MODERN ECONOMICS AS A FORM OF MAGIC Take the rod, and gather thou the assembly together, thou, and Aaron thy brother, and speak ye unto the rock before their eyes; and it shall give forth his water, and thou shalt bring forth to them water out of the rock: so thou shalt give the congregation and their beasts drink (Num. 20:8).
And Moses lifted up his hand, and with his rod he smote the rock twice: and the water came out abundantly, and the congregation drank, and their beasts also (Num. 20:11).
In a previous situation, God had told Moses to strike a rock with his rod, and water would flow out of it (Ex. 17:6). This procedure had worked exactly as promised. Now, God's command was different: speak to a rock. In both cases, the Israelites would get what they wanted for no effort or payment on their part. Moses would pay the price -- a below-market price by anyone's standards. His words would bring them God's supernatural blessing.
This time, Moses struck the rock twice. He made up a ritual of his own to substitute for God's explicit command to him. The water again flowed, but this act cost Moses entrance into the Promised Land. "And the LORD spake unto Moses and Aaron, Because ye believed me not, to sanctify me in the eyes of the children of Israel, therefore ye shall not bring this congregation into the land which I have given them" (Num. 20:12). In what did Moses' lack of faith consist? He had substituted ritual magic for covenantal obedience. He had imagined that a ritual -- a formula of some kind -- would enable Israel to gain supernatural blessings from God. Israel would get something for nothing. This plan worked for Israel, but Moses paid a heavy price.
God wanted to teach Israel a lesson, namely, that obedience to God's revealed word produces blessings in history, no matter how low the statistical probabilities of success appear to be. Moses substituted a different lesson: adherence to precise formulas is what produces blessings in history. This is the magician's worldview.
The Economist's Worldview Economics is a highly rationalistic social science, if not the rationalistic social science. Economists do not recommend invoking supernatural forces as a means of explaining anything or changing anything. Economics is an entirely man-centered discipline. How, then, can it be considered magical? Because economists propose a worldview that insists that wealth-creation can take place, and does take place, by means of techniques and institutional arrangements that supposedly have no necessary connection to God's word. Economic theory substitutes formulas for biblical ethics in its explanation of how the world works.
The economist proposes the magician's quest: discovering the proper techniques for gaining external blessings apart from external conformity to the stipulations of God's specially revealed cross-boundary laws.(1) If wealth-creation is governed by social laws and techniques that are independent of ethics, then man can gain something valuable apart from the costs of obedience to God. This is also the magician's worldview. The magician seeks an arcane formula or procedure to invoke, or some other source of power over nature that he can manipulate to gain his ends, that does not ask him to change his commitment to his own self-centered ends. Modern economics is the academic incarnation of this outlook, an entire worldview that interprets most of society's operations in terms of men's individual solutions to one simple question: "What's in it for me?"
Post-Scholastic economics has generally asserted that wealth-creation is not a matter of ethics except insofar as a man's willingness to conform to certain behavior patterns increases the statistical probability of his gaining voluntary cooperation from others. Wealth-creation is seen as a matter of the efficient application of ethically neutral knowledge to the problems of scarcity. For the economist, the phrase, "honesty is the best policy," is epistemologically meaningful only if honesty can be shown statistically to earn a rate of return above the rate of interest obtainable by investing in "risk-free" short-term government debt.
Economics and Agnosticism
Ever since the late seventeenth century, economics has rested self-consciously on the methodological assumption of agnosticism regarding God. It has sought to avoid any invocation of the authority of religion. Operationally, this agnosticism is atheism. This confessionally atheistic worldview was first extended into scholarship by the economists. William Letwin's book, The Origins of Scientific Economics (1963), remains the most detailed study of this intellectual development. He writes: "Nevertheless there can be no doubt that economic theory owes its present development to the fact that some men, in thinking of economic phenomena, forcefully suspended all judgments of theology, morality, and justice, were willing to consider the economy as nothing more than an intricate mechanism, refraining for the while from asking whether the mechanism worked for good or evil. That separation was made during the seventeenth century. . . . The economist's view of the world, which the public cannot yet comfortably stomach, was introduced by a remarkable tour de force, an intellectual revolution brought off in the seventeenth century."(2) He goes on to assert that "the making of economics was the greatest scientific achievement of the seventeenth century."(3) While the development of Newtonian physics would seem to deserve that honor, there should be no question that scientific economics was the greatest atheistic intellectual achievement of the seventeenth century, retaining this title until Darwin's Descent of Man (1871). Newton the physicist at least tipped his academic hat to a deistic unitarian god who sustained sufficient order in the cosmos to make applicable men's knowledge of mathematics. The economists, then as now, tipped their academic hats to no god at all.
