the widow's mite, etc.
Micro-Level Gift Economies
There are numerous examples of modern gift economies at the microeconomic level, e.g., the household, churches, charities, close communities, etc., all of which are nested within macroeconomies organized around markets with invested capital, i.e., "market capitalism". It is also possible and likely that micro-level gift economies have existed in authoritarian economies (e.g., fascism and authoritarian socialism) within households and very close local communities.
Micro-level gift economies seem to be quite workable as long as the number of constituents remains relatively small, perhaps no more than 150, the so-called Dunbar number first proposed by R. I. M. Dunbar as a theoretical limit to the number of people with whom one can maintain stable social relationships.[3] Once the number of members of a micro-level economy increases beyond some such relatively small number, quid pro quo market transactions enabled by the formal institution of contract law make it possible for people who do not know each other well to take advantage of specialization and division of labor and to engage in exchange.
In a seminal article entitled "The Nature of the Firm", Ronald Coase
described the business firm as a hierarchically-organized productive entity
operating within a competitive market environment.[4] Coase quoted D. H.
Robenson's description of firms as "islands of conscious power in this
ocean of unconscious co-operation like lumps of butter coagulating in a
pail of buttermilk".[5] Coase noted that resources flow among firms in
response to competitive market signals, but within firms in response to
authoritarian direction. Business enterprises may thus exhibit the characteristics
of a micro-level gift economy because the limited resources available to
the enterprise are directed (given) to its various activities and departments
(gift recipients) by an internal budget authority (the gift giver). Gifting
through this same budgeting process applies to government agencies and
eleemosynary institutions as well.
The Gift Economy at Large Scale
There are a number of examples of gift economies at larger scale. Gifford
Pinchot points out that academics across the world operate a gift economy
with the products of their academic research and writing that are made
freely available to colleagues in print and internet.[6] Voluntary blood-bank,
food-bank, and organ donation systems are large-scale gift economies. The
open software community is in effect a global-scale gift economy. And the
Wikipedia project exhibits the characteristics of a global-scale gift economy.
Feminist Advocacy
The Postmodern feminist movement has taken up the cause of the gift economy on the macroeconomic level. In her book, For-Giving: A Feminist Criticism of Exchange, author Genevieve Vaughan makes a case that women are naturally giving by virtue of their childbirth and child-rearing roles.[7] Men are conditioned toward quid pro quo exchange that is the basis for what she asserts to be the patriarchial orientation of both capitalism and communism. In Vaughn's words, "The agenda of feminism is to liberate everyone--women, children and men--from patriarchy" with the replacement of capitalism by a feminist gift economy on a global scale.
Vaughan, in a paper given in the summer of 2002 at the Women's World Conference at the University of Makerere in Uganda,[8] questioned the morality of market exchange because "exchange creates adversarial relations since each of the exchangers is trying to get the most possible out of the transaction." She further indicts patriarchal capitalism: "By possessing and dominating large amounts of wealth Capitalists - along with other powerful men in political and religious institutions, can not only keep the wealth in their own hands and but they can also keep it away from the needs of the many." This is the basis upon which she advocates a feminist movement to replace patriarchal capitalism with gift economy: "In order to combat this state of affairs it is important to unite the women's movement with the movement against Globalization and Patriarchal Capitalism, not to look at feminist issues as those having to do with the self interest of women - according to the logic of exchange - but to look at feminist issues as having to do with a logic of gift giving as opposed to the logic of the market."
An economic response to Vaughn’s characterization of exchange as adversarial
is that exchange, if it is voluntary, results in both parties to the exchange
gaining from the exchange, even if each party perceives him- or herself
to gain at the expense of the other. A voluntary exchange will not
take place unless both parties perceive themselves to gain from the prospective
exchange. In this sense, instead of being adversarial, exchange is
a process of meshing diverse human wants to the benefit of both parties
to the exchange. Such market meshing surely is socially preferable
to theft or a military process of invasion and capture, both of which clearly
are adversarial. Vaughn also seems to be unaware that most of the
market traders in lower-income countries are women, and that department
stores, grocery stores, and other shops in higher-income countries are
both staffed and frequented more often by women shoppers than by men.
Problems for a Macro-Level Gift Economy
While Vaughn and other postmodern thinkers have advocated replacing market and authoritarian forms of economic organization with a gift economy at the macro level, it is questionable (and perhaps doubtful) that such is possible. One reason is that while gift giving might serve as the distributional mechanism in a macroeconomy, there is no obvious resource allocation mechanism in a gift economy other than that the gift giver must be the sole user of all resources in producing and generating all value to be distributed by gift-giving. In this sense, the concept of a macro gift economy converges upon that of an authoritarian socialist economy in which the state owns and allocates all resources as well as distributes all product.
Also missing in a hypothetical macro-level gift economy is a production incentive mechanism. Who other than the gift giver has any incentive to produce goods, provide services to others, or improve the efficiency of production or provision? In an authoritarian economy, these activities can be forced only with strong-arm methods of direction and compliance.
As has been demonstrated in the welfare states emerging in Europe and North America, gift giving in the form of welfare distributions, both to those who cannot find work and those who choose not to work, results in dependence upon the welfare provider (the gift giver). This welfare dependence can develop into a culture of dependence that persists from generation to generation as children born into welfare support perceive the world (or the welfare provider-giver) to owe them sustenance. The emerging language of "entitlement" reinforces the culture of dependence. Should an entitlement culture become pervasive in a society, its production incentive structure might become permanently and irreversibly impaired.
Another problem with a gift economy is the absence of price signals that would communicate changes of demand and supply to producers and demanders of goods and services. In the absence of such market-implemented price signals, it is up to the gift giver's perception and judgment to allocate resources and distribute products. The larger and more complex a society, the more heroic would be the requisites of perception and intelligence to accomplish these necessary functions.
Yet another reason that a macro-level gift economy is unlikely to be workable is that in a hypothetical gift economy the gift-giver exercises sole discretion over the self-perceived needs and wants of the gift recipients. The preferences of the gift giver would have to dominate and displace the preferences of the gift recipients. The paternalism (or maternalism) of such an authoritarian gift giver would be completely incompatible with the Postmodern belief in the subjectivity of values. Such a distributional mechanism might be workable if the gift giver asks and acquiesces in the expressed preferences of the prospective gift recipients. Within the household, the parental gift givers may indulge their offsprings' expressed wants. Within an organization, preferences are expressed as budget requests that the budget authority may grant, deny, or modify.
Alternately, the gift giver must be all-knowing of the needs (irrespective
of the wants) of the prospective gift recipients, or at least must be empowered
to exercise personal (and political) authority to override the personal
needs and wants of the prospective gift recipients. Parents often ignore
or override the wants of their children in providing for their needs. Parents
who regularly acquiesce in their children’s pleadings may find that that
they have raised “spoiled brats” who as adults have every expectation that
society will take care of them, whether or not they contribute to society.
Budget authorities, when constrained by limited resources within the organization,
may have to deny or diminish selected budget requests.
Liberty and the Gift Economy
If the gift giver asks prospective recipients what they want, they might enjoy some modicum of liberty to the extent that their expressed needs and wants are honored by the gift giver. If the gift giver is empowered to override the expressed wants and needs of the prospective recipients, they enjoy no such liberty. For example, people who are incarcerated are entirely at the mercy of the "gift" food, clothes, etc., provided by their imprisoners.
Gift recipients may perceive that the gifts make them better off only
to the extent that there is a coincidence between what the giver chooses
to distribute and their own perceptions of their needs and wants. But they
may perceive themselves worse off if the gifts were not sought or are not
wanted.
A Quid Pro Quo World
God may be thought by Jews and Christians to be the ultimate giver of true gifts. A Judeo-Christian belief is that God created the universe and has “given” it to humans to use. In our prayers, public and private, we often thank God for his “blessings” and attribute all good things to God’s benevolence. As Eric Raymond has noted, gift cultures are predicated upon material abundance[10], and this is consistent with the concept of the abundance of God’s creation. A reconciliation of the presumed abundance of God’s creation with the scarcity of the material world that is that local scarcities occur even if there is global (or universal) abundance (see Part 4).
In contrast to the unilateral-transfer nature of a true gift, market economy entails bilateral exchanges of value, a.k.a. quid pro quo transactions, in the context of material scarcity. Market economy is the decision-making and motivating mechanism of capitalism, and quid pro quo exchanges are the essence of market transactions.
The material world in which we live is a quid pro quo world, i.e., one in which humans rationally expect something that they judge to be of the same or greater value in return for the value given in voluntary exchange. The quid pro quo expectation is a characteristic of the human species that only occasionally is found in sub-human species. As Adam Smith noted in The Wealth of Nations (1776), no one has ever seen a dog exchange bones with another dog.
But, is quid pro quo exchange a purely human phenomenon? Can the quid pro quo principle apply to relations between the human and the divine? Indeed, does the quid pro quo principle describe all of creation, and ultimately the nature of God as well?
Humans almost always want something from the deities that they worship: a good hunt, rainfall, abundant crops, children, good health, healing of disease, surgical success, longevity, safe transit, employment, income, wealth, etc. …and relief from violence occurring in nature (tsunamis, earthquakes, volcanic eruptions, hurricanes, tornados, etc.) or violence perpetrated upon their persons or their property by other humans, etc. …and forgiveness of sins. …and salvation to a promised heavenly afterlife. This list could go on forever. It leads one to wonder whether it would even be possible for humans to worship a deity without wanting something from the deity. In expectation that their prayers of want will be answered, humans offer honor, worship, adoration, glorification, and obedience to their chosen deity. Quid pro quo.
And does the deity, let’s just say God, want anything from the human subjects? The Judeo-Christian belief is that God created the world (indeed, in modern language, the whole universe) and gave the resources of the universe to humans to use. And the accompanying presumption is that God does in fact expect obedience, and glorification, and adoration, and worship, and honor in return. Another quid pro quo.
The Jewish tradition (Old Testament) is that the essential relationship between God and humans is one of human sinfulness that requires the human to confess sins, repent of them, and seek forgiveness from God. Christianity (New Testament) adopted the sin-confession-repentance-forgiveness (SCRF) axis from the Jewish tradition. Further, Christians believe that forgiveness of sin and salvation to an afterlife follows from genuine confession and repentance of sin accompanied by belief in God’s son, Jesus, as savior. Quid pro quo again.
It is a fair guess that humans almost certainly get more than they hope
for or deserve in this exchange with God. After all, God offers salvation
to a heavenly eternity. But given human nature, it would also be
a fair guess that through the ages God probably has gotten far less in
return from humans that he might have hoped.
Oneness Without Forgiveness?
The SCRF axis is so central to Christianity that most Christians would be challenged to imagine a relationship to God that is not based on it. Postmodern thinkers believe that a pluralism of religions can produce ultimate peace and “oneness” with deity. Can achieving oneness with deity be the ultimate goal of religious practice apart from sin and forgiveness? A study of “Religions of the World” suggests that while most “Western” religions are centered upon the SCRF axis, there may be other religions that are not SCRF based.[11] Individuals practicing such religions may seek peace and oneness with deity figures or ancestors on the basis of reverence apart from any concept of sin that requires the deity’s forgiveness. But the peace and oneness with the deity that they seek is in return for the reverence of the deity.
Some scientists seem to experience a reverent relationship with the divine that is not SCRF based. Albert Einstein, in his 1956 autobiographical essay “The World As I See It”, describes his own religious sense:
Chapter 5 Endnotes:
[1] Eric Steven Raymond, "The Hacker Milieu as Gift Culture", http://futurepositive.synearth.net/stories/storyReader$223.
[2] Lewis Hyde, The Gift: Imagination and the Erotic Life of Property, Vintage Books, 1983.
[3] R. I. M. Dunbar, “Neocortex Size as a Constraint on Group Size in Primates”, Journal of Human Evolution 22 (1992): 469-493.
[4] Ronald Coase, "The Nature of the Firm", Economica, November 1937, Volume 16, Number 4, pp. 386-405.
[5] D. H. Robenson, Control of Industry, 1923, p. 85.
[6] Gifford Pinchot, "The Gift Economy", http://www.context.org/ICLIB/IC41/PinchotG.htm.
[7] Genevieve Vaughan, For-Giving: A Feminist Criticism of Exchange, Plain View Press, 1997, http://www.for-giving.com/.
[8] Genevieve Vaughan, paper given in the summer of 2002 at the Women's World Conference at the University of Makerere in Uganda, http://www.gift-economy.com/articlesAndEssays/theGiftEconomy-article.html.
[9] See “Forgiveness” in Wikipedia at http://en.wikipedia.org/wiki/Forgiveness for an exposition of the role of sin and forgiveness in a number of religions.
[10] Raymond.
[11] See “Forgiveness” in Wikipedia at http://en.wikipedia.org/wiki/Forgiveness for an exposition of the role of sin and forgiveness in a number of religions.
[12] Albert Einstein, “The World As I See It”, 1956, http://lib.ru/FILOSOF/EJNSHTEJN/theworld_engl.txt.
[13] Krista Tippett, “Einstein’s God”, interview with Freeman Dyson and Paul Davies in Einstein’s God, Penguin Books, 2010, p. 34.
[14] Krista Tippett, “The Biology of the Spirit”, interview with Sherwin Nuland in Einstein’s God, Penguin Books, 2010, p. 46.
[15] Tippett, p. 48.
[16] Krista Tippett, “Quarks and Creation”, interview with Paul Polkinghorne
in Einstein’s God, Penguin Books, 2010, p. 264.
PART 2. LIBERTY IN ECONOMICS AND RELIGION
Empirical studies (e.g., the Heritage Foundation/Wall Street Journal
Indices of Economic Freedom) generally show that religious liberty and
economic freedom go together and mutually reinforce each other. Economies
that enjoy religious liberty usually experience faster rates of growth
than do those that suppress or control the exercise of religion.
The chapters in Part 2 explore the significance of liberty and freedom
in religion and economy.
6. LIBERTY
The characteristic of a market economy that commends it over all other possible forms of economic organization is the personal liberty that it accords to market participants in the forms of freedom of enterprise and consumer sovereignty. Religious liberty benefits from the enterprise freedom and consumer sovereignty of the market economy in the personal volition of income earners to make contributions to churches, charities, and other eleemosynary institutions.
Several of the original thirteen American colonies were founded by people fleeing the strictures of church authority in the “Old World” and seeking freedom to practice their religions unconstrained by government or church authority in the “New World”. Their economies were natural market economies that exercised and relied upon economic as well as religious liberty.
Religious liberty has been enshrined in the Constitution of the United States of America. The First Amendment of the US Constitution prohibits Congress from establishing a state religion. An 1802 letter by Thomas Jefferson to Baptists in Danbury, Connecticut, included the phrase “separation of church and state” to calm their fears about the possibility that the state might dominate religion. The US Supreme Court has interpreted the First Amendment to mean that the US government may not impose religion on the American people and that government and religion must remain separate. To the extent that government and religion separation has been sustained, consumer sovereignty and enterprise freedom have also benefited.
Liberty means the ability to act without constraints by others. "Others" include government, parents, bosses, peers, spouses, church authorities, etc. "Constraints" may be formal as imposed by laws, regulations, and rules; or they may be informal in the sense of customs, conventions, and peer pressures. To be "at liberty" to do something is to be "free to act," i.e., able to act without constraint.
"Liberty" shares a root with "liberation", "liberalization", and "liberal". Liberation means to set free to act upon one's own volition. Liberalization means to diminish or eliminate the constraints imposed by authorities. A liberal (in the "true" sense of the word) is one who advocates a modicum of freedom to act without constraints. This is in contrast to the latter-day (capital "L") meaning of "Liberal", i.e., one who advocates a pragmatic approach in addressing perceived social ills.
Pragmatism often entails more (rather than fewer) constraints imposed by authorities and greater collective decision-making and programs in lieu of private initiative. Pragmatism (a.k.a. "Liberalism") involves doing "what is necessary" to address perceived social problems, even at the expense of personal liberties. Liberalism entails a willingness to expand the authoritarian role in the economy because of a basic mistrust of individual pursuit of self-interest.
Liberty is important to the successful functioning of a market economy because of the presumption that individuals know best what is in their own interests. This condition, dating from Adam Smith’s The Wealth of Nations published in 1776, is congruent with late-twentieth century postmodern thought. If people are constrained unduly by the laws, regulations, rules, and pressures imposed by others, they are unable to pursue their own interests.
Smith believed that the pursuit of self-interest by individuals, more often than not, coincides with the public interest. When an individual acts to produce a good or provide a service that is demanded by others, he or she benefits from the income or sale proceeds, but so also do the parties who need and buy the good or service. This was a radical notion in 1776 and it continues to be so today. Postmodern economic thinkers focus almost exclusively upon the well-being of the individual and tend to ignore links between individual welfare and the collective welfare of a whole society.
It must be admitted that the rational pursuit of self-interest does not always serve the welfare of the larger society. Greed may (and lately has been shown to) elicit individual behavior that exploits the public interest to capture returns greater than warranted by contributed effort. Herein lies an appropriate role for authority to impose constraints upon the pursuit of private interest. The "trick" is to impose just enough of the right kinds of constraints to curb excesses without stifling productive activity. This is an indistinct divide over which modern-day "Liberals" and "Conservatives" often disagree. Postmodern thinkers are inclined to invoke the offices of government to establish and enforce constraints upon the pursuit of private interest, but they find themselves in the ironic position of being unwilling to trust any such exercise of collective will.
Economies have been shown to work best when individuals are free (within limits) to purchase what they want, to seek highest-income employments and/or employments that yield greatest job satisfactions, to produce what yields the most profit or other income, to innovate (i.e., to try new and risky ventures) in the pursuit of profit, to fail when innovative efforts do not "pan out", and "to gift" other members of society (family members, churches, charities) as they wish. Examples include many of the market economies of North America and Western Europe.
Economies with histories of authoritarian controls that stifle individual initiative have fared poorly in terms of welfare and growth. Witness the experiences of Cuba, North Korea, and most of the Eastern European countries prior to 1990. But “historically planned economies” have fared better when they have undergone economic and financial liberalization processes that have unleashed ("liberated") creative processes and given individuals stakes in the pursuit of their own well-beings. In September of 2010, the Cuban government announced a revamp of the Cuban economy toward a more market-oriented structure.[1]
Religious liberty is sometimes asserted to be incompatible with capitalism
because of the latter’s propensity to yield an unequal distribution of
income that constrains the range of consumption choice for poorer people
while enabling the wealthy to enjoy a wider range of choice in what they
can consume. But capitalism works best in a society in which there
is a free marketplace of ideas in addition to free markets for goods and
services. The marketplace of ideas includes individual preferences
for religious beliefs and practices.
Chapter 6 Endnotes:
[1] José de Córdoba and Nicholas Casey, writing in The Wall Street Journal, say “Cuba will lay off more than half a million state workers and try to create hundreds of thousands of private-sector jobs, a dramatic attempt by the hemisphere's only Communist country to shift its nearly bankrupt economy toward a more market-oriented system.” “Cuba to Cut State Jobs in Tilt Toward Free Market”, The Wall Street Journal, September 14, 2010, p. A1, http://online.wsj.com/article/SB10001424052748704190704575489932181245938.html?mod=djemTMB_t.
7. LIBERALISM, CONSERVATISM,
AND SOCIAL JUSTICE
The meanings of the words "liberal" and "conservative" have changed in religious, social, political, and economic discourse over the past couple of centuries. Political parties too have changed their orientations in regard to liberalism and conservatism over this period. While there are many ways in which we can attempt to understand the historic and current meanings of liberal and conservative, the most crucial is the orientation toward social justice.[1]
Distributive justice is achieved when benefits and burdens of a social process are distributed fairly, i.e., when the outcome of a social process is fair, whether or not the procedures are deemed fair. For one who favors distributive justice, ends may justify means. Procedural justice is when a fair social process is employed, whether or not the resulting distribution of benefits and burdens is deemed fair. For one who favors procedural justice, the means are more important ends than are the outcomes.
A twenty-first century social liberal might hope for both procedural and distributive justice, but he or she probably prefers distributive justice in the outcomes of social processes, even if the procedures are not deemed just. For a social liberal a "good society" involves neither income nor wealth being too unequally distributed. A social/political liberal in addition favors participation by all on an approximately equal basis in social decision making and thinks that the well-being of the individual is found in its societal setting so that government is an appropriate vehicle for ensuring just outcomes.
In contrast, a present-day social conservative is likely to think that the method of achieving justice is more important than the outcome of the process. For a social conservative, justice is served when people take responsibility for their own lives and are rewarded according to their contributions to society, even if the consequence is a more unequal distribution of income or wealth.
A mid-twentieth century development in America has been a process of liberalization in theological discourse. This liberalization stood in juxtaposition to the historical approach of literalism in the application of scripture to daily life. Religious liberalism freed some (but of course not all) biblical scholars to engage in more imaginative interpretation of scripture. The imaginative interpretation of scripture fits nicely with the postmodern literary method of discerning meaning by deconstructing textual matter.
A pendulum swing of the late-twentieth century has resulted in the reemergence of religious conservatism in America that became known as "fundamentalism". This religious fundamentalism was based upon renewed biblical literalism coupled with return to application of religious doctrine strictly to daily life. Some social commentators take the reemergence of religious fundamentalism to mark the beginning of a new epoch of intellectual and cultural thought that has become referred to as post-Postmodernity.
Religious fundamentalists also resolved to gain dominance on the political scene. This religious fundamentalism stood in contrast to what had emerged as religious liberalism in the interpretation and application of scripture to everyday life during the Postmodern epoch. Some religious liberals adopted an alias as they began to employ the term "moderate" to describe themselves and their orientation toward pragmatism in the application of scripture to daily living.
By the late-1980s, religious fundamentalism had captured the "right-wing"
Republican Party in the United States to produce a curious convergence
of market liberalism, biblical literalism, and social conservatism. In
keeping with their stance of biblical literalism, members of the "religious
right" of the Republican Party also espoused a so-called "pro-life" position
in opposition to abortion, an attitude that seemed incongruent with the
free-choice orientation of market liberalism. Republicans who espoused
market liberalism and limited government thus found themselves alienated
from the "Grand Old Party" (GOP) in the 1990s and in search of another
political home.
Chapter 7 Endnotes:
[1] Some writers use the term “economic justice” to refer to fair distribution, but they typically do not use the term to mean that processes are fair. A better pairing of adjectives with nouns might be “social justice” and “economic efficiency”. As discussed in the chapter entitled “Postmodern Elements in Economic Thought”, market economy contains a built-in mechanism for pursuing economic efficiency but none for achieving either distributive justice or procedural justice. Both distributive justice and procedural justice are matters to be pursued and ensured by political processes rather than expected from unconstrained economic activity.
8. THE POLITICAL ECONOMY OF LIBERALISM AND CONSERVATISM
A couple of centuries ago as the words "liberalism" and "conservatism" came into popular use, their original meanings were quite different from today's usage. The word "liberal" comes to English from the Latin through the French. In Latin, the word liberalis referred to a freeman. In French, the verb liberer means to liberate. In most of its twentieth century English applications the word "liberal" suggests the freeing of someone from some sort of constraint. Examples include liberal education (which purports to liberate students from ignorance, dogma, and prejudice), financial liberalization (by which the financial sector is freed from governmentally imposed restrictions on lending, interest rates, and exchange rates), trade liberalization (by which imports, exports, and foreign investments are freed from governmental restraints), and liberation theology (the assumed responsibility of the Church in freeing poor peoples in third-world countries from economic exploitation by rich industrial societies).
