Religion without economics? Impossible. The world is so constituted that it does not allow religion to be without economics.
There are only two possibilities: Either religion offers an integral view of the economic life that is consonant with its own principles or economics becomes a secular religion. Tertium non datum, there is no third way. The world abhors a vacuum. The bull-in-the-China-shop world of economics is too overbearing and vital to be left without a sense of purpose.
What we have today is economics as a religion, a secular religion. This expression is not to be understood as metaphor but an objective description of reality. One can indeed find as summum bonum in modern economics the goal of “profit maximization”; one can find many objects of worship, “things” and consumer goods; and gold, of course, is the supreme object of idolatry. The very foundation of modern economics, the proposition that saving equals investment is a dogma: There are many rationalizations, but no convincing explanation for it. This is not an idiosyncratic interpretation. It is a rather widespread conviction (see esp. Lutz 1990; Nelson 1993 and 2001; Foley 2006).
How can this be, when it is common knowledge that economics is “the hardest of the social sciences”? The reason can be found in a hard truth: Modern economics is not a science but an ideology, a secular religion indeed. It bears repeating. Modern economic theory has been in a state of crisis ever since the publication of Adam Smith’s Wealth of Nations in 1776. What else do major upheavals in the history of economic theory since then signify? Philip Pilkington has nailed this complex issue down: “Mainstream economics moves forward not through logical development and integration, but through forgetting.”
A tool does not a science make. The laws of supply and demand, without guidance from a science of economics, do not have a specific field of operation: they are indiscriminately applied everywhere. And consistently yield the same result: One analyst concludes that the trend is growing; another that the trend is decreasing; still another finds a static trend.
Modern economics is a religion, rather than a science.
All this explains much of the unhappy state of affairs of our present economic conditions. Can anyone deny that for too many people, worldwide, the situation is so hopeless and so desperate as to be indescribable and that ever more menacing clouds are gathering thick on the horizon?
Faced with problems of such magnitude, the question is: What to do? The challenge, a challenge that falls on the shoulders of all religious people in general and the shoulders of the Catholic Church in particular, can be met by assuming this basic strategic posture: The Church has to be firmly convinced of the superiority of her deep economic values—as against the hasty granting that “the Church has no (economic) models to present” (Centesimus Annus # 41). This conviction can be acquired by regaining cognizance of her own historical tradition. From Aristotle to the Doctors of the Church, there was a unity of thought represented by the fusion of economic theory and policy into the doctrine of economic justice. The Church will be steeling herself in this posture by becoming aware that modern economic theory has plunged into a widely recognized state of crisis and that this crisis is due to the fact that, contrary to accepted wisdom, modern economic theory is composed of much glitter and very little substance. Indeed, the hope is that by rediscovering the validity of her own true steadfast position, the Church will help economic theory overcome its own internal crisis.
AN ASSESSMENT OF THE BATTLE GROUND
As pointed out, the posture to be assumed by the Church has two intertwined component parts: the recognition of her opponent’s weaknesses and, correspondingly, the recognition of the strengths of her own positions.
Recognition of the Weaknesses of Modern Economic Theory
Looked at from the outside, modern economic theory appears to be an impregnable fortress; indeed, it appears to be so impregnable that very few even consider the possibility of laying siege to it. To the largest majority of the people, within and without the economics profession, the better part of valor is to leave economic theory well enough alone. Is not its structure based on mathematical reasoning that is unexceptionable and unassailable?
That is indeed the glitter. Hear what a responsible economist, Alan Blinder (1999), a professor of economics at Princeton and a former vice-president of the Federal Reserve Board, has to say about mainstream economics: "...too much of what young scholars write these days is 'theoretical drivel, mathematically elegant but not about anything real.'" If one listens carefully to mathematicians and natural scientists one hears worse things. One hears grumbling about the very math used by economists; they call it "funny math." An echo of this grumbling can be heard even within the hollowed chambers in which discussions about the Nobel Prize in economics are held. In fact, the Nobel Prize in economics is kept strictly separate from the Nobel Prize in other disciplines.
