A review of Redeeming Economics: Rediscovering the Missing Element , by John D. Mueller
John D. Mueller is an extraordinarily learned man. Unlike many other gifted economists, he knows economic history. Unlike many talented economists, he does not assume that marriage flows from material self-interest. Unlike most economists, he believes that all men are created by God, and that the order in free markets comes not from self-interest but from what Augustine called the "trace of equity" stamped on business transactions by the Creator. He also believes that Adam Smith was not the founder of economics but rather of a view that "reduces humans to marionette puppets compelled to act by a hidden force manipulating the heartstrings of their moral sentiments." Well. It is true that many people think Smith founded economics, but it is obvious to anyone who reads The Wealth of Nations that he was not creating a rigorous new science but refuting mercantilism, the theory that dominated Western European economic policy from the Renaissance into the 18th century.
The Wealth of Nations offered an explanation of what constituted true as opposed to imaginary wealth and why the customary behavior of rulers was preventing people from improving their lot. Smith wrote for an audience that believed in the fundamental mercantilist assumptions: that wealth was gold, that increases in wealth meant one person losing what another gained (in other words, that trade was a zero-sum game), and that to guard national wealth the government should levy high taxes on imported goods. Smith disagreed, arguing that wealth was a supply of goods and services, not gold; that a market economy was not a zero-sum game; and that (except in a very few specific cases) imports should not be taxed because international trade made both sender and receiver better off. Smith destroyed the idea of mercantilism; this is what made his book so powerful. As Mueller, the director of the Economics and Ethics Program at the Ethics and Public Policy Center, rightly notes, Smith had no theory of utility (that is, how people rank different outcomes). "Utility" was invented in the 18th century to explain why people choose one thing rather than another. Nor, as Mueller points out, did Smith have a theory of final distribution. The author devotes many pages to this problem; that is, to the question of who receives our products, obtains our gifts, and suffers from our crimes. To explore this point he examines, among others, marriage, homicide, abortion, and taxation.
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On marriage, Mueller correctly argues that humans are not only rational but matrimonial; they marry because they love someone, not because they think it profitable to do so, and they have children not because children are economic assets but either out of love or accident. The author then suggests that the rising number of unmarried people is the result largely of increased life expectancy, and the rising divorce rate the result of legalized abortion (because couples do not need to stay together to raise a child). He refers us to the work of Nobel Prize-winning economist George Akerlof and his colleagues, Janet Yellen and Lawrence Katz, in support of the latter claim. But Akerlof, Yellen, and Katz did not quite say that. In their 1996 essay, "An Analysis on Out-of-Wedlock Childbearing in the United States," they argued that the rise of single parenthood is the result of the end of shotgun marriages, the increased availability of contraception, and the advent of abortion. Unmarried mothers, they suggested, may have become a more important phenomenon because shotgun marriages ended and because the cultural norms that once required mothers to be married had vanished, but the authors admitted that they knew of no data bearing on this question. They also dismissed the view that welfare could have encouraged out-of-wedlock births, but in saying so they did not use (and could not have used) data that appeared after 1996 showing that welfare money affected the unwed pregnancies of low-income women. Mueller should have known of these studies. Instead, he resorts to the views of Augustine and Thomas Aquinas, which he says are more comprehensive. They are, indeed, comprehensive, but citing them is no substitute for data about marriage, divorce, and single parenting.
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Much the same problem exists with Mueller's discussion of homicide. The classic economic view is that people commit crimes not because their motivations differ from those of non-criminals, but because their costs and benefits differ. When Richard J. Herrnstein and I published our book Crime and Human Nature (1985), we argued at length that motivations are the decisive difference between criminals and non-criminals. Some people have short-time horizons, ignoring what will happen in the future, while others have long ones, assigning a high value to distant results. Some people break the rules in completing a standardized test, while others follow them carefully; some are impulsive, others cautious; some are aggressive, some restrained; some are poorly socialized (they ignore the feelings of others), some are highly socialized (they worry about those feelings). The group of people with short time horizons is heavily overrepresented among criminals, even when the costs and benefits of crime are the same as those facing the second group.
