A Catholic Economics

The problems that Catholicism and economics face are perfect opposites. Economics has a well-developed framework for understanding human society and for crafting policy, but it lacks any sense of moral direction and hence any telos. It is like one of the wily contraptions from a Dr. Seuss story: so much extravagant sophistication, all to no purpose. Catholicism, on the other hand, has the most perfectly developed framework to understand man and his place in the world ever conceived, but utterly lacks any means by which to realize this vision. It is like an overflowing cistern with a blocked tap: so much to give and so little means to give it.

That would be the polite way of putting it, the way I might put it if I were trying to throw a dinner party for Catholic economists. If I were not playing host, however, I would point out that mainstream neoclassical economics is inherently evil and totally at odds with Catholic social teaching; I would further point out that the lack of a Catholic response to this moral abomination is the reason that Catholic social teaching has been torn to shreds in country after country by neoliberal market dogma.

Let us start with the latter so we can end up with the former. Consider an indifference curve. Most of us have seen one. It looks like a sideways smile. On the left-hand side and along the bottom, two products are listed. These are typically benign, like something out of a children’s arithmetic textbook. Apples and oranges, perhaps. The indifference curve tells us the point at which we would be indifferent between a certain number of apples and a certain number of oranges. We might be just as content with three apples and six oranges as we are with two apples and eight oranges. We are then told the overall budget to be spent on our fruit basket and we economists can figure out exactly what the “utility-maximizing agent” in question will do.

What should immediately strike us here is that this is the morality of the stomach. Our little indifference curve is giving us a deterministic account of human behavior. It predicts that, provided we are told how much money is available to be spent and the relative price of the two goods, a person will behave in a certain way. It does not make any claim to predict the particular appetites of the particular stomach, but once these are settled the little machine gets to work.

Put away our childish tales for a moment and let us introduce the curiously well-named indifference curve to the adult world. The X-rated version of the indifference curve no longer lists apples and oranges, but hardcore pornography and prescription opiates. The economist will protest. He will say that his indifference curve should not be despoiled by our fetid imaginations. But he is in denial. The mechanistic morality that he promotes is taken by his many students and applied all the way down to the depths of human depravity—typically to turn a buck.

Turn to a website like MarketWatch. This is where the economic graduates who now work in the lucrative world of investing commune to discuss ideas. “For virtual reality to become a viable business, pornography, which tends to rank among any new technology’s earliest and most eager adopters, will need to play a starring role, analysts say,” an article tells us matter-of-factually. “Will need to,” the article tells us: the phrasing gives the game away. The author passes no judgement upon the matter beyond the implicit one that rapid technological change must occur—and if it occurs more efficiently through a medium tied up with human trafficking, then so be it. This is, unfortunately, the mindset of the economist.

If the grotesque rationale of the economic mindset can be seen on the x-axis, the consequences can be seen on the t-axis. As prescription opioid sales increase, opioid deaths increase in lockstep. The heart does not always know what it wants; it often seeks out death. Alfred Marshall, who helped popularize the indifference curve, saw this long ago, but it was relegated to a footnote in the textbook and then later, when newer textbooks were written, disappeared without a trace:

There is however an implicit condition in [utility theory] which should be made clear. It is that we do not suppose time to be allowed for any alteration in the character or tastes of the man himself. It is therefore no exception to the law that the more good music a man hears, the stronger his taste for it likely becomes; that avarice and ambition are insatiable; or that the virtue of cleanliness and the vice of drunkenness alike grow on what they feed upon.

Catholic economists will say that none of this is inevitable. True, they will tell us, the utility framework may inculcate mechanistic thinking that overrides our moral reasoning, but this can be remedied by decent moral formation. Not so. The very framework that neoclassical economic uses is corrupt. Consider more deeply the indifference curve. The fact of the matter is that the indifference curve framework has, inbuilt within it, insatiable desire. It is assumed within the framework that a person will always want more and is only constrained by budget.

In the technical literature this is called the “non-satiation requirement.” In the Catechism of the Catholic Church this is called “sin” and it violates the will of God:

The tenth commandment forbids greed and the desire to amass earthly goods without limit. It forbids avarice arising from a passion for riches and their attendant power.

Take away the non-satiation requirement and the utility framework collapses because the choice of goods is no longer strictly determined by the utility calculus but rather by some externally imposed norm. We no longer need the utility framework, as everything can be explained by the norm. The utility framework is structurally reliant upon mortal sin. It is no surprise that it produces the truly indifferentist mindset seen on MarketWatch. Exorcise the Devil and the machine stops humming; leave him be and the machine drives us mad.