These are not isolated outbursts. Impressive as its structure is and forbidding as its techniques are, beyond all refinements in the state of the art, most economists admit to the basic limitations of modern economic analysis; not only that, they also admit that economic theory has plunged in a state of crisis at least since the publication of Keynes’ General Theory in 1936. “What did Keynes say” is a question that has plagued the profession ever since. Three of the most recent recognitions of the crisis span the arc from acknowledgment of the limits of mainstream economics (Mankiw 2006) to criticism about the relevance of mainstream economic theory (Manicas 2007) to the belief that economic theory has improved and that it is expected to improve over time (Warsh 2006). The most consistently crushing criticism can be found in Brady (2004a, 2004b, and 2006). A steady barrage of fairly accessible criticism emanating from universities scattered in the four corners of the world can be found in the pages of The Real-World Economics Review (it was first called Post-Autistic Economic Review), a publication that is available at www.paecon.net.
There are deep reasons for this crisis. As one goes under the awe-inspiring structure of mainstream economic theory, one finds it to be based on a set of balancing contradictions (Gorga 2002 and 2009, p. 31). Indeed, one finds that not one of the major component elements of that structure respects any of the fundamental principles of logic (ibid., pp. 41-4, 51-7, 79-118, 139-153). Clearly, modern economic theory stands in need of a major overhaul. As the weaknesses of the theory are all of a logical nature, so the work of reconstruction is all based on logic.
Toward the Logical Reconstruction of Economic Theory
In 2006, this writer cast a look backward deep into history while using a framework of analysis he had developed with powerful assistance from many minds, notably among them Professor Franco Modigliani, a Nobel laureate in economics at MIT, whose help was graciously proffered for twenty-seven years. The writer should have not been surprised. Yet he is still shocked by the discovery that Christian economists have an enormous advantage. They have a succinct text from which to start their analysis, the Parable of the Talents; and, since this text is widely known, there is no innate monopoly privilege there. Indeed, since the meaning of this text is open to non-economists as well, everyone can use it. If we unpack the Parable of the Talents and transform it into a mathematical equation, we obtain:
Investment = Income – Hoarding
or, in plain English, once necessary expenses for consumer goods are taken care of, Investment (I) can be defined as Income (Y) minus Hoarding (H). These relationships appear clearly, if we call for help from geometry and obtain this configuration:
Figure 1. The Investment-Hoarding Nexus
This figure tells us that, at any one instant, the more investment, the less hoarding—and vice versa. Obviously, more investment, more economic growth and (given the right conditions) less poverty.
If we bring this equation to its logical consequences, whether through direct exercise or going to a book (Gorga 2002 and 2009, pp. 23-158), we obtain the equivalence of Production to Distribution to Consumption. This is the central finding of Concordian economic theory, a new framework of analysis that, as we will see, extends itself to cover in a seamless web economic theory, policy, and practice. The geometry of this construction (Ibid., pp. 36, 163, 314) is synthesized in this figure:
Figure 2. The Economic Process
This figure reads as follows. When real goods and services pass from producers to consumers, money and other monetary instruments of an equivalent value pass from consumers to producers. Then one cycle of the economic process is completed—and it is accompanied by the silent exchange of values of ownership rights over monetary and real wealth. Both money and goods change hands—just as in the sale of a car. There is much that can be said about this construction. In this context, it might be sufficient to specify only one characteristic. The figure makes it abundantly clear that if people do not have money, they cannot buy the goods and services that are available for sale in the market. A producer—and the owner of capital—can make a penny only on the sale of goods and services. Problems of fair distribution of income and wealth, therefore, ought to be of intense interest not only to do-gooders but especially to the producers of wealth. When producers of wealth pay pittance to their workers or, worse, when workers are substituted with machines, the very source of income for the producer is cut at its source. Is not this the central message of such powerful thinkers as Monsignor Ryan, G. K. Chesterton, and Hilaire Belloc—or Henry Ford, for that matter?
