I’d like to begin with thanks for the gracious invitation to address you this afternoon, with special thanks to LSU’s Program in the Classical Tradition of Learning and Leadership, which is headed by my friend Prof. Jim Stoner, together with the Intercollegiate Studies Center, the Ethics and Public Policy Center, of which I am a fellow, and for this event especially, the LSU Alumni Association.
My last real trip to Louisiana was for the Republican national convention in New Orleans at the end of the ten years I worked for Congressman Jack Kemp, when he ran for president in 1988. This is my first visit in Baton Rouge. But I was introduced to LSU watching the Sugar Bowl in 2006 when our younger son was at Notre Dame. I gather that General W.T. Sherman was LSU’s first president, and I must admit, that particular game against the Fighting Irish looked as if he had marched the Tigers north to Lake Michigan rather than heading south to the sea.
The title of my talk was suggested by Jim Stoner: “Redeeming Economics: Rediscovering the World before Adam Smith.” ISI Books recently published my book, Redeeming Economics: Rediscovering the Missing Element. And as I will explain, the original element missing from modern economics is the one that describes our interpersonal relations. Jim thought a different subtitle would be catchier and better explain how this element went missing.
But I am addressing three different audiences, one here at LSU’s Program in the Classical Tradition, another tomorrow at an ecumenical seminar at Notre Dame Catholic Seminary together with the New Orleans Baptist Theological Seminary, and a third at Loyola’s Center for Spiritual Capital. Though I’m covering much of the same ground, I’m modifying the talk for each audience and will use a different title when they are published.
These lectures are broadening my horizons. I was born and raised in Illinois, before moving to New Jersey as a teenager, but I’ve lived more than half my life in Washington, D.C. — which President John F. Kennedy accurately described as “a city of Southern efficiency and Northern charm.” The quip is amusing because it plays on stereotypes of Southern charm and Northern efficiency in which we all recognize more than a grain of truth.
Or take another example of interpersonal relations on a large scale. Over the weekend, an earthquake in Japan caused a tsunami as high as 33 feet that caused thousands of deaths and reached our West Coast on Friday morning. It must have awakened memories here in Louisiana of the 2005 flooding caused by Hurricane Katrina, which cut the population of New Orleans Parish by about half and the greater metropolitan area by about 39 per cent before they started to recover. But the disaster also affected Baton Rouge, as one reporter put it, “when a quarter of a million people showed up on its doorstep with pillows, duffle bags and an assortment of hastily gathered heirlooms.”1
Among other things, I’d like to explain why it’s necessary to go back before Smith to the economics of the AAA’s — Aristotle, Augustine and Aquinas — to help us explain these differences. Applying Augustine’s insight helps us explain, as it were, why the Big Easy is Easy and the Big Apple Tart. In the process I’ll also show why the economic theory in the megabestseller Freakonomics cannot explain them.
To do this, I’d like to accomplish four things. First, I’d like to offer “a brief, structural history of economics,” to explain how the logical and mathematical structures of scholastic, classical, and neoclassical economics differ and how the differences in economic theory reflect different underlying world views. This will show that the most important element of the original scholastic economics — final distribution (which comprises Augustine’s theory of personal distribution (gifts and their opposite, crimes) and Aristotle’s theory of distributive justice) — has been missing since its deliberate omission by Adam Smith. Unlike the scholastic theory of utility, which Smith also dropped, final distribution has not yet been generally readopted, even though it is necessary to solve several major problems with today’s neoclassical economics.
Second, I’d like to illustrate one such problem, an empirical test offered by Steven D. Levitt and John J. Donohue III’s famous claim that legalizing abortion in the 1970s must have reduced crime rates starting in the 1990s. Omission of Augustine’s ‘personal distribution function’ requires circular logic, causing Levitt and Donohue to adopt arbitrary assumptions and ignore the strong contemporaneous inverse relation between rates of ‘economic fatherhood’ and homicide, which squarely contradicts their conclusions.
Third, I’d like to apply Augustine’s theory to outline a theory of social graces, in order to explain the differences between Southerners and Northerners remarked upon by President Kennedy, or at least, between the extremes of the Big Easy and the Big Apple.
Finally, I’ll consider the world views implicit in each economic theory, and conclude that in coming decades neoscholastic economists, building on the original scholastic outline, will supersede neoclassical economists for exactly the same reason the latter supplanted classical economists starting the in 1870s: It’s not that economists will draw back in horror at the moral implications of their theory. Rather, having one more indispensable explanatory element, their new theory will be both more comprehensive and empirically more accurate.2
1. A Brief, Structural History of Economics
Economic theory has been taught continuously at the highest university level since the mid-thirteenth century, when it was first fully integrated within the scholastic natural law. Yet we must begin with two simple but widely overlooked facts: First, the logical and mathematical structures of scholastic, classical, and neoclassical economics differ fundamentally. Second, few economists today are aware of these differences, in large measure because American university economics departments, led by the University of Chicago in 1972, abolished the requirement that students of economics master its history before being granted a degree.3 This requires a brief, structural history of economics.
