On Economic Matters: The Need for Argumentation and Rigor

Someone with passing knowledge of economics and the economy may know terms like “Capitalism”, “Socialism”, “Feudalism”, then proceed to confuse terms, concepts, and phenomena. The word “Capitalism” brings about composite boogeymen of large corporations and free markets, contradictory references to Reaganomics and Milton Friedman and von Mises and Adam Smith abounding. The word “Socialism” makes one think of other composite and equally contradictory ideas, having no property, welfare, even John Maynard Keynes. Then the term “Feudalism” brings about standard connotations of oppressive overlords, no social mobility, absolute monarchy. All these once more equally contradictory connotations, as one sees after deeper study. Performing any sort of serious discussion about any topic requires utmost rigor in how one uses terms, how one understands concepts, and how one observes phenomena. Confusion and context go opposite straits, one a wide road to defeat, the other a narrow road to understanding.

Basic Microeconomic Theory

Economics has several fields. Microeconomics begins with the theory of how a person behaves and makes decisions, relevant subfields being Consumer Choice Theory and Decision Theory. If one thinks this overlaps with a Philosophy of Man, one thinks correctly. Microeconomics continues with the theory of how firms produce and behave, the Theories of the Firm and Industrial Organization. Together, these two subfields make up the demand and supply, respectively, in demand and supply. A standard misconception persists that Adam Smith invented this theory by positing an “invisible hand” that guides price. This could never be any close to the truth. When presented with the paradox of why diamonds cost more than water despite the latter being more necessary to human life, Adam Smith answered thus:

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.

Far from establishing supply and demand, Adam Smith instead began what we now know as the labor theory of value. His “invisible hand” actually refers to this passage:

The proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest … [Yet] the capacity of his stomach bears no proportion to the immensity of his desires … the rest he will be obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets which are employed in the economy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice…The rich…are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition.

Adam Smith would be better seen as a proto-sociaist, as Marx puts it. Instead, the real invention of the theory of Demand and Supply falls to St Thomas:

Secondly we may speak of buying and selling, considered as accidentally tending to the advantage of one party, and to the disadvantage of the other:
Here, we see that St Thomas motivates Microeconomic Theory using Scholastic ethics as an application. He shows that transactions for goods and services necessarily entails that one party lose something and the other gains. Whether the buyer or seller loses or gains, however, shows the need for bargaining.
for instance, when a man has great need of a certain thing, while an other man will suffer if he be without it. On such a case the just price will depend not only on the thing sold, but on the loss which the sale brings on the seller. And thus it will be lawful to sell a thing for more than it is worth in itself, though the price paid be not more than it is worth to the owner.
Now St Thomas anticipates the Theory of the Firm, concerning production, profit, revenue, and cost. Scarcity invites higher prices, forcing sellers to raise prices to prevent running out of stock. Three quarters of a millennium later, Microeconomic theory shows that higher prices incentivize producers to produce more, ideally bringing back prices to normal.
Yet if the one man derive a great advantage by becoming possessed of the other man’s property, and the seller be not at a loss through being without that thing, the latter ought not to raise the price, because the advantage accruing to the buyer, is not due to the seller, but to a circumstance affecting the buyer. Now no man should sell what is not his, though he may charge for the loss he suffers.
On the other hand if a man find that he derives great advantage from something he has bought, he may, of his own accord, pay the seller something over and above: and this pertains to his honesty.
Here we see that St Thomas motivates Consumer choice theory, concerning utility, wealth, income, and expenses. Higher demand sees buyers being willing to pay more for goods and services, which “pertains to [the buyer’s] honesty”. We also see St Thomas anticipate the difference between Inferior and Normal goods, justifying how consumers consume more of the latter following an increase in real income.

More relevant to Economics than supply and demand is the concept of benefits and costs. Basic calculus shows that a function is optimized when its first derivative is zero. When two functions’ first derivatives are set to zero, one may then set them equal to each other and derive an optimal value for some variable. In Economics, the first derivative of benefits and costs is the marginal benefit and marginal cost – the additional benefit or cost incurred for an additional action taken. Transactions involve both parties maximizing their benefits and costs by reaching an agreement – a contract.

On Marx and men

Very central to the concepts of “Capitalism” and “Socialism” is the Marxian theory of dialectical materialism. Here, Marx posits that an “Ancient” mode of production deterministically lead to “Feudalism”, then “Capitalism”, then eventually “Socialism” and “Communism”. These terms, again, invite confusion among concepts and phenomena. Marx posits “Feudalism” as a system where nobles and lords keep serfs tied to the land to exploit their labor in agriculture. Witness Bretonnia in Warhammer Fantasy Battle and its oppressive knights for a brief example. What Marx thinks here is that land is the most important factor of production alongside labor. He posits that a capital owning group, the “bourgeoisie”, overthrew nobility and became the new rulers, in the system called “Capitalism”. Here, capital replaces land as the dominant factor of production. The “proletariat” replaces serfs. Eventually, Capitalism will be replaced by Socialism, ushered by the proletariat. This new dictatorship, as Marx and Engels called it, would work to remove all alleged traces of Capitalism – culminating in all differences, separations, divisions fading away. Man would return to a primitive state to become his own god – solve et coagula.

