Judd W. Patton, Ph.D. (Biography) Bellevue University Online
Bellevue University's - Economic$ Department
Menu
Fast Navigation:

Missing Dimensions in Economics: 
The Prism of Economic and Moral Principles

by
Dr. Judd W. Patton

     What a science [like economics] does, or should do, is simply to allow the average man…to command the heights of genius. The basic tools are the simple principles… Without them, he is a jibbering idiot, who makes only noise under an illusion of speech.”1 – James Buchanan, 1986 Nobel laureate in economics.

      Dr. Buchanan has “hit the nail on the head.”  Economic knowledge with its simple yet profound principles should propel economists and non-economists alike to eye-opening vision and insight into humankind’s economic problems.  It is crystal clear that hasn’t happened. Witness numerous jokes ridiculing economists and their forecasting follies.2  Indeed, the 20th century “explosion” of economic research, aided by the marvels of computer technology, has, paradoxically, still not provided definitive solutions to basic contemporary economic problems, namely: inflation, unemployment, business cycles, stock market crashes, budget and trade deficits, and financial crises.

      Why? Could there be a knowledge gap – a missing dimension in contemporary economic analysis?  Could there be a prism, so to speak, that individuals can look through to discover the real causes and solutions to humankind’s seemingly intractable economic woes?

      Yes!  The author and a small minority of individuals and economists respectfully submit that there is indeed a blind spot in modern-day economic analysis, and there is such a prism.

      Contemporary economic science has discovered principles that are relative to time and place, continually open to refinement or refutation. These principles, however, have not led to any heights of genius.  Our economic problems remain. Candidly, the foundational premises of secular economists simply make it impossible for them to grasp the existence of universal, timeless economic and moral principles.  But we humbly suggest that these simple principles, these missing dimensions, do provide the insight to resolve our economic difficulties.  Step inside this worldview and determine for yourself if you do not agree that it allows the average man to command the heights of genius.

Two Basic Worldviews

      In the 1960s physicist Thomas S. Kuhn brilliantly demonstrated that each and every science rests on generally unquestioned premises that condition the nature of human thinking and scientific investigation.3  Dr. Kuhn called this body of foundational premises a paradigm.

     The essence of Kuhn’s insight is that there are no such things as brute facts - facts apart from a definite paradigm.  What is a fact and what is a non-fact, or what is a cause or what is an effect, depends on the specific paradigm.

      Today there are many economic schools of thought, each with their own unique paradigm or worldview.  By analogy, each tradition has its own eyeglasses with very different prescriptions to view the economic world.  The result?  There is no agreement on facts, or on cause and effect relationships.  What, for instance, caused the October 1987 stock market crash?  Ask five different economists, and you will get six different answers!  It’s virtually the same for any economic topic.

     The real philosophical question is: which economic paradigm can best account or give meaning to economic phenomena?  Consider the worldview based on revealed knowledge, the Bible, as the paradigm for economic analysis.

     In the book of Genesis, the Creator God reveals that there are only two primary world-views, one symbolized by the tree of life (God’s revealed paradigm) and the other by the tree of the knowledge of good and evil (man’s paradigm).  Simple observation today makes clear that the latter tree, when applied to economics, contains many branches or traditions, but the trunk of the tree is humanism, man and his reasoning as the sole source of knowledge.

      As most people know, Adam and Eve disbelieved and disobeyed God. They ate from the tree of the knowledge of good and evil. In doing so they took to themselves, and for all mankind after them, the discovery of knowledge apart from God.  They ignored God’s instruction, “The fear of the Lord is the beginning of knowledge” (Proverb 1:7).  As a result mankind has created his own economic systems and generated his own diverse schools of thought that seem right to him (Proverbs 14:12).

     Thus, there are only two kinds of economics: Biblical economics and man’s economics.  Again, the latter is fractured into numerous traditions.  By excluding moral or ethical principles from their paradigms, and by conducting science by means of the trial and error scientific method, man’s economics cannot see or discover inexorable economic relationships as revealed within the Biblical paradigm.

Biblical Paradigm

      The Bible does not directly expound the principles of physics, chemistry, or even that of economics. However, it does provide the essential framework for the acquisition of economic knowledge and understanding that is necessary for man’s stewardship of the earth (Genesis 1:28).

      Three of the most significant paradigmatic premises for Biblical Economics are: (1) The Word of God is the foundation for all knowledge; (2) Man is a purposeful being endowed with volition and free choice; and (3) The Creator God has set in motion inexorable spiritual laws that govern human relationships to cause and produce all good (Deuteronomy 30:15-20).  From these premises and other scriptures, it can be seen that there is indeed a relationship between God’s spiritual laws, the Ten Commandments, and the economy (Psalms 1:1-3, Job 36:11).  The relationship is plain: obedience to the Ten Commandments leads to or causes individual and national prosperity.  These laws, if followed, produce attitudes and a way of life that cause harmony, social cooperation in the division of labor, and an environment for capital accumulation.  On the other hand, a society rife with rebellious children, murder, adultery and fornication, stealing, lying and coveting will find it difficult to form long-lasting productive relationships in a division of labor. The institutions and environment necessary for wealth creation will be poor and possibly unsustainable.