Adam Smith, in The Wealth of Nations (1776), criticized mercantilism with its advocacy of state regulation of industry and trade. With the view that individual self-interest often is coincident with the "public weal", Smith contrived an intellectual justification for a laissez faire approach to commercial relationships, and so ushered in an era of economic liberalism that implied a freeing of commerce from the constraints of bureaucratic control.
In England economic liberalism became the foundation for an advocacy of free trade early in the nineteenth century by the Whig political party that became the Liberal Party later in the century. The Liberal Party in England declined early in the twentieth century to become displaced by the newly-formed Labour Party in the 1920s.
By the middle of the nineteenth century, "liberalism" in economic literature implied a minimal role for government to play in the economy, the so-called "night-watchmen functions" described by John Stuart Mill. These included the establishment and enforcement of the "rules of the game," the protection of property rights, domestic law and order, national security, setting weights and measures, provision of money, etc.
Opposing nineteenth century economic liberalism was British conservatism which was identified with the propertied class and which valued the status quo of one's position and place in the class structure. Nineteenth century conservatives favored the protection of English agriculture by the "corn laws", with the state playing whatever role necessary to preserve the hegemony of the English ruling class against cheap imported grains. Pragmatism in the role of government thus was the eighteenth century province of the Tory Party, which became the Conservative Party in the nineteenth century.
In contrast to the twentieth-century orientation of liberals toward distributive justice, nineteenth century Whig liberalism seemed to be more concerned with procedural justice (free trade) than the fairness of the outcome. And in contrast to the twentieth-century orientation of conservatives toward procedural justice, the nineteenth-century Tories seemed more concerned with distributive justice, i.e., the fairness of a system that preserved their class status.
By the end of the nineteenth century, on both sides of the Atlantic social reformers had become concerned with the well-being of the disadvantaged of society and had concluded economic disadvantage to be attributable to the exploitative behavior of the privileged classes. The nineteenth-century liberal concern with the fairness of social processes gave way to a twentieth-century concern for the fairness of outcomes of social processes. Political liberals, taking up the concerns of social reformers, became ever more willing for governments to undertake the relief of social distress. By the Postmodern environment of the late twentieth century, political liberalism had become manifested in paternalistic governments that seemed willing to assume responsibility for nearly all aspects of human existence.
The so-called "Great Depression" of the 1930s shifted the tectonic plates of Western economic thought. With the advent of Keynesian theory and policy in 1936, the term "liberalism" took on the mantle of pragmatism as it blended social concerns (particularly the welfare of the poor) with the need to stabilize the economy over the course of the business cycle. Keynesian theory, by justifying budgetary deficits as the means for countering depressions, liberated government administrations from the requisites of fiscal responsibility.
In the United States President Franklin D. Roosevelt, a Democrat, had to deal with the exigencies of the Great Depression. Political and social liberalism became associated with the Democratic Party in the post-depression era. As the twentieth century wore on, the Democratic Party became a coalition that championed the interests of "the little man", the labor unions that represented him in the workplace, and a variety of racial/ethnic interests which had become perceived by social liberals to be economically disadvantaged. This was a fertile garden for the growth of pragmatic liberalism in the United States. The private sector was perceived to be the problem, and government action was the solution. The exception lay in a southern conservative wing of the Democratic Party, many of whose members became progressively less comfortable with the direction taken by the national Democratic Party. Eventually some of these southern Democrats (or their children) forsook the party to become Republicans, and many others simply became disenchanted with politics.
Even before the Great Depression, the Republican Party had been the party of "big business" and protectionism. In addition, the Republican Party never developed a tradition of vigorously enforcing the antitrust laws in the interest of preserving competition, a legitimate function of government that the staunchest nineteenth century liberal could espouse. Early twentieth-century Republicans thus seemed more concerned with outcomes than with the fairness of the processes. Even though the Republican Party contained a moderate wing, it could be characterized generally as more conservative in orientation than the Democratic Party.
By the 1980s Republican "conservatism" seems to have undergone a sea-change in becoming more concerned with processes than with outcomes as the Reagan administration became the venue for the reemergence of market liberalism. During the last decade of the twentieth century, even as the Republican Party under House Majority Leader Newt Gingrich called for a reduction in the function and size of government (the nineteenth century sense of liberalism), it seemed to renew its historic embrace of protectionism (a traditional attitude of conservatism). At the same time, the Democratic Party of the Clinton Administration manifested nineteenth century liberalism in its vigorous enforcement of antitrust laws and by becoming the new champion of free trade.
It is curious that by the 1980s in the U.K. the Conservative Party also had reversed its historic orientation to become under Prime Minister Margaret Thatcher the late-twentieth century standard-bearer of "liberalism" in the nineteenth century sense of the word. This market liberalism surfaced in the guise of privatization of formerly nationalized industries and utilities, and in a general contraction of the role of government in the U.K. economy. The Labour Party flirted with socialism in the post-war era and thus became the proponent of pragmatic liberalism with respect to the role of government in the economy and society.
By the last quarter of the twentieth century, the Conservative and Labour Parties in the U.K. had effectively reversed field from their historic orientations. "Conservatism" had come to mean freeing markets from governmental constraints (a concern with the fairness of processes), while "Liberalism" had come to mean pragmatism in extending the hand to government to deal with any issue needing treatment (a concern with the fairness of outcomes).
The words "liberalism" and "conservatism" have so changed in meaning over the past couple of decades as to have little content early in the third millennium. The irony of the Postmodernists’ openness to invoking the powers of government to address perceived social ills against their skepticism of government’s ability effectively to address those ills makes it difficult to correlate Postmodern ideas with the meanings of “liberalism” and “conservatism”.
PART 3. POSTMODERN ELEMENTS IN ECONOMICS AND THEOLOGY
There are elements of Postmodern thought in economic analysis. There are parallels between the ways that theologians and economists go about investigations in their respective disciplines. There are both parallels and contrasts between values and concepts of what is real in economics, theology, and Postmodern thought. The chapters in Part 3 delve into these parallels and contrasts.
9. ORIGINS OF ECONOMY AND ECONOMICS
It has been said that economics is perhaps the last academic discipline to have been influenced by postmodern intellectual thought, and to have been the least influenced by it.[1] A colleague recently quipped that many of the basic ideas of economics are a century or more old. This puts the foundations of economic thought in the Modern epoch[2], for which most economists likely would be unapologetic.
In spite of the postmodern denial of the verity of objective theory based on observed “facts”, economists identify the essential economic “fact” of the material world as scarcity. Scarcity, the opposite of abundance of things material, is axiomatic to economics; it’s the sine qua non of economics; it’s the raison d‘etre of economics. If somehow scarcity could be eliminated from the face of the earth, economics as an academic discipline would have lost its reason for being.
The evidence of the scarcity of any material thing (and time, hence also services) is a positive price. Virtually everything valued by human beings has a positive price. Such prices are determined by interaction between demanders and suppliers in markets, and hence may be construed as social valuations although postmodern thinkers would deny that they are in any sense “objective” or universal valuations.
The acquisition of such scarcities by human beings involves what economists call "opportunity costs." The opportunity cost of any scarce thing is what has to be given up in order to obtain it. The opportunity cost of something may be denominated in terms of market price, but it may also include such other psychic or "real" dimensions as time, effort, mental anguish, and loss of satisfaction. Because of scarcity, the real cost of the things or activities we select are the highest-valued things or activities that we deselect.
The origin of economy can be adduced apart from biblical literature. For example, we can imagine that ten thousand or more years ago early human beings were still few in number as they roamed a plenteous (though danger-ridden) nature and could therefore gather adequate sustenance to meet their survival needs. The implication is a pre-economic state of abundance, but one that tended to be "nasty, brutish, and short" (a la Thomas Hobbes in The Leviathan, 1651). Progressive population growth through the millennia brought human inhabitants ever more often into contact and into contention with one another for the available resources. The Malthusian phenomenon of population pressing upon limited resources[3] created both a condition of scarcity requiring economy, and political arrangements (Leviathan, social contracts, etc.) to rationalize and civilize such interaction.
A literal interpretation of the Eden myth story in the biblical book of Genesis suggests a biblical explanation of the origin of economy. The "Garden of Eden" also must have been pre-economic in the sense of being characterized by perfect abundance. The human inhabitants could simply gather all that they cared to consume, and in so doing live luxuriant lives. Even time was available in abundance since "in the beginning" there seems to have been no limit on the duration of life and no counting of time (except the "days" of creation). The inhabitants' "original sin" resulted in their eviction by God to a life of toil in an outside world characterized by scarcity. It also resulted in time itself becoming a scarce resource because death would limit the duration of life. The stringency of such scarcity thus created the need for economy. This myth story suggests that since God evicted Adam and Eve from the abundant Garden, the economic nature of the world they inherited must be by God's own design and intent.
References can be found in ancient writings, including the Bible, of economic conditions and economic problems, but no well-developed efforts at systematic explanations of economic phenomena are found in ancient writings. Economists generally date the advent of economics as a systematic study of human efforts to deal with scarcity from the publication in 1776 of An Inquiry into the Nature and Causes of the Wealth of Nations by Scottish moral philosopher, Adam Smith. The academic discipline of “political economy” unfolded during the nineteenth century because Smith’s book set in motion a chain of subsequent publications to correct or extend his views. Around the turn of the twentieth century, economics drifted apart from political science so that academics could better focus and specialize their studies in these two subjects.
The process of economic growth that began to accelerate with the Industrial Revolution around 1820 has produced a veritable torrent of goods and services and has raised per capita incomes through all of the regions of the world, some of course at faster rates than others. Even so, the state of economic existence in which humankind finds itself at the threshold of the third millennium is still characterized by scarcity of productive resources, services, and consumable material things relative to human needs and wants for them. The evidence of this scarcity is that virtually all things of present-day human use and consumption have positive prices. (Exceptions are a few so-called "free goods" such as air, and nuisances such as pollution.) Prices serve the essential function of rationing scarce things across the population of potential users.
The Christian believer is promised “salvation” to an afterlife as a reward for repentance of sins and belief in Jesus Christ as God's only son. This leads to the speculation that the afterlife must be post-economic in the sense that scarcity will no longer be a plague upon the human condition once the "saved" human soul "goes on to its reward." But there is no reason for the "saved" Christian to expect to be relieved of the exigencies of scarcity in this material world.
Such considerations naturally lead to speculation about the nature of the “Kingdom of Heaven” that Jesus entreated his followers to seek. Given the economic nature of the material world that we inhabit, one might wonder whether the Kingdom of Heaven can be simultaneous and coincident with our imperfect material world that is characterized by scarcity. Some imagine the separation of an imperfect material world from a perfect heavenly world by the great divide of death, the link between the two being resurrection. An alternative interpretation suggests a convergence and simultaneity of the spiritual world with the material world that requires the Christian to make his spiritual beliefs relevant to his material world while he yet enjoys physical life.
The reality of life in an imperfect world characterized by scarcity is that even professing Christians still have “to muck about” in toil to earn subsistence and provide for dependents. And everything in the material world has a price, i.e., a valuation determined by social interaction in markets. Although some have hypothesized ultimate solutions to the economic problem of scarcity (Karl Marx's purported solution was utopian communism), the problem does not appear capable of solution in the foreseeable future.
Economic ideas have remained largely untouched by social commentators
as they have described the various epochs of intellectual and cultural
thought through the ages. Perhaps this is attributable to the “fact”
that scarcity, the fundamental economic characteristic of the world, has
persisted through the ages and is likely still to be descriptive of the
material world at the “end of history”.
Chapter 9 Endnotes:
[1] The term “economy” refers to a society’s institutional arrangements for allocating its scarce resources, producing goods and services, and distributing them to its population. The term “economics” refers to the study of economic relationships, i.e., descriptions of economic phenomena, theories about how they work, and policies to manage them.
[2] See David F. Ruccio and Jack Amariglio, Postmodern Moments in Modern Economics, Princeton University Press, 2003, p. 2.
[3] Thomas R. Malthus, An Essay on the Principle of Population, 1798.
10. UNDERSTANDING THE WAY THE ECONOMIC WORLD WORKS
Postmodern thinkers reject the notion that an objective and universal reality can be discerned. For them, all experience is subjective, so what is “real” is specific to each individual and is filtered by the individual’s experience, perceptions, values, and feelings. Hence, each person’s subjective “reality” is as authentic as that of any other person’s and there is no common or universal reality. Postmodern thinkers who hold this extreme view may overlook the possibility of coincidence of subjective experience among people that is substantial enough to be taken as descriptive of a collective reality.
From Adam Smith’s publication of The Wealth of Nations in 1776 forward
to the present, economic analysis has been predicated upon the presumption
(often not even made explicit) that the majority of humans in a society
behave similarly, share values and objectives, and respond in like manner
to incentives, both positive and negative. Economic analysis attempts
to discover principles of common behavior with logical deduction and by
applying statistical analyses to available data.
Apriorism
Early analysts (both natural scientists and economists) wishing to explain a phenomenon took an approach in which they began with behavioral assumptions, chose a small number of deterministic variables that seemed most likely to explain the phenomenon under study, employed inductive logic to structure a model, and deduced conclusions that they took to be true in an a priori sense. They abjured empirical testing of their deduced conclusions simply because they started in the right place and used appropriate logical procedures to structure the model and derive conclusions from it. This approach became known as “extreme apriorism”. Most economic thinkers prior to World War II were extreme apriorists. In contrast to the postmodern literary method of “deconstruction” of a text to discern its essential meaning, apriorism might be understood as “constructionism”, i.e., a method of building up an explanation of a phenomenon from its constituent elements.
The economist’s a priori approach, an almost purely logical thought process, generally follows the following procedures:
- First, observation of some phenomenon captures the attention of an economic investigator who then chooses a behavioral premise to serve as foundation (or departure platform) for further analysis. The behavioral premise often consists of an object of pursuit and a pattern of behavior, e.g., satisfaction maximization, income maximization, cost minimization, profit maximization. Sometimes the behavioral premise is simply a pattern of behavior, e.g., diminishing marginal utility or diminishing returns.
- Once a basic behavioral premise has been selected, the economist attempts to simplify from the complexity of the phenomenon under investigation (called the "dependent variable") by selecting a small number of causative factors (called "independent variables") that are likely to be most important to the structure or behavior of the phenomenon. All other things are assumed constant (in Latin, ceteris paribus). This is admittedly a second-best approach compared to the laboratory controls that can be imposed in an experimental approach.
- The initial observations, behavioral premise, selected independent variables, and constancy assumptions serve as a platform for departure into further analysis. With these "first things" (hence the Latin term a priori) established, the economist uses a pure thought process of inductive logic to reason through to a generalization about them. The generalization, in modern parlance called a "model", may be represented as a set of verbal statements, one or more mathematical equations or graphs, or statements couched in the syntax of a computer language.
- The economist then employs deductive logic to derive particular conclusions about the model. Nineteenth century economists were inclined to accept the deduced conclusions as a priori (self-evident) truths about the world itself. In the Post WWII era economists are more likely to regard the deduced conclusions only as tentative hypotheses to be subjected to empirical validation if adequate data are available. While natural scientists may rely upon data generated while conducting laboratory-controlled experiments, economists usually must resort to experiential information captured from naturally occurring real-world processes.
- If the deduced conclusions are supported in a statistical sense by the empirical evidence, the economist may draw the inference that the model conclusions are descriptive of reality (i.e., real-world circumstance), and that the model is considered a valid representation of the real-world phenomenon.
Experimentation
Only in the last few decades have economists begun to use the experimental approach more commonly used by natural scientists in discerning the workings of the world. In an experimental approach, the scientist starts by posing a hypothesis about the relationship between a phenomenon under study and possible causes. The scientist then designs an experiment such that the facilities of laboratory control can isolate the variables in the experiment from any extraneous variables (implicitly, hold them constant). The scientist is provided with data that are generated by conducting the experiment. The experiment usually is conducted numerous times, generating enough data for a statistical inference about the validity of the hypothesis. Once adequate data are in hand, the scientist employs the tools of statistical analysis to test the hypothesis, thereby accepting or rejecting it on grounds of statistical inference. The statistical procedures are usually conducted by computerized statistical software.
For a variety of reasons, until fairly recently economists have shied
from using experimental approaches. The reasons for avoiding experimentation
have included the sheer size and complexity of social systems, the costs
of attempting to implement laboratory controls, and moral implications
of social experimentation. Economists also are concerned about a
Postmodern concept, the so-called Hawthorne Effect, i.e., the likelihood
that subjects of experimentation indulge in "affected behavior" to make
themselves "look good" in the eyes of the experimenter, and thereby contaminate
the experimental results.
Empiricism
Statistical concepts and analytical procedures were well developed by the third decade of the twentieth century. Computers, developed during World War II, became capable during the second half of the twentieth century of handling ever-greater quantities of data for an ever-increasing number of variables. Given these enabling conditions, some analysts (natural scientists and economists) advocated starting with a collection of all possible deterministic variables for a phenomenon under study, accumulating large banks of data for the variables, and then using computers to analyze the data.
In a purely empirical approach, statistical procedures enable the analyst
to delete those variables that do not contribute adequately to explanation
of the phenomenon under study. The analyst then ends up with a model
containing only those deterministic variables judged by statistical criteria
to contribute significantly to explanation of the phenomenon. If
the variables that are retained in the model (after non-contributing variables
are deleted) together yield a statistically significant and sufficient
level of explanation, the model is taken to describe and affirm a principle
(or “law”) that applies to the scientific phenomenon, or in the case of
an economic model, to a majority of the members of the society. This
approach, which makes no behavioral assumptions and employs neither inductive
nor deductive logic, became known as “ultra empiricism”. It is congruent
with the Postmodern literary approach known as “deconstruction”, i.e.,
breaking down a text into elements in order to glean the essential meanings
of the text. But it may violate another Postmodern principle if it
is not accompanied by adequate narrative of the circumstances and events
that provide the empirical data.
Current Practice
Post-WWII economic analysis typically employs a combination of apriorism and empiricism. The economic analyst typically starts with an a priori approach to structure a model using inductive logic and then deduces logical conclusions from it. But instead of regarding the deduced conclusions as a priori truths that do not need empirical validation, the analyst takes the deduced conclusions as tentative hypotheses that need to be validated by using statistical procedures on empirical data. In the natural sciences, data usually are generated by conducting experiments. Economists more often rely upon data that have been captured from naturally occurring experience, but in recent decades some economists have followed the lead of the natural sciences in attempting to design experiments which can yield data for statistical analysis. A postmodern criticism of economic analysis is that too often economists do the statistical analysis, draw conclusions based on statistical inference, and write their journal articles reporting the statistical results, but give little attention to writing the narrative of circumstances and events that should accompany (actually, should precede) the statistical analysis.[1]
In the statistical analysis of the experimentally generated data that
they use to test their hypotheses, natural scientists may expect the level
of explanation of a material phenomenon and the confidence that can be
placed in it to approach a hundred percent. Rarely in economic analysis
does the level of explanation or the confidence that can be place in the
explanation approach a hundred percent because there are in any society
people whose experiences, perceptions, values, and feelings diverge from
those that are typical of the society.[2] Even so, economists believe that
they can achieve a modicum of objective reality in specifying economic
“truths” (economists call them “models”) that can explain economic behavior
of groups (not individuals) and forecast future economic states, though
not with absolute certainty. In this sense, “economic science” continues
to operate out of the ideas of the Modern epoch, but with a bow to postmodern
concepts.
Chapter 10 Endnotes:
[1] See Maxine Udall’s discussion of omitted variable bias in “Post-Modern Applied Economics: It’s the Error Term, Stupid”, http://maxineudall.typepad.com/maxine-udall-girl-economist/2009/09/postmodern-applied-economics-its-the-error-term-stupid.html.
[2] In their book entitled The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives (The University of Michigan Press, 2008), Stephen T. Ziliak and Deirdre McCloskey fault economists’ use of arbitrary statistical significance levels to authenticate economic hypotheses.
11. METHODOLOGY IN ECONOMICS AND THEOLOGY
Since extreme Postmodernists think that efforts to seek objective knowledge (religious, scientific, historical, etc.) support absolutist doctrines which they reject out of hand, they may also decline to explore issues of scientific methodology which they judge to be oriented toward achieving and maintaining political and economic power. In this chapter we explore the postmodern implications of the analytical methodologies employed by economists and theologians.
The burning question for this chapter is how do Judeo-Christian monotheists think about the nature of deity and the relationship of deity to humanity and the world in which humans live? I suspect that most of us behave as pure consumers in adopting some perception of God retailed to us by Sunday School teacher, religion professor, minister, rabbi, mullah, or televangelist. When we really try to achieve a better understanding of the nature and behavior of God, just how do we go about it? How do theologians, whom we might perceive to be producers (rather than consumers) of understandings of the deity, go about their work?
Theological thinkers as well as economists may employ inductive logic to generalize about the nature of their respective subjects. They may also use deductive logic to derive particular conclusions about God's role in the world. The formal process that theological thinkers employ surely must be much like that used by economists in their quest to understand the way the economic world works. It appears that theologians (and others not so trained) who think about the nature of the deity and the "after-world" surely must employ an investigative thought process not unlike the a priori approach used by economists. I can perceive numerous parallels:
- The economist's methodology can be used in an effort to discern the nature of a phenomenon that is not amenable to experimentation; it is hardly feasible to conduct laboratory-controlled experiments in regard to the deity (unless one regards a testing of God as a form of experimentation).
- The economist's approach starts from an experiential departure point. While biblical literature may serve as the departure point for theological discourse, personal experience must also play a formative role.
- The economist assumes a behavioral premise to serve as foundation upon which to erect an economic generalization. The theological thinker's presuppositions about divine nature and behavior may come from biblical literature and perhaps divine revelations. Possible examples are that God is omnipotent, omniscient, loving, generous, jealous, vindictive, etc.
- Finally, in both environments it is experiential evidence that serves as the basis for inferences about the verity of propositions (deduced conclusions) about the nature and behavior of the inquiry subjects. A difference between economic and theological inquiry may be that theological conclusions sometimes are accepted as a "matter of faith" rather than experiential evidence; in this latter day, economic conclusions are no longer accepted on faith (i.e., as apriori truths) but must be subjected to empirical evidence.
Since each theological thinker constructs his/her own god model, each will come up with a model that is unique, a condition that is congruent with Postmodern thought. Each differs from all other such god or kingdom models by the model builder's presuppositions, interpretation of the biblical literature read, educational and other study experiences, personal experiences, and possibly divine revelations.
There is obviously no way to ascertain whose model is authoritative other than the evidence provided by personal experience and the reputation of the thinker (model builder). Postmodernists would deny that any one such model can be judged superior to any other, and they would advocate the pluralistic view that everyone should be tolerant and accepting of others’ conceptions of the deity (by whatever name). But we should not be surprised to discover convergence of models among those who self-select subscription to particular religions or membership in particular religious denominations.
A logical problem for both the model-building economist and the theological thinker is that the outcome of the thought process may be predetermined by the selection of the beginning premises or presuppositions. This too is a postmodern idea. For example, the economist’s traditional premise underlying the “theory of the firm” is that business managers attempt to maximize profits. A conclusion that may be deduced from a model built on this premise is that when profit-maximizing managers are successful they also tend to achieve monopoly position in their markets.