Adam Smith seems to be an exception. He was a deist of some sort. This is clear from scattered passages in his book, The Theory of Moral Sentiments (1759).(4) The book is barely known, rarely read, and never discussed as a contribution to economic thought. Smith made no analytical use of its vague theology in the Wealth of Nations (1776). His famous "invisible hand"(5) was a mental construct, not a god. "The hand's going to get you" was not what he had in mind.
Economists since the late nineteenth century have proclaimed the ideal of value-free economics: economic science devoid of ethical content. They have to this extent become magicians. The magician seeks something for nothing by means of ritual formulas. The economist seeks ways for society to attain "more for less"(6) through insights generated by means of arcane mathematical formulas.
Equilibrium as Conceptual Magic Modern economics assures us that a society can create wealth if it implements production techniques within a framework accurately described by a series of simultaneous equations. Léon Walras, a French economist living in Switzerland, in the 1870's described the market order in this way. Oskar Lange in the 1930's argued that socialist central planning could match the efficiency of the free market by adhering to such mathematical equations in a trial-and-error process.(7) These equations presume the economist's concept of equilibrium: a condition in which no further economic change is possible because all of the society's production opportunities (functions) have been maximized. It is a world without profit or loss, a world without mistakes.(8)
For this to take place at any point in history, all of the participants in a free market, or the central planners in a socialist economy, would have to possess perfect knowledge, including perfect knowledge of the future. They must be omniscient. Economists do not use such decidedly theological terminology when describing equilibrium. If they were more forthright about the presumptions of equilibrium theory, they would not be taken seriously by anyone outside of their profession. Roger Leroy Miller writes: "Equilibrium in any market is defined as a situation in which the plans of buyers and the plans of sellers exactly mesh, causing the quantity supplied to equal the quantity demanded."(9) Gwartney and Stroup agree: "When a market is in equilibrium, there is a balance of forces such that the actions of buyers and suppliers are consistent with one another. In addition, when long-run equilibrium is present, the conditions will persist into the future."(10) How can such a meshing of plans occur? Through perfect forecasting: "In summary, an output rate can be sustained into the future only when the prior choices of decision-makers were based on a correct anticipation of the current price level."(11) The phrase "correct anticipation" has to be interpreted as "perfect foreknowledge," but the authors are too scientific to say this. Their peers know what they really mean -- equilibrium is an impossible condition to fulfill -- and the average student is not too inquisitive about the relationship between a theory based on human omniscience and detals in the real world. Edwin Dolan writes: "The separately formulated plans of all market participants may turn out to mesh exactly when tested in the marketplace, and no one will have frustrated expectations or be forced to modify plans. When this happens, the market is said to be in equilibrium."(12) E. H. Phelps writes in The New Palgrave (1987), the English-speaking economics profession's dominant dictionary: "Economic equilibrium, at least as the term has traditionally been used, has always implied an outcome, typically from the application of some inputs, that conforms to the expectations of the participants in the economy."(13) There seems to be perfect agreement here: a kind of theoretical equilibrium among economists. The definitions mesh.
So does their blandness. This textbook definition of equilibrium seems so subdued and uncontroversial, even plausible. The economists' language certainly gives the impression that equilibrium applies to a real-world phenomenon: "a situation in which the plans of buyers and the plans of sellers exactly mesh," "when a market is in equilibrium," and "the separately formulated plans of all market participants may turn out to mesh exactly when tested in the marketplace." We can almost visualize a dedicated student writing down the definition of equilibrium on an index card, to be filed away in a card box until the night before the final exam, when the card will be retrieved and the definition filed for 24 hours in a less permanent location.