One of the wonderful things about good philosophy is that it shows that what is evil is also untrue. Many who are skeptical of neoclassical economics suspect that it is untrue. They suspect that it does not describe how human beings actually make decisions. This is almost certainly true, but it is an empirical statement and thus rather difficult to prove. A much more powerful critique would show that the evil of neoclassical economics is not merely empirically untrue but utterly vacuous and, in fact, a parody of science and the scientific method.

To see this, we turn to the most basic “law” of neoclassical economics: the law of demand. The law of demand states that as the price increases for a good, the demand for that good falls. This is key to just about every axiom in neoclassical economics. Without the law of demand, the edifice —a large pile of supply and demand diagrams—collapses.

The law of demand is for economists what the law of gravitation is for physicists. The problem is proving it and, from there, using it for prediction. Proving the law of gravitation is quite simple. You take an object—an apple, perhaps, favorite of the physicists and the economists alike—and you drop it repeatedly, measuring the speed at which it hits the ground. You can then vary the distance of the object to the ground to further assure yourself that the mathematics of gravitation conform to reality.

What about the law of demand? Can it be tested in such a way? No. The problem is that the law of demand makes a prediction about human behavior—namely, that we will want less of a good as the price for it rises—while assuming that the underlying desire for the good remains static through time. The economist Joan Robinson explains:

We can observe the reaction of an individual to two different sets of prices only at two different times. How can we tell what part of the difference in his purchases is due to the difference in prices and what part to the change in his preferences that has taken place meanwhile? There is certainly no presumption that his character has not changed, for soap and whisky are not the only goods whose use affects tastes. Practically everything develops either an inertia of habit or a desire for change. We have got one equation for two unknowns. Unless we can get some independent evidence about preferences the experiment is no good. But it was the experiment that we were supposed to rely on to observe the preferences.

This means that we can always second guess the results. Let us say that I secretly follow you to a market every day. You buy the exact same product day in, day out—say, five bananas that cost sixty cents each. Now, I set it up so that the banana salesman raises his price one day by thirty cents per banana. Assume that you then go ahead and buy the five bananas—even if you curse the price increase.

I may then turn to the economist and say that his precious law of demand is disproven. But he will have an escape clause. He can simply say that your preferences happened to change on that very day. “Yes,” he tells you, “up until that day when my interlocutor changed the price of the bananas, your preferences for bananas over other goods was constant, but by total coincidence on that very day he became even more enamored with bananas and so he bought the same amount at a higher price.” I cannot disprove what the economist is saying for the simple reason that your preferences are not visible, just as I can never definitively disprove that Bigfoot does not exist.

Philosophers of science were quick to recognize that this rendered neoclassical economics non-falsifiable and hence pseudoscientific. The scientific get-out-of-jail-free card was buried in a phrase popular with neoclassical economists: ceteris paribus or “all else being equal.” Economic laws only held when all else was equal. Hence, if empirical observation disagreed with them, economists could simply explain away the results by explaining that all else was not, in fact, equal. As the philosopher of science Hans Albert explains:

The law appears prima facie to predicate a relatively simple and easily testable relationship and thus to have a fair amount of content. However, upon closer examination, this impression fades. As is well known, the law is usually tagged with a clause that entails numerous interpretation problems: the ceteris paribus clause. In the strict sense this must thus at least be formulated as follows to be acceptable to the majority of theoreticians: ceteris paribus—that is, all things being equal—the demanded quantity of a consumer good is a monotone decreasing function of its price. The ceteris paribus clause is not a relatively insignificant addition, which might be ignored. Rather, it can be viewed as an integral element of the law of demand itself. However, that would entail that theoreticians who interpret the clause differently de facto have different laws of demand in mind, maybe even laws that are incompatible with each other. Here, through an explicit interpretation of the ceteris paribus clause, the law of demand is made into a tautology.

The core axioms of economics are not products of a priori logical reasoning, as are the core axioms of metaphysics. Rather they have always claimed to be scientific and thus to provide the potential for prediction. But examined carefully they are in fact a priori constructions that are immune to empirical proof or disproof. Unlike the carefully worked-out precepts of good metaphysics, however, they are no more than empty tautologies—bad, untested psychology and crude un-Christian anthropology cast in the language of spatial mathematics.

Where does this leave us? We should be able to agree that the neoclassical utility-maximizing framework is both evil and empty— synonyms, as we know from our metaphysics. Let us take a step back. When did this demonic pseudo-psychology start calling itself economics? Probably some time between Mandeville’s publication of The Fable of the Bees in 1714 and the appearance of Marshall’s Principles of Economics in 1890. There has, however, always been a parallel track of economic thought that shunned such cynicism.