Some other and perhaps more realistic behavioral premise may lead to another model structure from which different conclusions may be deduced. For example, Nobel Prize winning economist/psychologist Herbert Simon found from survey data that most business managers do not try to maximize profits; rather they try only to achieve a satisfactory level or rate of profit (usually expressed as a "target rate of return on invested capital"). Simon coined the term "satisficing" to describe this behavioral pattern .[2] If a model is based on satisficing as the behavioral premise, a more competitive outcome may be deduced. Which behavioral premise is correct may be inferred from empirical evidence about the model conclusions.
By the same token, conclusions drawn from a theologian’s god model are likely to be biased by his or her presuppositions. For example, a god model based on the presupposition that God is vengeful would yield very different conclusions from a god model that presumes God to be loving and forgiving. From a theological perspective faith must trump empiricism because it is unlikely that the correct presupposition can be inferred from empirical evidence about divine behavior.
Herein lies the basis for the postmodern assertion that there can be
no objective truth in theology, philosophy, natural sciences, economics,
or any other social science since all such “truths” are conditioned by
the thinker’s assumptions and biases.
Chapter 11 Endnotes:
[1] The authors of Mark and Luke, both writing for Gentile audiences, used the Greek term that translates into English as “Kingdom of God”. Matthew, a Jew writing for a Jewish audience, used the Greek term that translates into English as “Kingdom of Heaven”, perhaps in deference to the Jewish aversion to using a name for God. C. H. Dodd has suggested that the Greek word that is usually translated “kingdom” could also be translated as “empire” or “sovereignty” (The Parables of the Kingdom, Fontana, 1961). Although Old Testament Jewish populations were ruled by kings, first century Jews in Palestine lived under the rule of the Roman Empire. The “sovereignty of God” may make more sense to twenty-first century Americans who live in a sovereign republic rather than in a kingdom, and whose ancestors fought a revolution to escape rule by a king.
[2] Herbert Simon, "Rational choice and the structure of the environment", Psychological Review, 63 (1956), pp. 129-138.
12. POSTMODERN ELEMENTS IN ECONOMIC THOUGHT
Although it has been said that economics is perhaps the discipline least
affected by postmodern thought, economists incorporated some postmodern
views before Postmodernity was in fashion. But postmodern thinkers
have not been shy about criticizing the methods and content of economic
thought.
Consumer Behavior
The economist’s theory of consumer behavior was well formed by the middle of the twentieth century. A cardinal rule of the theory of consumer behavior is that interpersonal comparisons of utility (i.e., “satisfactions”) are strictly forbidden. It is alright for one person to make comparisons of his or her own state of satisfaction at different times or in regard to different goods or for different quantities of the same good. The latter comparisons are the basis of the economic principle of diminishing marginal utility, i.e., that for most people successive increments of a consumable yield less and less additional satisfaction. Economists think that people who are typical of the society make “rational choices” to purchase goods by comparing the expected satisfaction from consuming some number of units of the good to the satisfaction given up by paying the price for that quantity of the good. “Rational choice” is of course a presumption of the Modern era that is questioned by Postmodern thinkers.
But there is no objective basis in the economic theory of consumer behavior for comparing the satisfaction of one person with another person’s satisfaction realized by consuming the same quantity of the same good. This rule of consumer behavior renders the experience of satisfaction a unique phenomenon that is specific to the individual, just as latter-day Postmodernists contend. One person’s satisfaction “reality” simply cannot be compared to another’s satisfaction “reality” on any objective basis. An adage from American Indian lore is “Don’t criticize me until you’ve walked a mile in my moccasins.” It is of course heroic to think that one person can ever completely grasp the unique experiences and feelings of another person (i.e., his subjective reality, a postmodern concept).
Even though economists insist upon the rule prohibiting interpersonal
comparisons of satisfaction, political bodies often violate the prohibition
by enacting redistributive tax and transfer legislation based on the premise
that a tax dollar taken from a higher-income tax payer will cause less
loss of satisfaction than the gain of satisfaction that a lower-income
member of society will enjoy from receipt of a transfer payment of the
same dollar. This concept also underlies progressive tax structures
that impose ever-higher tax rates on successively higher-income tax brackets.
Mechanistic Explanation
An aspect of economic theory that has been criticized by postmodern thinkers is that the economists’ causative explanations of the workings of capitalist market economy are mechanistic and function without reference to moral values. Economists theorize that the capitalistic market economy can work mechanistically, but only under ideal circumstances. For a mechanistic market to work well, it must be situated within a cultural context with supporting moral values.
Moral philosopher Adam Smith may not have intended to spawn a discipline that developed mechanistic and amoral explanations of economic causation, but neoclassical economists (beginning with the application of calculus to economics around 1870 and continuing to the mid-twentieth century) applied the Newtonian model of a mechanistically ordered universe to the emerging capitalistic economic order. Economic thinkers could describe market mechanisms that do not rely upon moral values because they are reputed to be self-adjusting. Indeed, efforts by external authorities (governments) to constrain or modify the workings of the economic mechanisms and their natural outcomes, it was argued, would hinder the self-adjustment processes. This was both the basis for and the natural extension of Adam Smith’s advocacy of a laissez faire role for government to play in the economy.
The self-adjusting nature of a market mechanism follows from the presumed continual monitoring by market participants of prices compared to expected satisfactions or usefulness of things to be sold and purchased. Shared values imposed by cultural conventions, social relations, religion, and moral proscriptions could be expected to constrain those who would take advantage of others’ ignorance. And if some succeeded in taking advantage of others, the “fool me twice, shame on me” principle should quickly correct any exploitation. This principle of course presumes adequate perception and rational insight, both of which are objects of skepticism by postmodern thinkers.
The mechanistic functioning of capitalist market economy that emerged
in neoclassical explanations was not particularly problematic as long as
economic activity occurred under nearly ideal circumstances and was contained
within and constrained by cultural norms, social inhibitions, religious
teachings, and moral values. The neoclassical economic theories performed
their explanatory functions less well when circumstances became less than
ideal and as the cultural constraints faded into postmodern subjectivity.
Morality
Personal liberty in the forms of consumer sovereignty and freedom of enterprise is what makes market economy work, but a gradual postmodern process of impairment of the cultural background began to subvert the mechanism in the form individualism and economic freedom taken to their logical extremes. It is ironic that Postmodern thinkers believe that all experience is subjective and that values should be self-determined, both of which imply extreme individualism, but they favor a collectivist form of economic organization (socialism), and that being precluded they favor authoritarian interventions (regulation) to correct perceived economic problems.
The problem that began to manifest itself as the Postmodern era unfolded after World War II is that individualistic freedom of thought led a growing number of people to conclude that their own preferences and values were just as authentic and more important to themselves (a manifestation of extreme subjectivity) than any societal mores and constraints. The shared values of the Modern era began to evaporate, and with them a sense of community. There are in every generation some business decision-makers who flout moral conventions (and the law) in quests for super-normal profits, but it seemed that a growing number were shucking their moral inhibitions as the twentieth century wore on, and new generations of young MBA-trained executives entered fields of industry and finance seemingly with minimal social and ethical conditioning.
A palpable moral decline in the economic arena became manifested during the 1990s in the WorldCom and Enron debacles. The period leading up to the financial crisis of 2008-10 witnessed mortgage lenders issuing mortgages to borrowers who could ill afford to make the monthly payments, and financial traders taking exorbitant bonuses even as shareholders in their companies suffered traumatic losses. Greed unconstrained by either law or moral inhibitions has been judged to be the motivating factor in both instances.
Economic theory, entrenched in reason-based mechanistic and amoral explanations
of economic causation, may have missed much of the Postmodern transformation
of society that has focused upon subjective realities and resulted in a
wholesale (but not completely universal) rejection of absolute truths and
community values. The unfolding economic and financial turmoil of
the early twenty-first century seem lie beyond their “objective” economic
theories.
Efficiency
No economic system (feudalism, capitalism, fascism, socialism) has ever been the seat of morality in its respective society. Rather, an economic system is contained within and must be constrained (if at all) by the prevailing culture and religion of its society. The structure and incentives built into a market economy render it an efficiency-pursuing mechanism, but one that does not ensure distributional equity (fairness). In fact, there often are trade-offs between efficiency and equity in the sense that when either is achieved the other suffers. This is not to excuse economic actors (or any other members of society) from immoral behavior, but it is to suggest that it is the function of the societal container of the economy to limit the impairment of equity when efficiency is pursued by economic actors.
Certainly the humans who function as business and financial decision-makers
should be expected by the larger society to behave responsibly and morally
according to its shared conventions, no less so than anyone else in the
society. Shared values are foundational to the communitarian view.
Postmodern thinkers may reject the idea of community-shared values, but
ultimately it is the joint role of family, academy (the educational system),
clergy (the religious system), and polity (the political system) to establish
and maintain community-shared values, to acculturate prospective business
decision-makers (and everyone else in society) to adopt and abide by those
community-shared values, and to establish a legal system that fosters those
values and punishes violations of those values.
Economic Failures
The apparent economic failures of the early twenty-first century are actually manifestations of Postmodern processes of individualization, disintegration, differentiation, pluralization, and fragmentation of society. It is these processes that have impaired the sense of community-shared values of the Modern era that enabled the mechanistic functioning of market economy. It must also be admitted that assertion of this list of postmodern processes does not explain why these processes have ensued, but we shall leave it to philosophers of the Postmodern epoch to “deconstruct” this issue.
Perhaps there is some good news as the post-Postmodern era opens. By the turn of the third millennium, some social commentators have concluded that the pessimism, nihilism, and criticism of the Postmodern epoch is falling out of fashion, and that a new era characterized by a search for eternal truths and faith in them has begun to emerge. As the so-called post-Postmodern era opens, evidence lies in the emergence of so-called “mega-churches” with literally thousands of attendees (not necessarily members) who are seeking assistance in forming their personal values and some foundation upon which to erect these values. Herein lies the opportunity for the church to play an instrumental role in re-forming community-wide shared values based upon traditional religious teachings, and to acculturate the next generation of economic decision-makers to abide by them.
13. THE ANTHROPIC PRINCIPLE
It may seem strange to include a physics topic in an exploration of postmodern intersections of economy and religion, but the reason will become apparent in short order. Recently theoretical physicists have been discussing the so-called "Anthropic Principle." The Anthropic Principle is the recognition that the universe seems to be carefully and finely tuned to support life.
Some have called the Anthropic Principle the "Goldilocks Principle”[1] since all of the necessary parameters exhibit "just-right" values to enable life to begin and evolve:
- Gravity is just strong enough to keep the universe from collapsing, but just weak enough that stars and planets could coalesce.
- The electromagnetic force of the outpouring of light and heat from stars is just sufficient to balance the gravitational forces of their own masses, which try to make them collapse.
- The strong nuclear force is just strong enough to hold the nucleuses of atoms together, even though the positively charged protons try to repel each other.
- The resonance level of carbon, which is the basic building block of life, is just sufficient that pair bonding of helium nucleuses can occur to produce carbon molecules.
- Supernovas have occurred, not too close to earth and not too far away, so that their shockwaves have been just sufficient to cause planets to coalesce and to make heavy elements available for the formation of life.
Some theoretical physicists regard the Anthropic Principle as a sneaky way to slip religion into physics theories. They rue the Anthropic Principle since it implies that an external entity was instrumental in the creation process. In their quest to explain the “singularity," i.e., the instant of creation at the so-called "Big Bang,” they continually seek an explanation of creation that is internal to received physics theory. However, a prominent theoretical physicist is supposed to have quipped that the Anthropic Principle has shaken the atheism of some theoretical physicists.
The Anthropic Principle doesn't prove the existence of God or that a divine being created the universe, but it provides perhaps the strongest circumstantial evidence that humans are likely to find in affirmation of the ancient religious tradition of divine creation.
Extreme Postmodernists would be inclined to deny both the biblical creation myth stories because they are part of a suspect “grand narrative,” and also the scientific evidence underlying the Anthropic Principle simply because it is reputed to be objective knowledge based upon observed facts that are collected in order to support an absolutist doctrine. Yet, such empirical evidence may appeal to post-Postmodernists’ need for an object of belief in which they can place trust.
In 2010, physicists Stephen Hawking and Leonard Mlodinow published their book entitled The Grand Design.[3] In it they make the case that our universe is but one of an infinite number of universes with different laws of physics that were birthed spontaneously in the Big Bang. Our universe happens to be one (and there may be others) that has just the right characteristics to support life, but it is also the only universe that we can observe by virtue of being inhabitants of it. Although they do not explicitly deny the existence of God, Hawking and Mlodinow conclude that a divine being was not necessary to the spontaneous occurrence of the Big Bang, to the properties of a universe that can support life, or to the establishment of the physical laws that govern the observable universe.
Hawking and Mlodinow’s theory of spontaneous creation of a life-enabling universe hinges completely on the mathematical possibility of an infinite number of universes, at least one of which is capable of supporting life. While it may be mathematically possible for an infinite number of other universes to exist (or to have existed), there is as yet no credible evidence of their existence. The existence of multiple universes is pure speculation based on mathematical possibility.
A time-honored adage of scientific inquiry is that it takes a theory to displace a theory. The biblical creation story is a primitive creation theory, but one that continues to be held sacred by Jews and Christians, even today. The physicists’ multiple-universe theory is an alternative to the primitive biblical theory. Hawking and Mlodinow assert that the Big Bang-multiverse theory has passed all tests to which it has been subjected. The challenging question for present-day Christians is whether it suffices to displace the primitive biblical theory.
Even if a divine being theoretically was not necessary to the spontaneous creation of the universe(s), this may be a sufficient condition, but not a necessary condition. The strongest argument that theoretical physics can make at this point is that our life-supporting universe could have been birthed as Hawking and Mlodinow theorize. But Hawking and Mlodinow still have not eliminated the possibility that a divine being did in fact spark the Big Bang and arrange (design?) the life-supporting laws of our observable universe.
This twenty-first century “could have been” theory may be consistent
with Postmodern thought, but religious Jews and committed Christians
are
not likely to regard it as compelling, and it is not likely to deter
their
subscription to the pre-Modern notion that the universe was created by
God who continues the process of creation through cosmic and evolution
processes. This is a faith-based position that has survived both
the Modern and Postmodern cultural epochs to serve as a foundational
belief
at the threshold of the post-Postmodern era.
Chapter 13 Endnotes:
[1] See the interview by Steve Paulson with physicist Paul Davies at http://www.salon.com/books/feature/2007/07/03/paul_davies.
[2] Robert J. Sawyer, Calculating God, Tom Doherty Associates, LLC, 2000.
[3] Stephen Hawking and Leonard Mlodinow, The Grand Design, Bantam Press, 2010.
14. VALUES IN ECONOMIC AND POSTMODERN THOUGHT
As noted in Table 1 of Chapter 1, Modern era thinkers tend to be ethical absolutists who base their values on revealed doctrines, particularly those contained in the Judeo-Christian Bible. They believe that society should follow religious or cultural standards that are considered inherently correct or divinely inspired. In contrast, Postmodernists are ethical relativists who base values on agreed “standards” that may change. They take all values to be subjective in the sense that they are specific to individuals. Postmodernists explicitly reject the ideal of “objective values” in the sense of moral requisites and constraints that are shared by the larger community. They believe that society should grant them rights to set their own standards and values on an individual basis.
Economists operate on the presumption that “objective values” of product worth are determined in market transactions that pit the subjective valuations of buyers against those of sellers. It is questionable whether market-determined values correspond to or converge upon the divinely inspired values that are explicit or implicit in the texts at the foundations of any religious traditions. To put the issue specifically with respect to Judeo-Christian morality, do market-determined values diverge from God's ultimate values, and if so, does it matter?
Economists take as “fact” the essential economic characteristic of the
world to be scarcity, which is the opposite of abundance of things material.
The evidence of the scarcity of any material thing (and time as well) is
a positive market price. Such a price is determined by interaction between
demanders and suppliers in a market, and hence may be construed as an objective
social valuation of the thing. Economists refer to such scarce things as
"economic goods." People find economic incentive to produce and provide
such goods to other people as long as the market prices exceed the corresponding
production costs.
A few things are sufficiently abundant that the market values them
at zero prices; they are free for the taking by anyone who wishes to gather
them. There is no income to be earned in the processing of such goods,
and hence no incentive to provide them to other people. Economists refer
to such things as "free goods." The few textbook examples are common air
and ground water. "Pure air" and "drinking water" have to have been treated
at some cost, and so are not free goods.
"Nuisance goods" (an obvious contradiction in terms) are abundant things with such negative characteristics that no one would pay positive prices to acquire more of them. But people often do pay positive prices to rid themselves of nuisance goods. Examples include common rubbish, sewage, nuclear waste, and environmental pollutants. Economists often refer to nuisance goods as "bads."
Subjective values are those held uniquely by each individual. Individuals may make comparisons of their own valuations of different things, or they may make intertemporal comparisons of their own valuations of the same item. Consistent with Postmodern thought, economists recognize that it is strictly not legitimate to make interpersonal comparisons of subjective valuations. This suggests that each person should respect the subjective valuations made by other persons since it is not possible to "get into the heads of others" to see what they are experiencing.
Market prices are construed by economists as objective valuations because they are socially determined by interactions between collections of free-agent buyers and sellers engaging in market transactions. This view is consistent with Modern era thought that objective knowledge (facts, observation, and exercise of logic) can explain reality in an absolute sense.
If there are large numbers of market participants on both sides of the market, the market is said to be competitive. The smaller the numbers of participants on either or both sides of the market, the greater the potential for the exercise of monopoly power. If the number of participants devolves to one on the sellers side of the market, a "pure monopoly" is said to exist. In the case of a single participant on the buyer's side of the market, the result is "pure monopsony."
The implications of the presence and exercise of monopoly power on either side of the market are considered below. For the moment let us assume competitive conditions characterized by large numbers of participants on both sides of the market. The buyers are referred to by economists as "demanders", the sellers as "suppliers". They are perceived to bid and offer prices for available and desired quantities of scarce material goods in markets until deals are struck. The prices struck in such deals then are "objective" determinations of valuations in the sense that they are socially determined. As such they are simply amoral facts accepted by the free agents who are parties to the transactions.
The markets in which these amoral facts emerge are amoral social constructs, but which are populated by human beings who may choose to behave morally or immorally in the context of the society’s mores. The objective (in the sense of being socially determined) prices are reflections of the scarcities of the goods relative to wants for them in an imperfect material world. The market price “facts” are sometimes judged to be immoral or obscene on some distributional grounds, e.g., if the market-determined price is beyond a low-income person's purchasing capabilities.
Even though a price is reputed to be objectively negotiated in a market, market participants continually engage in subjective valuations of the good in order to render a rational judgment about whether the market-determined price is greater or lesser than their personal valuations of it. It may be said that everything which I have is for sale, and I am "in the market" for everything. However, I will not sell those of my possessions that I value more than their market prices, but I will purchase from the market things whose market prices are less than my personal valuations of them.
The subjective valuation of a good involves an estimate of the personal satisfaction that the prospective consumer may realize upon acquisition and consumption of the good. Consistent with Postmodern thought, every person's valuation of a good is therefore unique and may be different from valuations of the same good by others. The consequence is that some of us will buy the good (our purchasing powers permitting) at the "going" market price; others will not (either they choose not to, or their purchasing powers do not permit them to do so).
The economic theory of how market values are determined and how people make their purchase decisions has characteristics of both Modern and Postmodern thought. While subjective valuations of goods by individuals are entirely consistent with Postmodern thought, the objectiveness of valuation by the market is consistent with Modern era thought.
Market prices change over time with changing demand and supply conditions. Such price changes often are manifested by particular vendors who "run sales." Prices tend to become higher with intensifying scarcity, as for example with exhaustion of the resources used as inputs in the production processes. Prices may fall as the goods become more abundant, for example, with discovery of new input sources or technological advances that lower production costs. As market prices change, individuals continue to compare their own subjective valuations to the changing market prices.
In the absence of monopolistic manipulation of prices, there are no particular moral implications to the simple facts of market price variations. Prices rise and fall in response to changing demand and supply conditions; it simply happens. While it is certainly true that rising prices may render purchases more difficult or impossible to people with lower incomes, such price variations neither imply nor convey any malevolent intents to preclude lower-income people from the enjoyments of the goods.
It is indeed possible that monopoly power may have been involved in the determination of the market price of a good, but it may be very difficult to discern whether or not such is the case (the exercise of monopoly power is an easy charge to levy, but one which is difficult to substantiate). The monopoly control of material inputs or the product market itself may result in higher than "normal" market prices. The consequence is that those exercising monopoly power may be able to capture "super-normal" profits. Price increases that are attributable to the exercise of monopoly power invite judgments of immorality on the setting or raising of prices, and the prices so set or raised may be thought of as immoral, especially if they serve to preclude from the market people of lower incomes.
The difficulty of discerning whether or not monopoly power has been instrumental in the setting or raising of a price may lead to the presumption that some monopoly power may have been involved in the determination of all prices. One who is inclined to this presumption may infer that any particular price or any price increase may be an "immorality," and the business decision maker who perpetrates it is "immoral." Such a presumption typically is held by those who are naturally suspicious of the market process and the motives of business decision-makers. More intense competition is the economist's preferred remedy to the possession and exercise of monopoly power in a market. To the extent that a market is more competitive than monopolistic, an imputation of immorality to a particular price or price change is unfounded and unfair to the businesses engaged in supplying the market. In competitive markets, price increases simply follow from changes of market conditions.
It may be admitted that market-determined values might diverge from God's ultimate values, but another view is that these values are simply non-comparable. Economists long have recognized that multiple, divergent valuations serve different purposes. For example, economists commonly distinguish between "nominal" values which are negotiated in markets, and "real" values which are nominal values adjusted to eliminate the effect of inflation. Such valuations serve different purposes and may not even be compatible or consistent with one another. Such divergent valuations become significant when the "wrong ones" are used as criteria to allocate society's scarce resources. When market valuations are used for resource allocation, they affect the portions of real resources which are made available to (or withheld from) church and academy.
PART 4. GOVERNMENT ROLES IN THE ECONOMY
The role of government in the economy is a crucial aspect of both Postmodern
thought and Communitarian ideology. The chapters in Part 4 examine
the roles that governments have come to play in the two most prominent
forms of economic organization, market capitalism and authoritarian socialism.
Chapters in this part also explore the missteps that governments have taken
in expanding their roles.
The motivating and decision-making vehicle of capitalism is the market.
Economists theorize that under ideal circumstances markets can "work themselves"
without government intervention. Postmodern thinkers criticize both
the functioning of market economy and economists' explanations of it as
mechanistic. This chapter provides such a mechanistic explanation
of how a market economy is supposed to work under ideal circumstances,
and then finishes with a description of how socialism would work under
its ideal circumstances. The ideal circumstances for market capitalism
include sufficiently competitive conditions (i.e., the absence of monopoly
power), adequate knowledge of market realities, and the absence of externalities
(spill-over effects). The ideal circumstances for authoritarian socialism
include adequate information about resource availability and consumption
needs, knowledge of alternative production functions for all items in the
chosen product mix, sufficient data processing and decision-making capacity,
and absolute political power to make the allocation and distribution decisions
effective.
Dollar Votes
The functioning of market economy can best be described with the analogy of the political system of democracy. Market economy may be said to democratize economic decision-making (compared to the centralized decision making of authoritarian socialism) by enabling dispersed and participatory decision-making through market mechanisms. In freely functioning markets, all transactions are presumed to be voluntary. No one will enter into any transaction that does not benefit him or her in some way. Thus both parties to a transaction must benefit, or the transaction will not take place. Another way to say this is that market economy functions as a "positive sum game".
