The Clergy and Economists: Two Windows on Common Objectives
In Defense of Economic Pain
No economist would claim that the wealth realized through market cooperation is all gain and no pain. Profits and losses are inherent features of market competition, and as Milton Friedman emphasized many times, the losses are as important as the profits. Those failing to use their resources to best serve others suffer losses as their resources and opportunities are competed away by those doing a better job serving others. The resulting bankruptcies, layoffs, and financial reversals are painful, and we all suffer that pain from time to time. This pain is easily seen, widely condemned, and invariably blamed on the dog-eat-dog callousness of the market. Economists are commonly criticized for condoning this economic pain and defending the market process that inflicts it. However, as seen through the economists’ window on the world, the pain inflicted by markets is essential to communicating the information and incentives that create the social cooperation from which we all benefit.
While no one enjoys pain imposed by market competition, living in an economy that failed to impose that pain would be far worse. Living in such an economy has much the same disadvantage as living in a body that did not register pain. A few unfortunate infants are born without the ability to feel pain—a defect known as congenital analgesia. These children seldom live long, dying early from injuries they never feel or learn to avoid. As with physical pain, the economic pain imposed by markets informs people when they are making harmful economic decisions and motivates them to either correct those decisions or transfer the resources under their control to those who will make better use of them.
When governments go beyond moderate attempts to disguise the pain of market incentives their citizens suffer far greater pain from a general waste of resources. Parents of a child with congenital analgesia would, if they could, move that child into a body that imposed pain. Similarly, when people can migrate across borders, the flow is overwhelmingly away from countries where authorities are aggressively attempting to suppress the pain of market incentives as parents move themselves and their children to countries where that pain is given freer rein.
Economists Are Interested in Money
Economists are interested in the role of money in the economy because it is important to communicating the incentives economists believe serve to make the world a better place. Money is not of interest to economists as an end in itself, as common criticisms of economists seem to imply. Economists see money as a convenient claim on goods and services that facilitates the exchanges and from which market prices, denominated in money, naturally emerge. Money is then nothing more than the physical material that embodies those prices that communicate the information and incentives that economists see as creating more social cooperation, opportunity, and prosperity—the ends in which economists are very much interested.
Letting the Motives Obscure the Accomplishment
Admittedly, the cooperation of the marketplace is not cooperation in the noblest sense of the word. Ideally, cooperation results from people working together for a common goal out of a genuine concern for each other. Market cooperation is motivated primarily by the various, and often conflicting, goals of many individuals who are far more concerned with themselves and their loved ones than they are with most of those with whom they are cooperating. This type of cooperation is not completely satisfying and does not even qualify as cooperation in the minds of many.
Economists can respond that surely it is preferable to realize the social benefits from global cooperation for reasons less exalted than universal goodwill than to realize them hardly at all. We can point out that even if we did achieve universal goodwill, it would be insufficient for anything more than the most limited cooperation. Even if everyone possessed a saintly concern for all, whether in distant parts on the globe or across the street, we would have little information on how to convert our concern into effective action without the information communicated by market prices. Such arguments, however, are unlikely to be persuasive to many. It is easy to take the benefits of market cooperation for granted, concentrate on what are seen as the base motives motivating those benefits, and dismiss the market process as unworthy. There is probably no completely effective way to combat this tendency.
My attempt in this article can be successful, however, without convincing market skeptics among the clergy to embrace the market process with enthusiasm. As indicated in the introduction and by the title, I hope, rather, to convince members of the clergy that economists want to achieve many of the same worthy objectives that they do, even though our means of doing so are different. The tendency for members of the clergy to concentrate on the means economists recommend (a tendency they share with many others) makes it difficult for them to recognize our common objectives. Consider two examples of ends that are universally to be considered noble being obscured when they are achieved by market means considered less than noble.
Almost everyone, including economists, favors protecting the environment by reducing pollution. Indeed economists have given considerable thought to achieving the social cooperation necessary to reduce as much pollution as possible for a given sacrifice in other things we value. Not surprisingly, they have concluded that creating a market in pollution reduction is more effective than having a government agency issue directions to polluters on how and/or how much pollution to reduce—an approach known as command and control. Creating a market in pollution reduction involves distributing, or auctioning off, enough transferable pollution permits to allow the discharge of the permitted amount of the pollutant under consideration. Those who can reduce pollutant at low cost find reducing it more profitable than buying permits, and they reduce a lot. Those who can reduce pollutant only at high cost will profit by buying permits and not reducing by much. The result is abatement patterns that achieve pollution reduction at far less cost (or achieves more pollution reduction for a given cost) than is achieved with commands and controls that tend to be applied uniformly on all polluters.5 Yet, recommendations to reduce pollution through a market approach have met with resistance by many whose interest in reducing pollution cannot be doubted. The achievement of a cleaner environment at less cost is trumped by an aversion to the selfish motives that lead to the achievement.
Consider next the popularity of resource conservation. Almost everyone responds favorably to the idea of conserving our resources to ensure that they are available for future generations. Yet, few consider how much of a resource is desirable to conserve. Obviously, we should conserve a resource when it is worth less today than it will be in the future. It makes no sense to continue conserving a resource after it becomes worth more today than in the future. Even if we knew how much of a resource to conserve, how do we motivate people to conserve the desirable amount? Conservation requires current sacrifice, and the temptation is strong for people to hope others will do the conserving.