What is economics about? Jesus once noted (I interpret this as an astute empirical observation, not divine revelation) that since the days of Noah and Lot people have been doing, and until the end of the world presumably will be doing, four kinds of things. He gave these examples: “planting and building,” “buying and selling,” “marrying and being given in marriage,” and “eating and drinking” (Luke 18:27-28). In other words, we humans produce, exchange, give, and use (or consume) our human and nonhuman goods.
That’s the usual order in our action. But as Augustine first explained, the logical order is different in our planning. First we choose For Whom we intend to provide; next What to provide as means for those persons.4 Finally, as Aquinas would later elaborate, we choose How to provide the chosen means, as described by Aristotle’s theories of production (always) and exchange (almost always). Thus economics is essentially a theory of providence: it describes how we provide for ourselves and the other persons we love, using scarce means that have alternate uses.
Scholastic ‘AAA’5 economics (c.1250-1776) began when Thomas Aquinas first integrated the four elements of production, exchange, distribution, and consumption, all drawn from Aristotle and Augustine, into an outline of personal, domestic, and political economy, both positive and normative, within the natural law.6
Classical economics (1776-1871) began when Adam Smith cut the four elements to two, trying to explain specialized production (which he called “division of labor”) by production and exchange alone. Smith and his classical followers undoubtedly advanced those two elements. But Smith also dropped Augustine’s theory of utility (which describes consumption) and replaced Augustine’s theory of personal distribution (gifts and their opposite, crimes) and Aristotle’s theory of domestic and political distributive justice with the mere (often false) assumption that everyone is always motivated purely by self-love.7
Neoclassical economics (1871-c.2000) began when three economists dissatisfied with the practical failure of Smith’s classical outline (Jevons 1871 in England, Menger 1871 in Austria, and Walras 1874 in Switzerland) independently but almost simultaneously reinvented Augustine’s theory of utility, starting its reintegration with the theories of production and exchange.8 They abandoned Smith’s revised outline mostly for three related reasons: without the theory of utility classical economists were unable to answer some important questions (for example, why goods that can’t be reproduced with labor have value); made predictions about others that turned out to be spectacularly wrong (notably the “iron law of wages,” which predicted that rising population would prevent rising living standards); and directly fostered Karl Marx’s disastrously erroneous economic analysis. Though schools of neoclassical economics have since multiplied, all are derived from these three.
Neoscholastic economics (c.2000-). In my book, I predict that Neoscholastic economics will revolutionize economics once again in coming decades by replacing its lost cornerstone, the theory of distribution: simply because, as with the theory of utility, including the element does a far better job of empirical description.
Thus Adam Smith’s chief significance lay not in what he added to, but rather subtracted from economics. As Schumpeter (1954) demonstrated, “The fact is that the Wealth of Nations does not contain a single analytic idea, principle or method that was entirely new in 1776.”9 The facts about the development of economics seem to indicate that a re-evaluation is overdue and quite likely for both Augustine and Adam Smith, particularly since Smith essentially “de-Augustinized” economic theory to its detriment. Though far from exhaustive, this brief structural history of economics explains why scholastic economics contained four, classical only two, and neoclassical economics three basic elements: Neoclassical economists restored one element dropped by Smith, utility, but not the other, final distribution.
To go a bit deeper, let me first explain the structure of scholastic economics, then consider why Adam Smith drastically changed it, and finally an example of the problems in today’s neoclassical economics that are due to its failure to restore the most important element.
Positive scholastic theory. To explain the Two Great Commandments,10 Augustine had started from Aristotle’s definition of love — willing some good to some person11 — but drew an implication that Aristotle had not: every person always acts for the sake of some person(s). For example, when I say, “I love vanilla ice cream,” I really mean that I love myself and use (consume) vanilla ice cream (in preference, say, to strawberry ice cream or Brussels sprouts) to express that love. Augustine also introduced the important distinction between “private” goods like bread, which inherently only one person at a time can consume, and “public” goods (like a performance in an ancient amphitheater, a modern radio or television broadcast, national defense, or enforcement of justice) which (at least within certain limits) many people can simultaneously enjoy because they are not “diminished by being shared.”12
In other words, Augustine’s crucial insight is that we humans always act on two scales of value or preference — one for persons as ends and the other for other things as means: personal love and utility, respectively. Moreover, we express our preferences for persons with two kinds of external acts. Since man is a social creature, Augustine noted, “human society is knit together by transactions of giving and receiving.”13 But these outwardly similar transactions may be of two essentially different kinds, he added: “sale or gift.”14 Generally speaking, we give our wealth without compensation to people we particularly love,15 and sell it to people we don’t, in order to provide for those we do love.16 Since it’s always possible to avoid depriving others of their own goods, this is the bare minimum of love expressed as benevolence or goodwill and the measure of what Aristotle called justice in exchange.17 But our positive self-love is expressed by the utility of the goods we provide ourselves, and our positive love of others with beneficence: gifts. Hate or malevolence is expressed by the opposite of a gift: maleficence or crime.
The social analog to personal gifts is what Aristotle called distributive justice,18 which amounts to a collective gift: it’s the formula social communities like a family or nation under a single government necessarily use to distribute their common (jointly owned) goods. Both a personal gift and distributive justice are a kind of “transfer payment”; both are determined by the geometric proportion that matches distributive shares with the relative significance of persons sharing in the distribution; and both are practically limited by the fact of scarcity.