The theoretical distributional principle of socialism is need-based, i.e., "to each according to need". The practical problem of identifying needs among multi-million person populations necessitated a shift to a more practical principle in applied socialism, "to each equally", but equal distribution turned out to be as elusive to achieve as needs were to perceive. In contrast, the distributional principle of market capitalism is "to each according to his or her contribution to production of things that other members of society want". This merit-based distributional principle, because of differences among people in inherent abilities, education, training, and motivation inevitably results in unequal distributions of income and wealth.
In market capitalism consumers are free to expend their incomes or wealth
on whatever they wish to acquire. They in effect vote their incomes and
wealth (denominated in currency units of the realm) upon the goods and
services that they most want. This process of democratization is admittedly
imperfect because different people have different amounts of income and
wealth to expend as votes due to the merit-based distributional principle
of market capitalism. Progressive taxation, i.e., ever higher tax rates
applied to a succession of ever higher brackets of income, may have the
effect of leveling the potential to vote, and transfer payments (e.g.,
unemployment compensation, welfare benefits) may enable economic voting
by people who earn no income or have little wealth.
Demand and Supply
Increasing dollar votes for particular products may be perceived to increase the demands for those items. When the demand for a product increases relative to the supply of it, the price tends to rise in the market for the product. Products are supplied by the business firms that produce them. Product price may also rise if supply decreases relative to demand. A rising price signals to producers one of three possibilities: that demand has increased, that supply has decreased, or some combination of the two. A falling price signals a decrease of demand, an increase of supply, or some combination of the two.
The firm's revenue from selling an item is the product of the price
times the quantity sold. A rising price has a dual effect of increasing
revenue per unit sold, but decreasing the number of units sold. Likewise,
a falling price has a dual effect of decreasing revenue per unit sold,
but increasing the number of units sold. Because of these offsetting effects,
it is possible to predict the effect of a price change upon revenue only
if the relative magnitudes (i.e., the percentage changes) of the price
and quantity changes are known. Revenue can be increased either by raising
price when the negative quantity effect is smaller than the positive price
effect (demand is said to be "inelastic" with respect to price), or by
lowering price when the positive quantity effect is larger than the negative
price effect (demand is said to be "elastic" with respect to price). Revenue
will diminish when price decreases and the positive quantity effect is
smaller than the negative price effect (demand is inelastic), or when price
rises and the negative quantity effect is larger than the positive price
effect (demand is elastic).
Economizing Questions in Market Capitalism
Every economic system, no matter how it is organized, must answer four basic economic questions: what to produce, how to produce it, by whom it should be produced, and to whom it should be given. The “what” question means the product mix that the society should produce. The “how” question is about the best methods of production (i.e., the most efficient technologies). The “by whom” question is about the allocation of the economy’s scarce resources to production of all of the items selected for the product mix. The “to whom” question is about who should receive all of the units of the items produced in the economy.
In a market economy, the dollar (or whatever currency denomination) votes of spenders are tallied on the revenue side of the “income and expense” statements (a.k.a. “profit and loss” statements) of business firms that produce goods and services. Production costs are registered on the expense side of the income and expense statements. Firms find motivation to produce (and continue to produce) only those goods and services that can be produced profitably, i.e., those for which revenues from sales exceed costs of production. Firms whose managers fail to perceive market realities with respect to their selected product mixes will suffer losses and eventually go out of business. The "what" question is thus answered in market capitalism jointly by consumers in response to price signals, and by producers in response to profit outcomes.
There are usually a number of methods for producing any particular good or service. In their zeal to maximize profits or minimize losses, producers of goods and services find incentives to choose the very most efficient methods so as to minimize costs of production. Higher-cost producers who have not adopted the lowest-cost production methods can expect to realize smaller profits or larger losses, and ultimately to fail. The "how" question is answered in market capitalism by producers motivated to minimize costs of production.
Owners of resources behave rationally to seek the highest incomes or returns for their resources. Firms buy or hire resources to be used only in the production of profitable goods and services. As demands increase in the markets for the resources used in production of the desired items, rising resource prices elicit an inflow of resources seeking higher compensations. Falling demands for goods no longer desired result in falling prices in both the final goods markets and in the markets of the resources used in the production of those final goods. Resources tend to flow away from production of goods that can no longer be produced profitably. The "by whom" question is thus answered in market economy jointly by producers in offering wages and resource prices, and by the owners of resources in seeking maximum incomes.
The output of a market economy is distributed to citizens who exercise
personal discretion in choosing how to vote their dollar incomes or wealth.
Those who want products badly enough to part with their incomes or wealth
get the output of the economy. The "to whom" question is thus answered
by the society itself as its members vote their dollar incomes and wealth.
Economizing Questions in Authoritarian Socialism
The responses to the economizing questions in an authoritarian socialist economy are straightforward. Under ideal circumstances in authoritarian socialism, a central planning authority determines the product mix, dictates the methods of production, allocates resources, and distributes output. The ideal conditions for authoritarian socialism include adequate information about resource availability (supply) and consumption needs (demand), knowledge of alternative production functions (technologies or recipes) for all items in the chosen product mix, sufficient data processing and decision-making capacity, and absolute political power to make the allocation and distribution decisions effective. Needless to say, these ideal conditions have not obtained in any instance of socialism that has been tried. Even the most determined socialist dictators have found it necessary to rely upon market mechanisms to allocate resources and distribute product.
The next two chapters address the flaws and failures of market economy that are attributable to the non-ideal circumstances under which real-world market economies actually operate. In the Postmodern view, the flaws and failures of market economy are sufficient to warrant a transition to socialism. In lieu of such a transition, Postmodernists favor government intervention in the market economy to correct the flaws and avert the failures of market capitalism.
16. THE ROLE OF GOVERNMENT IN A MARKET ECONOMY
Postmodern thinkers judge that market capitalism outcomes are bad enough to warrant replacing capitalism with socialism so that “philosopher kings” can make wise economic decisions on behalf of their societies. With the failures of virtually all socialist experiments that have been attempted, Postmoderns have begrudgingly recognized that capitalism is likely to be the dominant form of economic organization into the foreseeable future. In lieu of replacing capitalism with socialism, Postmoderns have favored government interventions to correct the perceived faults and failures of market capitalism.
BP's 2010 deep-water oil well disaster in the Gulf of Mexico at first revealed a culture of public belief and expectation that government both can and should address any ill that may befall society. This belief and expectation is rooted in the Progressive Movement of the early twentieth century. While the Obama Administration early-on “took ownership” of the Gulf oil disaster, its seeming inability to bring the disaster to a conclusion for over three months may have led many to lose faith in the extent of government’s powers. This is of course no surprise to Postmodern thinkers who harbor deep skepticism of government’s abilities to solve all of society’s ills.
The proper role of government in the economy has become the compelling object of political debate during the run-up to the 2010 mid-term Congressional elections. Arthur Brooks (president of the American Enterprise Institute) and Paul Ryan (Republican congressman from Wisconsin) describe the issue:
As we move into this election season, Americans are being asked to choose between candidates and political parties. But the true decision we will be making—now and in the years to come—is this: Do we still want our traditional American free enterprise system, or do we prefer a European-style social democracy? This is a choice between free markets and managed capitalism; between limited government and an ever-expanding state; between rewarding entrepreneurs and equalizing economic rewards.[1]
The terms “free enterprise system” and “free market economy” are bantered about, often by non-economists, and particularly by Postmodern critics of capitalism who wish to point out the faults and failures of market economy. In fact, there is no such thing as a pure “free market economy”, and there never has been. Virtually all economies throughout history have been so-called “mixed economies” in the sense that important economic functions have been performed by both markets and governments. The world has seen no examples of pure capitalism. Even the North American continent has never seen pure capitalism. The British crown always played a decision-making role before the Revolution, and the newly established "federal government" of the United States began to be economically active immediately upon its founding in 1779.
Nor has the world seen any examples of pure socialism. During its heyday of the 1960s through the 1980s, the Soviet Union was a mixed economy that attempted to move ever closer to pure authoritarian socialism. Because of bureaucratic limitations it had to continue to use market-type decision mechanisms to allocate most resources and distribute most products. Softer variants of socialism combine state ownership of the means of production with political democracy, i.e., "democratic socialism".
The term “mixed market economy” describes an economy in which markets play predominant roles in addressing fundamental economizing questions (what mix of products to produce, how to produce the product mix, how resources should be allocated to producing each of the selected products, and to whom the output should be distributed), with minimal intrusion by government. In an extreme libertarian view, there would be no role of significance for government to play in a market economy.
The greatest challenge to market economies in the twenty-first century is likely to be an ever-expanding role for government to play in the economy as expected by both postmodern and communitarian thinkers. Taken to its logical extreme, the end-point of such a progression could be either fascism (privately-owned means of production with state control over it) or authoritarian socialism (state ownership of the means of production and centralized decision making). In either case, the loss to society would be the curtailed personal liberties of market participants. Karl Marx in Das Kapital (1867) predicted the end of capitalism (a.k.a. “market economy”) by violent revolution of the working class against the capitalist class to establish an authoritarian socialist state. Joseph Schumpeter in Capitalism, Socialism, and Democracy (1942) also predicted the demise of capitalism and its replacement by socialism, but by the democratic legislative process rather than by violent revolution.
The progressive socialization of income and spending entailed in an
expanding role of government militates against personal discretion to
make
voluntary contributions of earned income to churches, charities, and
other
eleemosynary institutions. A well-observed phenomenon in Europe
is
that when churches became supported by the state, voluntary
contributions
diminished along with church attendance and religious participation.
Basic Premises
The foundation premises underlying a market economy are:
(b) The state (or government): exists to serve the interests of the individuals that compose the society.
(c) Freedom: People “yearn to breathe free” (caption on the tablet held by the Statue of Liberty), i.e., with minimal constraints on their political, social, personal, and economic decision-making.
(d) Information: no one knows better than the individual, ex ante a decision, what he or she wants or prefers.
(e) Subjectivity of judgment: ex post a decision, the individual may recognize that he or she made a good decision or a bad decision; others, too, may judge that the decisions made by any particular individual were good or faulty, but there is no objective ground for comparing the preferences of individuals and the decisions that they make.
The opposite of consumer sovereignty is the concept of “state sovereignty” which is based upon premises opposite to those listed above:
(b) The state: Individuals and the society exist to serve the state.
(c) The interest of the state: the liberty of individuals is of secondary (or minimal) importance to the interest of the state.
(d) Information: wise leaders (planners, dictators) can know better what is in the interest of the society (and all of the individuals composing it) than can any individual member of the society.
(e) Objectivity of authority: decisions made by a wise authority are by definition correct, irrespective of the subjective judgments of individuals composing the society.
“Democratic sovereignty” is exercised by individuals when they cast their political votes in the voting booth for the candidates whose expressed positions are most congruent with the preferences of the individual voters, and without fear of political reprisals.
Consumer sovereignty is exercised by individuals when they “vote” in the market place their incomes or their wealth (however accumulated) on those things and services that they think will yield them the greatest personal satisfactions, and without fear that their private decisions will be blocked or overridden by actions of the political authority (i.e., the state). Consumer sovereignty includes the personal choices to spend all or part of received income, to save (i.e., not spend some part of received income), and to use some part of received income to make contributions to churches, charities, and eleemosynary institutions. “Freedom of enterprise” is the ability of any member of society to enter into any line of commerce that he or she chooses to pursue, without fear of constraint or competition by government.
Consumer sovereignty and freedom of enterprise are parallel and
compatible
with democratic sovereignty. Consumer sovereignty and freedom of
enterprise may be uncomfortable bed fellows with state
sovereignty.
The full and complete exercise of consumer sovereignty, freedom of
enterprise,
and religious liberty requires a constrained role for the state to play
in the market economy.
The Need for Government
Why does a society and its economy even need a government? We won’t attempt to recount the rich history of political thought about this question (see John Locke, Two Treatises of Government, 1689, and Jean Jacques Rousseau, The Social Contract, or Principles of Political Right, 1762) except to note that one of the earliest cases for government was made by Thomas Hobbes in his book entitled Leviathan (1660). Hobbes argued for the establishment of the state (the “Leviathan”, Hebrew for “sea monster”) by a social contract among the members of society because, in his words, life in a state of nature is “nasty and brutish and short”, in effect a “war of every man against every man.” In Hobbes’ view, the Leviathan would have to be a sovereign power entrusted with absolute authority to ensure domestic security and the common defense.
Adam Smith, author of the original "capitalist manifesto" (An Inquiry into the Nature and Causes of the Wealth of Nations, 1776), was a staunch advocate of laissez faire and so is regarded as a “classical liberal”. Nonetheless, he identified essential roles that government must play in a market economy. He recognized that a society must protect itself from foreign threats, that every member of society should be protected from oppression by other members of society, and that public goods must be provided through the collective action of society. Smith pointed out that the greatest incentives for crime are property and wealth. The protection of property entails the enforcement of contractual agreements and the right to restitution in the case of fraud. Smith also noted that the nonpayment of debt constituted theft just as much as the taking of an item without paying for it.
Friedrich Hayek in his 1944 book, The
Road to Serfdom, acknowledged
that the state has legitimate functions ranging from correcting market
failures to ensuring a minimum standard of living.[2]
A Postmodern view is that there are so many faults and serious
imperfections
in the structure and functioning of market economy that they must be
corrected
by displacement (i.e., replacing capitalism with socialism), or that
not
possible, by authoritarian intervention in the workings of the market
economy.
Before addressing efforts to correct these perceived “market failures”, we should note the so-called "night-watchman functions" of government (John Stuart Mill, Principles of Political Economy, 1899) that nearly all (liberals and conservatives alike) can agree are the minimal functions to be performed by government, quite apart from efforts to fix perceived defects of the market economy:
- establishment of the "rules of the game" by enacting a system of law; providing for the protection of property;
- ensuring domestic serenity with well-organized, trained, and restrained police forces; providing for national security by maintaining an efficient military establishment for defensive purposes;
- maintaining and enforcing a system of weights and measures;
- providing a reliable and elastic money supply, i.e., one that meets the requisites of economic growth but which is not increased so fast as to cause inflation.
Chapter 16 Endnotes:
[1] Arthur C. Brooks and Paul Ryan, “The Size of Government and the Choice This Fall”, The Wall Street Journal, September 13, 2010, page A21, http://online.wsj.com/article/SB10001424052748704358904575478141708959932.html?mod=WSJ_hps_RIGHTTopCarousel_1.
[2] Friedrich Hayek, The Road to Serfdom, University of Chicago Press, 1944.
17. PERCEPTIONS OF MARKET FAILURE
Only the most extreme libertarian would advocate a night-watchman-only role for the state. Most modern economists, even those who consider themselves fairly conservative, recognize that there are shortcomings of the market economy that can be addressed by government authority. Indeed, with the emergence of Postmodern culture during the twentieth century, society has become more accepting of government involvement in the economy, and more demanding of it as well. Critics of market capitalism characterize these shortcomings as “market failures”. To the extent that these market failures constrain consumer sovereignty and freedom of enterprise, they may also have negative effects on religious liberty.
A market economy works best under ideal circumstances, i.e., when no
market participants have any special advantages, there is sufficient competition
among market participants, all effects of every transaction are fully reflected
in the outcome of the transaction (there are no spillover effects), there
is adequate public good infrastructure (e.g., transportation, communication,
water, sewage, power), and the macroeconomy is sufficiently stable that
it does not significantly affect the fortunes of individuals. But these
very conditions, if they are not met, provide reasons (or excuses) for
governmental intervention into the economy.
Types of “Market Failure”
Monopoly Power. Inevitably, some market participants are born with advantages not possessed by others, and some market participants, by virtue of race, position, connection, or other characteristic are able to acquire special advantages, perhaps though education, training, or life experiences. These inherited or acquired advantages often serve as the bases for curbing competition and achieving monopoly power in markets. Monopoly power may allow the possessors of it to capture incomes greater than commensurate with their productive capacities. The exercise of monopoly power distorts the allocation of resources and the distribution of incomes in the economy. The exercise of monopoly power by those who possess it limits the personal liberty, freedom of enterprise, and consumer sovereignty of those who do not possess it.
Income Distribution. Productivity suffers when the allocation of resources is distorted, and incomes become more unequally distributed when those with monopoly power capture incomes greater than warranted by their productive capacities (a phenomenon described as “exploitation”, the religious implications of which are discussed in Chapter 30). The distribution of an economy's output by dollar voting often raises the equity issue because the merit-based distributional principle of market capitalism inevitably results in an unequal distribution of income. The wealthy simply have more dollars (or euros or other currency units) to vote than do the poor. The classic objection is that the wealthy afford champagne even when the poor can't afford milk for their babies.
Externalities. Another reputed defect of market economy is that transactions may result in spillover effects (a.k.a. “externalities”) that are not reflected in the market outcomes. A positive spillover effect results when a transaction between two parties (the first and second) unintentionally helps a bystander (a third party to the transaction). Private health maintenance and education expenditures that benefit not only those who purchase them but also other members of society often are cited as examples of positive spillovers. A negative spillover effect results when a transaction between two parties unintentionally harms an innocent bystander. There are many examples of negative spillovers, among them roadside trash, noisy side effects of production or entertainment, smoke, particulate and chemical pollution in the atmosphere or streams, and the list goes on. Positive spillovers may enhance the exercise of enterprise freedom, consumer sovereignty, and religious liberty by market participants; negative externalities diminish them.
The “services” rendered by churches and charities to their members and clients are like spillover benefits in that they are unrecognized by markets at not compensated in market transactions. Quid pro quo market transactions are so-called bilateral transfers of value in that values are exchanged between the market participants. Contributions to churches and charities, like taxes paid to governments, are so-called “unilateral transfers” of purchasing power from the donor or payer to the recipient. Since the market underallocates resources to the services provided by churches and charities, they must employ such non-market means of raising revenues as soliciting pledges of voluntary contributions by their members. Governments that are favorably disposed to such private contributions may attempt to correct the resource allocation distortion by providing implicit subsidies to them in the form of income tax deductions. However, opponents of such subsidies often invoke the Constitutional requisite of separation of church and state to threaten the removal of tax subsidies to private contributions.
Public Goods. Economists distinguish between “private goods” and “public goods”. The personal incomes and wealth of many people are sufficient that they can purchase private goods and then use them to their own exclusive benefits. For example, I can purchase a television receiver, take it into my house, close the doors and draw the blinds, and so exclude all others from enjoying it. Private goods are produced for the market in response to price and profit signals. Public goods, however, are not subject to the so-called “exclusion effect”, i.e., one cannot purchase a public good and successfully exclude others from using or enjoying it. For example, while television receivers are private goods, television broadcasts are public goods that I cannot keep other people from enjoying if they too have television receivers. And because public goods are usually large and “lumpy”, their prices are so high that individuals (other than Donald Trump) typically cannot afford to purchase them. Examples are local roads, national highways, bridges, tunnels, canals, ports, airports, stadiums, parks, water and sewer systems, communications and power transmission networks, etc. Another characteristic of public goods is that one person can use ever more of a public good, but that person’s use of it leaves no less of it for other persons to use (the “more for me, no less for you” characteristic). Examples include bridge crossings and visits to public parks. The facilities of churches and synagogues exhibit many of the characteristics of public goods even if they are not supported by state finances.
These characteristics of public goods mean that the market does not respond to price and profit signals to produce public goods. This is usually construed as a failing of market economy that can be remedied only by government funding and provision of the public goods. Government itself may provide the public goods, or it may fund and commission the provision of the public goods by private sector providers. But the private producers of public goods do so only at the behest of government, and only with government funding. Governmental provision of public goods that facilitate the efficient functioning of markets expands freedom of enterprise and broadens the range of private goods produced in response to market signals.
Markets also don’t respond to price and profit signals to produce church facilities which provide services that exhibit the characteristics of public goods. The financing of churches requires a social resolve of the respective memberships rather than public decisions rendered through the offices of governments (unless, as is the case in many European countries, the state has taken responsibility for financing church establishments). Unable or unwilling to offer religious services on a quid pro quo basis (i.e., service for price), church and synagogue memberships must mount fund-raising campaigns that are designed to elicit sufficient voluntary contributions to support the services and finance construction of facilities.
Social Goods. Economists also identify an intermediate type of goods between private goods and public goods. “Social goods” are like private goods in that some quantity of each is produced in the private sector in response to price and profit signals, but because social goods entail spillover benefits that are not recognized by the market, the market underallocates resources to their production and causes the underproduction of social goods relative to the quantities that would be produced if all spillover benefits were recognized by the market. Because the spillover benefits are unrecognized, the allocation of resources is distorted and consumer sovereignty is unduly constrained. The solution is for government to encourage the production of more of the social goods by providing subsidies to private sector producers or consumers. The “trick” is for government to provide just the right amount of subsidy to encourage private sector production of the amount of the good that would be produced if all spillover benefits were recognized by the market, else the subsidy perpetuates or worsens the allocative distortion.
Macroeconomic Instability. Instability of the macroeconomy (the economy of a large region, province, or nation) may have effects upon individuals that are beyond their control and thus may impinge upon their personal liberty, freedom of enterprise, consumer sovereignty, and religious liberty. Economic expansions can provide employment and entrepreneurial opportunities not possible in a stable or contracting economy, thus enhancing enterprise freedom and consumer sovereignty. Economic contractions may result in layoffs of workers and failure of businesses as markets contract, thus diminishing enterprise freedom and consumer sovereignty. Inflation, if unanticipated, can cause losses of purchasing power to savers, lenders, and people whose incomes are fixed or indexed at rates slower than the actual inflation rate. Deflation, though it may increase the purchasing power of incomes, often is accompanied by falling incomes, decreased profitability of businesses, and business failures with accompanying job losses. Economic instability that diminishes incomes is likely to reduce voluntary contributions to churches and charities and can have deleterious effects on their budgets and service provision levels.
Greed. Critics of market economy sometimes imply that market transactions must be zero- or negative-sum “games”, i.e., if one party to a transaction gains, the other party must have lost and may have lost more than the first party gains. Indeed, prior to 1776 it was the conventional wisdom that selfish private pursuits must diminish the welfare of society. One of Adam Smith’s most radical suggestions in The Wealth of Nations was that when a self-interested person produces goods or services for the market, the welfare of the larger society is also served because other people need and want those goods. This was a radical notion in 1776, and it continues to be poorly understood to this day. A modern version of this notion is that market activity can be a positive-sum game because if both parties to a transaction enter into it voluntarily and with adequate knowledge of what is being transacted, both must expect to gain from the transaction.
Fraud. Even though market transactions can be positive-sum games, market economy is fraught with the potential for greedy individuals to perpetrate fraud upon their fellow market participants, and thus to capture gains for themselves at the expense of others. Fraud occurs when there is intentional deception resulting in harm or injury to other parties. Examples include misrepresenting the characteristics of products or services being offered in the market, hoaxes in the form of product or service offers that are never delivered, and agreeing to contract terms that are not fulfilled. Fraudulent activity impairs enterprise freedom, consumer sovereignty, and religious liberty. Most can agree that government should enact laws prohibiting and punishing fraudulent activity.