A proper understanding of the inner workings of the economic system cuts many ongoing discussions to the chase. And the outcome paves the escape route from heated controversies that form the heart of the current crisis in mainstream economic theory. There is enough energy in this framework of analysis to release the grip of the schools over economic theory: Supply-Siders, Institutionalists, and Demand-Siders will eventually recognize that at best they each represent one aspect of the economic system; it is all three of them together that, mutatis mutandis, represent the entire system. At the same time, the advantage of this construction is that it shatters the illusory world of the “funny math” of economics and allows economists to adopt techniques that are current in modern scientific and engineering circles. In stylized form, the math of the new construction, adapted from Thompson (1986, p. 36), is as follows:
p• = fp(p,d,c)
d• = fd(p,d,c)
c• = fc(p,d,c)
p• stands for rate of change in total production
d• for rate of change in the values of distribution of ownership rights
c• for rate of change in total expenditure or consumption of monetary values.
This formula describes the operation of three intercompenetrating spheres, which become clearly visible once each rectangle in Figure 2 is rotated at ever increasing speed about its geometric center. We then obtain images of circles. And what is a circle if not a two-dimensional image of a sphere? The sphere of the values of production (p) of real goods and services moves in conjunction with the sphere of values of distribution (d) of ownership rights and the sphere of consumption (c) of monetary instruments to form the economic process. The movement is non-Newtonian; as a referee of the Journal of Economic Theory recognized (Anon. 1991), this is indeed a “new analytic engine.” And, as can be seen, it works with very concrete entities. Lest any doubt remain in the reader’s mind, let us compare our formula with the “funny math” of modern economics: The soul of modern economics is the rationality of maximizing utility; the goal of modern mathematical economics is to measure utility. This is a program of research that runs into stumbling blocks at both ends. A Mother Teresa, just like any common mother, does not want to maximize utility; and no one has yet precisely defined the difference between two utils (the measure of utility) or what utility is.
But perhaps more than for its understanding of the present, the right economic theory is important for the understanding that it provides of our past history and for its guidance in addressing the future.
TOWARD THE RECAPTURE
OF THE TRADITION OF ECONOMIC JUSTICE
The transmission belt that for millennia carried economic theory into economic policy is the doctrine of economic justice. While remaining astonishingly constant from Aristotle to the Doctors of the Church (see, e.g., Wood 2002, p. 83), this understanding allowed for continuous adaptations to the circumstances of the moment. The doctrine of economic justice was divided into two planks: distributive justice and commutative justice. Distributive justice guided rules and regulations that govern the division of wealth as it is created; commutative justice guided rules and regulations that govern the transferal of wealth between buyers and sellers at the moment of the exchange. While the Doctors of the Church left much room for discretion in the determination of distributive justice to the parties involved in the economic process, they reached a firm and revolutionary conclusion about the dictates of commutative justice. The commutation of wealth, namely the exchange, occurs in accordance with principles of justice, they discovered, only if it reflects a free market price: a price determined in a market that is not dominated by either governmental or private monopolistic forces (see, e.g., Schumpeter 1954, pp. 98-99).
While this formula appears simple, it envelops great complexities. With it, the Doctors of the Church unified the social requirements of freedom with those of morality in economics; and it was the exercise of morality that yielded freedom. The application of this formula created the essential conditions for the enterprise system to be as free as it could be at the time.
Over time, this ordered set of priorities was twisted around and its power dissolved. Through insistence on unfettered economic freedom, the unity of freedom and morality was shattered and the doctrine of economic justice was lost in the fog of time.
Truth to tell, the dissolution of the doctrine of economic justice was facilitated by the fact that it was never presented with a visible head, the third plank of participative justice that completes the construction. People with direct or indirect access to land and natural resources participated in the economic process as a matter of fact through well-established privileges and as a consequence of unspoken sets of rights (indirectly, access to land and natural resources was secured through the commons: for millennia the safety valve to preserve the dignity of the poor). Hence, it never occurred to Aristotle or any of the Doctors of the Church to make explicit the requirements of a third plank that might be called participative justice (Gorga 1999, 2007). For a great variety of reasons, those conditions are no longer in existence. Today, one has to beg in order to participate in the economic process. And if one does not take part in it, one is marginalized; one is shunted to the margins of society (see, e.g., Centesimus Annus ## 33, 58). Hence the plank of participative justice, as it is increasingly recognized from many quarters, must be explicitly formulated. When participative justice is added to the other two planks, the doctrine is completed and transformed into the theory of economic justice. Once that is done, one is presented with a construction that can be represented in this fashion:
Figure 3. Economic Justice
Figure 3 reads as follows. Participation in the economic process is a matter of justice, because only men and women who participate in the production of wealth are entitled to the distribution of ownership of a share of the wealth created through their participation. A just commutation of wealth, a just exchange, is implicit in the very distribution of wealth in accordance with one’s participation; but, of course, the principle of commutative justice extends itself to cover the exchange of wealth just created for other wealth existing on the market. It is in accordance with these objective principles that the pattern of distribution of current income and wealth is and ought to be determined.