That’s “positive” scholastic economics in a nutshell: describing what is, not necessarily what ought to be.
B. Normative” scholastic theory. We naturally love ourselves, Augustine pointed out. All other moral rules are derived from the Two Great Commandments because these measure the degree to which our love is “ordinate”: rightly ordered.19 If a good were sufficiently abundant we could and should share it equally with everyone else. But with such goods as time and money, which are “diminished by being shared”20 (i.e., scarce), this is impossible. Therefore “loving your neighbor as yourself” can’t always mean equally with yourself: “Since you cannot do good to all,” Augustine concluded, “you are to pay special regard to those who, by the accidents of time, place, or circumstances, are brought into closer connection with you.”21
Aquinas extended Augustine’s insight to Aristotle’s corresponding analysis of all communities: Common goods are necessary to the existence of both families and governments. But the fact of scarcity requires that most common goods be owned by families, not governments, because of the two advantages noted by Aristotle (greater social peace and productivity) and the third added by Aquinas (greater order).22
Political distributive justice and/or justice in exchange are violated by what Aristotle described as, and James Madison later termed, “faction.” Each faction has an ideology, which Hannah Arendt succinctly defined as a world-view that requires its adherents to create a “fictitious world” that distorts reality to the advantage of its members.23 For example, Karl Marx’s collectivist ideology collapsed all justice to distributive justice, as if all goods were both common and political; Smith’s individualist ideology collapsed justice to justice in exchange, as if all goods were personal, private, and never given or shared.
The scholastic economic system is comprehensive, logically complete, mathematical, and empirically verifiable. It was taught at the highest university level for more than five centuries by every major Catholic and (after the Reformation) Protestant economic thinker — notably Lutheran Samuel von Pufendorf, whose work was used by Adam Smith’s own teacher to teach Smith economics and was also highly recommended by Alexander Hamilton.24
Then why did Smith change it? Three keys are necessary to understanding Smith’s revision of scholastic economics: his moral Newtonianism, his philosophical Stoicism, and his rhetorical Sophistry.
First, Smith wanted to do for moral philosophy what he believed Isaac Newton had done for natural science: to reduce all its phenomena to a single familiar principle, like gravity. He was always aiming, as he put it in a posthumously published manuscript, “to see the phenomena which we reckoned the most unaccountable all deduced from some principle (commonly a well-known one) and all united in one chain.”25
Second, having rejected his Christian baptism well before writing the Wealth of Nations, Smith was a wholehearted convert to Stoic philosophy — and Stoics are pantheists.26
Third, Smith’s view of rhetoric resembled that of the Sophists who opposed Aristotle by placing a higher value on whether a statement is useful to the speaker than whether it is an accurate description of reality.27
Smith’s moral Newtonianism induced him to oversimplify the scholastic economic theory he had inherited. Just as in his earlier Theory of Moral Sentiments he had tried to reduce all morality to the single principle of “sympathy,” Smith attempted in the Wealth of Nations to explain all economic behavior by the single principle of “labor.” (He never reconciled these two all-explaining principles.) Smith’s philosophical Stoicism accounts for his rejections of some elements of the scholastic outline of economics and his retention of others.28 In the Theory of Moral Sentiments, Smith rejected the scholastic theories of final distribution and utility on the grounds that they presume rational, purposive behavior.29 In Smith’s view — and here the pantheism becomes apparent — decisions about ends and means, rather than being decided by human beings, are ultimately dictated to them by an inscrutable Stoic version of providence, which engages the vast majority of humankind in a “deception” about the “real satisfaction” afforded by economic goods.30 Smith’s rhetorical Sophistry accounts for his one-sided presentation. For example, in the Wealth of Nations, he dismisses the scholastic theory of utility with his “paradox of value” — though he had easily solved it for his students at the University of Glasgow by applying the same theory of utility.31
2. The Levitt-Donohue Thesis about Abortion and Crime
The neoscholastic model is a powerful tool of analysis at every level: personal, domestic, and political. I suggest several promising applications in the book. But I wish to focus here on one simple application, because it provides strong empirical evidence for Augustine’s theory of personal distribution and illustrates the empirical superiority of (neo-) scholastic to neoclassical economics: the strong inverse tradeoff between rates of ‘economic fatherhood’ and crime. Without the theory of distribution, neither classical nor neoclassical economics can fully describe any state of equilibrium. The necessity of describing all four facets of any economic event with at most three explanatory equations has condemned classical and neoclassical economists frequently to resort to circular logic and/or empirically false assumptions.
In a famous paper co-authored with John J. Donohue III and featured in his book Freakonomics, Levitt argued that after abortion was legalized by several states starting in the late 1960s and nationwide by Roe v. Wade in 1973, millions of fetuses were killed who, when old enough, would have been disproportionately likely to commit crimes.32 Their culling by legalized abortion should therefore have lowered crime rates according to Levitt and Donohue. To prove this, Levitt and Donohue looked at crime rates 15-18 years after Roe and claimed to have found the drop they had predicted.