Ethical Issues. Aside from fraud, there are ethical problems when self-interest is taken to the extreme of greed. Unethical behavior occurs when greed causes people to pursue self-interest to the detriment of other members of society. Although ethical orientations differ widely across cultures, behaviors that most people in Western nations would judge to be unethical (whether or not construed as fraudulent under law) include bribery, embezzlement, conversion of company property for private use, breaking contracts, price fixing, collusion, deceptive advertising, falsification of expense accounts, underreporting of income or padding of expenses on tax reports, use of substandard materials, producing and selling products that fail to function as advertised, failing to divulge to consumers possible product dangers, and so on. Any of these unethical behaviors may constrain the freedom of enterprise and consumer sovereignty of other market participants.
But this begs the very important question of whether government should attempt to legislate morals and regulate ethical behavior based upon moral precepts. And if so, whose moral precepts? Modernists seem to have little trouble in authorizing government to enact and enforce laws based upon Christian moral standards, but Postmodernists are ethical relativists who base beliefs, values, and hope on agreed “standards” that may change, and they believe that that society should grant them rights to set their own standards and values.
A related question is whether ethics can serve as a basis for law, or should law serve as a basis for ethical behavior? Some people feel that if they have met the “letter of the law”, they have behaved ethically. Citizens of a state should of course attempt to obey all reasonable laws and regulations, but it is unlikely that laws can be passed or regulations established to cover all situations involving questionable ethical aspects (although the French system of code law attempts to do just this). It is more likely that ethics can serve as an appropriate basis for law than that law can serve as an adequate basis for ethical behavior. Citizens who regard certain laws or regulations to be unreasonable (e.g., speed limits that are perceived to be unduly low or traffic light waits that are considered to be too long) will tend to flout them and deny that violating those laws involves unethical behavior. Once people become conditioned to flouting minor regulations without repercussion, they tend to have fewer qualms about flouting more serious laws. American jurisprudence has favored establishing general-principle laws and regulations, and then letting case adjudication establish precedents that deal with details. Even so, general-principle law and case precedents cannot deal with every ethical situation that may arise. Postmodernists would not be favorably disposed toward either general-principle law or French-style code law that constrains their individual liberty to set and abide by their own moral standards.
Consumerism. Even if fraud is not perpetrated and ethics are not otherwise at issue, a society that enjoys “easy credit” and is continually bombarded by advertising may exhibit the characteristics of a consumer mentality, or “consumerism”. Consumerism results when consumer sovereignty is taken beyond the bounds of human need. The continuing message in the media is that “more is better”, old possessions are obsolete, and new models are “must have” items. So, even if the things that one possesses are adequate to a comfortable lifestyle, one is confronted continually with the message that he or she needs to dispose of the old model and buy the new model. A society experiencing consumerism also has been described as a “throw-away” society. Here the language of “want” and “need” intentionally is obscured in advertising that is intended to create wants that are represented as “must have” needs. The more gullible and inexperienced members of society, particularly the young who are dependants of adults who pay for their sustenance, fall prey to such must-have advertising. It is arguable whether such want-creation advertising is unethical by either Modern era standards or by Postmodern subjective standards.
Most can agree that government should issue regulations requiring “truth in advertising”, but a more difficult question is whether there is an appropriate role for government to play in curbing want-creation advertising. Any such governmental action would constrain both freedom of enterprise and consumer sovereignty. This question is made even more difficult by the fact that consumerism in countries like the US and many of those in the EU helps to drive economic growth, not only in those countries, but globally as well. Occasionally political spokes-persons of other countries chide the US and EU nations for their consumer mentalities accompanied by escalating debt levels and deteriorating trade balances. But economic welfare and growth in many developing nations is especially dependant on sustained and increasing consumption in developed nations. As the saying goes, “when the United States sneezes, the rest of the world catches pneumonia.” When the US goes into a recession, those same spokes-persons who chided US consumerism now call for a reflation of consumer spending in the US.
18. GOVERNMENT EFFORTS TO FIX MARKET FAILURES
Given the laundry list of market economy failures, what are the appropriate roles for the state to play in a workable market economy? The liberal principle that has persisted through the Modern era is that government should establish the “rules of the game” and function as a neutral umpire in the market. When government ceases to be a neutral umpire or goes beyond to become a player in the market, it jeopardizes the exercise of enterprise freedom and consumer sovereignty. But with the emergence of Postmodern culture and communitarian ideology during the twentieth century, society has become more accepting of government involvement in the economy. Postmoderns and communitarians both see roles for government beyond serving as neutral umpire.
Wise Authority. Basically there are only two possible governmental approaches to dealing with reputed market failures. One, often perceived to be the easier approach, is to replace market decision-making with centralized, authoritarian decision-making. The underlying premise is that a “wise authority” (a so-called “philosopher king”) can make better economic decisions than those made by a multitude of individual market participants, each pursuing his or her own personal interest.
To be consistent with their subjective values and ethical relativist positions, Postmodern thinkers might prefer the personal responsibility of a caveat emptor (“buyer beware”) approach. A “wise authority” approach typically has been implemented in Postmodern era democratic polities by legislation to establish decision-making or regulatory commissions that are empowered to specify and enforce standards of performance and maintenance, prices or price changes, and labeling of products. Although such regulations may constrain freedom of enterprise, the intent is to enhance the ability of market participants to exercise both consumer choice and enterprise freedom. Governmental actions that correct or offset perceived market failures may also serve to enhance religious liberty.
Nationalization. The extreme variant of the “wise authority” approach is nationalization of all private-sector enterprises coupled with central planning to answer the fundamental economizing questions (what, how, by whom, and to whom). Nationalization substitutes the authority of the state in place of enterprise freedom and consumer sovereignty. Governments that have nationalized privately-owned production facilities typically have not been congenial to the exercise of religious liberty. Universal nationalization of all productive facilities results in authoritarian socialism, the form of economic organization typically preferred by Postmodernists, but which is inconsistent with their preferences for subjectively-determined values and ethical relativism.
The alternate approach to dealing with market economy defects, but one which may be more difficult to perceive or to implement, is to leave in place the market mechanisms but design ways to make the market mechanisms work more satisfactorily. In lieu of actually replacing capitalism with socialism, Postmodernists favor intervention by governmental authorities to correct or offset market “failures”.
Inequality. Inequality in the distribution of something across a population is a descriptive or factual matter. Inequity is a subjective matter, a matter of perception that the degree of factual inequality is unsatisfactory. A national income that is perceived to be too unequally distributed across the population of the nation may be judged to be inequitable. By the same token, a perfectly equal distribution of income across a society that values productive contribution and rewards merit also might be judged to be inequitable. In such a society, some distributional inequality attributable to reward for meritorious productive effort might be accepted as equitable.
In democratic societies, a market-modification approach is typically used in dealing with the perception of inequity of the income distribution. The approach is to couple progressive income taxation with a transfer payment system. Progressive income taxation applies ever-higher tax rates to a succession of higher personal income tax brackets, thereby to level disposable incomes "from the top". The tax proceeds, or some of them, are then redistributed to lower-income members of society upon some pre-established means criteria to raise disposable incomes "from below". Leveling disposable incomes from the top and raising the income floor from below has the effect of moderating the degree of inequality of the income distribution.
The effect such a redistribution strategy is to enhance the exercise of consumer sovereignty at the lower end of the income distribution spectrum at the expense of enterprise freedom toward the upper end of the income distribution spectrum. An unintended side effect of income redistribution is likely to be impairment of incentives at both ends of the income spectrum. Why should a higher-income recipient continue to work so hard and assume so much risk if an ever-larger proportion of his additional income is taxed away? Why should a lower-income recipient continue to work as hard if his subsistence and comfort requirements can be met by ever-richer transfer payments (e.g., welfare entitlements)?
A conjectured effect of income redistribution is the creation of asymmetry in church and charitable contributions across the income spectrum. Lower-income recipients of distributions are likely to increase spending more on perceived needs than on charitable contributions. The increased level of charitable contributions by poorer people receiving income distributions is therefore unlikely to be as large as the loss of contribution receipts from wealthier people who could afford to make larger contributions before their incomes were diminished in the redistribution.
Governments of most Western nations typically use a variant of the progressive taxation and transfer payment approach to ameliorate inequalities in the distribution of income. But, outside of Western Europe and North America, governments often run such substantial budgetary deficits that raising taxes to fund expenditures is far more important than achieving distributional equity. In such cases, taxes are high on everyone, the rich and the poor alike, often to the point of expropriation. Manipulation of the tax rate system to achieve equity simply may not be within the realm of political possibility. In some nations, more extreme inequalities of income distributions have precipitated revolutions to replace capitalism with authoritarian means of distributing incomes.
Monopoly power. There is substantial consensus among economists globally that the accumulation of excessive amounts of monopoly power is undesirable because of the negative welfare effects and the resource allocation distortion effects. The US was (one of) the first nations to recognize this problem in law with the enactment of the Sherman Antitrust Act in 1890 and a number of other pieces of anti-monopolies legislation since then. Some nations at various times in history have promoted national monopolies as means to develop their economies. Examples include Germany and Japan during the 1930s and '40s, and a number of third-world nations implementing import substitution industrialization (ISI) development strategies in the second half of the twentieth century. Most developed nations, recognizing the need to curb monopoly structure and behavior, have enacted anti-monopolies legislation along the lines of US or EU models. However, the enactment of such legislation is one thing; the vigorous enforcement of it is another. Without sufficiently vigorous enforcement, the anti-monopolies legislation “on the books” is meaningless.
Externalities. In centrally planned economies, spillovers (or externalities) can be dealt with simply by planning to increase the production of (allocate more resources to) those goods yielding spillover benefits, and to diminish the production of (divert resources away from) goods causing spillover costs. Unfortunately, neither spillover costs nor spillover benefits were high in the central planning priorities of the Soviet Union or its satellite states. Education and health services were typically underfunded, and pollution was usually ignored. And, regrettably, developing nations in the so-called "third world" rarely are able or willing to address either spillover benefits or spillover costs. Some developing nation governments have been known to invite polluting industry relocation from "first world" countries with stringent anti-pollution requirements in order to gain the job creation and income generation benefits, in spite of the pollutants that will descend upon their citizens and their neighbors.
Spillover benefits and costs are also known as "externalities" because the causers of the spillover effects neither enjoy the spillover benefits nor suffer the spillover costs. In both cases, the effects are external in the sense that they descend upon third parties. Developed nations with market economies often adopt market-modification approaches for dealing with spillover effects. Market-modification approaches have included subsidies to encourage the production of more of those goods yielding positive spillover benefits (e.g., health and education services) to third parties, and taxes levied upon goods causing spillover costs in order to discourage the production and consumption of as much of those goods. These approaches enhance enterprise freedom to produce goods yielding positive spillovers, but constrain enterprise freedom to produce goods causing negative spillovers. Subsidies that encourage the production of goods yielding spillover benefits broaden the range of consumer choice; taxes that discourage the production of goods causing spillover costs narrow the range of consumer choice. The “trick” is to provide just enough subsidies or impose just enough taxes to achieve optimal enterprise freedom and consumer sovereignty, but this has proven a difficult task for even the most sophisticated and well-intentioned democratic governments.
The tax on spillover-cost pollution internalizes the externality by raising the cost of continuing to pollute. The polluter can avoid the cost of the pollution tax only by diminishing the pollution. But the equipment necessary to diminishing the pollution (filters, scrubbers, coolers, noise dampeners, etc.) must be purchased, and this too tends to internalize the external cost. Once a pollution tax has been levied, a second-level approach, but one rarely implemented, is for the government to use the tax revenues to compensate the innocent third parties who have suffered the adverse effects of the spillover costs. More often than not, governments find other uses for such tax revenues that are unrelated to the pollution that was taxed.
Another, but more controversial, market-based approach to dealing with spillover costs is to specify rights to pollute at levels that society deems tolerable (in current political discussion, a “cap” on pollution), and then allow (and promote) market trading of the pollution rights among firms in polluting industries. In a so-called “cap and trade” approach to dealing with environmental pollution, the expenses that firms incur to buy such pollution rights cause them to internalize the spillover costs of pollution so that they show up in the firms’ income statements. Firms that sell their pollution rights have to incur the expenses of diminishing their pollution, thereby internalizing the spillover cost. However, if pollution rights are set too high or are given away to current polluters (as provided in the Waxman-Markey Bill, HR2454, passed by the US House of Representatives in 2009), the “cap and trade” system will be meaningless.
Market modification approaches, when they are successful, may head off more extreme approaches to replace market capitalism with more authoritarian forms of economic organization. Market modification approaches that enhance consumer sovereignty and enterprise freedom also serve to foster religious liberty.
19. GOVERNMENT FAILURE IN ADDRESSING MARKET FAILURES
To this point we have considered the postmodern notion that the good offices of government can be invoked to fix the "market failures" of an economy organized as market capitalism. While well-designed government interventions often do alleviate market dysfunctions, economists focusing upon public choice issues have pointed out that government itself sometimes fails in its efforts to fix the deficiencies of the private sector. Public choice is about whether any particular decision is most effectively taken in the private sector or in the public sector. Government failure that constrains consumer sovereignty and freedom of enterprise may also impair religious liberty.
The broad categories of government failure in regard to the economy include:
- failing to enact and enforce laws or directives that support and enhance the functioning of market economy;
- failing to account for secondary (and tertiary, etc.) effects of well-intentioned government actions, resulting in unintended consequences;
- basing programs and policy actions upon the requisites of political expediency rather than economic realities;
- basing political actions upon the requisites of regime preservation rather than the needs of public welfare;
- inability or unwillingness to exercise fiscal or monetary discipline;
- policy overreactions that increase economic instability;
- ceasing to function purely as a neutral or disinterested umpire in the market economy; over-stepping the role of rule-maker and umpire to become a player in the market;
- attempting to controvert natural comparative advantages; and
- enacting legislation that invites moral hazard.
Rule of Law. Failure to enact the necessary legislation and abide by the rule of law (rather than rule by authority) results in a lawless and uncertain society within which commerce cannot be conducted with confidence. The security of privately owned property is crucial to the success of a market economy. Without the institutions of law and order that establish clear title to privately-owned property, provide for the orderly transfer of ownership of property, and settle disputes over the ownership of it, market economy cannot function. People will simply not assume risk in undertaking commercial ventures if they cannot be confident that they can enjoy the benefits of commercial success. Business enterprises will not be inclined to invest in assets and set up operations in a nation in which company assets are not secure from government seizure. Nationalization with adequate compensation is one thing, but there are recent examples in Latin America and Africa of government expropriation (i.e., nationalization without compensation) of both foreign- and domestically-owned company assets.
Antitrust Law. Anti-monopolies laws may be enacted but they will have little effect to prevent the accumulation of monopoly power or moderate the exercise of it if they are not vigorously enforced. Even in the United States we have seen that historically one political party (the Democratic Party), when it occupies the Whitehouse, has tended to enforce the antitrust laws more vigorously than does the other party (the Republican Party) when it is in power. We have also seen changes over time in the inclination of each party to enforce antitrust laws.
Unintended Consequences. The law of unintended consequences is the proposition that unperceived secondary (and subsequent) effects of a political action may undermine the effectiveness of the action. An example lies in the area of transfer payments that are intended to alleviate human suffering, but which tend to impair the society's incentive structure with respect to work, risk assumption, and entrepreneurship. For example, welfare benefits that are rich enough to enable eligible recipients to avoid work may decrease labor force participation. Unemployment benefits of long duration or large proportion of last earned income tend to extend job-search periods and may actually cause unemployment to persist and the unemployment rate to increase. A progressive income tax rate system intended to alleviate income distribution inequality may discourage additional work activity or precipitate reduced work effort if the high marginal tax rates take too large proportions of marginal income. Increased public sector spending to stimulate the economy may become ineffective if it causes interest rates to rise and choke off (or crowd out) private sector investment or interest-sensitive consumer spending.
Political Expediency. Political expediency often comes into conflict with economic realities. Because of "the squeaky wheel gets the grease" principle, vested interests (a.k.a. "rent seekers") lobby vote conscious politicians to enact legislation or otherwise grant political favors ("rent") to them, even to the detriment of the greater public. This can happen because the benefit to the vested interest is large but the cost to each party outside the vested interest is so small as to be negligible. Indeed, some have theorized that it is rational for most voters to remain ignorant of most political issues because of the negligible magnitude of the impact of each upon the voters. The vote-conscious politician thus can glean more votes by favoring the vested interest than he or she might lose from the general electorate.
Bureaucratic Morass. Bureaucracies are hierarchically organized management structures in private business firms and not-for-profit institutions as well as in government structures. In any of these areas, complexity can increase though innumerable layers of decision-making to create what might be described as "bureaucratic morass," i.e., the inability to exert effective oversight, coordination, and control throughout the organization from the top down to the level of performance of the organization's mission. Bureaucratic morass impairs the efficiency of the internal resource allocation process within the organization. Bureaucratic morass tends to be self-limiting in private-sector commercial enterprises that must operate profitably or fail unless “bailed-out” (Chrysler, 1974, 2009; General Motors, 2009) or subsidized by government. There seems to be no such limit on bureaucratic extent in the public sector. Sometimes, bureaucratic extent and complexity are used by government as a means to provide employment and income to large segments of the population that otherwise are unable to find productive employments in private-sector enterprises. In some nations, this approach may contribute to chronic budgetary deficits, monetary expansion, and inflation.
Self-preservation. For whatever legitimate reason that a bureaucracy is established, once it is in operation its primary goal often becomes self-preservation. Political regimes, however they come to power, often succeed in co-opting the civil service and capturing control of the military establishment to assist in preserving the regime. Supporting compliant civil services and military establishments is yet another reason that government budgets tend toward deficits that become monetized and contribute to inflation.
Rent-seeking Activity. Government officials have been described by public choice economists as political entrepreneurs who provide political goods (e.g., appointments, employment, favors to vested interests, sponsorship of legislation desired by constituents, etc.) in exchange for political profits in the form of votes or other modes of support that ensure their political survival. Those who seek such political goods are said to engage in "rent-seeking" activity. Democratic processes together with a free and probing press tend to curb tendencies for political entrepreneurs to abuse their positions. However, some government officials, particularly in authoritarian regimes where the press is controlled and democratic processes are absent or not effective, may be tempted to aggrandize their political profits by taking bribes for granting licenses or providing other favors to supporters. In some countries, government officials with budget authority or access otherwise to government funds have been discovered to have "raided the treasury" (or any budget to which they have access) and transferred public funds to private (and often secret) bank accounts in other countries. Cases like this have been described as “kleptocracies”.
Lack of Fiscal Discipline. Fiscal discipline is the ability and willingness of the government to restrain its period (usually annual) expenditures to the revenues that are available to be used during the period. Fiscal discipline requires that any new or expanded government program be accompanied by provision for additional revenues (tax or other source) to pay for it. Lack of fiscal discipline on the part of the regime often culminates in expenditures increasing faster than revenues, budget deficits financed by monetary expansion, chronic inflation at high rates, a severely depreciated currency, and such uncertainty in commercial transactions as to impair normal commerce. The Turkish lira, which exchanged for the US dollar at the rate of 6 to 1 in the mid-1970s, exchanged for US dollars at the rate of 1.4 million to 1 in June of 2003.
Becoming a Market Player. Perhaps the most subtle way in which government impinges negatively on a market economy is when it ceases to be a neutral umpire and becomes a player in the market by favoring some private sector market participants or industries while penalizing others. The United States has long shunned European style “industrial policy” in which the government “picks winners”, i.e., it decides what industries and companies within industries should survive, and ensures their survival by subsidies and protectionist policies (e.g., tariffs on competing imports). The US government recently (2009-10) has exhibited tendencies toward implementing an industrial policy.
Governments may discourage selected industries and companies by levying discriminatory or punitive taxes. Government officials may also pressure companies to locate plants at politically desirable sites, or to prevent the closing of unprofitable plants where politically important constituencies reside (GM, 2009). When a government uses subsidies, tariffs, punitive taxes, and political pressure to achieve its product mix, industrial mix, and locational goals, it abridges the sovereignty of consumers to decide for themselves what products to buy; it also curbs the freedom of enterprise of producers in their attempts to succeed in the markets of their choosing and at their preferred sites.
Competing with the Private Sector. A less subtle way in which governments have negatively impacted market economies occurs when they have deliberately started or acquired state-owned enterprises (commonly referred to as SOEs) to compete with private producers. In the US, the federal government has come into the ownership of private sector companies, wholly or in part, through the bailout and bankruptcy processes (AIG, 2008; GM, 2009). In some countries (Bolivia, Venezuela, Cuba), governments have nationalized whole industries, often with little or no compensation of the former owners. Where this has happened, privately owned assets have been confiscated. Confiscatory loss of assets also occurred in the US (2008-2009) when the federal government pressured mortgage lenders to write down the amounts of non-performing mortgage loans, and banks to write-down the values of homes that serve as collateral for mortgage loans. Such government actions have been clear violations of contract law.
Moral Hazard. Moral hazard is a problem that occurs when a principal commissions an agent to act on his behalf, but the agent engages in shirking, pursues self interest to the detriment of the principal's interest, or indulges in dishonest or immoral behavior. A special case of moral hazard occurs when one party in good faith attempts to provide some possibility of benefit other parties, but finds that beneficiary parties take advantage of the possibility in ways not perceived by the provider and to the detriment of the provider, themselves, or innocent bystanders. This phenomenon, referred to as "beneficiary moral hazard", may originate in the private sector, but government itself may invite beneficiary moral hazard.
The classic example of government inspired beneficiary moral hazard occurs when government agencies offer below-market hazard insurance rates for businesses and homes constructed in flood or hurricane prone zones. People who qualify for such sub-market insurance rates are encouraged to rebuild after the flood or hurricane has destroyed their property, in the same places, and often with grander edifices. Had the hazard insurance not been offered at all, or only at market-determined rates, rational people would have had incentive to build or rebuild at less risky sites.
A special case of government-inspired beneficiary moral hazard occurs when a government banking authority offers sub-market deposit insurance rates to commercial banks. Bankers, secure in the knowledge that their clients’ deposits are insured, issue ever more risky loans. And depositors, believing that their deposits are adequately insured against bank failure, pay less attention to the soundness of the bank. Yet other instances of beneficiary moral hazard occur when government legislates and enriches unemployment and welfare benefits. The longer the duration of unemployment benefits (increased in the US to 99 weeks in 2010) and the larger the proportion of an unemployed person’s last earned income, the longer the job-search process tends to be and the “pickier” are those searching for jobs. If welfare entitlements are sufficient to provide an adequate level of living, recipients who qualify for the benefits may choose to exit the labor force.
Averting Failure. Government sometimes fails because it attempts to avert failure in the economy. Just as death is a part of life, failure is a part of the working of the market economy. There are no guarantees of the success of any newly-launched venture. As we have seen in recent months and years, the world is a risky place in which to operate. Joseph Schumpeter described the turbulence of a market economy as "a perennial gale of creative destruction" in which new ventures are started and rise to success as they destroy the monopoly power of older ventures that eventually fail if they cannot compete with new technologies or modes of production (Capitalism, Socialism, and Democracy, 1942). Business failures in the process of creative destruction have a cathartic effect for the economy, much in the way that forest fires in national parks have beneficial effects. Forest fires clear out the dead wood and underbrush on the forest floor, and the heat of the fire opens seedpods (e.g., pine cones) to disperse the seeds and give new life to the forest. In similar fashion, the market economy's process of creative destruction helps to clear out the dead wood in the economy's business sector and gives life to vibrant new competitors. The new competition curbs the monopoly power of the old survivors. As we have seen in the US economy recently (2008-2009), the federal government has construed some corporations as “to big to fail” (GM) or too crucial to the financial system to fail (AIG, Merrill-Lynch). The government’s response has been to bail out some failing companies and acquire equity interests in others.