      Economic difficulties, then, are ultimately spiritual in nature.  This is vital, essential knowledge in understanding the root causes of 21st century economic problems.  Nevertheless, it is not sufficient knowledge.  Wise stewards, whether economists, government leaders, or average men and women, need knowledge of economic cause and effect.

      For example, would abolishing private property be an appropriate means to a more productive, efficient economy? Would protective tariffs or quotas be proper means to reduce a nation’s unemployment rate?  Would higher minimum wage legislation raise income for laborers?  Would increasing the quantity of money be a proper means for Federal Reserve policy to lower interest rates and thereby stimulate economic activity?

      Obviously knowledge of the Ten Commandments does not directly answer these and most other economic questions - questions a wise economist should be able to answer.  These are questions of economic cause and effect.  How can they be discovered?

Economic Principles

      The answer, in brief, is through logical deduction starting from the premise that mankind acts purposefully.  The Bible provides numerous examples that make plain the inappropriateness of empiricism or the scientific method when dealing with purposeful beings.  Specifically, the method for discovering economic principles is to start with the premise that man acts purposefully, then by the rules of logic deduce that B is true; if B then C; if C then D and so on.  No experimentation or hypothesis is needed to confirm these principles (B, C, D).  They are universal principles, true for all people at all times.

      Interestingly, a tradition of economics outside the fashionable mainstream has built their analysis on this premise of purposeful human action.   These economists have grasped the missing dimension of inexorable economic laws and lucidly expounded them.  We refer our readers to the works of Ludwig von Mises, Hans Sennholz, Murray Rothbard, Henry Hazlitt, Gary North and others available from the Foundation for Economic Education (e-mail: iol@fee.org).

Seven Great Economic Laws

      Let’s notice a few of these important laws of cause and effect, laws that command the heights of genius.

1.   Law of Comparative Advantage
Harmony and balance between producers and consumers is only attainable through market-clearing prices that reflect the actual supply of and demand for a particular product or service.                                                             

       2.  Say’s Law
            Supply creates demand; or better yet:  Saleable production creates its own Demand.

3.   Law of Comparative Advantage
Income or production is maximized when individuals and nation specialize in
producing goods and services in which they have a cost advantage, that is, in which
they are more efficient or profitable than other producers.

4.   Law of Employment
There is always work to be done but individuals must accept wages or salaries, including fringe benefits, which correspond to the market worth of their service to be employable.

5.   Law of the Quantity of Money
There is no economic benefit to be gained by increasing the quantity of money.  Prices and costs adjust to the available supply, namely:  more money, higher prices; less money, lower prices.

6.   Law of Time Preference
Mankind prefers a present good or satisfaction to the same good or satisfaction in the future. That is, time is valuable; it commands a price (interest rate).

7.   Gresham’s Law                                                                                               “Bad” money drives “good” money out of circulation.  A better definition is: Money artificially overvalued by government will drive out of circulation artificially undervalued money. (Remember our silver coins that disappeared in the early 1960s?)

       To achieve economic prosperity and success, these laws must be learned and followed.  Otherwise, our leaders will be frustrated in their attempts to find solutions to contemporary economic problems.

       For example, from these laws we know that persistent shortages and surpluses are the consequences of legal price ceilings and legal price supports, failing to obey the Law of Supply and Demand. Price inflation and business cycles are the consequence of ignoring the Law of the Quantity of Money.  Unemployment is a consequence of minimum wage laws that violate the Law of Employment.  Lower standards of living can be a consequence of protective tariffs and barriers – failure to get in step with the Law of Comparative Advantage.  Government deficit spending to create demand and thereby restore unemployment is counterproductive; it contradicts Say’s Law. Loss of American silver coinage in 1964 was the consequence of ignoring Gresham’s Law.

      Clearly, it is knowledge of economic law that makes it possible for man to understand how to achieve a prosperous, dynamic, and progressing economy free from inflation, chronic unemployment, and boom and bust cycles.  Surely it is exciting, essential knowledge.

Conclusion

       Modern day economic analysis has a knowledge gap – a gap consisting of two missing dimensions.  There exist immutable moral and economic laws even though unseen and unattainable through man’s paradigms.  These laws are the basic tools for resolving contemporary economic dilemmas.

      James Buchanan is right.  Without these simple principles one only makes noise under the illusion of speech!

____________

 1James Buchanan, What Should Economists Do? (Indianapolis: Liberty Press, 1979),             p.20.
2For example, a major accomplishment of economic forecasters has been to make fortune
        telling seem like a science! 
3Thomas S. Kuhn, The Structure of Scientific Revolutions, (Chicago: University of Chicago
       Press, 1962).

    

Return Home - Top of Page

Sign My Guest book |  View My Guest book |  Contact Me

/\
Site Designed by JM Web Designs © 2000 BU - Economic$ Department
All Rights Reserved