To all of this, Mueller adds the variable of economic fatherhood and studies its relationship to crime. Economic fatherhood, defined not by biological paternity or residency but by whether a male provides for his children, is a difficult thing to measure, but Mueller's efforts suggest that when a large fraction of fathers provide for their children the homicide rate is low, and when few do the homicide rate is high. But note that economic fathers are scarcer now than at any time in recent history, and yet the crime rate nationally and in most large cities has been falling dramatically.
In short, criminals' motivations are crucial, and so treating individual differences in crime solely in terms of how people allocate their time or to what benefits they respond is a mistake. The benefits are certainly not irrelevant; I, and most people who study crime, have found over many studies that when the net costs of crime rise, such as by an increase in the risk of imprisonment, that rate declines, and this happens independently of other social factors that determine the crime rate.
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The study of crime inevitably leads scholars to two challenges: the first is to explain changes in the crime rate in a society and the second to explain why one person is more likely than another to commit a crime. Scholars have made great progress in meeting the second challenge largely by understanding how people differ, but they have made few gains in addressing the first. We have become pretty good at explaining human differences but not very good at explaining social trends over time.
Mueller rightly says that Scholastic thinkers (by whom he mostly means Augustine and Aquinas) had a better theoretical understanding of humanity than do modern economists. But I think he has unfairly placed the burden on economists. What he should have said is that we have to find a way of redeeming social science. Social science is an effort to explain human behavior, and though gains have been made in every field—anthropology, political science, psychology, and sociology, as well as economics—we have made only modest progress in understanding society and culture. His book should have been titled Redeeming Social Science, or better yet, Redeeming Human Understanding.
Within economics, the field of microeconomics, which studies how prices affect individuals and firms, has made great progress. For example, we know that in a competitive market, a firm's profit is maximized when the price it charges is equal to the marginal cost of producing each unit of what it sells. But economics has had greater difficulty with macroeconomics—that is, the study of the whole economy. If you make a list of the economists who predicted the 2008-2009 recession, it will be very short. Or make a list of the economists who were correct about how to deal with it. This will be longer, but still rather brief.
I doubt that matters will improve if economists become Scholastics; that is, if they carefully study Aristotle, Augustine, and Aquinas. And the same will be true for anthropologists, political scientists, psychologists, and sociologists. Mueller is right to urge scholars to study Scholastic thinkers, but he does not show, and indeed cannot show, how studying them will provide an explanation of the final distribution of res bonorum et malorum, including behavior, production, gifts, and crimes.
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The great value of this book lies not in the author's call for a return to these great minds, valuable as that would be to our understanding, but in his sharp criticism of economics for devoting itself to a study of the means to achieve ends that people may or may not have. Economics does not confront what Philip Wicksteed called the "mother's problem," that is, how a mother will allocate her supply of milk among her baby, other people's babies, her tea, and her cat. The idea of marginal utility is not very helpful, for she must first decide what other uses are worthwhile and how each user's demands (for example, those of her baby and her cat) should be weighed. No market exists; no exchange occurs.
As a political scientist, I confront the same problem. The preferences the government seeks to satisfy change sharply. The government once refused to pay for internal improvements, then paid heavily for them; it once endorsed slavery and then abolished it; it once was isolationist and then interventionist. One cannot understand these changes by assuming that everybody is self-interested—though some scholars try. The late George Stigler, a brilliant economist, told me in 1976, on the bicentennial of the Declaration of Independence, that he knew that our revolution was aimed at making Americans better off. "But George," I responded, "Americans became financially much worse off because of the Revolution." "I know," he rejoined, "that is what appears to be true, but I plan to find evidence that it made them better off."