Efforts by government to avert failure or minimize the pain of failure tend to prolong and aggravate the circumstances that result in failure by preventing the cathartic effects. As nice as it might seem for government bailouts to prevent business failures, the bailouts cause both the companies that are bailed out and those that are not to receive and send the wrong market signals (GM and Chrysler vs. Ford, 2009). Consumer sovereignty is subverted because companies survive whose products do not receive enough consumer expenditure votes. Freedom of enterprise is impaired because new companies must try to compete on a non-level playing field with established companies that are failing but have been bailed out. And once some companies in an industry have been bailed out by government, others expect similar treatment and adjust their operating policies to the expectation.
* * *
The ever-increasing involvement of governments in the workings of their market economies has led conservative critics to describe such governments as “nanny states” in the sense that they have attempted to regulate personal consumer behavior in detail, alleviate all possible sources of pain and failure, provide extensive welfare entitlements, and channel business endeavors into what are perceived to be socially-desirable directions. Such nanny-state intrusion can constrain consumer sovereignty and freedom of enterprise.
20. HOW MUCH GOVERNMENT?
The laundry list of faults and failures of market economy leads Postmodern
critics to favor replacing it with a collectivist form of economic organization,
and that failing to implement various interventions to correct the faults
and failures. But the laundry list of problems that have followed
governmental efforts to fix the “failures” of market economy and address
macroeconomic instability has led libertarians and even less extreme conservatives
to favor smaller governments and less governmental involvement in the market
economy. Economist Milton Friedman maintained that the so-called
“failures” of market economy probably do less harm to the welfare of a
society than the harm that can be done by too much governmental intrusion
into the functioning of a market economy.[1] So the question remains
an object of intense debate between liberals and conservatives: “How much
government?”
As we have seen over the past three and a half centuries since the first publication of Hobbes’ Leviathan, once established, the state seems to feed upon itself to become ever larger and to assume ever more responsibilities on behalf of its society, and particularly in the economic realm. Witness the size and extent of the present government of the United States of America relative to its former self in its early decades of the late eighteenth and early nineteenth centuries.
One factor contributing to the persistent growth of the size of government is that democratically enacted legislation rarely contains “sunset provisions”, i.e., termination of the legislation by some criterion or by date. Another contributing factor is that there seems to be a compulsion in democratic polity to enact ever more welfare entitlements and to continually enrich them as time passes. Arthur Brooks (president of the American Enterprise Institute) and Paul Ryan (Republican congressman from Wisconsin) express the issue:
Chapter 20 Endnotes:
[1] Milton Friedman, Capitalism and Freedom, University of Chicago Press, 1962.
[2] Arthur C. Brooks and Paul Ryan, “The Size of Government and the
Choice This Fall”, The Wall Street Journal, September 13, 2010,
page A21,
http://online.wsj.com/article/SB10001424052748704358904575478141708959932.html?mod=WSJ_hps_RIGHTTopCarousel_1.
[3] Justice Potter Stewart, concurring opinion in Jacobellis v. Ohio, 378 U.S. 184 (1964), regarding possible obscenity in The Lovers.
PART 5. CONCLUSIONS
These deliberations about government, economy, and religion in the Postmodern era and beyond allow some conclusions to be drawn. The conclusions that follow are my own. They help me to understand the world in which I live relative to Christian admonitions and economic realities.
21. CONCLUSIONS
Conclusions about economy and religion in the Postmodern and post-Postmodern
eras can be only very tentative. The reader is invited to critically
examine these conclusions and to compile a list of his or her own conclusions.
A. POSTMODERNITY AND COMMUNITARIANISM
1. Complementarity. Postmodernity and Communitarianism appear to be complementary movements in the post-World War II era, although they are based on conflicting premises about social cohesion (or lack thereof). Communitarian ideology may be more applicable to micro-level organizations than to society as a whole. Both portend an increasing role for government in the economy, and a further transformation of capitalism toward socialism.
2. Postmodern values. The logical conclusion of the Postmodern worldview is a socially fragmented society in which each individual determines his or her own values and behaves as an ethical relativist. Postmodern values and standards will continue to be in flux in response to culture changes.
3. Postmodern fragmentation. Continuance of the Postmodern processes can be expected to result in further fragmentation and social disintegration with attendant victimhood mentality, civil strife, resentment of wealth, self-serving criminal activity, and calls for more government regulation and control.
4. Communitarian social cohesion. The logical conclusion of Communitarianism is a socially-cohesive community that relies upon shared values that have been proven by the test of time. Further progression toward Communitarianism at the macro level would be characterized by an ever-greater planning role for government to identify and provide for community needs. Social cohesion appears to be stronger at the level of local organizations (churches, charities, civic organizations) than at the macro level of the national economy. Indeed, national social cohesion appears to be in jeopardy of weakening with the progression of postmodern cultural disintegration.
5. Government extension. Irrespective of whether Postmodernism or Communitarianism becomes dominant in the twenty-first century, government can be expected to continue to grow in size and further extend its reach into the economy.
6. Liberal vs. Conservative domination. If liberal political interests continue to dominate American politics, further progression toward a Communitarian outcome likely will ensue with an ever-expanding role for government planning to meet perceived community needs. If the forces of conservatism capture the American political apparatus, a reversion toward a more Lockean ideology could follow. A more conservative American polity may constrain the growth of the taxing, spending, planning, and regulatory functions of government, and thereby facilitate the economic growth process. If ballooning government budgets force the trimming of welfare entitlements, American society could be forced to assume greater personal responsibility for individual and family welfare.
7. Challenge to market economy. The greatest challenge to market economy in the twenty-first century is likely to be an ever-expanding role for government to play in the economy as expected by both Postmodern and Communitarian thinkers.
8. Fascism or socialism. Taken to its logical extreme, the end-point of an ever-expanding role for government in society and the economy could be either fascism (privately-owned means of production with state control over it) or authoritarian socialism (state ownership of the means of production and centralized decision making).
9. Transition to socialism. Capitalism can be expected to continue to “morph” toward authoritarian socialism by democratic legislation rather than by violent revolution.
10. Unless? A post-Postmodern cultural reversion toward
an ideology that emphasizes personal responsibility could curb the Postmodern
and Communitarian progressions. However, much of the Postmodern and Communitarian
agendas of the early twenty-first century has been institutionalized by
law and is likely to persist into the twenty-first century.
B. ECONOMY AND RELIGION
11. Scarcity. Scarcity, the raison d'etre of economics, is the essential characteristic of the material world that we inhabit, though it surely must not be a characteristic of a heavenly afterlife. Economics is about a material world characterized by scarcity. Religion, and in particular Christianity which expects a non-material afterlife, provides a code of humane conduct during material life.
12. Economic systems. In this material world, some systematic means for dealing with scarcity must govern material human relationships, else violent and chaotic conditions will result. Possibilities include communalism, tribalism, feudalism, capitalism, socialism, fascism, and communism. The first four in the list are emergent, culminating in capitalism, the motivating and decision-making vehicles of which are markets. In the end, market economy is what we get if we don't make deliberate social determination to select some alternative to it. Though none are without problems, market economy may be the "least worst" of the lot, but this does not make market economy ordained of God.
13. Material incentives. Although Jesus taught that we need not be concerned with meeting our material needs, economic incentives still matter, even for the most devout Christian believer. Meeting one's material needs and beyond that material success in this world is achieved by determined response to material incentives. The righteous suffer and the wicked prosper; the rains fall upon the fields of the just and the unjust alike. Apparently God does not "promise us a rose garden" during material life, even for those who have professed belief in his son. Ultimately, God promises the Christian believer only one thing: eternal life in the presence of God.
14. Wealth creation. The inherent and intrinsic wealth of the universe is attributable to the Creator. But material wealth in the form of capital can be "created" by investment on the part of human beings. Those who accumulate capital become wealthy in a material sense. By-products of the accumulation of material wealth are job creation and income generation, but the accumulated wealth may distort preferences. The accumulation of wealth by successful entrepreneurship also sparks resentful envy among the non-entrepreneurial.
15. Self-interest. Although self-interest governs all human activity, it may be tempered by social conscience. An important role of family, clergy, and academy is to infuse all of society, but especially the wealthy, with social conscience so that they will be inclined to employ their wealth for socially redeeming purposes.
16. Liberty. Liberty is a fundamental requisite of both the practice of religion and the successful functioning of market economy. When liberty is impaired, both religion and economy suffer.
17. Government and the economy. Government’s interventions
into the economy may serve the needs of consumer sovereignty, enterprise
freedom, and religious liberty if the intrusions are well designed to alleviate
the shortcomings of market mechanisms. Governmental interventions
beyond this threaten consumer sovereignty, enterprise freedom, and religious
liberty.
C. POSTMODERNITY AND CHRISTIANITY
18. Creation. Although denied by many theoretical physicists, the Anthropic Principle provides indirect (or circumstantial) evidence of the existence of a creator being. Recent developments in theoretical physics describe conditions for the spontaneous initiation of multiple universes, at least one of which can support life, but they do not unequivocally rule out the role of a divine creator. Economists take as fact the existence of resources in nature (the creation) without consideration of how they were created. Postmodern thinkers sidestep the issue of the possible identity of a creator being by dismissing all grand narratives.
19. Challenge for Christians. Persistence of Postmodern cultural trends can be expected to have further deleterious effects with respect to Christian belief and church participation. Jim Halteman noted that the twenty-first century challenge for Postmodern Christians and their churches is that of developing a faith tradition that provides an effective social glue for holding society together. Meeting this challenge will take determined efforts by courageous Christian leaders.
20. Religious pluralism. Christianity historically has insisted upon an "only-way" to oneness with the creator being. If a post-Postmodern era is indeed unfolding, a simple reversion to the pre-Postmodern views of religious orthodoxy is not feasible because of a general social acceptance of pluralism with its tolerance of views and beliefs that differ from those held by individuals.
21. Enabling conditions. Critical enabling conditions for reversion to an ideology favoring greater personal responsibility would include a revival of religious faith and associated religious values, and a renewal of the importance of family and religious institutions for inculcating those values to succeeding generations.
22. Evidence. The emergence of so-called “mega-churches”,
the 2010 “tea party” movement, and late-2010 conservative gains in the
US Congress suggest that revival of religious faith and reversion to a
more individualistic ideology may be under way.
D. POSTMODERNITY AND ECONOMY
23. Economic theory. Economic theory contains more features that are congruent with Postmodern thinking than appear at first glance. Both economics and Postmodern thought assume self-interest. Economists take individuals to be rationally self-interested. Postmodernists take self-interest to the extreme of unconditional subjectivity as the basis for personal values. Economists deny the legitimacy of interpersonal comparisons of satisfactions. Postmodern subjectivity is tunnel-visioned upon the self to the virtual exclusion of the values and interests of others.
24. Economic method. Empirical economic analysis, by starting with a large number of explanatory variables and deleting those that do not contribute satisfactorily to the explanation of a phenomenon, might be recognized by Postmodernists as a deconstructive analytical procedure.
25. Role of government. Most Western economists accept and teach the virtues of market economy while acknowledging its faults. Postmodernists regard the faults as serious enough to replace market economy with socialism in the interest of social justice. But with the failure of socialist experiments, Postmodernists begrudgingly accept capitalism but favor governmental intervention to correct the flaws of market economy.
26. Values. A twenty-first century retention (or "resurrection") of Western religious traditions and the rise of "mega-churches" suggest that Postmodern denials of absolute values are becoming passè.
27. Morals. Postmodern thinkers criticize economic theory of market economy for being amoral or even immoral, but they advocate the subjective determination of morals that culminates in situational ethics. Commensurate with George Lodge’s definition of ideology, it is the role and responsibility of family, academy, clergy, and polity to establish an environment of community-shared cultural values (morality) that condition and constrain economic decision-making. The role of economy is to achieve efficiency in the allocation of scarce resource to produce goods and services wanted by society, but subject to the cultural constraints imposed by society.
Glossary of Terms Used in this Book
This glossary contains economic terms that are used in the text plus
some additional terms that are used in other glossary entries. The
included meanings, elaborations, and examples pertain specifically to the
contexts of discussions in this text. Undoubtedly, many of the terms
have other meanings than those included here. No effort has been
made to include religious and theological terms in this glossary on the
assumption that the reader already has some familiarity with them or can
glean their meanings from other sources.
academy, the educational establishment encompassing kindergarten through graduate educational institutions.
abundance, the unusual economic condition of the material world such that more of an item is available for human consumption than humans need or want; the opposite of scarcity; the evidence of abundance is a zero or negative market price.
administered price, the valuation of a good as determined by an authority.
advancing technology, discovery or development of new ways of making a material good or improving the function or quality of the good.
affluence, a high state of human well-being characterized by the ability to consume in excess of subsistence requirements and the possession of wealth greater than necessary for comfortable survival.
agent, one who acts on behalf of another (the “principal”) in conducting business activity; moral hazard occurs if the agent engages in shirking, pursues self interest to the detriment of the principal's interest, or indulges in dishonest or immoral behavior.
altruism, an orientation of humans to curb or suppress self-interest and to attempt to meet the needs of other humans.
amortization, the process of paying down and eventually paying off a financial debt; literally, “to kill” the debt.
antitrust law, a.k.a. “antimonopolies” law, legislation enacted with the intent of preventing the acquisition of monopoly position and attendant monopoly power by business firms, and to punish or criminalize the exercise of monopoly power; American antitrust law began in 1890 with the passage of the Sherman Antitrust Act.
authoritarian capitalism, a.k.a. “fascism”, a form of economic organization that involves investment in capital for profit by private owners who respond to the dictates of an state planning agency that determines product mix, product characteristics and qualities, and production quotas.
automatic stabilizers, mechanisms installed by legislative action into economies that work automatically to offset macroeconomic swings; once installed, automatic stabilizers require no further human intervention; examples include a progressive tax rate system that leaves more purchasing power in citizens pockets as an economic downswing decreases incomes, and unemployment compensation that increases the spendable income of eligible recipients as unemployment rises; both system automatically decrease the injection of purchasing power into the economy as it recovers.
bail-out, financial support provided by government to a private-sector entity (productive or financial) to prevent its failure.
beggar-my-neighbor policy, a trade strategy designed to steal the natural comparative advantages of trading partners by creating artificial competitive advantages for domestic producers; the usual methods are to subsidize domestic industry or to keep the domestic undervalued on world markets, thereby increasing employment in domestic export industries at the expense of employment in the trading partners’ economies.
behavioral premise, a prior assumption about how a dependent variable responds to one or more independent variables.
beneficiary moral hazard, a special case of moral hazard that occurs when one party in good faith attempts to provide some possibility of benefit other parties, but finds that beneficiary parties take advantage of the possibility in ways not perceived by the provider and to the detriment of the provider, themselves, or innocent bystanders.
benefit-cost analysis, an analytical process used by economists for comparing the sum of the benefits (B) of a contemplated action to the sum of the costs (C) that are likely to result in undertaking the action; if the B is greater than C, or if the value of the ratio B/C is greater than 1, the contemplated action is desirable or justifiable on economic grounds, abstracting from moral implications unless the values of moral outcomes have been imputed and included in the benefit or cost totals; the contemplated action is undesirable if B is less than C, or if the value of the B/C ratio is less than 1; benefit-cost analysis is fraught with the potential for abuse if conducted by interested parties, e.g., advocates are likely to overstate benefits and understate or omit some costs, while opponents are likely to omit or understate benefits and overstate some costs.
big-bang theory, the physics hypothesis that the universe began with a huge burst of energy followed by expansion that continues to the present day; the so-called “singularity”, the instant of creation has yet to be explained by modern physics theory; the possible role of a creator being is a continuing object of debate among theoretical physicists.
bourgeoisie, the wealthy capitalist class comprised of successful entrepreneurs who have wrested control over production processes that was once exercised by individual craftsmen.
budget deficit, the excess of expenditures by an entity (person, company, government) over its revenues during an accounting period, usually the year; governments typically run budget deficits more often than budget surpluses; government budget deficits are financed either by direct money creation or by issuance of government bonds which often results indirectly in new money creation and inflation as a consequence.
budget surplus, the excess of the revenues of an entity (person, company, government) over its expenditures during an accounting period, usually the year; governments rarely run budget surpluses, but a surplus occurs there usually is a political debate over whether to increase spending, decrease outstanding debt, or impound the surplus.
bureaucratic morass, the increase in the complexity of decision-making through innumerable layers of bureaucracy in private business firms, not-for-profit institutions (including churches), and government offices.
business ethics, a term implying that there is a special variety
of ethical rules for business decision-makers; there actually is no such
thing as a particular variety of ethics peculiar to business; discussion
should be about ethics in the generic sense, but as applied to business
settings.
capital goods, "man-made" means of production that can be used to produce
consumer goods or other capital goods; capital goods are durable and typically
have multi-year lives over which a stream of productive services
are yielded, but which depreciate (deteriorate) due to use and weathering
during their useful lives; capital includes plant (the buildings within
which production takes place) and equipment (the machines and tools used
to convert raw materials into finished consumables).
capitalism, a form of economic organization that involves investment in capital for profit.
clergy, the religious establishment of a region or country.
common pool, the existing quantity of a resource that is owned in common (i.e., by no one) and is available to all to use as they wish; rational users of the resource naturally have incentive to dip (use the resource) from the common pool early, often, and as much as possible to preempt other users from the resource; such “dipping” tends to exhaust the common pool; examples include the village green, the open range, ocean fisheries, mineral and petroleum deposits, and space.
communism, the utopian culmination of the transition among forms of economic organization envisioned by Karl Marx in which the economic problem of scarcity relative to want insatiability has been solved by production rationalization and social indoctrination.
communitarianism, an ideology characterized by individuals finding meaning and fulfillment as members of communities of which they are a part; by the enjoyment of the use of things that are not possessed as property; and by a planning role for the state to influence the allocation of resources to achieve community needs.
comparative advantage, the economic principle that individuals, groups, regions, or nations should specialize in producing those goods or services that can be produced at lowest opportunity cost compared to others so that welfare gains can be realized by exchanging those goods or services with trading partners whose comparative advantages lie with other goods for which the individual, group, region or nation is a higher opportunity cost producer.
competitive advantages, advantages (cost, performance, marketing, etc.) that are specific to a particular business firm relative to its competitors; competitive advantages are firm-specific; to be distinguished from comparative advantages which are region-specific.
constructionism, a Modern epoch analytical approach that entails building up an explanation of a phenomenon from its elements.
consequentialism, the belief that the consequences of an action are the sole bases for judging whether an action is right or wrong; for a consequentialist there is no universal standard of ethical behavior; any action that yields a desirable outcome can be rationalized as ethical; the end justifies the means as ethical, or if it is an undesirable end, the end indicts the means as unethical.
conservatism, a political orientation that emphasizes personal decision-making discretion, private ownership and control of property, personal responsibility for well-being, and minimal role for government to play in social processes and personal activity; conservatives generally value historical and traditional cultural norms and political modes and often are resistant to change when confronted by new circumstances.
consumer durables, consumer goods with durable characteristics that have lives typically longer than a year and yield a stream of services or satisfactions over their useful lives; examples include household appliances, housing, and motor vehicles used only for personal conveyance, i.e., not in commercial applications.
consumer non-durables, consumer goods that typically have lives less than a year and yield all of their satisfactions upon consumption; examples include foodstuffs and articles of apparel.
consumer sovereignty, the personal liberty of the individual to choose how to spend (or not spend) his or her disposable income.
consumerism, a societal mentality that results when consumer sovereignty is taken beyond the bounds of human need; the continuing message in the advertising media is that “more is better”, old possessions are obsolete, and new models are “must have” items, so even if the things that one possesses are adequate to a comfortable lifestyle, one is confronted continually with the message that he or she needs to dispose of the old model and buy the new model; a consumerism mentality emerges in the form of a “bandwagon” effect that induces a growing element of the population to submit to the advertising pressures.
corporation, one of three principal forms of business organization, the other two being single proprietorship and partnership; under incorporation laws in most countries, a corporation is a legal person that can sue and be sued in courts of law; the corporation has a life apart from its owners that begins with the legal process of incorporation and ends with final bankruptcy; in the US, corporate charters are issued and supervised by state governments, usually the office of Secretary of State; the other forms of business organization are coincident with the lives of the owners and thus suffer unlimited liability in regard to what the owners do, but the corporate form of business organization enjoys limited liability in the sense that shareholders of a corporation cannot be sued for what the corporate legal person does; hence the assets of the shareholders of a corporation are protected from suit; the officers of a corporation can be prosecuted for criminal activity or subjected to civil suits for damages that are attributable to decisions made by the corporate officers; corporate net incomes (revenues less allowable expenses) usually are taxed at “flat rates” (rather than progressive rates) in most US states and by the US federal government; corporations enjoy financing advantages over other forms of business organization because corporations can issue additional shares in themselves or indebtedness claims (corporate bonds) against their assets; in most market economies, the corporate form of business organization is becoming more popular to take advantage of its limited liability and capital financing features even though business and tax reporting requirements are more stringent and costly for corporations.
crowding-out effect, the decrease of private sector investment consequent upon an increase of interest rates due to an increase of government expenditures that require financing a deficit by borrowing from the capital markets.
deconstructionism, the Postmodern literary approach that breaks
down a text into elements in order to glean the essential meanings of the
text.
deflation, the negative of inflation, occurs when the general price
level falls; sometimes referred to a “too little money chasing to many
goods”, deflation often occurs during the recession phase of a business
cycle due to declining incomes that cause demand for goods and services
to decrease relative to supplies; deflation may be a consequence of a decrease
of the money supply of a region.
demanders, those humans who are “in the market” seeking to purchase quantities of a good.
democratic sovereignty, the right of citizens of a democratic polity to cast their political votes for the candidates whose expressed positions are most congruent with the preferences of the individual voters, and without fear of political reprisals.
demographic transition, the change from high birth and death rates in primitive societies to lower birth and death rates as those societies experience economic development and growth; death rates have been observed to fall sooner and faster than birth rates fall due to the rapid introduction of modern medical technology in low-income developing economies; debate ensues among social scientists as to explanations of the falling birth rates in the demographic transition process; since death rates typically have fallen sooner and faster than birth rates have fallen, societies in the midst of their demographic transitions have suffered more rapid population growth that has made it more difficult for economic growth to raise per capita incomes; the completion of the demographic transition process restores slower rates of population growth similar to those before the demographic transition started.
dependent variable, the object of scientific experimentation or social science modeling.
dictatorship of the proletariat, the authoritarian socialist management mechanism that Marx thought would succeed capitalism once the proletariat rose up in violent revolution to overthrow the bourgeoisie.
diminishing returns, the economic production phenomenon of output increasing at a decreasing rate as ever more inputs are employed in a fixed production process; Thomas Malthus theorized that as population continued to increase relative to the fixed production capacity of the earth, diminishing returns to labor would be exhibited by falling per capita incomes.
diminishing marginal utility, a variant of the principle of diminishing returns that applies to consumption experience; in successive units (e.g., bites) of a consumable good, normal people gain less and less additional satisfaction from the marginal (additional) units.