Now, for the sake of argument, let me provide a somewhat more controversial though more complete definition of equilibrium:
Equilibrium is the condition of the world economy which occurs whenever all three billion market participants on earth (not counting their non-participating children) have perfectly forecasted the supply-and-demand effects all of the economic decisions of all of the other three billion, so that their plans mesh perfectly without error. This is why there is no incentive for plan-revision. No one has anything more to sell at the existing prices, and everyone has purchased all that he wants at the existing prices, so prices will not change as a result of anyone's changing his mind. Equilibrium requires that every market participant forecast perfectly the economic future, which has therefore ceased to be uncertain. In short, equilibrium occurs whenever everyone on earth has previously attained what Christian theologians refer to as one of God's incommunicable attributes: omniscience.
This note card might generate a second reading, even the night before the final exam. Perhaps an A-level student might think to himself, "This economic condition does not seem altogether plausible." I would go so far as to suggest that even a few of the B-level students might wonder, at least briefly, whether this definition applies to the real world. (The C-level students will surely do their best to commit the definition to memory, though without success; the others do not bother to use note cards.)
Equilibrium as a concept applies only to a never-never land where men possess one of the attributes of God. This never-never land is the realm of simultaneous equations and the calculus, not people. Yet time and time again, we find economists seriously discussing a theoretical problem in economics as if this never-never land could conceivably occur in the real world.
Lange vs. Mises Let us consider a real-world example of "applied equilibrium" thinking by economists, one which had considerable impact on the history of economic thought for half a century. In his suggested solution to Ludwig von Mises' 1920 argument that socialist economic calculation is inherently irrational,(14) Lange wrote in 1937: "Let us see how economic equilibrium is established by trial-and-error in a competitive market."(15) He asserted the ability of socialist central planners, in the absence of private ownership or private capital markets, to coordinate the economy by means of trial-and-error pricing. So confident was Lange in the real-world applicability of his solution that he began his book with a rhetorical dismissal of Mises that became far more familiar than the details of Lange's argument. Socialists are beholden to Mises because he articulated the irrational calculation argument better than anyone else. "Both as an expression of recognition for the great service rendered by him and as a memento of the prime importance of sound economic accounting, a statue of Professor Mises might occupy an honorable place in the great hall of the Ministry of Socialization or of the Central Planning Board of the socialist state." Less familiar is his Marxian follow up: "[E]ven the stanchest of bourgeois economists unwittingly serve the proletarian cause."(16)
Lange was no vague socialist. He was a Communist. He renounced his United States citizenship in 1945 to become the Polish ambassador to the United States. In 1947, he returned to Poland to serve as an economist. In 1957, he was appointed chairman of the Polish Economic Council. He did not suggest the implementation of his 1937 solution to Mises' challenge. Instead, he appealed to the new god -- the computer -- to solve the problem of coordinating scarce resources. He died in 1965.(17) Nevertheless, his abandonment in practice of his own suggested solution did not penetrate the thinking of the myriad of Mises' critics in the Western world, who continued to cite his 1937 essay as if it were gospel truth. In short, "Better to accept a defunct theory by a Communist planner in a poverty-stricken backward nation than to accept the legitimacy of a comprehensive theoretical criticism of socialism in general." Ironically, it was Poland that first broke loose from Soviet Communism's tyranny. The Solidarity labor movement understood that Communism cannot work before certain best-selling Western economists did. The Poles began their high-risk protest against the USSR in 1981. Yet as late as 1989, Nobel Prize-winning economist Paul Samuelson wrote in his best-selling economics textbook: "The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive."(18) That same year, the Soviet Union went bankrupt in full public view, and the Berlin Wall came down.
Theory and Reality
The theoretical problem with Lange's appeal to trial-and-error as a means leading to equilibrium is that for equilibrium to occur, there must first be omniscience by the person or persons in charge of resource allocation. There is no need for trials because there is no possibility of errors by those who possess omniscience. Equilibrium is the negation of trial and error. Now, to be fair to Lange, he must have had in mind the argument that trial and error by socialist planners is as efficient -- no, more efficient -- in reaching equilibrium than the profit-seeking decisions of resource owners. More equitable, too. Or, to paraphrase Orwell, "All equilibrium conditions are equal, but some are more equal than others." All we need to assume, as good socialists, is "freedom of choice in consumption and freedom of choice in occupation,"(19) and the central planners can bring equilibrium into existence as well as entrepreneurs can. In fact, better. "Once the parametric function of prices is adopted as an accounting rule, the price structure is established by the objective equilibrium conditions."(20) In short, what Mises and the Austrian school always insisted is impossible in history -- equilibrium conditions -- Lange appealed to as the solution to the problem of socialist economic calculation.