However, Levitt and Donohue actually found their results indistinguishable whether they used 1970s or 1990s abortion rates to try to explain overall ’90s crime rates. When both were included the models became unstable (“standard errors explode due to multicollinearity”).33 This occurs when research is “misspecified,” typically by omitting necessary variables. Failing even with the help of Nobel laureate Gary S. Becker to uncover any valid evidence for either a 20-year lag or for no lag, Levitt and Donohue replaced the missing facts with an arbitrary assumption: “Consequently, it must be recognized that our interpretation of the results relies on the assumption that there will be a fifteen-to-twenty year lag before abortion materially affects crime.”34
They justified their assumption by quipping that “infants commit little crime.”35 But this overlooks the fact that nearly all violent crime is committed by men (women are equal only in nonviolent crime rates) precisely the ages of the fathers of aborted children. In recent statistics, seventy-seven percent of all persons arrested and 93 percent of all convicted prisoners were men. The relation between abortion and crime rates is strong for all crimes, but stronger for violent crimes, and strongest for the most violent crime of all, homicide.36
In short, the missing variable is “economic fatherhood.” “Economic” fatherhood is defined not by biological paternity nor residency with but provision for one’s children.37 The relationship between economic fatherhood and crime is a straightforward application of Augustine’s personal “distribution function” to the most valuable scarce resource of mortal humans: our time.
Including “economic fatherhood” as a variable not only invalidates Levitt’s claim but reverses it. One can see this in a comparison of homicide rates and economic fatherhood, the latter defined by the Total Fertility Rate for the same demographic mix as prisoners (though measured for women, it’s almost exactly the same for men) minus men in prison (who cannot provide for children) and children on welfare (who aren’t supported by fathers). Though strong for all categories of crime, the trade-off with economic fatherhood strengthens with the crime’s violence, and is strongest for the most violent of all, homicide. As far back as data exist, rates of economic fatherhood and homicide have been strongly, inversely “cointegrated”38 — a stringent statistical test characterizing inherently related events, like the number of cars entering and leaving the Lincoln Tunnel. The statistical tests for cointegration are quite strict,39 and the correlation of economic fatherhood and homicide passes them.40 Donohue and Levitt’s correlation is thus shown to be a “spurious regression,” which was misspecified by omitting a crucial variable: the one describing Augustine’s personal “distribution function.”41
Thus, legalizing abortion didn’t lower homicide rates 15-20 years later by eliminating infants who might, if they survived, have become murderers: it raised the homicide rate almost at once by turning their fathers back into men without dependent children — a small but steady share of whom do murder. The homicide rate rose sharply in the 1960s and ’70s when expanding welfare and legal abortion sharply reduced economic fatherhood, and it dropped sharply in the ’90s partly due to a recovering birth rate, but mostly because welfare reform and incarceration raised the share of men outside prison who were supporting children. This scenario didn’t occur to Levitt not because of a lack of ingenuity or data but because of the inherent weakness of the theory he was trying to apply, which Nobel Prize-winning economists Stigler and Levitt’s mentor, Becker, called the “economic approach to human behavior.” Levitt was unable to see the true correlation between abortion and crime because he was among the first victims of the epic change in the teaching of economics orchestrated by Stigler with Becker’s support.
3. A Theory of Social Graces
An extension of Augustine’s theory brings me back to the question of “Southern charm and Northern rudeness” I mentioned at the beginning.42 Augustine’s theory of personal gifts suggests a new approach to the whole cluster of theories regarding what some sociologists and economists have termed social, cultural, religious, and spiritual “capital” — terms often used, unfortunately, with greater enthusiasm than precision. (One researcher, for example, started seriously to apply the concept of social capital to natural resource management, but he found it necessary to abandon the effort as impracticable after discovering no fewer than twenty different, largely incompatible definitions and no meaningful way to measure the concept.)43
When Theodore W. Schultz coined the term human capital to describe economic investments in people, he advanced the term almost apologetically, prefacing his remarks by noting that “our values and beliefs inhibit us from looking upon human beings as capital goods, except in slavery, and this we abhor.”44 But as Schultz’s approach proved extraordinarily fruitful, subsequent researchers progressively extended the “capital” metaphor with fewer and fewer inhibitions. Almost the only thing on which theorists can agree is that the various forms of capital are all essentially produced by human beings at some cost and in the prospect of some return on the investment.
Yet the human realities that these terms attempt to describe are more properly identified as social, cultural, religious, or spiritual “graces” — that is, something essentially given or received gratis, as free gifts. Augustine’s theory of personal distribution therefore provides the indispensable microeconomic foundation that has so far been missing from the discussion. Moreover, whatever its other merits or demerits, each theory remains formally incomplete until it integrates a description of how and why that form of capital may be freely given or received without explicit or implicit compensation.45
Consider, for example, the everyday gestures that most of us make when we allow someone we do not know and expect never to meet again to take our rightful, lawful, or customary place — say, allowing that person ahead of us in traffic or when waiting to be served at a store.46 The fact that such gestures cost us scarce resources and that we do not expect reciprocation from the same persons make these social graces rather than investments in social capital.47
At least as far back as Aesop’s ancient fable of the town mouse and the country mouse, it has been observed that the urban population is materially richer, more anxiety-ridden, and less generous than the rural population. The rudeness of New York City’s inhabitants to one another and to strangers is legendary. How, then, can we explain outpourings of generosity by New Yorkers, for example, to families whose members perished in the September 11, 2001, terrorist attacks on the World Trade Center?
