Indispensable Economics What is a humane economy?

Mar 21, 2011

When discussing economics, the layman to the field gets bogged down in all sorts of baggage about economics that clutters the view of the subject itself. He brings to the table theories that do not accord with reality; there are religious biases, meaning that because some theologian says something about economics or business, it has to be true. They come with a neo-classical bias given them by mathematical economics that obscures the philosophical and theological bases of economics; they come with schools of thought that, though they have been thoroughly discredited, still influence the thinking of many non-economists. The result of this menagerie of error has been to obscure the real nature of economics and to cause confusion in the councils of government and the realm of public discourse.

One problem with amateur philosophers is that they tend not to examine a subject in itself, without the previously mentioned baggage. I propose to begin again. Since economics is a human science, we should begin with a look at the human person.

Human beings are thinking and feeling beings. They are not automatons, acting with cold reason all of the time, but frequently, their choices are based on the heart—whether they like or do not like something. The word “choices” is the key. Humans live in a world where they have to make choices every day regarding a myriad of things, some important, some trivial. The important choices really require that they be thought out, and we look askance at someone who chooses a spouse or selects a career as though they were picking numbers in a lottery. Also, people make choices in a rational way in that they choose according to their values. Aristotle reminds us that all men seek the good; no one intentionally chooses an evil. But people do choose evil things. This is because, as Aristotle puts it, they choose either a true good or an apparent good. The apparent good looked good to them at the time, considering their values.

Next of all, all humans act, and the choice leads to an action. A person who makes choices but does not act lives in a fantasy world, and eventually dies from the lack of choice about the basics of survival. The very idea of choice implies an action. One cannot even reject this “action axiom” without acting. Contrary to what I call the “industry of evil,” which portrays all choices as between good and evil and sells a lot of books in the process, most of the choices people have to make are between competing goods. The choice is based on subjective valuation—what is consistent with a person’s values. This does not mean that there are not objectively good values, as I have heard so many people accuse free-market theorists of advocating, but even objectively good things have to be subjectivised prior to choosing them. In other words, I must see something’s value before I will choose it. And that choice must actually apply to me or my situation.

The next point is that all human beings act to better their condition. This is true in every area. Normal people desire to improve their participation in those things which they value. Academics want to learn more, advance their discipline, teach better, and publish their ideas. Married persons wish to do more for their families. All men desire to improve their physical lives by making them easier, healthier, safer, and convenient. Notice that all these things have nothing to do with money. These are things to which people naturally gravitate. Money only makes many of these things possible. Remember, though, that since the subject is human beings, not everyone will pursue the better things, for a variety of reasons, from laziness, ignorance, alcoholism, or even taste. So it is no argument against this to point to people who do not conform to this norm; it just means that we are not programmed robots, and that we act according to our values, which can vary quite a bit.

In discussing what a humane economy is, a number of things must be remembered. A free society and a free economy are what Hayek correctly called a “spontaneous order.” Contrary to those who have an anthropomorphic view of society or the economy, no one created society, assuming it was not set up by a dictator. No one set up an economy. A society and an economy are not “things,” but interrelationships which come about out of natural human sociability, and need.  These interrelationships go from permanent, such as family, down to the one-time contact, such as when a person travels and needs to get lunch, stopping at a restaurant. A free society and an economy come about, as Adam Smith points out, as a system of “natural liberty,” meaning that these interrelationships are what people do. At the higher levels, people need friends who love them for themselves, and parents who will teach them how to be adults and give them what they need for survival when they are too young to survive without help. People also need the things that others have in order to enhance their personhood. This is the foundation of exchange. A humane economy is one which allows this to flourish. But since no one actually sets up a free economy, the humane economy is one that we set up ourselves, by doing our own actions.

It was pointed out that not everyone conforms to the norm because we are reasoning persons with free will and a fallen nature. Society and the market need a mechanism to prevent the actions of others from interfering with our legitimate actions, the ends that are not harmful to those around them. So some institution is needed to protect against fraud, coercion, and other such things. But because people generally know what enhances their values, that institution itself must not coerce them into choices that do not conform to their values, again within the ground of legitimacy—that is, choices that would hurt others to any significant degree.

What if, the complaint usually goes, the values of the society are stupid or bad? What is the cause of it? For instance, does the unparalleled success of the modern market economy cause materialism, or does the materialism in modern society come from the acceptance of twisted ideas, and the declining influence of Christianity? Or does it come from the human heart that is infected with what we Catholics call the seven capital sins? Do people have free will or not? Is becoming a materialist not also a choice, chosen because what makes a person a person has been obscured by a bad education system, the media, etc.? Are people as materialist as we think, or as the “industry of evil” has led us to believe?

Lastly, complaints are made about the size of corporations, that corporations are too powerful, and government needs to prevent their growth above a certain level of income. Firstly, this view that corporations want power comes from the progressivist platform, and has been parroted by many since then. Secondly, I would love to meet a non-economist who says these things who has read the ground-breaking article by Nobel Prize–winner Ronald Coase entitled “The Nature of the Firm.” In that article he does what no else ever did—ask, “What is the firm, why do firms exist and what governs the size of firms?”

Regarding the first point, corporations do not want power, they want money. If they want power, it is only to enhance their profits. Since firms can’t coerce purchases of their goods and services, they have to get someone to do it for them. That someone is an all-too-willing government, the members of which, in exchange for campaign contributions and the promised votes of the members of the firm, make a firm a monopoly, or give it special breaks. GE is a good example of this. There is a massive body of literature from what is called the Public Choice School of Economics on how this works, and the remedy is to take away government’s power to aid corporations. Non-economists never think of that. Plus, most firms do NOT seek government advantages.

On the second question, Coase shows that firms are as big as it takes to make a product or service, but not any larger. Why? The key is cost. For a firm to make itself any larger than it has to be increases costs. Increasing costs reduces profits. Reducing profits irritates the Board of Directors, and drives down the price of the stock, thus opening the firm up to someone who will try to buy a majority of the stock, fire the directors and officers, and put in people who will cut costs in order to make the firm more profitable.
 
So in answer to the question of this paper, “What is a Humane Economy?,” the answer is that it is the freedom of human action to provide what people want and need for their lives.