For half a century, this argument was accepted by most economists as a theoretically valid dismissal of Mises, i.e., Mises' theory of entrepreneurship in a world of economic uncertainty and subjectively imputed prices. Lange's argument was also, by implication, a dismissal of Frank H. Knight's 1921 classic, Risk, Uncertainty and Profit, which rested on the same theory of entrepreneurship that Mises offered. Lange's proposed practical solution, which was never adopted by any socialist planning agency, was regarded by his academic peers as having solved the real-world problems raised by Mises. As socialist economist Robert Heilbroner admitted in 1990, the year after the Berlin Wall came down, and the year before the Soviet Union collapsed: "Fifty years ago, it was felt that Lange had decisively won the argument for socialist planning." It has turned out, Heilbroner belatedly admitted, that Lange was wrong, and "Mises was right."(21) Fifty years of criticism from a handful of free market economists that Lange's solution, based on equilibrium conditions, was no solution at all, in no way affected the thinking of the majority of academic economists.(22) The latter were equally committed to equilibrium as a legitimate model with which to critique free market capitalism,(23) and so they refused to pay any attention to Lange's critics.(24) What finally persuaded them was not Mises' arguments but socialism's visible irrationality: the bankruptcy of the Soviet-bloc nations in the late 1980's.
Kirzner has argued that what is lacking in the neoclassical economics of Walras, Marshall, and their disciples is some means of explaining how equilibrium can occur, thereby giving life to the advanced textbook world of simultaneous equations. "However, when price is described as being above or below equilibrium, it is understood that a single price prevails in the market. The uncomfortable question, then, is whether we may assume that a single price emerges before equilibrium is attained. Surely a single price can be postulated only as the result of the process of equilibrium itself. . . . The procedure also assumes too much. It takes for granted that the market already knows when the demand price of the quantity now available exceeds the supply price. But disequilibrium occurs precisely because market participants do not know what the market-clearing price is."(25) This applies even more forcefully to Lange's socialist planning board. This line of argumentation, which is Mises' Austrian argument, undercuts Walras as well as Lange. The economics profession has not given this idea careful consideration in its journals and textbooks. Walras was the original spinner of invisible clothing for the emperors of economics. Emperors who wear invisible clothes prefer to keep clear-eyed critics away from their parades.
Invoking equilibrium when discussing economic policy-making is an exercise in conceptual magic. Equilibrium rests on the assumption of the possibility of mankind's simultaneous omniscience. Yet neoclassical economics, including Keynesianism, invokes the equilibrium concept continually.(26)
Economic Theory vs. Ethical Value Ethical value is publicly stripped of all authority in modern economic theory.(27) Those few economists who have argued that value-free economic analysis is mythical have had almost no influence on the profession. If they have had any influence, this topic was not the area in which they established their reputations.(28) The one well-respected American economist who has argued forcefully for the reintroduction of values into economic theory, Kenneth Boulding, is regarded as somewhat eccentric for promoting the idea that ethics should be incorporated into the tools of analysis.
Meanwhile, the use of high-level mathematics as a tool of theoretical analysis, especially since the days of Walras, reveals just how committed the economics profession is to arcane formulas. There is even an element of priestly ritual about this procedure. Liberal economist John Kenneth Galbraith, who spurned mathematics, formulas, and graphs throughout his career, once revealed a little-known side of the profession. The editors of the professional journals, which are the avenues of career advancement, play a game regarding the use of mathematics. "The layman may take comfort from the fact that the most esoteric of this material is not read by other economists or even by the editors who publish it. In the economics profession the editorship of a learned journal not specialized to econometrics or mathematical statistics is a position of only moderate prestige. It is accepted, moreover, that the editor must have a certain measure of practical judgment. This means that he is usually unable to read the most prestigious contributions which, nonetheless, he must publish. So it is the practice of the editor to associate with himself a mathematical curate who passes on this part of the work and whose word he takes. A certain embarrassed silence covers the arrangement."(29)
Value Theory at an Epistemological Impasse The attempt to create an economic science as devoid of value judgments or ethics as physics has led to a theoretical impasse. This impasse was first discussed in detail in the 1930's, but it is almost never mentioned today because it cannot be solved, given the presuppositions of modern economics. Economists in the 1870's(30) began to abandon classical economics' concept of objective economic value. They substituted individual value preferences for objective value. All economic value is imputed by individuals, modern economics insists.