The answer to this apparent puzzle, I suggest, is that city dwellers are not any less generous on average than country dwellers, but their daily generosity is typically distributed among many more individual recipients. A city dweller who interacts with hundreds or even thousands of other people in the course of a typical day (for example, when commuting to work) simply cannot afford to be as generous to each other individual as a country dweller who devotes exactly the same total time per day to strangers but whose total daily contacts may be numbered on the fingers of both hands. A person who loves three other people equally with himself will devote the same share of his or her scarce resources to the other persons as if he loved three hundred others 1 percent as much or three thousand others one-thousandth as much as himself. This explains how it can be true both that the typical city dweller is ruder on average to any one given stranger he or she meets, and no less generous to all strangers, than the typical country dweller. Such arithmetic also explains why, when the generosity of a significant share of citizens of a large city like New York is focused on a relatively small number of recipients, like the victims of the terrorist attacks, the average gift received can be extraordinarily large. Unlike the existing theory of social capital, an Augustinian theory of social graces is able to identify each small gift from some specific person to some other specific person, and to explain its reason.
Converse to social graces are the little social crimes or robberies we commit when we usurp other people’s places according to right, law, or custom — say, by failing to yield in proper order at a stop sign or in traffic, thus delaying others’ commutes to work. Moreover, someone who habitually does so in a crowded urban area often causes as much total economic damage in a single day as a single criminal who may be fined or jailed for inflicting that amount of damage on a single victim.
The same approach might also be extended to religious and spiritual graces, the context in which Augustine originally thought of them. All spiritual or religious experience involves (or is perceived to involve) some kind of gift. This is obvious whether the action is viewed as proceeding from God to man (for example, creation in Abrahamic traditions and redemption and sanctification in Christian traditions); from man to God (gifts of praise, adoration, sacrifice, and thanksgiving in most religious traditions); or from human to human (such as sacramentally “giving and being given in marriage,”48 making charitable donations, or doing volunteer work out of religious motivation).
Augustine’s theory of personal gifts sheds important light on the nature of spiritual graces, one peculiarity of which is that they are subject to scarcity on the human side but not from the side of God. While “spiritual capital” and “religious capital” have been conceived as something essentially produced by humans, of their nature religious and spiritual graces must be conceived as something essentially received by humans.
Thus, Augustine provided both elements necessary to explain personal economy — the theories of personal distribution and utility. By combining them, we can understand the essence of our economic decisions as individual persons, and we can also outline a theory of social, cultural, religious, and spiritual graces.
4. The Three World Views in Economic Theory
The notion that Adam Smith invented or is somehow indispensable to understanding economics might be called “Smythology.” By far the most influential piece of Smythology was Milton Friedman’s argument linking Adam Smith’s philosophy with the meaning of the American Declaration of Independence: “The story of the United States is the story of an economic miracle and a political miracle that was made possible by the translation into practice of two sets of ideas — both, by a curious coincidence published in the same year, 1776.” According to Friedman, “the fundamental principles of our system [are] both the economic principles of Adam Smith…and the political principles expressed by Thomas Jefferson.”49
Like many others I found Friedman’s argument persuasive, until I discovered that the “choice of 1776″ was actually a divergence, not a convergence, and of three, not two world views. The third symbolically significant event of 1776 was the death of Smith’s dear friend, the Epicurean skeptic David Hume.
I noted earlier that (Neo-) Scholastic economics is essentially a theory of providence. It mostly describes human providence. But each of the three basic economic theories also entails a different theory of divine providence: the three approaches to economic theory also express three distinct world views, the confrontation of which goes back nearly two millennia.
When the Apostle Paul preached in the marketplace of Athens, he prefaced the Gospel with a Biblically orthodox adaptation of Greco-Roman natural law. The evangelist Luke tells us that “some Epicurean and Stoic philosophers argued with him” (Acts 17:18). The same dispute has continued among scholastic, classical, neoclassical, and now neoscholastic economists.
In (neo-) scholastic natural law, economics is a theory of rational providence, describing how we “rational,” “matrimonial,” and “political animals” choose both persons as “ends” (which we express by our personal and collective gifts) and the scarce means to be used (consumed) by or for those persons, which we make real through production and exchange. By dropping both distribution (the choice of persons as ends) and consumption (the choice of other things as means), Smith expressed the Stoic pantheism that viewed the universe “to be itself a Divinity, an Animal”50 with God as its immanent soul, so that sentimental humans choose neither ends nor means rationally; instead, “every individual…intends only his own gain…and is led by an invisible hand to promote an end which was no part of his intention.”51 By restoring utility (the choice of means) but not distribution (the choice of persons as ends), neoclassical economics expressed the Epicurean materialism that claims humans somehow evolved as merely clever animals, highly adept at calculating means but having no choice other than self-gratification, since “reason is, and ought only to be, the slave of the passions,” as Hume put it.52
As historian of economics Henry William Spiegel noted of the “marginal revolution” that ended classical and launched neoclassical economics in the 1870s, “Outsiders ranked prominently among the pioneers of marginal analysis because its discovery required a perspective that the experts did not necessarily possess.”53 I don’t underestimate the time or effort it will take. But I predict that in coming decades, economists who understand the “human approach to economic behavior” of Aristotle, Augustine, and Aquinas will find full employment rewriting the neoclassical “economic approach to human behavior.”
