Sunday, February 21, 2010


Economics, Selfishness, and the Gospel

The comments on my first attempt got swamped. (Hey kids, can we please drop the potty talk?)

The problem is that people started arguing about something that was irrelevant--I could say "orthogonal" to impress you--to my criticism of Bryan Caplan. So let me state it again. Maybe I'm wrong, but none of the critics (in particular Gene Callahan) in the comments of my original post addressed the crucial issue.

There are at least three similar questions revolving around this discussion:

(1) Is there a useful distinction between selfish and altruistic actions? Yes I think there is. Bryan and Gene agree with me.

(2) Do most people exhibit predictably selfish actions in many aspects of life? Yes I think this is probably true, depending on how we define "selfish." (E.g. is it selfish if I would choose to give my newborn one bottle of milk instead of giving three babies in Australia a bottle each?)

(3) To be useful in understanding the world, does economic theory need to assume that people are selfish? I say NO, Bryan says YES, and I'm not sure Gene understood that this was the point I was making in my first post.

For example, it doesn't matter how selfish or altruistic people are, price ceilings (if placed below the market-clearing level) will generate a shortage. Bryan's post would have you believe that this textbook outcome only occurs if people are selfish, but Bryan is wrong (I claim).

Bryan says, "Rent control leads to shortages and/or declining quality - if landlords are selfish. If they loved their tenants as themselves, it's a different story."

I want Bryan (or his defenders) to spell this out a bit. It only makes sense to talk about price controls if there is a market with an equilibrium price in the first place.

I think if Bryan thought it through, he'd end up saying that the supply curve of rental units would be a horizontal line at $0, going over to the right and stopping at the total number of units in existence. But then in that case, the rent ceiling wouldn't be below the equilibrium price.

OK so Bryan says, "Right, that's basically what I meant. The theory could be true technically, but vacuous, in a world where everyone is totally altruistic."

But hold on just a second. What if a parent allows a college dropout to move back home, but charges the kid rent? Does that prove the parent is selfish and actually doesn't love the child?

More generally, what if we have a landlord who does indeed have an upward sloping supply curve, because he is familiar with the Misesian calculation argument and believes property and prices help coordinate the use of material resources? And then he ekes out a very humble existence, and donates the vast bulk of his after-tax income to charities around the world? Is that guy "selfish" and do we conclude that he loves himself more than the tenant whom he charges rent?

I am stressing all this because I think Mises was correct to argue that economic theory is a subset of a theory of human action. I think economic principles do indeed shed light on all human interactions, and don't require an assumption of selfishness in the everyday sense of the word.

I am prepared to debate this; maybe Bryan is right. But his post seemed a bit too quick to me, and I wouldn't want to misunderstand the foundations of our entire discipline because of a hasty mistake.


I am actually running this post on a Sunday, which is reserved for religious posts, because for a while I have been toying with the idea that the anti-capitalists are right when they deride the "philosophy of scarcity" of bourgeois economists. If everyone really followed the commands of Jesus, it's entirely possible that society would be so incredibly transformed that humans would live on a different plane of existence.

Please don't say, "Even if we had spaceships, there would still be tradeoffs." You're narrowly focusing on technological things here. Imagine if there really were a world in which not only were there no wars and taxes, but there were also no insults or hurt feelings. Ever. The people growing up in such a world wouldn't know what it was like to be excluded from a game of tag, let alone would they know about the draft and fiat money.

I submit that we can barely conceive of what a relative paradise such an existence would be, compared to our current hell--designed by the prince of this world to fulfill his own agenda and unleash as much suffering on us as he can trick us into imposing on each other.

In a world where everyone truly lived as Jesus commanded, it is possible that the writings of free-market economists would seem naive or very limited. However, it's important to note that even in that scenario, it's not that the libertarian tenets would be violated. For example, people wouldn't take from the rich to give to the poor (even though those terms probably wouldn't mean anything at that point); the rich would voluntarily give to the poor.

Remember that "Thou shalt not steal" was in the 10 Commandments, as well as "Thou shalt not covet thy neighbor's goods." It's not that Jesus was overturning property rights, He was pushing us beyond them.

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For example, it doesn't matter how selfish or altruistic people are, price ceilings (if placed below the market-clearing level) will generate a shortage. Bryan's post would have you believe that this textbook outcome only occurs if people are selfish, but Bryan is wrong (I claim).

I argued basically the same point in the discussion from a while back on LessWrong that I was in.

To refresh: a poster named Swimmy was arguing that Mises believed that price controls (on the relevant side of the equilibrium price) *always* lead to non-market allocation of the controlled good, but this needn't be the case, given how merchants react. For example, they might (altruistically!) say, "Well, I'm not going to let anyone go without widgets, just because I can only charge X dollars per unit -- I'll just produce more to fill the excess demand!"