If this is true, then in order to make any kind of policy recommendation, the economist must assume that the value preferences or value scales of individuals can be compared with each other. To say that a policy benefits a lot of people assumes that the economist can compare the value scales of all of these people, or at least a statistically valid sample of them (but how can we be sure it is valid?), as well as the value scales of those who are not benefited by the policy. He must be able to total up benefits and costs. He must be able to aggregate individual value preferences. But this is impossible to do. There can be no interpersonal comparison of subjective value. This was Lionel Robbins' conclusion in 1932, and while he partially recanted in 1938, he did not explain why he had been incorrect in 1932.(31)
There is no common scale of values in human action, economic or otherwise. There is no value scale. Scales are physical devices used by physicists and chemists. An idea of a "scale of values" is at best a useful teaching device. It is not only mythical, it is misleading if it is associated with actual measurement. It makes economics sound like a physical science. Individual value preferences can be ranked; they cannot be measured.(32) As for social value, it has no role to play in a science that denies that it is possible to make interpersonal comparisons of subjective utility. The problem, however, is that it plays an enormous role in economics. Indeed, economics as a social science is inconceivable apart from the concept of social value. Economics without a concept of social value would be like physics without a concept of mass.
The quest for a value-free economic science is ultimately the quest for man's autonomy from God and His law. It is a quest for meaning apart from "thou shalt not." The socialist economist is less likely to indulge in this quest than the free market economist is, since he invokes the benefits and legitimacy of social justice despite all socialist economies' declining economic output. There are "higher values" than "mere statistical output," he insists. The State must redistribute resources in order to benefit the oppressed or whichever the favored group is. Theoretically speaking, a strictly value-free free market economist cannot respond to the socialist by appealing to the free market's measurable efficiency and growth without violating the principle of imputed individual value. There can be no scientifically valid measure of aggregate economic value, so there is no way to measure economic efficiency.(33)
This admission would undermine all discussions by economists of government economic policy. Neither the socialist economists nor the free market economists want to see this happen. To have lots of people understand that economists as scientists must remain mute in all government policy matters is not in the economists' personal self-interest. They might lose their jobs.
The economist pretends to pull a rabbit (a policy recommendation) out of an empty hat (value-free economics). But he put the rabbit in the hat before he went on stage. He has definite value preferences. His economic analysis will reflect this fact. He will defend or attack this or that government policy in terms of his preferences. He cannot do this as a scientist, given the impossibility of making interpersonal comparisons of subjective utility. He does so as a self-interested propagandist who pretends to be a neutral scientist for the sake of being taken seriously by policy makers and voters. This kind of magic is prestidigitation. It is based on manipulation and illusion. Sometimes I think the primary victims of this illusion are the economists themselves, most of whom seem blissfully unaware of the epistemological subterfuge they are promoting.
The Trinity and Imputation of Value Without the presupposition of an omniscient God who imputes value subjectively in terms of a scale of values, a God who can measure value scales and make interpersonal comparisons of men's subjective utility, there can be no economic science. Modern economic science rests unofficially on the assumption of collective value scales and preferences, and also their measurability, even though officially economists deny their existence. They must assume what they officially deny.
There must be socially objective value and a socially objective value scale if there is a legitimate economic evaluation of social policy. There must be a value scale undergirding every evaluation; that is what "evaluate" means. God's judgments are objective in the sense of being both eternal and historical. He brings visible judgments in terms of His law. These judgments are both objectively grounded and subjectively grounded in the fixed moral character of God: "For I am the LORD, I change not; therefore ye sons of Jacob are not consumed" (Mal. 3:6).(34) God knows objectively whatever He knows subjectively, and vice versa. In Him, both subjective value and objective value reside. They reside there personally, for God is personal.
A corollary to the doctrine of God as an imputing agent is this: if individual men were not made in God's image, imputing value in a creaturely fashion, there could be no economic science. Men can impute value only because God has already done so. An individual can make useful estimates of social costs and benefits only because God makes precise calculations of social costs and benefits.