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1 “The city’s population swelled overnight by an estimated 250,000 people.” “The Katrina effect,” August 23, 2010 http://www.businessreport.com/news/2010/aug/23/katrina-effect-edvl1/
2 Other than Viner (1978), few academic economists so far have recognized the systematic differences between classical, neoclassical, and neoscholastic economics. An important recent exception is Aguirre, 2006; see also Aguirre, 2004. Also deserving special mention for insights drawn from scholastic theory are Worland (1967), Chafuen (1986), Chafuen (1993), Morse (2001), Piedra (2004) and Yuengert (2004). Aguirre and Morse have begun the necessary rewriting of the neoclassical economic theory of the family. Though similarly inspired by scholastic theory, Mueller (1996) was still formally neoclassical. Warning to theologians: “neoscholastic” has nearly opposite meanings in theology and economics. In 19th and 20th Century theology it essentially meant equating Aquinas with Aristotle and removing, Augustine’s fundamental insight that all persons (human or divine) are motivated by love for some person(s), and all personal love is expressed with a gift. In 21st Century economics “neoscholastic” theory restores that insight to its central role.
3 This change culminated a long campaign that George J. Stigler had started in 1955. “In 1972, he [Stigler] successfully proposed that the history of thought requirement be dropped at Chicago. Most other economics departments later followed suit…At the same meeting Stigler unsuccessfully proposed that the economic history requirement also be dropped.” Leeson (1997), endnote 62. Leeson (1997) was subsequently incorporated into Leeson (2001). In his campaign for the change, Stigler rejected Aquinas’ view that a scientist is defined by whether he understands his subject rather than having a degree. Stigler claimed instead that every science is continuously defined by a self-governing elite calling themselves scientists. From this sociological definition, Stigler said it was obvious that “one need not read in the history of economics-that is, past economics-to master present economics.” Instead, “the young theorist…will assume…that all that is valid in earlier work is present-in purer and more elegant form-in the modern theory,” and that “the history of the discipline is best left to those underendowed for fully professional work at the modern level.” But as the text indicates, the young economist who assumed this would be underendowed for fully professional work because he wouldn’t know his subject. (Stigler, 1969, reprinted in Stigler, 1982, p. 107).
4 Among prominent modern economists, only Jacob Viner (1978) seems correctly to have identified Augustine’s main technical contribution to economic theory, distinguishing separate scales of preference for persons (love and justice) and non-persons (utility), and both of these from the absolute metaphysical scale of being: Augustine deals “simultaneously with three scales of value, relating to order of nature, utility, and justice.” Viner (1978), p. 55.
5 In his otherwise magisterial History of Economics Analysis, Schumpeter (1954) incorrectly wrote that Augustine “[n]ever went into economic problems” (p. 72) and Aquinas’ economics was “strictly Aristotelian.” (p. 93). As we’ll see, Aquinas not only combined Aristotle’s contributions with but also subordinated them to Augustine’s, in both “positive” or descriptive and “normative” or prescriptive theory.
6 On Augustine’s theory of personal distribution, see Augustine (396/397) and Augustine (395/396), cited below; Aristotle’s social distribution (distributive justice): Ethics V,3 in Aristotle 1954 (350 BC); Augustine’s theory of utility (consumption): City of God XI,16 in Augustine 1984 (413-426-427); Aristotle’s theory of production of people and property: Politics I,4 in Aristotle 1962 [c. 350 BC]; Aristotle’s justice in exchange (equilibrium): Ethics V,5. In Aquinas, three of these four elements (the distribution function, the utility function, and the equilibrium conditions) are described (and the production function implied) in Aquinas 1993 [1271-1272]. Personal distribution: Book V Lectures IV-IX, pp. 293-318; social distribution: p. 294; the “equilibrium conditions”: pp. 294-296 and pp. 297-299, the “utility function” and analysis of money, pp. 312-315. The production function is described in his commentary on Aristotle’s Politics I, 1-3: Aquinas 2007 [1271-1272]. The same analysis is also scattered throughout his Summa theologiae in Aquinas 1981 [1271-1272], especially in his commentary on the seventh commandment.
7 By adopting special assumptions that are often empirically false, Smith altered the meaning of “distribution” and conflated two elements recognized in the scholastic system as distinct: distribution proper and justice in exchange. Smith’s elimination of Augustine’s theory of personal distribution from the outline of economic theory is signaled in the passage that includes his famous declaration: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.” Smith (1966 ) I, II: Vol. I, p. 17. In Augustine’s theory, the main reason the brewer or baker doesn’t serve his customers from beneficence is not exclusive self-love, but rather that each is faced with the fact of scarcity: If the baker shared his bread equally with every customer instead of charging for it, he would leave himself and his family too little to live on. Augustine’s theory also explains why the brewer or baker shares with his family or friends but not with his business customers: he loves his customers only with benevolence (wishing good to them) but his family with both benevolence and beneficence (doing good to them). He sells his product to customers to earn the means to provide for himself and the rest of his family. Augustine’s theory of personal distribution explains the essential difference between a gift and an exchange, and provides a measure of how far each of us actually is motivated by self-love and how much by love of neighbor. Smith fails to grapple with the fact that charitable behavior simply does not fit into a theory that reduces all human transactions to exchange and self-love. He never explains why the butcher’s customers never expect their dinner from his beneficence, yet his friends sometimes and his children always do.