What few recognize, or appreciate, is that the most effective force for conserving resources is speculators communicating through and responding to market prices in search of profits. Speculators constantly anticipate how much resources will be valued in the future, and they buy those resources they believe can be profitably stored for later sale—those that are worth conserving. These speculative purchases drive up current prices, which motivates consumers to reduce their current consumption; for example, to conserve. While there would be little conservation without the incentives of higher market prices, and people universally claim they approve of conservation, most of them despise speculators as profitseeking hoarders who drive up the prices of important resources. This negative view of the motives obscures, if not obliterates entirely, the desirable end being accomplished when those motives are directed by market incentives.
I am not trying to convince members of the clergy to forsake the perspective from their window on the world and shift their allegiance to the economists’ perspective. First, I could not succeed even if that was my purpose. People invest serious effort in achieving an understanding of the world, and this understanding, along with an accompanying belief system, provides a valuable sense of coherence and meaning to our lives not easily given up. Einstein recognized this value when stating:
Man tries to make for himself in the fashion that suits him best a simplified and intelligible picture of the world. He then tries to some extent to substitute this cosmos of his for the world of experience, … he makes this cosmos and its construction the pivot of his emotional life in order to find in this way the peace and serenity which he cannot find in the narrow whirlpool of human experience.6
Just as I cannot imagine giving up my economic understandings, and the beliefs informed by them, I certainly do not expect to convince members of the clergy to give up their understandings and beliefs.
I have no desire to convince members of the clergy to shift their perspective to that provided by the economic view of the world. The window that informs the clergy is an important one. The clergy have insights and understandings that are useful in improving our lives and our world in ways that cannot be clearly seen, if seen at all, through the economists’ window. By specializing in helping people improve themselves through spiritual and moral teachings, I believe the understandings of the clergy complement those of economists in achieving the noble objectives we have in common. My desire is to convince members of the clergy that they and economists really do share common objectives and have complementary approaches for achieving them.
When economists talk about such things as private property, exchange, market prices, money, and financial profits and losses, we honestly believe we are talking about social arrangements that make the world a better place—a more humane and prosperous place, where billions of people cooperate through a global network of communication, service, and sharing to reduce poverty, feed the hungry, care for the sick, protect our environment, conserve and expand our resource base, and promote a host of other noble objectives. Some members of the clergy, along with others, will disagree with this economic understanding of the world. However, do not conclude from this, as many do, that economists are not committed to achieving these noble objectives.
Boulding, Kenneth E. “Economics as a Moral Science.” The American Economic Review. 59, no. 1 (March 1969): 1–12.
Navarro, Peter. “The Politics of Air Pollution.” The Public Interest, no. 50 (Spring 1980): 36–44.
Pirsig, Robert M. Zen and the Art of Motorcycle Maintenance. New York: HarperTorch, 2006.
Read, Leonard. “I, Pencil.” The Freeman (December 1958): 32–37.
Roberts, Russell. The Invisible Heart: An Economic Romance. Cambridge: MIT Press, 2001.
Robertson, Dennis H. Economic Commentaries. London: Staples Press, 1956.
Smith, Adam. The Theory of Moral Sentiments. Indianapolis: LibertyClassics, 1982.
Tietenberg, Tom. Environmental and Natural Resource Economics, 7th ed. Boston: Pearson Education, 2006.
1 For a more detailed discussion of the effect of changing the incentives on shipping prisoners from England to Australia, see Roberts (2001, 267–68).
2 See Robertson (1956, 148).
3 One can make a host of arguments that the increase in wealth has come at great cost. Clearly, the additional wealth has been realized very unequally over the globe. However, few today, even among the poorest, would want to exchange their condition today for the working conditions, infant mortality rates, life expectancy, educational opportunities, and general level of comfort and convenience that existed at the beginning of the nineteenth century.
4 No one would argue that price information is perfect. There are often what economists refer to as externalities created in the production and use of products that are not reflected in their market prices—for example, the environmental costs from using electricity generated by a coal-fired plant that is external to the calculation of those producing and consuming the electricity. These problems invariably result from the lack of market exchanges that would require compensation for the harm being done—by the smoke in the electricity example. While it is theoretically possible for government to correct such externalities with regulation or taxes, government decisions are often distorted by their own externalities, as organized groups see political opportunities to secure benefits paid for by others. For example, government regulation of coal-fired plants has been used by eastern coal interests to protect themselves against competition from western coal at the expense of electricity consumers and the environment—see Navarro (1980). The information communicated by market prices does not have to be perfect to be extraordinarily impressive and far better at motivating social cooperation than any known alternative.
5 Numerous studies have estimated the ratio of the cost of reducing pollution with commands and controls to the cost of reducing it by the same amount with market approaches. The ratios vary, but they average a little over six in the representative studies cited in Tietenberg (2006, 380)—it costs a little over six times more to reduce pollution with command and control than with market approaches.
6 Cited in Pirsig (2006, 138).