Finally, there is this corollary: if men were not able to impute value corporately, even as the Triune God of the Bible imputes value corporately, there could be no social theory, including economic theory. There could be no epistemological basis for policy formation. Societies can make judgments corporately because God does. The doctrine of the Trinity is the foundation of social theory.
This is all denied by the modern economist. Economics has adopted the confession of the magician, not in the sense of invoking the supernatural, but in the sense of attributing wealth-creation to value-free techniques governed by formulas. The socialist invokes State planning; the free market economist invokes private property. Both deny that wealth is the product of obedience to God's laws. From economics, the original social science,(35) has come the confessional model of all the others: "There is no necessary and sufficient god but man, either individual or collective."
The right-wing Enlightenment began with the English Whigs' political protests against a State-established church, but the concept of an evolving autonomous social order was first articulated by the Scottish common-sense rationalists in the mid-eighteenth century. They described society as the result of human action but not of human design.(36) This model later served Erasmus Darwin and his grandson Charles as the model of biological evolution.(37) The Scots' social model was a kind of secularized Presbyterianism, even as the Continental left-wing Enlightenment social model was a kind of secularized Jesuitism. Scottish moral philosophy replaced theology (eighteenth century); then political economy replaced moral philosophy (nineteenth century); finally, economics replaced political economy (twentieth century). With each step, economics has moved further away from any concept of a divinely sanctioned moral order.
Conclusion Man lives in a world of imputed meaning, for he is a creature under God. It is God who imputes original meaning and value to the creation. Man is God's subordinate, required by God to think his own thoughts after Him, in a law-abiding, creaturely manner. But this is both too much and too little for covenant-breaking man. He wants to be less than the image of God and more than the agent of God. If he is either, he becomes responsible to God. He wants autonomy from God; so, he subordinates himself to nature instead. Rejecting God's law as a guide to human action, he finds himself entrapped by impersonal forces, which are in turn governed by (or are they merely revealed by?) impersonal formulas. Covenant-breaking man seeks out formulas as the pathways to wealth and power. Some people prefer astrological formulas; others prefer statistical averages. Fate or chance or an impersonal mixture of the two: Which will it be? "Get your bets down, gentlemen. The window is about to close."
But why do any of these formulas work? Consider mathematics, the most popular source of power-granting formulas in our day. Men master the discipline of mathematics in order to understand and control their world, rarely pausing to contemplate the utter unreasonableness of the fact that a mental construct that is governed exclusively by its own rules of logic applies in so many powerful ways to the operations of the external world.(38)
Economics allows the use of higher mathematics as a tool of theoretical analysis only where equilibrium conditions exist, i.e., where one or more men are presumed to be omniscient. ("Ye shall be as gods" is the applicable phrase here.) Every other use of mathematics in economics is either a simplified hypothetical example of price ratios for the sake of teaching or else statistics applied to historical data. Yet modern economics is overwhelmingly mathematical in its formal presentations, as a survey of any three professional journals will prove (within a statistically acceptable range or error, of course) to skeptical readers.
Modern economics, the original strictly humanistic social science, cannot avoid these humanist antinomies. For example, in seeking autonomy from God, modern economists propose a world in which only individuals impute value to the creation. But then they find that these autonomous imputations cannot be aggregated: no common measure exists. It is impossible to make interpersonal comparisons of subjective utility. So, policy-making on a scientific basis must logically be abandoned. But the economist does not want to abandon either science or policy-making, especially government policy-making, where the power is, or seems to be. So, he refuses to think about the logic of his position.
The economics profession is becoming ever more self-conscious in its quest for analytical tools that abandon any trace of ethics. Many economists are even bothered by the traditional concept of choice. They may adopt indifference curves as a way to avoid the more psychological, and therefore more scientifically suspect, concept of utility. But if acting man is truly indifferent between two possible outcomes, how can he choose? Will he stand motionless, like Buridan's ass, until the threat of deprivation pressures him to take action, at which point he abandons his indifference?(39)
Economists adopt cost curves, supply curves, all kinds of curves. But a curve is made up of infinitesimal points. Prices and quantities are described by curves as changing in infinitesimally small moves. But infinitesimal changes are not aspects of decision-making. On the other hand, they are subject to the calculus, which for the modern economist is surely a more important explanatory tool than human action is.