19 For example, the first three commandments of the Decalogue specify in greater detail how we should love God and the others how we should love of our neighbor; the rest of the natural law proceeds in turn from the Decalogue: all as a matter of reason, not just faith.
22 “If the responsibility for looking after property is distributed over many individuals, this will not lead to mutual recriminations; on the contrary, with every man busy with his own, there will be increased production all round,” Aristotle (1962 [c. 350 BC]), p. 63. Aquinas listed these two and added a third, greater order resulting from the efficient use of specialized knowledge: peace (“a more peaceful state is ensured to man if each one is contented with his own”); productivity (“every man is more careful to procure what is for himself alone than that which is common to many or all”); order (“human affairs are conducted in more orderly fashion if each man is charged with taking care of some particular thing himself, whereas there would be confusion if everyone had to look after any one thing indeterminately”), Aquinas 1981 [1271-1272], II-II Q66 A2.
24 According to Ross (1995, pp. 53-4), Adam Smith’s teacher Frances Hutcheson taught him from an annotated edition of Pufendorf (1991 ). As with Aquinas and the earlier scholastics, Pufendorf’s Protestant version of the natural law contains all four basic elements of economic theory, organized according to personal, domestic and political economy, and integrating prescriptive with descriptive theory by the Two Great Commandments. Personal distribution, Pufendorf, (1991 ), pp. 64-67; social and political distribution, ibid., p. 32 and pp. 61-63; utility, ibid. pp. 94-96; production of and by human and nonhuman factors, ibid., pp. 84-89; society organized around family household, ibid., pp. 120-131; justice in exchange or equilibrium equating product values and factor compensation, ibid., p. 31 and pp. 94-95. The Two Great Commandments integrating description and prescription. Ibid., 11-12. The fact that Pufendorf was a Lutheran who wrote a critical history of the Catholic Church and that his theories were taught at the Calvinist University of Glasgow demonstrates that the scholastic outline of economic theory was broadly known and accepted. Pufendorf was widely read in the American colonies and recommended by Hamilton (1775). Hamilton had penned two-thirds of the Federalist papers and as first Treasury Secretary would reject Smith’s specific economic advice in the Wealth of Nations to the United States (Smith (1966 ), Book II, Ch. 5); Hamilton (1791).
25 Smith, 1985 . Lecture XXIVth. Accessed from http://oll.libertyfund.org/title/202/55538/918007 on 2009-11-30. Smith’s audience understood that this was what he was attempting. As one former student summarized: “His Theory of Moral Sentiments founded on sympathy, a very ingenious attempt to account for the principal phenomena in the moral world from this one general principle, like that of gravity in the natural world.” Smith (1982 ), TMS, 3; accessed from http://oll.libertyfund.org/title/192 on 2009-08-21. See also Hetherington (1983). Though it was generally agreed that Smith’s attempt was ingenious-it involved redefining sympathy from the usual sense of compassion to the ability to imagine and judge the feelings of others-it was not generally agreed that Smith had succeeded. “I conceive this meaning of the word Sympathy is altogether new & that if one had not a hypothes[is] to serve by it he would never have dreamed that it is Sympathy that makes us blush for the impudence and rudeness of another,” remarked Thomas Reid, who succeeded Smith as professor of moral philosophy at Glasgow: Stewart-Robertson and Norton (1984), 314.
26 As the editors of Smith’s Theory of Moral Sentiments observe, “Stoic philosophy is the primary influence on Smith’s ethical thought. It also fundamentally affects his economic theory”; “Stoicism never lost its hold over Smith’s mind”; Smith (1976 ), Raphael and Macfie, eds., op. cit., 5, 6. Accessed from http://oll.libertyfund.org/title/192/200027/3301053 on 2009-09-14. The sixth and final edition of TMS (1790) begins with an advertisement featuring its expanded explication of “that famous sect”; Ibid, 3, http://www.econlib.org/library/Smith/smMS0.html; accessed 15 September 2009; the dismissive contrary opinion about Smith’s Stoicism in Rothschild 1994 and Rothschild 2001 often ignores the plain sense of Smith’s writing and contemporary accounts. This recalls the pattern Jacob Viner had noted among professors of economics and of ethics: “If perchance Adam Smith is a hero to them, they follow one of the other of two available methods of dealing with the religious ingredients of Smith’s thought. They either put on mental blinders, which hide from their sight these aberrations in Smith’s thought, or they treat them as merely traditional and in Smith’s day fashionable ornaments to what is essentially naturalistic and rational analysis, especially where economic matters and the Wealth of Nations are in question.” Viner (1972), pp. 55-85; pp. 81-82). By the time he wrote the Wealth of Nations, Smith was openly hostile to the Christian faith in which he had been baptized. In a letter dated August 14, 1776, which he caused to be published, Smith wrote: “Poor David Hume is dying very fast, but with great chearfulness and good humour and with more real resignation to the necessary course of things, than any Whining Christian ever dyed with pretended resignation to the Will of God.” Smith (1976 1759]), op. cit., 19, Accessed from http://oll.libertyfund.org/title/192/200035/3301093 on 2009-09-14. Moreover, Smith’s opinion was recognized by those who knew him well. James Boswell recorded that “it was strange to me to find my old Professor in London, a professed infidel with a bag wig” (Ross, The Life of Adam Smith, op. cit., 251).
