Saturday, January 21, 2017

The Absurdity of “Values-Free” Economics

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While reading John C. Médaille’s Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Healthcare, Deficits, and More (Wilmington, Delaware: ISI Books, 2010), I couldn’t help thinking of Pascal-Emmanuel Gobry’s admission three years ago that “economists actually know very, very little, and that a lot of what we thought we knew [prior to the last recession] turned out to be wrong.” Yet the defenders of what Gobry calls “the Washington consensus” still talk and think as though their economic dicta were enshrouded in papal infallibility. Toward a Truly Free Market helped me to realize that the economists were wrong because the entire discipline is not (and never could be) “values-free”; the very notion is inherently absurd. And the values enshrined in modern economic theory not only blind economists to impending market failures but make them inevitable.

What is Distributism?

Distributism holds that a community’s economic health is better secured when the ownership of capital — the means of production, including everything from office ball-point pens to factories, especially land — is spread out (distributed) widely among the population. It champions smaller, more localized businesses, especially cooperatives and employee-owned corporations, and considers globalism and the huge multinational conglomerates positive evils.

Distributism is not, however, a form of socialism. It rejects state ownership of property and demands a reordering of government power to prioritize the community over the nation. Nor does distributism necessarily require a forced redistribution of capital by the government, though Médaille doesn’t rule it out (see pp. 243-245).

The theory began with the critiques of both capitalism and socialism by G. K. Chesterton and Hilaire Belloc. In its modern form, though, it also owes much to the social doctrine of the Catholic Church, beginning with Leo XIII’s encyclical Rerum Novarum.

Having said that, I need to make two further points: 1) One need not be a Catholic to appreciate the theory, nor does the theory require a Catholic nation-state or theocracy. 2) Distributist theory may have begun with what George Bernard Shaw called “the Chesterbelloc”, but it didn’t stop there; critiques of distributism can’t be pertinent if all the critic reads is The Servile State or What’s Wrong with the World.

Positive or Normative?

Now, to say that Médaille adopts the language of economists is not to say he fully adopts the methods or rationale of the profession. Indeed, a good third of the pages are devoted to criticizing economists’ assumptions and definitions. And to say he has adopted the language is not to say he’s cast the moral arguments aside.

In discussing economics as a science, Médaille discards the question of whether economics is positive or normative as meaningless because the sciences are responsible to their own methodology (positive) and to the higher sciences (normative). “Every science, insofar as it really is a science, is both positive and normative” (p. 24).

As for sticking to the facts and avoiding values, Médaille asserts, “A realm of pure ‘facticity’ in human affairs is doubtful. … The theoretical framework always involves some values” (pp. 30-31). In particular, the framework assumes a telos, a final cause or purpose for economic activity, and can’t describe a dysfunction without assuming a proper function:

The major division of the sciences, then, is not the normative-positive duality, but a division based on the object of the sciences, whether they are merely physical or fully human. For the physical sciences, we need only examine the physical world to note the relationships and regularities, and we have, in most cases, ample room for discovering laws and testing them empirically. But when we deal with the humane sciences, the task becomes more complex, for a simple examination of persons cannot be undertaken without first determining what a “right” state of affairs ought to be. For example, if we practice medicine, we must have some idea of what good health is; we must have some normative state the departure from which constitutes disease. (pp. 31-32)

“Values-Free” or “Values-Hidden”?

We are moral, social, and relational beings. Necessarily, then, our economic transactions will reflect our values and relationships with each other. Moreover, we can make choices and change our behavior because that’s how we adapt to different environments.

It will not do, then, to pretend the laws of economics are as rigidly deterministic as the laws of physics or chemistry. They may describe what we do now, at least on average (though this assertion loses some credibility as Médaille dissects certain economic principles). But it doesn’t follow that they describe what we can’t help doing, or what we must necessarily do.

Thus, we can’t avoid the moral debate by invoking the shield of a Values-Free Science, since it invariably means a Values-Hidden Science. In reality, the so-called “is-ought problem” is a sham, a Trojan horse by which the empiricist, consciously or not, imposes his values on the discussion by smuggling them in under the cover of his facts and theories. The sham is particularly irritating when it’s foisted on us by conservative Christians, such as in the Acton Institute blog or First Things, who assert voluntarism in the bedroom but hide behind determinism in the market. You either believe in free will or you don’t.