Economists rest their case for economics as a science on theoretical constructs that assume that man is omniscient. But there is no human choice in a world in which man knows outcomes; there are only responses.(40) Economists invoke complex mathematical formulas in their quest for knowledge and influence, while abandoning the idea of rational human choice. Armen Alchian, a free market economist of the Chicago School, writes: "The essential point is that individual motivation and foresight, while sufficient, are not necessary" for economic theory to be true.(41)
Step by step, humanistic economics is abandoning man. Economics substitutes a behaviorist concept of man for the decision-maker who inhabits the real world. Man disappears in the world of simultaneous equations. God is not mocked . . . not at zero price, anyway.
Footnotes:
1. A cross-boundary law was applicable to Israel and the nations, and it is still binding today. I do not use the phrase "natural law," since it contains too much baggage regarding covenant-breaking man's supposed ethical neutrality. On cross-boundary laws in Leviticus, see Gary North, Leviticus: An Economic Commentary (Tyler, Texas: Institute for Christian Economics, 1994), pp. 643-45.
2. William Letwin, The Origins of Scientific Economics (Garden City, New York: Anchor, [1963] 1965), pp. 158-59. This book was published first by M.I.T. Press.
3. Ibid., p. 159.
4. Adam Smith, The Theory of Moral Sentiments (Indianapolis, Indiana: LibertyClassics, 1976), pp. 275, 483.
5. Smith, Wealth of Nations, Cannan edition, p. 423. Theory of Moral Sentiments, pp. 304-5.
6. More precisely, he seeks to obtain more value from a given cost of resource inputs, or a given value from less costly resource inputs.
7. See Oskar Lange and Fred M. Taylor, On the Economic Theory of Socialism (Minneapolis: University of Minnesota Press, [1938] 1956), pp. 72-83. This essay first appeared in the Review of Economic Studies in 1937.
8. Israel M. Kirzner, Market Theory and the Price System (Princeton, New Jersey: Van Nostrand, 1963), pp. 246-49.
9. Roger Leroy Miller, Economics Today (5th ed.; New York: Harper & Row, 1985), p. 49.
10. James D. Gwartney and Richard L. Stroup, Economics: Public and Private Choice (4th ed.; New York: Harcourt Brace Jovanovich, 1982), p. 186.
11. Ibid., p. 187.
12. Edwin G. Dolan, Basic Economics (2nd ed.; Hinsdale, Illinois: Dryden, 1980), pp. 44-45.
13. Edmund S. Phelps, "equilibrium: an expectational concept," in The New Palgrave: A Dictionary of Economics, edited by John Eatwell, Murray Milgate, and Peter Newman, 4 vols. (New York: Macmillan 1987), II, p. 177.
14. Ludwig von Mises, "Economic Calculation in the Socialist Commonwealth" (1920); reprinted in F. A. Hayek (ed.), Collectivist Economic Planning (London: Routledge & Kegan Paul, [1935] 1963), ch. 3.
15. Lange, Socialism, p. 65.
16. Ibid., pp. 57-58.
17. Dolan, Basic Economics, p. 686.
18. Paul A. Samuelson and William D. Nordhaus, Economics (13th ed.; New York: McGraw-Hill, 1989), p. 837, cited in Mark Skousen, Economics on Trial: Lies, Myths, and Realities (Homewood, Illinois: Business One Irwin, 1991), p. 208.
19. Ibid., p. 72.
20. Ibid., p. 81.
21. Robert Heilbroner, "After Communism," The New Yorker (Sept. 10, 1990), p. 92.
22. Peter G. Klein, "Introduction," The Fortunes of Liberalism: Essays on Austrian Economics and the Ideal of Freedom, edited by Peter G. Klein, vol. IV of The Collected Works of F. A. Hayek (University of Chicago Press, 1992), p. 10.
23. For example, the once-popular "perfect competition" model was used to show why capitalism fails in practice. But in the perfect competition model, there is no competition, since everyone is omniscient regarding the uses of scarce resources. See Israel Kirzner's criticisms of E. H. Chamberlin in Kirzner, Competition and Entrepreneurship (University of Chicago Press, 1973), chaps. 3, 4.
24. The most widely known response was by Hayek in Economica (1940); reprinted in F. A. Hayek, Individualism and Economic Order (University of Chicago Press, 1949), ch. 9. The most detailed criticism was by the little-known economist, T. J. B. Hoff, Economic Calculation in the Socialist Society (London: William Hodge & Co., 1949). This has been reprinted by the Liberty Fund in Indianapolis.