distributional principles, in economics: to each according to need; to each equally; and to each according to contribution or effort; to a principled socialist, the first principle would be fair but difficult to implement, the second would be a pragmatic substitute, but the third would be unfair; to a principled capitalist the third principle would be fair because effort is rewarded, but neither the first nor the second would be regarded as fair.
distributive justice, the form of social justice in which the burdens of a social process are distributed fairly, irrespective of whether or not the procedures are deemed fair.
dollarization, either the deliberate or unintentional substitution of another nation’s currency (often the dollar, sometimes the euro) for the domestic currency of a nation; the main reason for dollarization of a nation’s currency is the inability of its government to effect fiscal discipline or control its money supply to prevent inflation; when a nation’s currency becomes dollarized, the government of the nation loses control of domestic monetary policy that is in effect ceded to the central bank of the foreign nation whose currency becomes used in the nation.
dollar votes, the expression by consumers of their preferences by spending to purchase goods and services; dollar votes are tallied in the income statements (a.k.a. "profit and loss statements") of business firms; firms whose managers choose to ignore the preferences of consumers by producing goods that they do not care for will suffer losses and eventually failure; firms whose managers recognize and meet consumer preferences may enjoy profits and survival.
economic development, a change in the social structure of society; the various dimensions of social structure include economic, social, political, moral, religious, and environmental; development is both a requisite of growth and a consequence of economic growth.
economic efficiency, the relationship between quantities of resources used in a production process and the quantity of output that can be produced by the resources; economic efficiency is served by reducing the quantity (or cost) of the inputs necessary to produce a particular quantity of output.
economic good, any material good for which the sum of human needs and wants exceed the quantity available such that it has a positive price, thus exhibiting the characteristic of scarcity.
economic growth, an improvement in the material well being of humans, usually measured as the rate of increase of per capita real income or output of a society, and usually accompanying or preceded by a change in the structure of society, a.k.a. “economic development”.
economic integration, the process of removing territorial barriers to the transaction of goods and services and the movement of materials, capital, and people across historical territorial boundaries; economic integration enables trade creation in pursuit of indigenous comparative advantages within the integrating region, but may entail trade diversion as trade (imports, exports) are shifted away from true comparative advantages that lay outside the integrating region.
economic liberalization, the political process of removing or diminishing existing restraints on trade.
economic resources, three categories of productive resources identified by nineteenth century economists are labor, land, and capital; modern economists also acknowledge a fourth productive resource, entrepreneurship.
economic system, the set of social, political, and economic arrangements by which a society determines its product mix, how goods and services are to be produced, allocates its scarce resources to alternative uses, and distributes its product to its members.
efficiency, the relationship between the output of a productive processes and the inputs necessary to produce the output; efficiency is served by reducing the quantity of inputs necessary to produce a specified quantity of output; there often are trade-offs between efficiency and equity in pursuit of either.
elasticity of demand, the ratio of the percentage change of quantity demanded of a good or service to the percentage change of its price or the incomes of buyers that measures the relative responsiveness of quantity sold to a change of price or income.
entitlement welfareism, a distributional system that provides material or monetary unilateral-transfer benefits to eligible recipients who are entitled by the law to receive them.
entrepreneur, the “moving force” in the market economy; one who assumes risk in the process of innovation by introducing a new product, process, or organizational structure; a successful entrepreneur is rewarded by profit in a market economy, but since there is no guarantee of success, the entrepreneur might suffer loss if the innovation is unsuccessful.
entrepreneurship, the process of innovation and assumption of risk in the effort to launch a new business venture or alter the structure or functioning of an existing business; there is no guarantee of success in a truly entrepreneurial venture; success of a private-enterprise entrepreneurial venture is rewarded by profit; failure is punished by loss which may be personal and emotional as well as financial; from a sociological perspective, entrepreneurship is a form of social deviance.
environmentalism, the concerted effort to preserve, conserve, and replenish the natural environment (a.k.a. “God’s creation”), and to repair or ameliorate damage done to the environment by human activity to extract mineral and petroleum resources, process raw materials into consumer and capital goods, and construct transportation and port systems, industrial complexes, and residential housing facilities.
equipment, the machines and tools used to convert raw materials into finished consumables; equipment is usually housed within a producer’s “plant”.
equity, the goal of fairness in the distribution of something across a population of possible users; there often are trade-offs between efficiency and equity in pursuit of either.
ethics, choices in regard to moral precepts; a choice may be ethical or unethical depending upon whether behavioral rules are obeyed, or whether the choice yields good or right results for those who are parties to the decision, and perhaps also for "innocent third parties".
ethical absolutism, the belief in the existence of universal standards or “categorical imperatives” of ethical behavior that are absolute and unconditional, irrespective of the consequences.
ethical egoism, the belief that every person ought always to act so as to promote the greatest possible balance of good over evil for himself; therefore, an act contrary to one's self -interest is an unethical act.
ethical relativism, the position that there is no one universal standard or set of standards by which to judge the morality of an action; an ethical relativist may hold the same act to be morally right for one society, but morally wrong for another; a similar distinction may be applied to two individuals within the same society; a problem of ethical relativism is that each person's ethics are specific to the person; no comparative moral judgments are possible.
ethnocentrism, the exclusivistic view that one's own culture and circumstances are superior to all others; ethnocentrism in religion entails the view that one's own religion contains truth, but others' religions do not.
exploitation, the phenomenon of one human taking advantage of or controlling the productive abilities of other humans; the ability to capture value greater than warranted by one’s own contribution to a production process; exploitation occurs if a resource receives compensation that is less than the value of its marginal contribution to the production process.
externalities, a.k.a. “spillovers”, a so-called “market failure” consisting of positive and negative side-effects of consumption or production activity that impinge upon innocent by-standers to market transactions and thus are not recognized by markets; negative externalities resulting from the production or consumption of a good result in the market over-allocating resources to production of the good; positive externalities resulting from the production or consumption of a good result in the market under-allocating resources to production of the good; examples of positive externalities include the benefits of public health care and public education; examples of negative externalities include various kinds of environmental pollution.
factors of production, four categories of productive resources: land, labor, capital, and entrepreneurship.
failure, the inability to succeed in a venture undertaken; business failure is inability to generate enough revenue from sale of produced goods or services to cover operating costs and amortize debt incurred in purchasing capital assets; the consequence of entrepreneurial failure is loss, the opposite of profit.
fascism, a.k.a. “authoritarian capitalism”, a form of economic organization that involves investment in capital for profit by private owners who respond to the dictates of an state planning agency that determines product mix, product characteristics and qualities, and production quotas.
fiduciary trust, the responsibility of one who holds assets belonging to another to preserve those assets and return them to the owner intact.
financial liberalization, the process by which the financial sector is freed from governmentally imposed restrictions on lending, interest rates, and exchange rates.
fine tuning, the belief held by many economists in the second half of the twentieth century that fiscal and monetary policies could be managed with such precision as to eliminate business cycle swings and the oscillating pressures of inflation and deflation; economists of the late-twentieth century have come to the realization that fiscal and monetary policies are not so amenable to fine tuning as to eliminate or even ameliorate cyclical swings.
fiscal discipline, the ability and willingness of a political administration to restrain its expenditures to the revenues that are available to be used during the period, e.g., to balance its budget.
fiscal policy, the deliberate manipulation by the government of its own budget to counterbalance swings of spending in the private sector, i.e., in the business and consumer sectors; fiscal policy action involves increasing spending or decreasing taxation during a downswing in order to counterbalance decreased spending in the private sector, and vice versa for an upswing; if a fiscal policy stimulus works as expected, an economic contraction will come to an end and the economy will begin to expand, returning production, employment, and income generation to more normal conditions; implementation of a fiscal policy change usually is a time-consuming and cumbersome process that requires legislative action; a growing number of macroeconomists have become skeptical of the ability of government policy makers to implement fiscal policy changes without overreaction that aggravates macroeconomic instability.
foreign direct investment (FDI), the establishment or acquisition of productive facilities in countries other than the home country of the investor (person or company), and in which the investor acquires and retains a controlling interest in the investment; in the case of an acquired company with widely dispersed shareholding, a “controlling interest” may be as little as (or even less than) ten percent of the outstanding shares of an acquired entity; in distinction to foreign portfolio investment (FPI) in which the investor has a non-controlling interest, typically less than ten percent of outstanding shares of the acquired company.
fraud, intentional deception perpetrated by one party to a market transaction upon the other party to the transaction in order to capture gain in value at the expense of the other party; examples of fraud include misrepresenting the characteristics of products or services being offered in the market, hoaxes in the form of product or service offers that are never delivered, and agreeing to contract terms that are not fulfilled.
free agency, the reputed ability of humans to assess alternatives and choose from among them without external influence or control, e.g., by a divine being.
free good, any material good that is available in sufficient abundance relative to human need or want for it such that its market price is zero.
free market economy, a market economy with no significant role played by government in the processes of determining product mix, methods of production, resource allocation, or output distribution; a term used mostly by non-economists and particularly by critics of market capitalism who wish to point out the faults and failures of market capitalism; technically, there is no such thing as a free market economy since virtually all economies throughout history have been mixed economies.
general price level, a macroeconomic measure of the average of all commodity prices in a region or nation; in computing the general price level average, the included components are usually weighted by the quantities of the goods purchased.
gift, something of value that is provide free of charge to a recipient; a unilateral transfer of value with no expectation of reciprocity.
gift economy, an economy in which production is accomplished or controlled by a single entity (often a tribal chieftain) and distribution is accomplished at the discretion of the producer/controller who makes all decisions about the needs of his or her constituents.
global warming, a trend for temperatures to rise that is reputed by many environmentalists to be under way on a global scale; the present trend, if it is actually happening, is not unlike that which occurred about twelve thousand years ago around the end of an ice age; whether human activity is responsible for or has aggravated the present temperature change phenomenon is uncertain; whether a natural phenomenon or caused by human activity, global warming could impair the productive capacity of tropical and arid regions of the earth, and thus further impoverish the populations of those regions; a potentially offsetting effect is that global warming could also extend the growing seasons of more northerly regions, and thus enhance their productive capacities; some scientists find evidence of the prospect for a new ice age in the future, a phenomenon that would render the global warming hypothesis irrelevant.
globalization, the increased mobility of humans in search of better job opportunities and living conditions (immigration and emigration) and the quest by business firms to locate production geographically at the least-cost and most efficient production sites; globalization has been fostered by technological advances in transportation, communications, and computing; the process of globalization has entailed both off-shoring (shifting production to foreign locales) and out-sourcing (acquiring materials, parts, and components from foreign producers).
god model, an abstract representation of the deity.
goods, things with tangible characteristics that are consumable by humans; some matter taken from the natural environment (i.e., God's creation) are directly consumable; other consumer goods are processed or manufactured from matter taken from the natural environment.
government failure, the inability of government to alleviate or repair perceived market failures with market modification approaches; examples include failing to enact and enforce laws or directives that support and enhance the functioning of market economy; failing to account for secondary (and tertiary, etc.) effects of well-intentioned government actions, resulting in unintended consequences; basing programs and policy actions upon the requisites of political expediency rather than economic realities; basing political actions upon the requisites of regime preservation rather than the needs of public welfare; inability or unwillingness to exercise fiscal or monetary discipline; policy overreactions that increase economic instability; ceasing to function purely as a neutral or disinterested umpire in the market economy; overstepping the role of rule-maker and umpire to become a player in the market; attempting to controvert natural comparative advantages, and enacting legislation that invites moral hazard.
greed, extreme form of self-interest that impinges upon the welfare of other members of society.
Gross Domestic Product (GDP), a measure of the market value (at current prices) of all final goods and services (excluding all purely financial transactions) produced within a country and sold legally (including the imputed value of rents, but excluding illegal transactions and Do-It-Yourself activity) in a given time period (excluding used goods produced in prior periods); GDP is admittedly an imperfect measure of the value of the output of a country due to many (e.g., the output of informal and underground economic activity), but it is used nearly universally by multinational organizations to make international comparisons of well-being at the level of the aggregate economy and is at present the best available measure of macroeconomic output.
ideology, (1) a value orientation that advocates or legitimizes a relationship of political power and/or economic interest between social groups; a concrete program or plan for political action; examples: communism, socialism, capitalism; (2) a collection of ideas that makes explicit the nature of a good community; the ideas by which a community translates its values into reality; examples: individualism, communitarianism.
import substitution industrialization (ISI), a strategy implemented by the government of a nation to contravene the natural comparative advantages of other nations or develop new or latent comparative advantages (“infant industries”) within the nation; the usual vehicles of ISI policy implementation have been subsidies for domestic producers and tariffs on imported goods that would compete with domestically produced goods, with the intent of reserving the domestic market for exploitation by domestic companies; ISI development policies have failed almost universally, not only because they contravened the comparative advantages possessed by those nations that implemented them, but also because they induced more imports of raw materials, machinery, and technology than the reduction of imports that were tariffed.
incentives, factors taken into consideration that can motivate an action; for an entrepreneur, the expectation of a return adequate to compensate effort and risk; for an employee, adequate wage income and low-enough taxes to motivate work effort.
income, the monetary purchasing power received by a human factor of production; any income may a composite of wage (labor income), interest (capital income), rent (return due to unique ability), and profit (a residual of total income less all other incomes).
income distribution, the range of income received by a population quintiles or deciles arranged from lowest to highest.
independent variable, one of several possible hypothesized influences upon a dependent variable.
individualism, an ideology characterized by the notion that the community is no more than the sum of the individuals in it, and that each individual finds fulfillment in a struggle for survival; by property rights as the best guarantee of individual rights; by the presence of competition to ensure an appropriate allocation of resources; and by a role for the state which is limited to protecting the private rights of the individuals who comprise its society; the economic philosophy associated with political philosopher John Locke.
industrial policy, an strategy of a political administration to determine what industries and companies within industries should survive, and actions to ensure their survival by subsidies and protectionist policies (e.g., tariffs on competing imports); some European governments historically have implemented industrial policies, but American administrations usually have rejected industrial policy, preferring to allow market mechanisms to determine industrial success or failure.
inequality of the distribution of income, a factual description of the proportions of the income of a society received by successive deciles or quintiles from lowest to highest; to be distinguished from distributional inequity which is a matter of perception that the degree of factual inequality is socially unacceptable; the merit-based distributional mechanism of capitalism virtually ensures that income is unequally distributed.
inequity of the distribution of income, the perception that the degree of factual inequality in the distribution of income is socially unacceptable; the merit-based distributional mechanism of capitalism virtually ensures that income is unequally distributed, but it is an object of debate as to whether the existing distribution is inequitable.
infant industry, a fledgling industry in a region that may or may not have natural comparative advantages suitable to the industry; governments pursuing import substitution industrialization (ISI) development policies often have imposed trade restraints and provided subsidies to what they perceive to be infant industries; the intent is to reserve the domestic market for domestic producers so that they can “grow up” by exploiting latent scale economies and be able to compete with the larger-scale producers in other countries; infant industry protection and support rarely has been successful in ISI strategies.
inflation, the macroeconomic phenomenon of an increase in the general price level or a region or nation; to be distinguished from an increase in the price of a single good (a microeconomic phenomenon that results from changes of demand for or supply of the good); inflation, sometimes described as “too much money chasing too few goods”, is caused by government budget deficits that are financed by money creation, either directly (printing it) or indirectly as a consequence of financing the budget deficit by issuing bonds when interest rates are kept from rising; the negative of inflation, deflation, occurs when the general price level falls.
interpersonal comparisons of satisfactions, comparisons of satisfactions between persons that are strictly prohibited in economic analysis; intertemporal comparisons of satisfactions from the same activity experienced by the same person at different points in time are permitted in economic analysis.
investment, the process of acquiring additions to the stock of capital by diverting some portion of earned income from consumption to enable the purchase of real capital assets (plant and equipment); “investment” in a financial sense is the use of savings to purchase financial instruments (stock shares, bonds, etc.).
kleptocracy, a political administration with budget authority or access otherwise to government funds that have been transferred to private (and often secret) bank accounts in other countries.
interest, the return (or income) to any human-made productive resource, i.e., capital.
interest rate, the price for using a dollar’s worth of money for a specified time period, usually the year.
invention, the process of developing an idea for a new product or process; to be distinguished from entrepreneurship which is the innovation and assumption of risk in implementing a new process or putting across a new product on commercial scale.
laissez faire, the economic philosophy introduced by Adam Smith in his 1776 book, An Inquiry into the Nature and Cause of the Wealth of Nations that favors a minimal role for government to play in the market economy.
labor, the productive resource inherent to the human being; the physics concept of “work” (mass times distance moved) accomplished by the human agent; the more modern term for labor s “human resources”.
land, a productive resource understood by early economists to be a "free gift of nature," the quantity of which is not capable of augmentation by human effort; the more common term is “natural sources” to refer to the now archaic term “land.
legal reserve requirement, the requirement mandated by law or administrative fiat for commercial banks to hold reserves in the form of very liquid assets (usually vault cash and government bonds) that can be quickly liquidated to meet sudden and unexpected cash withdrawals by depositors; in the US the required reserve ratio usually ranges between 7 and 12 percent of a bank’s outstanding deposit liabilities, depending upon the size of the bank; the required reserve ratio may be changed by the central bank in implementing monetary policy, but this has become a rare occurrence in the US due to the amplified effects of a reserve ratio change on the volume of bank deposits.
leveling the playing field, action by government to offset or neutralize the advantages of foreign companies in selling merchandise in local markets.
Liberal, one who is willing to take pragmatic approaches to dealing with society’s ills, including expanding the role of government as needed.
liberal, one who prefers a minimal amount of intrusion of authority into personal decision-making.
liberalization, the process of removing constraints upon personal and commercial decision-making imposed by governments or religious authorities; types include economic liberalization, financial liberalization, trade liberalization.
Liberation Theology, a movement by Catholic priests, principally in Latin America, that emphasizes the Christian mission to bring justice to the poor and oppressed through political activism.
loss, the negative of profit; the excess of operating expenses over revenues during an accounting period; a loss signals the producer that the rate of production of a good or service should be decreased or that it should no longer be produced for the market.
macroeconomy, the economic relationships among a large number of participants, often represented as the whole economy of a region or nation; macroeconomies may entail any number of microeconomic entities and relationships.
Malthusian prospect, a situation envisioned by Thomas Malthus in 1799 in which the population of the earth will have grown to such an extent that it “presses” upon the carrying capacity of the earth to drive incomes down to the subsistence level; population growth beyond this point would result in starvation to serve as a constraint on further population growth.
management, the routine oversight, coordination, and control of on-going production processes once they have been established on commercial scale; to be distinguished from the functions of invention and entrepreneurship, although there are a few examples of all three functions be accomplished by the same person, e.g., Thomas Edison.
managerial rationalization, the (unspecified) process envisioned by Karl Marx by which the state would take over the stock of capital and improve the efficiency of the production processes to such an extent as to relieve scarcity.
market capitalism, a form of economic organization that involves investment in capital for profit and employs market processes as the principal decision-making and motivating vehicle; market capitalism entails private ownership of the means of production and participatory decision-making through market mechanisms.
market failure, a term often used by critics of market capitalism to refer to faults or shortcomings in the functioning of capitalism; reputed market failures include externalities not recognized by markets, public goods not provided by the private sector in response to market price and profit signals, the accumulation of monopoly power by producers of goods or services, and macroeconomic instability.
market liberal, one who prefers a minimal role for governmental authority to play in determining the nature of the outcome of market exchanges.
market mechanism, the decision-making and motivating vehicle of market capitalism; a market mechanism involves the interaction of demanders and suppliers to determine market price of a good when its quantity demanded is matched to its quantity supplied.
market price, the valuation of a good transacted in a market as determined by interaction of demanders and suppliers.
maroeconomic instability, expansion and contraction of output of a regional or national economy accompanied by falling and rising unemployment levels, greater or lesser rates of inflation, and variations of interest rates, more so for short-term rates than for long-term rates; macroeconomic instability creates uncertainty that constrains enterprise freedom.
mercantilism, a government policy advocating state regulation of industry and trade, originally practiced in the sixteenth to nineteenth century era of nation state-making, but persistent into the twenty-first century in the form of protectionism and industrial planning.
microeconomy, the economic relationship among a small number of participants, e.g., the market for a particular good; in distinction from a macroeconomy, a large-scale economic system at the level of region or nation.
miracle, a phenomenon that appears to violate understood physical laws or the economic characteristic of scarcity.
mixed capitalism, predominantly a market economy in which government implements various market modification actions to address perceived market flaws or failures.
mixed economy, an economy entailing a combination of market mechanisms and authoritarian direction to determine product mix, methods of production, resource allocation, and output distribution.
mixed socialism, an economy that is predominantly an planned and directed by centralized authority to determine product mix, but which employs market mechanisms to determine methods of production, resource allocation, and output distribution.