Figure 3 is a mirror image of Figure 2. One can just as soon separate economic theory from economic justice as one can separate a person from her shadow. Given this condition, a minimum set of questions to be asked in the formulation and evaluation of any economic policy is this: Does the proposed policy favor participation in the creation of wealth? Does it allow for a fair distribution of the wealth thus created? Does it allow for a fair transfer of wealth from one person or group to another? Much could be said on these issues, but since much is already well known, we shall shy away from broad and elaborate discussions of these issues.
The wisdom of staying away from broad and elaborate discussions, however, does not necessarily require staying away from the specifics of the case. The specific question is this: How can we transfer the principles of economic justice into the complexities of the modern economy?
Classical economists specified that in order to produce wealth one needs these factors: land, labor, and capital—an item that today is better split into financial capital and physical capital. Accordingly, one needs to have access to all those factors in order to participate in the economic process. But, specifically, how can this be accomplished? If one follows the argument, one will unavoidably conclude that economic justice can be introduced into the modern world through the following sets of economic rights and that these rights can be secured only through the exercise of these corresponding economic responsibilities (see Gorga 1999):
1. We all have the right of access to land and natural resources; we all the responsibility to pay taxes for the exclusive use of resources that are under our command, because the resource is a common good and paying taxes is a way of compensating the community for the exclusion of the use of that land. In addition, paying taxes on the land is the only certain way to reduce hoarding of the land and gradually making it affordable for other people who would till that land. Ultimately, this is a just tax because capital appreciation of the land is largely due to community efforts. The commandment not to hoard land is the core of the Mosaic Jubilee and it is expressed this way by the Prophet Mohammed (Chapra 1985, p. 85): “Let him who owns land cultivate it himself, and if he does not do so let him have his brother cultivate it.” The Arapaho American Indians put this commandment this way: “Take only what you need and leave the land as you found it” (Zona 1994, p. 88).
2. We all have the right of access to national credit for capital formation; we all have the responsibility to repay such loans. National credit is the second and last great common good. Implementing this policy will accomplish a large number of goals: it will foster entrepreneurship and creative capitalism; it will gradually eliminate the stranglehold of the few on the process of capital formation; it will reduce mutual East/West suspicions and increase common understanding regarding such Islamic practices as microfinancing and equity investments.
3. We all have the right to the fruits of our labor; we all have the responsibility to offer services of value equivalent to established compensation. Beyond a “living wage,” the duty of the employer is to share with the worker the value of capital appreciation of the firm. Only then will the reward between labor and capital be equalized. An employer who cannot afford a living wage and a fair division of the capital appreciation of the firm among all employees in accordance with the value of their participation in the production of wealth has no right to be in business. The stagnation of wages in the presence of increased productivity so prevalent after the 1970s is a major example of ongoing injustice.
4. We all have the right to protect our wealth; we all have the responsibility to respect the wealth of others. This right is fully understood and practiced today, except in the area that counts most: the trustification process. This is the process of mergers and acquisitions of entire firms. Only one point can be made in this context. The trustification process ought to be brought under public control, because if the public does not control the large corporations, the large corporations control the public interest. What needs to be controlled is, not the process of internal growth, but the process of growth-by-purchase of entire corporations. This policy will not impinge upon the freedom of the firm. Internal growth can reach the sky.
These four economic rights and responsibilities, lodged in the same person at the same time, can be exercised by anyone who does not only want to receive economic justice, but also wants to grant economic justice to others. Indeed, these are the essential conditions for the establishment of economic justice, as well as the establishment of a free enterprise system, in the modern world. As a consequence of the dynamics of the implementation of these four marginal changes in our current practices, economic freedom will gradually be expanded to embrace all who want to subject themselves to the rigors of the economic process—and then the few remaining hard cases can be easily taken care of by charity.