27 According to Aristotle, the purpose of rhetoric “is not to persuade, but to discover the available means of persuasion in a given case.” Why? “In Rhetoric, as in Dialectic, we should be able to argue on either side of a question; not with a view to putting both sides into practice-we must not advocate evil-but in order that no aspect of the case may escape us, and that if our opponents make unfair use of the arguments, we may be able to refute them.” Aristotle, Rhetoric I, 1; (1932 [335-322 BC]), 6. Smith taught his students: “The Rhetoricall [discourse] again endeavours by all means to perswade us; and for this purpose magnifies all the arguments on one side and diminishes or conceals those that might be brought on the side contrary to that which it is designed that we should favour.” Smith (1985 ), 62, accessed from http://oll.libertyfund.org/title/202/55525/917785 on 2009-11-30
32 Donohue and Levitt 2001, 379-420 (cited hereafter as QJE). Earlier versions had been widely circulated, including Donohue and Levitt 1999 and Donohue and Levitt 2000 (hereafter cited as NBER). Levitt further promoted the claim in Levitt and Dubner (2005), pp. 117-144.
36 U.S. Dept. of Commerce, Statistical Abstract: 2006, tables 339 and 313. The age distribution of persons arrested matches the age distribution of women having abortions quite closely. This is especially apparent after allowing for the fact that young men fathering children are typically two years older than their female sexual partners. Arrest rates by age and sex from Sourcebook of Criminal Justice Statistics; Ages of women having abortions from Elam-Evans et al. (2003). Fathers older than the age at which women are typically fertile are about eight years older than the mothers; see Statistical Abstract: 1998, p. 112.
37 “Economic fatherhood” is the Total Fertility Rate, with fertility rates for white and nonwhites mixed in the same proportion as among men admitted to prison, removing children on welfare from the numerator and men in prison from the denominator. Annual data on the homicide rate go back to 1900, on white and nonwhite age-specific fertility rates back to 1917. Total Fertility Rate calculated from U.S. population by single year of age, sex, and race (since 1900, U.S. Census Bureau); age-specific fertility rates (since 1940 from annual National Vital Statistics Reports and beginning 1917 from Princeton University’s Office of Population Research). Data on persons arrested, starting in 1932, and admissions to Federal and state prisons, starting 1926, are from U.S. Dept of Commerce (1975), Part 1, updated in annual Statistical Abstract of the United States and in (Eds.) Pastore, A.L. and Maguire, K; on federal and state prisoners back to 1925 from http://www.albany.edu/sourcebook/. Data for children supported by welfare begin in 1936: children on public assistance before 1970 from U.S. Dept of Commerce (1975), Part 1, p. 356; more recent statistics from U.S. Department of Health and Human Services (2004).
Coefficient Standard error t-statistic Prob.
c1 2.480789 0.022910 99.59044 0.0000
c2 -0.771135 0.031829 -24.22761 0.0000
Adjusted R2 = 0.903073 D-W=0.487996 F-statistic=586.9769 Prob(F-statistic) 0.000000
The complete multivariable model of the homicide rate is not reproduced in this paper, but its results remain dominated by the “economic fatherhood” variable.
39 Cointegration can be detected with the Augmented Dickey-Fuller (ADF) test, which tests the likelihood that the two series will ever drift apart. While a “good” regression is one which holds at least 19 times out of 20, the ADF test must exceed 99 cases out of 100.
40 The ADF Test Statistic for the unit root test on the residuals of the regression of economic fatherhood on homicide is -3.752339; the Mackinnon critical value for the hypothesis of a unit root at the 1% level is -3.5380. (At the 5% level the critical value is -2.9084, and at the 10% level the critical value is -2.5915.) Therefore, the series for economic fatherhood and homicide are cointegrated.
41 Granger and Newbold (1974). Spurious relationships are characterized by high “autocorrelation” of residual forecasting errors, which can usually be detected by a statistical test known as the Durbin-Watson (D-W) statistic. Ideally, D-W should be close to a value of 2, but autocorrelation is reflected in a low D-W (e.g., 0.5).
45 Neoclassical welfare economics has admitted since the 1930s, and the theory of the household since the 1970s, that the three basic elements of neoclassical economics-production, utility, and equilibrium-cannot fully describe economic behavior, because there is at least one equilibrium for every possible distribution of wealth or income. This means that at each level, from a single person to the world economy, the final distribution of wealth or income must be specified or else there will be fewer explanatory equations than variables to be explained. Such specification is the purpose of Augustine’s theory of personal distribution and Aristotle’s theory of distributive justice.
46 By mentioning roads or other public accommodations, we implicitly introduce the principle of distributive justice, which governs the distribution of common goods. But whether the objects given and received are originally acquired by exchange, personal gifts, or domestic or political distributive justice, social graces are essentially little personal gifts.
47 Such gestures might still be social graces even if we should later receive similar gifts from those same persons, but I have chosen the example of unrequited gifts because they are much easier to distinguish from exchanges.