Distributive Justice and Economics

But to assert that we do have the capacity to make independent choices isn’t to deny that we can be conditioned into different patterns of behavior. For example, mass marketing has effectively “engineered” us into the lazy, self-centered, materialistic slobs we are today. Without the capability to change our behavior, “social engineering” would be an exercise in futility.

Because our values, attitudes, and beliefs impact our economic decisions, creating a healthy economy would necessarily require “engineering” our society into holding and acting on those values that support the healthy economy. But it also follows that if the values we choose don’t lead to a healthy economy, then the values themselves are to blame because they don’t reflect the full truth of the human person.

The question then becomes, “What would be the premier sign of an economy in a healthy, normative state, and what value would it reflect?” The most obvious candidate is distributive justice: What I get for what I give is what I ought to get.

If we stick to our Humean guns and insist that we can’t import values into an essentially descriptive discipline, then a normative description of economic health is completely irrelevant and out of court. Implicitly, what we do get is always what we ought to get. There can be no such thing as economic rent, or usury, or predatory pricing, let alone a just wage, because everyone in the economy is always doing what they ought to be doing. There can be no positive dysfunction without a normative concept of proper function. A truly “values-free” economics couldn’t tell us whether the economy is serving its telos well or badly because it couldn’t tell us what that final purpose is or why it should be served at all.

Beyond the Transactions

Whatever the economist’s vision of an ideal economy is — whether it’s a Randian Laissez-Faire 2.0 or a Western European-style democratic socialism — the economist has to have an operational definition of distributive justice in economic transactions that the ideal economy would meet. He would also have to have operational definitions of the values and mores that would support such an economy so it fulfills its telos. But the economist must be more ambitious than this and look beyond the confines of mere transactions because the human person doesn’t exist solely to produce and consume.

For instance, Médaille points out that modern economic theory doesn’t know where labor comes from, what it costs to “produce” and “maintain”, or whether it “depreciates”, while it would account for all these factors in any other commodity. “Therefore,” Médaille scathingly concludes, “labor — and the family — does not even gain the dignity of a bar of pig iron in modern economic theory” (pp. 39-41; see also pp. 98-99).

As well, economists are dimly aware that consumers don’t have ever-full purses and that you can’t pay workers once for all time but hasn’t quite connected the dots to recognize the effect of stagnant wages on demand. To paraphrase Chesterton, if you cut down what the employee earns, you cut down what the customer can spend.

Distributism, by contrast, posits the family as the fundamental social unit (and therefore the fundamental economic unit), and recognizes that they too have an impact on the economy, not simply as consumers but as producers of labor. The distributist concept of the just wage reflects that primacy. Defined by Leo XIII, it is “an amount sufficient to support a ‘thrifty and upright’ worker and his family without having to put his wife and children out as paid labor. Furthermore, the wage must be sufficient to allow a thrifty worker to save and acquire some property of his own” (Médaille, p. 127; cf. RN 63, 65). A just wage would provide workers more comfort and support the total distributist economy better than does the paltry dresser change mandated by law under the present system.


In mathematics, a state of distributive justice is a state of balance represented by an “equals” sign, such as the point where demand at a given price equals supply at the same price. However, the hidden values of modern economic theory treat some transactions as inherently balanced (e.g., wages, interest-bearing loans), in effect refusing to recognize that imbalance can not only occur but even be baked into all transactions of the type. Furthermore, it treats some social detriments arising from imbalance as not only inevitable but necessary prices to pay for the benefits the system does provide. At the same time, it allows for — and even mandates — policies that increase imbalance.

As a result, the economy described and driven by modern economic theory can never produce a state of total systemic equilibrium and therefore must eventually fail, even on its own terms. Call the equilibrium balance and no one bats an eye; call it justice and everyone loses their minds. But economic theorists treat some injustices as laudable, some as inevitable, and some as invisible precisely because they’ve dismissed distributive justice as an irrelevant moral value. “… [An] unjust act by which a man has profited is not attributed to any vice except Injustice” (Aristotle, Nicomachean Ethics, 1130a). There can be no economic equilibrium so long as economic injustices are permitted, even encouraged, to flourish.

Distributism, then, seeks to return balance to the whole system by returning balance to the individual parts, by making distributive justice the telos of the system. Moreover, it properly situates its economic theory within the broader context of a social theory, because economic justice can’t be understood apart from social justice. Above all, distributists rid themselves of the absurd pretense that transactions take place in a moral vacuum, driven by a preter-real Hegelian force called “the market”, and explicitly declare the values which support their economic ideal.

Until the defenders of the present system do the same, they will never understand why they can’t predict market failures.