Somewhat more detailed analyses of this program of action are presented in Gorga (1959, 1964, 1987, 1991, 1994, 1997, 1999, 2002, 2007, and 2009). More extensive treatments can be found in the writings of Benjamin Franklin, Henry George, Louis D. Brandeis, and Louis O. Kelso—with their works, necessarily all their works, read in rapid succession and not any of them as a stand-alone effort. Individually, the policies of these four American giant thinkers do not stand; joined together, however, they form an unassailable fortress. Ultimately, it was a poet, Vincent Ferrini (2002), who caught the essence of economic rights and economic responsibilities by identifying their ability to provide “the answers to universal poverty and the anxieties of the affluent.”
The seed of a sane and sound economic theory and policy, which is based on the clear condemnation of hoarding and monopolism, is all enclosed in the Parable of the Talents. That seed blossoms into a call for the creation of an economic system that is neither an unqualified condemnation—or acceptance—of capitalism nor a cry for socialism. It simply is a call to have the free enterprise system truly free; it is a call to run the economy to the tune of justice. This is a call that can be heard loud and clear once the great social encyclicals of the Catholic Church are interpreted shunning aside all transient political passions of the moment (see esp. Rerum Novarum ## 3, 4, 25, infra; Quadragesimo Anno ## 3, 10, 14, 15, 25, 44-50, 57, 88, 101-123, 128, 131-136; Centesimus Annus # 5, infra; Laudato Si' # 106, infra).
The achievement of a just economic system is a clarion call for Christians. If Christians do embark upon this road, they will discover that they are not alone in such a quest. Most religious people, and many irreligious ones as well, are walking along parallel paths. Isolated we are all destined to fail; united, Christians and non-Christians alike, we might become unstoppable.
It is all so simple and so clear. God could have not abandoned His people to exploitation from the quick and the sharpies—the “wicked” of Psalms 10:2 and 37:14 (see Gorga 1998). Straightforward reasoning as well as revealed religion contains forceful marching orders which can be neglected only at one’s own mental and spiritual peril.
Concordian economics has been in the economics literature for a long time now (see esp. Gorga 1982, 2008, 2012). The Economic Process (2002 and 2009) was annotated in the December 2002 issue of the Journal of Economic Literature, a few months after it was published. For all reviews of this book, see A New Economic Atlas.
It is only through a systematic application of economic justice that the promise of social justice can ever be fulfilled. Entitlements, recognized as essential to living a dignified life, will be paid for, not through a redistribution of other people’s wealth, but through a fair distribution of the wealth that we create.
Anon., “Referee Report, ‘The Dynamics of the Economic System,’ by Carmine Gorga.” Journal of Economic Theory, # 91297 (1991).
Blinder, A., Quoted in "Students Seek Some Reality Amid the Math of Economics," by Michael M. Weinstein, The New York Times, September 18, 1999, pp. A17, A19.
Brady, M. E., Essays on J. M. Keynes and… (Xlibris Corporation, 2004a).
Brady, M. E., J. M. Keynes’ Theory of Decision Making, Induction, and Analogy (Xlibris Corporation, 2004b).
Brady, M. E., The Applied Mathematics of J.M. Keynes’ Theory of Effective Demand in the General Theory (Xlibris Corporation, 2006).
Chapra, U. M., Towards a Just Monetary System (Leicester, UK: The Islamic Foundation, 1985).
Ferrini, V., “Gorga worthy of note”, Gloucester Daily Times. December 11, 2002, p. A6.
Foley, D. K., Adam’s Fallacy: A Guide to Economic Theology (Cambridge, MA/ London, UK: Belknap Press of Harvard University Press, 2006).
Gorga, C., A Synthesis of the Political Thought of Louis D. Brandeis. Graduation Dissertation University of Naples (1959).
Gorga, C., "Not Simply a National Fund, but a Stabilization and Development Fund”, Mondo Economico 19, 14 (1964) 14-16.
Gorga, C., "The Revised Keynes' Model," Atlantic Economic Journal, Sept. 1982, 10 (3) 52.
Gorga, C. and Kurland, N. G., “The Productivity Standard: A True Golden Standard,” in Every Worker An Owner: A Revolutionary Free Enterprise Challenge to Marxism, D. M. Kurland ed. (Washington, DC: Center for Economic and Social Justice, 1987).