However, Karl Marx made the fatal mistake of building on Adam Smith’s theories, most relevant being the labor theory of value. Karl Marx additionally made the mistake of assuming labor and capital were always substitutes. This shows what a small mind he possessed, for he never realized how pervasive capital was in Medieval times – windmills, watermills, tools, beasts of burden, forges, guildsmen and farmers working for their own ends and for sale alike. George Orwell and Alduous Huxley knew what would happen: the dictatorship of the proletariat would never cede power, for they know their edifice stands on lies. Instead, the new power tries so hard to keep its enemies down while inviting allies to continue its place. John Maynard Keynes, referring to Adam Smith while being ignorant of his writings, wanted to preserve capitalism through government action.

What is Feudalism?

The term “Feudalism” too has seen changes in meaning and understanding. The term itself originated from post-Medieval lawyers trying to make sensible legal foundations for newly Absolutist monarchies. The French Revolution cemented the term by decrying the old regime as “Feudal”, while ironically being carried out by the olden Medieval parliament in its initial stages. Karl Marx added connotations of oppression and exploitation. The economic aspect, however, became subsumed into the term “Manorialism”, now only involving agriculture and production per se. The term “Feudalism” carried over to describe Medieval society, politics, and governance in terms of Fiefs and Vassals – a clean hierarchy of men owing service to higher men owing service to kings owing service to God. However, these modern concepts all fail to describe Medieval reality, which never used terms like Feudalism or fief or vassal.

Medieval governance relied on Aristotelian ideas as ideal, the trifecta of Monarchy, Aristocracy, and Republic being always present in varying mixes. England may had emphasized Monarchy, Venice Aristocracy and Republic, and the Eastern Roman Empire the Imperial Monarchy and Republic, but the Aristotelian ideal always won out in some form or another. Medieval economy, far from exploitative labor, comprised mostly of free farmers and craftsmen, living for themselves and their families. Trade was a big part of this, surplus providing avenues for further growth and human fluorising. Modern America may seem far different from Medieval times, but the American ideal stayed close:

“If America could be, once again, a nation of self-reliant farmers, craftsmen, hunters, ranchers, and artists, then the rich would have little power to dominate others. Neither to serve nor to rule: That was the American dream.” (Edward Abbey)
This should surprise no scholar of American history, for the Founding Fathers shamelessly plagiarized Thomist saints, clergy, and scholars from Europe. Their Enlightenment spin, of course, brought in unideal elements. The quote just cited came from a man advocating full anarchy in hopes for environmental sustainability. However, just as the saints baptized Aristotle’s work and coffee, we may take only concepts relevant to Catholic discourse: subsidiarity and free enterprise of guilds and men.

Capitalism vs a Free Market vs Free Enterprise

Capitalism revolves around capitalists – corporate stakeholders, magantes, and the like – paying labor a salary while the former enjoys the fruits of labor. Such an arrangement reeks of sheer injustice. The Medieval ideal involved a man working for himself, working for others only to pay debt. Such were what serfs did – working a few days on a manor lord’s land then enjoying his own land, labor, and leisure. Serfs constituted such a minority of Medieval society, that modern customs and practices would reek of sheer excess and injustice to a serf. Most men lived as free farmers and craftsmen, their debts to others in apprenticeship and journeymanship being that of knowledge and experience. All could fluorish under their own conditions, paying due obligations to God and the local ruler in doing so.

However, the Medievals knew the dangers of excess. They knew not of nuclear weapons, of high explosives, of drugs, but they knew that a weapon being too powerful would defeat the purpose of just war, and how too pleasurable an object dulls the mind. Crossbows would be allowed only for use against non-Christians, keeping Europe in internal peace. Greek fire remained an Imperial Roman secret, its use relegated against invaders only. Prostitution, far from being seen as a bedrock for marriage, was rooted out at every turn. A completely free market where buying and selling of all goods and services prevails would destroy rather than preserve society. Lords and kings would do well to prevent goods and services from entering a market before regulating them. See how pornography ruins intellect and encourages gratification while the government tries to mandate licenses for hairdressers. Returning society to free enterprise and prohibiting corporations would work more wonders for human fluorishing than allowing the latter and playing alternating intrigues of regulation and collusion.

Closing remarks

Catholics engaging in any discussion would do well to ensure his arguments stack up to standards of rigor and precision. Being vague or misusing terms or most especially not knowing whether one is misuing terms or not leads only to ruin. Catholics would do very well to learn how First Principles work, what logical fallacies are, how to use axiomatic frameworks and systems, and why rigor is so necessary. Social sciences like Economics fall prey too often to inclarity and ambiguity. Weaponized ambiguity exists more than a “Trad conspiracy theory” – it is the most dangerous device in rhetoric. Lest we fall prey to real Pharisaism:

The Pharisees represented the middle-ground of Jewish religious thinking. They were exceedingly tolerant in their religious views, totally different from the [stereotypical] New Testament picture painted of them as narrow-minded bigots….Whenever two intrepretations of the Law — the Torah — were possible, they chose the more lenient view.

One may read these works for further information:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s