Students are often taught when they enter an economics class that economics is the science of resource allocation. But from this promising start they are then quickly dragged toward the pseudo-psychology of utility theory and have their minds locked in the dungeon of normative laissez faire assumptions. We should take the above description seriously, however: good economics is the science of resource allocation. We must also be careful, for it is not a science in the sense that it will give us a final answer to the question of how we, as a society, should allocate resources. Rather at its best economics can teach us how, given extra-economic judgements, we might be able to allocate resources without tripping over our own feet. This is domain of what is typically today called “macroeconomics.”

Good macroeconomics knows no psychology because it is not interested in psychology, pseudo or otherwise. Good macroeconomics is an exercise in logistics, more quartermaster than quack physician. In modern societies resources are allocated using money and prices. Neither of these are immutable. We can change either if we want. But they are powerful tools and, handled with care, they can do a lot of the heavy lifting for any social project we may wish to undertake.

The simplest and most familiar example is that of using taxation to penalize vice. If there is a certain vice that perhaps is not so bad that we should want to see it banned but merely discouraged or rendered more costly then we might raise its price through taxation. The revenue thereby raised can be channeled into an activity we judge more in line with the common good. If we abstract from this, we can see that this is an exercise in social logistics deployed to achieve a result that we arrive at through moral reflection.

But this is only the beginning of the potential for a macroeconomics of the common good, a properly Catholic economics that assumes an integral rather than an indifferentist anthropology. To illustrate the power of macroeconomics to achieve a better society let us turn to a concrete proposal recently released: Gladden Pappin and Maria Molla’s fertility and family formation program.

This program aims to restructure the American economy around family formation by advocating paying people a fixed wage to have children. Many have focused on the most obvious part of the program: the channeling of money toward families to encourage their formation. This is certainly a core component of the program. But it is only when we look at the program from a properly macroeconomic point of view that we realize its true ambition. The authors have stated this explicitly, but few have paid attention: the economists, psychologists that they are, were too focused on the ‘incentives’ of the program.

Pappin and Molla show that the program is as much about redistribution as it is about incentivizing family formation. They outline two aspects of this redistribution that are of most interest for our purposes. The first leg “redistributes spending power toward poorer families.” Pappin and Molla make a point that if the “wage” for child-rearing is fixed it will represent a larger portion of a poor family’s total income than it will a rich family’s. Thus, we have a de-facto redistribution of total economy-wide resources from rich to poor.

The second leg involves the impact on relative prices. Under the Pappin-Molla program, families receive extra money that will likely be spent on goods related to child-rearing such as diapers, children’s clothes, home furnishings, and so on. Pappin and Molla are clear about the likely impact of this.

This rise in prices will encourage entrepreneurs to invest more heavily into these sectors to capture the rising profits. That in turn will lead to a major restructuring of the U.S. economy so that family life becomes central—even in many peoples’ work lives.

This example of Catholic economics in action shows its power. A basic precept of macroeconomics is that all expenditure is income—if I spend money in your store, you get income—and, hence, that all income is expenditure. By changing spending patterns, by using the state to allocate income, we can restructure an entire society. By starving the vice industries and stoking the virtue industries, the former will proliferate, and the latter will shrink in number.

A Catholic economics is one that is explicitly oriented toward the common good, reflecting the goals of what Pope Francis calls “integral human development.” Unlike socialism or communism, it respects private property. It does not seek to seize the means of production and it respects every man and woman’s right to main their own castles. It even recognizes that a certain level of inequality is reasonable—the Great Chain of Being does not run from right to left, after all. It has no inherent problem with market processes per se. But it does not assume that people should be free to utilize economic resources to destroy the common good, or themselves, for that matter. Nor does it assume that a system that allows resources to accumulate in a manner that is disproportionate and driven by unbridled greed.

Is this just social democracy? No. The social democratic project is a mirror-image of the neoliberal project—the two merely disagree about how to achieve material satiation. A Catholic economics rejects the precept that man is nothing but a stomach to feed. Social democrats are motivated by airy doctrines of fairness that bend with the breezes of fashion. They have no telos, and so their telos is whatever is on the television. A social democrat in 1950 wants to prop up working-class family formation; a social democrat in 2020 wants to destroy the nuclear family and tie the mother and child to the state. The telos is a projection of whatever is ordering or disordering the social democrats’ psychology at any given moment in time.

Catholic economics is the true realization of the encyclicals on Catholic social teaching. It takes seriously the image of a good society handed down by the Church and seeks to use modern means to achieve these goals. The plan was deposited two millennia ago. It has been articulated more and more succinctly through time. The state has now reached a sufficient level of development to realize it—and the macroeconomic framework, minus the vile utilitarian psychology, is the compass we can use to navigate these choppy waters.

John Paul Maynard Keynes is an obvious pseudonym.