Modernity, the cultural and intellectual milieu of the period roughly coincident with the Industrial Revolution up to the middle of the twentieth century, and characterized by individualism, belief in the possibility of gathering absolute facts and reliance upon reason to discern absolute truths (religious and scientific), ethics based upon religious teachings and cultural conventions, and monotheism; see Table 1 in Chapter 1 for a list of characteristics of Modernity pertaining to economics.
model methodology, a.k.a., deductive method, apriori method, the process employed by social scientists, particularly economists, when conducting experiments is not feasible, to discern principles about the workings of a real world phenomenon; model method starts with a presumed behavioral premise, makes assumptions of constancy of extraneous matters, employs inductive reasoning to structure an abstract model of the phenomenon under study, and uses deductive logic to derive conclusions about the phenomenon; if sufficient data can be captured by field observation or are available in published historical sources, the derived conclusions may be subjected to empirical verification or rejection.
monetary policy, the deliberate manipulation by the government (usually its agent, the central bank) of the money supply or the interest rate (the so-called “price of money”) in the interest of offsetting macroeconomic swings in the economy; while monetary policy changes can be implemented by decisions of the monetary authority (rather than by legislative action) more quickly than can fiscal policy changes, a growing number of macroeconomists have become skeptical of the ability of central bankers to implement monetary policy changes without overreaction that aggravates macroeconomic instability.
monopoly power, the ability of a producer or seller to exercise pricing or other discretion by virtue of being the only producer or seller in the market for a good.
monopsony, a market for a good or service in which there is only one buyer, i.e., monopoly on the buyer’s side of the market.
moral hazard, a problem that occurs when a principal commissions an agent to act on his behalf, but the agent engages in shirking, pursues self-interest to the detriment of the principal's interest, or indulges in dishonest or immoral behavior.
moral precepts, personal or societal views of what is good or right for human beings; ethics involves choices in regard to moral precepts.
natural resources, non-manmade materials in nature that can be used in economic production of consumer goods or capital goods.
night-watchman functions, the routine functions that government must undertake on behalf of a market economy, including enacting a system of law, providing for the protection of property, ensuring domestic serenity with well-organized, trained, and restrained police forces, providing for national security by maintaining an efficient military establishment for defensive purposes, maintaining and enforcing a system of weights and measures, and providing a reliable and elastic money supply, the quantity of money in circulation outside of the banking system of a country; the money supply (narrow definition) consists of coin and currency held by persons and organizations outside of banks, checkable deposits owned by members of the public and held as liabilities of banks, and travelers checks; other liquid assets such as savings accounts and time deposits may be included in broader definitions of the money supply; no coin or currency held within the banking system as till or vault cash is part of the circulating money supply.
open society, one that is without a well-defined class structure and in which it is possible for individuals to rise from impoverishment to affluence by personal effort.
nominal value, the monetary value of an economic good as determined
in markets by the forces of demand and supply; a value that has not been
adjusted to remove the effects of inflation or deflation.
normal profit, the amount of profit that is typical of an industry
and can that can be earned in other uses of a firm’s resources in the industry.
nuisance good, any material goods that is present in such abundance exceeding the total quantity of it needed or wanted such that one would not pay a positive price to acquire more of it; some humans might pay others to rid themselves of some quantities of a nuisance good; implicitly, the price of a nuisance good is negative; a.k.a. “bads”; examples include garbage, sewage, pollutants in the air or water.
offshoring, shifting production to foreign locales.
open market operations, purchases or sales of bonds in the bond market by the central bank of a nation, the side effects of which are to increase or decrease, respectively, the quantity of money in circulation; only the treasury department of a government can issue government bonds, but the central bank of a nation usually is empowered to buy and hold previously-issued government bonds in its inventory, and then to sell bonds as it deems necessary to meet the needs of macroeconomic stability.
open-economy world, an international trading context in which governmentally-imposed hindrances to trade (tariffs, quotas, subsidies, etc.) are non-existent or minimal.
opportunity cost, what must be given up in order to acquire something; the usual presumption is that the true opportunity cost of something acquired is the highest-valued item or activity given up; a.k.a. “real cost”.
optimization, maximization of a desirable goal relative to constraints that prevent absolute maximization; constraints often are subsidiary goals relative to a selected primary goal to be pursued; many business decision-makers are thought to engage in optimizing (rather than maximizing) behavior with respect to profit by pursuing a target rate of return on invested capital.
outsourcing, acquiring materials, parts, and components from foreign producers.
patriarchial capitalism, a system of economic relationships dominated by male members of the society and characterized by investment in capital for profit.
perfection of competition, three dimensions include perfect market knowledge, instantaneous adjustment to changing market conditions, and costless adjustment; none of these dimensions are descriptive of real-world competitive conditions, but technological advances in transportation, communications, and computing have diminished the degrees of imperfection in all three dimensions.
plant, the buildings within which production takes place; the producer’s plant houses the productive “equipment”.
policy activism, the deliberate manipulation of the government’s budget and the money supply in the effort to achieve and maintain macroeconomic stability.
political economy, the complex of political system and economic system in place in a region; typically, a mixed market economy is coupled with a democratic polity, or a socialist form of economic organization is paired with a centralized and authoritarian polity; historically, “political economy” referred to the undivided study of economics and politics before the two disciplines drifted apart around the turn of the twentieth century.
polity, the political system in place in a country.
political entrepreneurs, government functionaries that innovate and assume risk in promising or proposing the provision of political goods to favored interests.
political goods, benefits provided by government functionaries to favored interests in the forms of appointments, employment, sponsorship of desired legislation, etc., in exchange for votes or other modes of support to ensure the political survival of the functionaries.
political integration, the process of establishing a super-national or super-regional political administration encompassing a number of nation states or regions and entailing the surrender of elements of national sovereignty to the super-national or super-regional political entity; a politically-integrated super-state may be organized as a unitary state (with no significant political subdivisions), a confederation of constituent states that retain significant elements of sovereignty, or a federal state that is fully sovereign but which may allow elements of sovereignty to constituent political subdivisions; the United States of America is a politically integrated region with a constitution, governed by a presidential-congressional polity, and organized as a federal system with centralized fiscal (including taxation and spending) and monetary policy powers; the “eurozone” (twelve of the current fifteen member states of the European Union) has a super-national monetary authority (the European Central Bank) that coordinates monetary policy among the central banks of the eurozone member states; the European Union has a parliamentary assembly, a high court, and a “commission” that oversees regulatory harmonization, but it has yet to achieve full political integration that would enable either coordinated or centralized fiscal policy; with the approval of a constitution, the EU seems to be moving toward becoming a federal political entity.
pollution rights, the specification of permissions for business enterprises to continue to pollute the atmosphere or waterways at levels that society deems tolerable (in current political discussion, a “cap” on pollution), and then allow (and promote) market trading of the pollution rights among firms in polluting industries; in a so-called “cap and trade” approach to dealing with environmental pollution, the expenses that firms incur to buy such pollution rights cause them to internalize the spillover costs of pollution so that they show up in the firms’ income statements; if pollution rights are set too high or are given away to current polluters, the “cap and trade” system is meaningless.
polycentrism, a worldview of respect, tolerance, and appreciation of other peoples' economies, polities, and cultures; polycentrism takes a pluralistic view with respect to religious traditions.
positive-sum game, a term borrowed from the mathematics of probability theory which in economic contexts describes a market transaction in which both parties to the transaction gain value even though each party may perceive the other party to lose value in the exchange; in distinction to a “zero-sum game” in which if one party to a transaction gains value, the other party must have lost an equivalent amount of value.
Postmodernity, a post-World War II cultural and intellectual transformation of society described by certain philosophers and social commentators and characterized by subjectivity, social fragmentation, ethical relativism, literary and theoretical deconstruction, rejection of absolute truth, and religious pluralism; see Table 1 in Chapter 1 for a list of characteristics of Postmodernity pertaining to economics.
post-Postmodernity, hypothesized by some social commentators to be the successor to the Postmodern cultural epoch and characterized by social revulsion at the extremes of the Postmodern epoch, reversion to pre-Modern reliance upon religious traditions of belief in absolute truth and associated ethical values, but conditioned by the Postmodern insistence upon religious pluralism; religious fundamentalism or reawakening is cited by some social commentators to evidence a post-Postmodern cultural transition; the characteristics of post-Postmodernity are continuing to evolve.
poverty, the low-level state of well-being that is characterized by consumption at or near the margin of subsistence and the possession of little material wealth; relative poverty is represented toward the bottom of an income distribution of a society; absolute poverty is has been defined as receiving income (monetary or equivalent) of no more than an absolute amount, e.g., $1 per day.
pragmatic liberalism, the social and political willingness to employ the offices of government as needed to address perceived social ills.
principal, an owner or dominant decision-maker in a venture who commissions others (agents) to act on his behalf.
private goods, goods produced in a market economy in response to market price and profit signals, and which have prices low enough that individual members of society can purchase them and secure them for their exclusive use.
procedural justice, the form of social justice in which a fair social process is employed, irrespective of whether the resulting distribution of benefits and burdens is deemed fair; procedural justice is achieved when appropriate procedures are employed, as for example when universal rules are obeyed.
producer sovereignty; the ability of the management of a company with sufficient monopoly power to impose its product-mix will on consumers by first deciding what they wish to produce, and then through manipulative marketing efforts attempt to convince consumers to want those products.
productivity, the relationship between outputs of production processes and the inputs used to produce the outputs; productivity is increased when the quantity of output that can be produced by given amounts of inputs into the production process increases.
profit, the net difference between revenue and the total of all production costs, including both explicit (monetary) and implicit (psychic) costs; the return (or income) to an entrepreneur for achieving success in innovation and attendant risk assumption of risk; before the fact of innovation the expectation of profit serves as a motivation to assume risk; after the fact of innovation profit is a reward for the assumption of risk if the innovation is successful, but a negative profit (a loss) is a penalty for assumption of risk if the innovation is unsuccessful.
profit maximization, the behavioral premise usually taken by economists to govern the behavior of business decision makers.
program finance, the determination of the government’s budget to achieve program goals rather than manipulating the government’s budget in the interest of macroeconomic stability.
progressive income taxation, the application of a progression of higher income tax rates to successively higher brackets of income; the justification for progressive income taxation is “fairness”, i.e., the presumption that higher income recipients should pay more in taxes than lower income recipients; the marginal tax rate applied to the highest income tax bracket in the US presently (2010) is 36 percent, but if the Bush tax cuts are allowed to expire at the end of 2010, this rate will rise to 39 percent.
proletariat, the working class comprised of people who have lost whatever control they (or their forebears) may once have had as craftsmen over their own resources and ability to produce consumable articles.
property, material goods, land, and structures on land held in ownership; property is “private” if ownership is held by persons or groups of persons; property is “public” if ownership is held collectively or by the state.
protectionism, a political strategy to “level the playing field” by offsetting or neutralizing the cost or performance advantages enjoyed by foreign producers; protectionism is usually implemented by imposing tariffs, quotas, and other so-called non-tariff barriers (NTBs) upon the imports of foreign merchandise; special interest groups (a.k.a. “rent seekers”) typically lobby law-making bodies to impose protectionist trade restraints.
psychic cost or benefit, the non-pecuniary negative or positive feeling, respectively, experienced by a human in regard to some economic activity in which the human is engaged; efforts often are made by economists to estimate monetary equivalents of psychic costs or benefits for inclusion in economic models.
public choice, the analysis of whether any particular decision is most effectively taken in the private sector or in the public sector.
public goods, goods that are “large and lumpy” in the sense that they are of large-enough scale and cost that individual members of society are unlikely to be able to afford to purchase them alone; public goods are an example of a so-called “market failure”; public goods are not subject to the so-called “exclusion” principle, i.e., individuals can not acquire the good and exclude others from its use; public goods are also not subject to the “more for me, less for you” principle, i.e., uses by individuals leave no less of the public good for others to use; the provision of public goods is not in response to market price and profit signals, and thus requires a collective action by the society to finance and produce the public good or to commission its production by private sector producers; examples of public goods include streets and highways, water and sewer systems, ship ports and airports.
quid pro quo transaction, an exchange between two parties in which each party conveys to the other party something of value acceptable to the other party for what he or she gives up; literally, “this for that”; a so-called “bilateral exchange” of things of value; in present-day quid pro quo transactions, the “thing” is an amount of money surrendered in order to acquire a good or service; in distinction from a so-called “unilateral transfer”, i.e., a one-way transfer of value with no corresponding counter transfer of value.
quota, a form of trade restraint that imposes an absolute quantity limitation upon the volume of imports allowed to enter a nation; quotas generate no revenue to the government unless the government auctions licenses to import the allowable quota quantity to the highest bidders.
rational expectations decision maker (REDM), one who possesses high intelligence, a good understanding of "the way the world works," awareness (perceptivity) of what is going on, a long-enough time horizon (i.e., concern for what the future holds), and a drive to use all available information in forecasting future states; REDMs are not always right in their forecasts, but their forecast errors tend to be random rather than systematic; to the extent that their forecasts are accurate, REDMs can make decisions to take advantage of opportunities and avoid (or manage) risks.
real, a descriptive adjective that in economics means that adjustments have been made to nominal income to eliminate the effects of inflation (or deflation) so that the real component of nominal income change can be examined.
real value (wealth, income, money balances), a “deflated” value of a monetary amount after removal of the effects of inflation or deflation; the “true” or opportunity cost of acquiring something by giving up something else.
rent, the return (or income) to land or any resource that is fixed in supply and incapable of being augmented by human effort.
rent-seeking activity, the effort by government functionaries to capture personal or institutional benefits by virtue of monopoly position in the provision of “political goods”.
required reserve ratio, the proportion of outstanding deposit liabilities that a commercial bank is required to maintain in the form of very liquid assets (usually vault cash and government bonds); in the US the require reserve ratio usually ranges between 7 and 12 percent of a bank’s outstanding deposit liabilities, depending upon the size of the bank; the required reserve ratio may be changed by the central bank in implementing monetary policy, but this has become a rare occurrence in the US due to the amplified effects of a reserve ratio change on the volume of bank deposits.
return, the income to a productive resource; nineteenth century economists designated the return to labor as “wage”, the return to capital as “interest”, and the return to land as “rent”; modern economists also designate the return to successful entrepreneurship as “profit”.
risk, the chance that an expected or hoped-for outcome of an event will not occur; risk is usually assessed by estimating the probability of non-occurrence of an event; riskier activities usually require greater expected returns in order to motivate participation in the activities; normal human behavior is risk averse; gamblers by definition prefer risk.
rule by authority, the specification by the political administration of rules that govern social, political, and economic relationships among citizens; such rules are specific to the current political administration and may change at the whim of the administration or when a new administration succeeds the previous administration, e.g., by coup or revolution; to be distinguished from rule of law.
rule of law, the legislation of rules that govern social, political, and economic relationships among citizens, and which stand irrespective of the identity of the current political administration; to be distinguished from rule by authority which is specific to the current political administration and may change at the whim of the administration or when a new administration succeeds the previous administration, e.g., by coup or revolution.
safety net, a government welfare program intended to put a “floor” under the well-being of the lower-income members of its society.
satisficing, term coined by economist/psychologist Herbert Simon to describe the behavior of many real-world business decision makers; an example of satisficing behavior is to pursue a target rate of return on invested capital.
scarcity, the normal economic condition of the material world such that humans need and want more of an item than is available; the opposite of abundance; the evidence of scarcity is a positive market price.
scientific experimental methodology, the process of conducting experiments in isolated environments in order to generate data that may be used to test and verify or reject hypotheses about causation.
self-interest, the orientation of individual humans to protect themselves and enhance their own welfare by acquiring consumable goods and durable assets.
services, activities without tangible characteristics in themselves and with short lives that expire when their benefits are immediately consumed; examples include repair services and personal services such as haircuts and pedicures.
singularity, the instant of creation that has yet to be explained by modern physics theory; the possible role of a creator being is a continuing object of debate among theoretical physicists.
slavery, the property interest of one human in another human that enables control over the other human’s productive capacity and the capturing of the return (income) to that other human’s productive effort; the ultimate basis for exploitation of human labor.
social goods, goods that entail positive externalities not recognized by markets; an example of a so-called “market failure” because markets tend to under-allocate resources to the production of social goods; governments often attempt to correct for the under-allocation of resources to social goods by subsidizing the production or consumption of them.
socialism, a form of economic organization in which the means of production are owned by the state and authority to determine product mix, means of production, allocation of resources, and distribution of product are vested in a state planning authority.
spillovers, a.k.a. “externalities”, a so-called “market failure” consisting of positive and negative side-effects of consumption or production activity that impinge upon innocent by-standers to market transactions and thus are not recognized by markets; negative spillovers resulting from the production or consumption of a good result in the market over-allocating resources to production of the good; positive spillovers resulting from the production or consumption of a good result in the market under-allocating resources to production of the good; examples of positive spillovers include the benefits of public health care and public education; examples of negative spillovers include various kinds of environmental pollution.
state sovereignty, the authority and power of a political entity to do whatever it wills to do with the resources contained within its boundaries, including the human resources of its population; in authoritarian economies, state sovereignty entails the power to determine product mix, methods of production, resource allocation, and output distribution.
state-owned enterprise (SOE), a production unit owned and operated by a government authority, often in competition with private-sector enterprises; SOEs have been more common in mixed socialist economies, but a few exist in mixed market economies, e.g., the Tennessee Valley Authority that generates and sells electricity in the southern region of the United States; governments of some countries have acquired productive enterprises by nationalization; during the 1980s in many European nations and during the 1990s in the former Soviet Union, processes of “privatization” were launched to dispose of state ownership interests in many SOEs.
subsidy, a payment by a government to a private-sector productive unit to offset some portion of the costs of production as an encouragement to increase the volume of production; a subsidy may be paid to consumers to offset some portion of the price of an item the consumption of which the government wishes to encourage; subsidies to domestic producers can be a form of protectionism in the sense that they offset or neutralize the competitive advantages of foreign producers.
sunset provision, a provision included within the legislation of a government program for its termination once the original need for the program has been met.
super-normal profit, an amount of profit in excess of what other firms in the industry with similar resources can earn; super-normal profits are attributable to exceptional entrepreneurial ability or monopoly power; in competitive markets, super-normal profits may fleeting as they are competed away by price and performance competition from other firms.
suppliers, those humans who are “in a market” offering to sell quantities of a good.
sustainability, the characteristic of a social or economic process that it can continue into the indefinite future with minimal or no significant negative effects on the environment.
tariff, a form of tax imposed upon merchandise that moves across national boundaries; tariffs usually are imposed upon imports into a nation, but some nations that export large quantities of raw materials (agricultural, mineral, or petroleum products) also impose tariffs on exports; tariffs may be imposed by a government to raise revenue or to protect its domestic industry from competition by foreign producers; given elasticities of demand for and supply of imports, there is an optimal tariff that maximizes the tariff revenue; a protectionist tariff usually is higher than a revenue tariff, and often high enough to choke off all imports; a protectionist tariff often elicits reciprocal imposition of tariffs by trading partners.
technological advance, discovery or development of new ways of making a material good or improving the function or quality of the good; a debatable question is whether technological advance is purely a human achievement or is a provision of new knowledge by God.
technology, the known ways of making a material good; primitive technology is the most basic method of doing something and using the most rudimentary tools, often of wood, stone, or shell construction and powered by humans, animals, or water; advanced technology is the most recent or most efficient or most productive technology available, employing steel or other metals and alloys as well as complex chemicals, and powered by electricity, combustion of fossil fuels, or nuclear fission.
third-world country, a now archaic term that refers to low-income countries using primitive technologies, and typically relying on one or a few crops or mineral resources for income at or near a subsistence level; the term originally accompanied “first world” which referred to the high-income democratic, industrial, market economies of the “West” that develop and use advanced technologies, and the “second world” which referred to the authoritarian socialist countries of Eastern Europe (the Soviet Union and its satellites); the failure of the Soviet Union in the 1990s has rendered “second world” irrelevant as the Russian Republic and many of the former satellite countries of Eastern Europe are in the process of becoming “first world” countries; contemporary and more politically correct terms are “low-income countries’, “poor countries”, and “developing economies”.
trade creation, trade diversion, the effects of regional economic integration and bilateral and multilateral trade agreements to increase or decrease trade, respectively, among the constituents or participants; trade creation is judged good/bad by economists if regional integration or trade agreements induce regions to increase/decrease specialization in producing goods and services that exploit their true comparative advantages; trade diversion is judged bad/good by economists if regional integration or trade agreements induce regions to decrease/increase specialization in producing goods or services that exploit their true comparative advantages.
trade liberalization, the process by which imports, exports, and foreign investments are freed from governmental restraints.
trade restraint, a form of protectionist government policy intended to limit the importation of foreign merchandise that competes with domestically-produced merchandise; domestic producers typically lobby law-making bodies to impose trade restraints.
trickle-down effect, the reputed benefit to lower-income members of society in the form of provision of employment and income-earning potential provided by investment in capital by higher-income members of society; the fact that critics of capitalism typically disparage the possibility of trickle-down does not render the process impotent; 127.
true gift, a unilateral transfer of value that does not incur any obligation to reciprocate to the giver.
unethical business practices, activities of business decision makers that violate conventional or established business norms, including bribery, embezzlement, breaking contracts, price fixing, collusion, deceptive advertising, falsification of expense accounts, underreporting of income or padding of expenses on tax reports, use of substandard materials, producing and selling products which fail to function as advertised, failing to divulge to consumers possible product dangers, etc.
unilateral transfer, a one-way transfer of value with no corresponding counter transfer of value; in distinction to a quid pro quo two-way exchange of values; examples of unilateral transfers include gifts, charitable contributions, church contribution, foreign aid.
unintended consequences, unpredicted secondary (and subsequent) effects of well-intended political actions taken to address perceived “market failures”; examples include welfare benefits that are rich enough to enable eligible recipients to avoid work and unemployment benefits of long duration or large proportion of last earned income that tend to extend job-search periods and cause unemployment to persist.
utilitarianism, the belief that people ought to act so as to promote the greatest total balance of good over evil, or the greatest good for the greatest number; a rule utilitarian would obey those rules which experience has shown generally promote social welfare, even when doing so does not always lead to good consequences; an act utilitarian may hold that one ought to act so as to maximize total good even if doing so violates rules which usually promote social welfare.
venture capitalist, someone of wealth who has funds to invest but who does not himself undertake the entrepreneurial role; the venture capitalist evaluates would-be entrepreneurs and their proposals, choosing to reject some and entrust funds to others; the venture capitalist shares the profit/loss of the entrepreneur on an agreed formula; most venture capitalists are sufficiently risk averse that they choose investment opportunities with favorable odds of success so that they can continue to "stay in the game".
victimhood mentality, the widespread social view that everyone is a victim, no one is responsible, and society is to blame for anything bad that happens.
wage, the return (or income) to labor, the human factor of production; to be distinguished from rent, interest, and profit income.
wasting assets, resources that are extracted and used but are incapable of being replaced; examples are mined minerals and extracted petroleum.
wealth, material things of value and financial instruments that are accumulated and held in ownership by humans; wealth-holdings are increased when some portion of earned income is diverted from consumption spending to purchase assets such as houses and real estate; “real wealth” is increased by investment in capital that enhances productive capacity; “financial wealth” is said to be “created” by earned interest, asset value appreciation, and market trading that takes advantage of price differentials.
zero-sum game, a term borrowed from the mathematics of probability theory which in economic contexts involves a fixed amount of value such that if one party gains value from a transaction, other parties must have lost an equivalent total amount of value; economists generally deny that market transactions are zero-sum games because in order for a transaction to be completed, both parties to the transaction must perceive themselves to gain even though each party may perceive the other party to lose value in the exchange.
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SUGGESTED
FURTHER READINGS The following items, though not referenced in the text of this
work, have served to deepen the author’s understanding of postmodern thought,
and are recommended to those who are interested in further pursuing these
topics. Burke, Barry (2000) “Post-modernism and post-modernity”, The Encyclopaedia of Informal Education,
www.infed.org/biblio/b-postmd.htm. Last update: 03-Sep-2009 (http://www.infed.org/biblio/b-postmd.htm). Chicago,
University of, Conference on After Postmodernism, November 14-16, 1997 (http://www.focusing.org/apm.htm). Cobb, John B.,
Jr., "Constructive Postmodernism" (http://religion-online.org/showarticle.asp?title=2220). Davis, Ben,
"The Age of Semi-Post-Postmodernism", ArtNet
(http://www.artnet.com/magazineus/reviews/davis/semi-post-postmodernism5-15-10.asp). Fackerell, Michael,
"Postmodernism and the Death of Truth" (http://www.christian-faith.com/forjesus/postmodernism-and-death-truth). Gottschalk, Adam, "POST Postmodern Manifesto" (http://www.adamgottschalk.net/words/popomo.html). Kirby, Alan,
"The Death of Postmodernism and Beyond", Philosophy
Now, June/July 2010 (http://www.philosophynow.org/issue58/58kirby.htm). Nobel, David,
"Postmodern Economics--Introduction", Understanding the Times: The Collision of Today’s Competing Worldviews (Rev. 2nd ed),
Summit Press, 2006 (http://www.allaboutworldview.org/postmodern-economics.htm). Peters, Michael
A., "Globalism and its Challenges:
The Postmodern State, Security and World Order" (http://globalization.icaap.org/content/v2.2/04_peters.html). Scribd,
"Post-postmodernism" (http://www.scribd.com/doc/5710598/Post-Post-Modernism). Sinckler, Christopher, "Post
Modern Economic Globalization--The implications for small states",
February 27, 2003 (http://www.cpdcngo.org/article.php3?id_article=26). Watson, P. J., "Christian
Psychological Research and the Post-Postmodern Future" (http://christianpsych.org/wp_scp/wp-content/uploads/christian-post-postmodernism-pjwatson.doc). Witcombe, Christopher L. C. E.,
"Modernism and Politics" (http//witcombe.sbc.edu/modernism/modpostmod.html).
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