I replied that Mises would still be correct here because, once the merchant (inevitably) exhausts his inputs, then you see that the good has actually been allocated by "who got there first", not by market pricing. Even if the only input was the merchant's labor, which he could indefinitely produce more of, then you quickly see that he's effectively selling his labor for less than what other people would be paying him for it -- showing that the non-market allocation has still appeared, just in a different good.
What would happen to interest rates in a world were people "take no thought for the morrow"? Would their altruism push rates down to zero?

Would prices even exist in a Jesus-inspired world? From my cursory readings of the Bible, it seems distinctly socialist; but I'm willing to reserve judgment until the publication of Gary North's purported multi-volume tome on the economics of the Bible.
The economics in a family involve love, so it is easy to care for others, often sacrificing much for their care. From each/to each seems pretty normal in a loving family. Lots of growth/change generally going on.

But it doesn't work with strangers. Just sayin'.

Best wishes from Redbud in Kansas
Beefcake the mighty is an intellectual giant.
Hey I've just posted a response on my own blog on my thoughts regarding Murphy's "life would be entirely different if we all followed Jesus' commands" comment.

Check it out here.
"Beefcake the mighty is an intellectual giant."

True, true, this cannot be denied.
I don't think this issue can be resolved without a clear definition of selfishness. To a large degree, the differences between Bob and Bryan are over that definition.

For example, is it selfish to keep yourself alive when you could starve and let other people live?

Consider what might happen to the world if those who are currently wealthy quit investing in anything, reduced consumption to starvation levels, and gave everything they had above the minimum sustenance level to the poor. Businesses would have to do the same thing. They couldn't save and invest in replacement equipment because that would be selfish. Taken to the extreme, farmers couldn't even save seed to plant next year but had to give every bit of food they raised to the poor, except what they needed to eat. What would change?

Obviously, we would be reduced to hunter-gatherers, because charity is a form of consumption and all consumption with no savings and investment destroys capital and our ability to maintain civilization.
"From my cursory readings of the Bible, it seems distinctly socialist; but I'm willing to reserve judgment until the publication of Gary North's purported multi-volume tome on the economics of the Bible."

Mises wins!,
Bob Murphy,

In your Jesus inspired utopia where there are no rich or poor for the reasons you outlined, and where there might not even be money, how would the coordination problem be solved?

It seems to me we need market based prices to efficiently allocate scarce (i.e. all) resources.

Prices means money (Beckernomics notwithstanding), therefore we need money to efficiently allocate scarce resources.

Therefore if we want society to be prosperous, we *need* money.

Furthermore, prices are the byproduct of individuals (and associations of individuals usually known as businesses) revealing their own preferences, in ranked order, for what they want and need. How can I know what other persons preferences are, even if I and everyone else were totally altruistic?

Unless that last question can be answered in some manner other than "you can't", then following the logic chain in the above paragraphs means that the efficient allocation of resources requires people to trade according to what they personally need and want, as opposed to what their altruistic selves believe other people need and want.

Therefore it seems to me that "selfishness", or looking out for yourself first and foremost before looking out for others, is a prime requirement for the altruistic goal of helping others as much as possible.

In short, economics doesn't die, indeed seemingly can't die, even in an altruistic world. Unless of course you really think that a central planning committee can solve the coordination problem, which they can't of course.
happyjuggler0, That all depends on your definition of selfish. If you take the position that Caplan seems to take, then my scenario above is more likely. You seem to be following a weak form of selfishness, but one I agree with more.
about the link
Yes, Mises needs Moses, and he didn't get it in his Gemeinwesen/'On Socialism'. And many Libertarians don't get it up to now. They believe, ethics is a matter of reason. Well, yes, in a way it is. But what is reasonable and what's not is very dependent on whether there is heaven and hell,and a God, constantly on the side of the victim,
- or whether human beings are nothing more but a sort of higher salad (which would make any definition of ethics perfectly arbitrary)

About Jesus, love and money.
Love and husbandry belong together. (Austrian) economics is about wise husbandry, nothing else.
What will you share, with what will you help other people if you've got nothing to share? Your poverty? Great.

"Love thy neighbor" is not an excuse for empowering your politicians; nor is it an order to lead your family and your country
into politically induced scarcity and tyranny.
Wouldn't sound like love to me @ least.
A fascinating post. I don't think economics requires that humans value anything in particular. Their preferences are usually taken as given in neo-classical formulations and Austrians do not assume that people inherently value one particular thing over another. Morality is just another type of preference. You can donate the money you earn to charity or volunteer your time helping the poor. It's not irrational to do so any more than playing sports or watching TV is irrational. In fact, I would argue that in a world where people are completely selfish, economics does not apply. People need to have some psycological attachment to fair play and non-violence or we would fall into a Hobbsean state of nature (see Deirdre McCloskey's Bourgeousie Virtues).

Likewise, some economic organization is needed, even if mankind were perfectly moral because prices would still be needed to transmit information. I don't think humanity is perfectible, because God created us with free will. There will always be those who choose to do wrong, and so our system will always need to be able to deal with such individuals.
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