Gorga, C., "Bold New Directions in Politics and Economics," The Human Economy Newsletter, 12, 1 (1991) 3-6, 12.
Gorga, C., "Four Economic Rights: Social Renewal Through Economic Justice for All,” Social Justice Review 85, 1-2 (1994) 3-6. This article is reprinted in the Chester Belloc Mandate blog (January 10, 2008).
Gorga, C. and Weeks, S. B., “Fisheries Renewal: A Renewal of the Soul of Business,” Catholic Social Science Review 2 (1997) 145-161.
Gorga, C., “The Creators of Poverty,” Symposium, Gloucester Daily Times, December 18, 1998, p. A10. Reprinted at http://www.carmine-gorga.us/id34.htm.
Gorga, C., "Toward the Definition of Economic Rights,” Journal of Markets and Morality, 2, 1 (1999) 88-101.
Gorga, C., The Economic Process: An Instantaneous Non-Newtonian Picture (Lanham, MD. and Oxford: University Press of America, 2002 reissued in expanded paperback format in 2009).
Gorga, C., “Economic Justice,” in Catholic Social Thought, Social Science, and Social Policy: An Encyclopedia (Lanham, MD: Scarecrow Press, 2007).
Gorga, C., “Concordian Economics: Tools to Return Relevance to Economics,” Forum for Social Economics, 2009, vol. 38, issue 1, pages 53-69.
Gorga, C., “Reconciling Keynes and Hayek through Concordian Economics: A Revolution from the Center”, International Journal of Applied Economics and Econometrics, Part 5 of the Special Issue on J.M. Keynes, Vol. 20, No. 3, July-Sep 2012, pp. 358-387.
Keynes, J. M. (1936) The General Theory of Employment, Interest, and Money, NY: Harcourt.
Lutz, K. (1990) Adam Smith’s Mistake: How a Moral Philosopher Invented Economics and Ended Morality, Boston, MA and London, UK: Shambala Publications.
Manicas, P. T., “Endogenous Growth Theory: The Most Recent ‘Revolution’ in Economics,” Post-Autistic Economics Review 41 (2007) 39-53.
Mankiw, N. G., “The Macroeconomist as Scientist and Engineer,” Journal of Economic Perspectives 20 (2006) 29-46.
Nelson, R. H., Reaching for Heaven on Earth: The Theological Meaning of Economics (Lanham, MD: Rowman & Littlefield Publishers, 1993).
Nelson, R. H., Economics as Religion: From Samuelson to Chicago and Beyond (University Park, PA: Pennsylvania State University Press, 2001).
Schumpeter, J. A., History of Economic Analysis (NY: Oxford University Press, 1954).
Thompson, J. M. T., Nonlinear Dynamics and Chaos, Geometric Methods for Engineers and Scientists (New York: Wiley, 1986).
Warsh, D., Knowledge and the Wealth of Nations: A Story of Economic Discovery (New York: Norton, 2006).
Wood, D., Medieval Economic Thought (Cambridge, UK: Cambridge University Press, 2002).
Zona, Guy A., The Soul Would Have No Rainbow if the Eyes had no Tears – and Other Native American Proverbs (N.Y: Simon and Schuster, 1994).
ABOUT THE AUTHOR
Carmine Gorga, president of The Somist Institute, is a Former Fulbright Scholar and recipient of a Council of Europe Scholarship for his dissertation on the “Political Thought of Louis D. Brandeis,” Using age-old principles of logic, he has founded Concordian economics, Somism, and Relationalism. Dr. Gorga has fundamentally transformed the linear world of economic theory into a relational discipline in which everything is related to everything else—internally as well as externally. He was assisted in this endeavor by many people, notably for 27 years by Professor Franco Modigliani, a Nobel laureate in economics at MIT, and 23 years by Professor M. L. Burstein, a professor of economics at York University. Mr. Gorga is the author of numerous publications, including The Economic Process: An Instantaneous Non-Newtonian Picture, 2002, a book that was reissued by The University Press of America in an expanded paperback edition in 2009. For details, see the Carmine Gorga website. At times, he blogs at New Economic Atlas and Modern Moral Meditations.