25. Israel M. Kirzner, Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship (University of Chicago Press, 1979), pp. 4-5.
26. The Austrians invoke it occasionally, but only as a mental construct. Mises called it the evenly rotating economy (E.R.E.). He used it only to prove that the interest rate is a universal phenomenon. One exception to this refusal to invoke equilibrium is Kirzner's 1963 discussion of perfect competition, which he said is impossible to attain. This appeared in his out-of-print upper division economics textbook, Market Theory and the Price System, pp. 108-109. He never revised this book to reflect better his later studies in entrepreneurship. For a critique of the E.R.E., see Gary North, The Dominion Covenant: Genesis (2nd ed.; Tyler, Texas: Institute for Christian Economics, 1987), pp. 352-53; Tools of Dominion: The Case Laws of Exodus (Tyler, Texas: Institute for Christian Economics, 1990), pp. 1120-21.
27. Walter A. Weisskopf, Alienation and Economics (New York: Dutton, 1971), ch. 4.
28. Robert Heilbroner is a good example. His popular book on the history of economic thought, The Worldly Philosophers, is a standard text in both history and economics departments. It was assigned by the millions. But his essay on the impossibility of value-free economics was not published in an economics journal. Robert L. Heilbroner, "Economics as a `Value-free' Science," Social Research, XL (1973), pp. 129-43; reprinted in William L. Marr and Baldev Raj (eds.), How Economists Explain: A Reader in Methodology (Lanham, Maryland: University Press of America, 1982). The publisher did not bother to typeset this volume. It was written on a typewriter.
29. John Kenneth Galbraith, Economics Peace and Laughter (Boston: Houghton Mifflin, 1971), p. 41n.
30. William Jevons, Carl Menger, and Léon Walras. Cf. Karl Pribram, A History of Economic Reasoning (Baltimore, Maryland: Johns Hopkins University Press, 1983), Part VI.
31. On his debate with Sir Roy Harrod in 1938, see North, Dominion Covenant, pp. 44-51; Tools of Dominion, Appendix D: "The Epistemological Problem With Social Cost." Cf. Mark A. Lutz and Kenneth Lux, The Challenge of Humanistic Economics (Menlo Park, California: Benjamin/Cummings, 1979), pp. 83-87. These two authors are as little known as their publisher.
32. Murray N. Rothbard, Man, Economy, and State: A Treatise on Economic Principles (Princeton, New Jersey: Van Nostrand, 1962), p. 222. Reprinted by the Mises Institute, Auburn, Alabama, 1993.
33. Murray N. Rothbard, "Comment: The Myth of Efficiency," in Mario Rizzo (ed.), Time, Uncertainty, and Disequilibrium (Lexington, Massachusetts: Lexington Books, 1979), p. 90. Cf. North, Tools of Dominion, pp. 1118-19.
34. "Every good gift and every perfect gift is from above, and cometh down from the Father of lights, with whom is no variableness, neither shadow of turning" (James 1:17).
35. Political philosophy, as distinguished from political science, began its march into atheism with Machiavelli. But Machiavelli had no explicitly scientific pretensions.
36. F. A. Hayek, "The Results of Human Action but not of Human Design" (1967), in Hayek, Studies in Philosophy, Politics and Economics (University of Chicago Press, 1967), ch. 6.
37. The influence here was David Hume. Hayek, "The Legal and Political Philosophy of David Hume" (1963), ibid., p. 119n.
38. Eugene Wigner, "The Unreasonable Effectiveness of Mathematics in the Natural Sciences," Communications on Pure and Applied Mathematics, 13 (1960), pp. 1-14. Wigner won the Nobel Prize in physics.
39. Murray N. Rothbard, "Toward a Reconstruction of Utility and Welfare Economics," in On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises, edited by Mary Sennholz (Princeton, New Jersey: Van Nostrand, 1956), p. 238.
40. Ludwig von Mises, Human Action: A Treatise on Economics (New Haven, Connecticut: Yale University Press, 1949), p. 249.
41. Armen Alchian, "Uncertainty, Evolution and Economic Theory," in Alchian, Economic Forces at Work (Indianapolis: LibertyPress, 1977), p. 27.
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