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How Economics Can Be Seen as Religion - Samuel Brittan _ Financial Times 15

How Economics Can Be Seen as Religion - Samuel Brittan _ Financial Times 15

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5/6/08 1:21 AMHow economics can be seen as religion - Samuel Brittan : Financial Times 15/08/02Page 1 of 4http://www.samuelbrittan.co.uk/text121_p.html
 
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How economics can be seen as religion
Samuel Brittan: Financial Times 15/08/02
 
The decline of belief in material progress leaves a gap for those trying to grasp socialtrends, or advise on policy.
 Is economics a form of religion? Alas, it depends on what you mean by religion. Accordingto the 1990 edition of 
The Dictionary of Christianity in America
: "If belief in a god isnecessary to define a religion, secular humanism does not qualify. If on the other handreligion, or a god, is defined as one's ultimate value, then secular humanism is a religion."The US Supreme Court has tended to follow the second definition. Mainstream economics isundoubtedly a form of secular humanism. I should prefer to call it an ideology. But it isfoolish to argue over definitions and the best recent study of the subject by Professor RobertH. Nelson is entitled
 Economics as Religion: From Samuelson to Chicago and Beyond 
(Pennsylvania State University Press, $35).I was myself brought to see that economic teaching involves an over arching stance, morethan it does hard scientific results, when some years ago I conducted a questionnaire studybased on multiple choice questions given to students. Nearly all the correct answers involveda policy stance and very few a simple prediction akin to that in elementary physics. Nelsoncame to this realisation when he worked as an economist for the US Department of theInterior and he found much of his time taken up by a "theological" battle betweeneconomists and environmentalists. The economists were certainly prepared to give someweight to environmental effects, but nevertheless espoused economic growth. The ultra-environmentalists, such as Bruce Babbit, Secretary of the Interior under Clinton, saw theworld as an ecosystem in which every single species had to be preserved, as an instance of God's creation.When I mentioned this subject to some of my colleagues, they had no doubt that economicswas a form of theology. By this, they had in mind the heresy hunting, fierce insistence ondoctrinal purity and anathematising of dissenters so characteristic of religious argument.Prof. Nelson, however, takes theology seriously and does not use it as a term of abuse. Hismain point is that the overriding beliefs that have guided economic thinking in the secondhalf of the 20th century are losing their potency. But a new foundation has still to be found.He starts off with a paradox. Economists of varying stripes assume that individuals willpursue their self-interest in the market and that this can be made to work to the generalgood. But there is a problem. "The pursuit of self-interest should not extend to the variousforms of opportunism, such as cheating, lying and other types of deception,misrepresentation and corruption within the market place." Nor should it extend to politicalopportunism, that is attempts to use government to extract benefits from others, to protect aparticular firm or groups of workers. Moreover property rights, contracts and other legal
 
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arrangements need to be fairly and consistently enforced. We hardly need reminding of thesecaveats after recent corporate scandals, let alone the disappointing attempts to introduce amarket economy into the former Soviet Union. But how can we produce a faith which willapprove of self-interest, yet observe all the surrounding conditions and qualifications?Nelson takes the surprisingly fruitful approach of looking at the doctrines of the leadingAmerican textbook that appeared after World War II, namely Paul Samuelson's,
 Economic Analysis
. Nelson has no difficulty in showing that Samuelson's text was founded in the USprogressive tradition. He believed that the market, subject to suitable correctives, could beused as an instrument for social progress. Unfortunately, it was difficult to persuade non-economists, even of the same political persuasion, to see it that way; and there was someresistance among some economists themselves, more in Europe than in the US.Samuelson, especially in his early editions, was not free from political bias. He was eloquenton the evils of private enterprise monopoly, but low key on the effect of unions andminimum wages. For such reasons my own Cambridge tutor was not keen on the book. But,like so many other students, I was attracted to it because -- unlike texts with titles such as
The Theory of Price
-- it gave prominence to the policy problems which made the headlines.It was like starting physics with atomic theory rather than with Newton's laws of motion.Even though the majority of students probably regarded the book as a pleasant, if long-winded, way of preparing for examinations, nevertheless the message seeped through. It hadprobably a greater effect on mind sets among American than European readers. Althoughfew business or professional people harangued their friends with the doctrines of Samuelson,they probably had a more lasting influence on the sort of people who become FederalReserve or IMF economists, or who advise presidents. Their belated culmination wasprobably the Washington Consensus of the early 1990s, in which economists who had spentdecades fighting "free market fundamentalism", nevertheless proclaimed to emergingcountries the need for liberalised trade and capital movements, private ownership and theremoval of controls and restrictions.Samuelson makes clear his allegiances in his "valediction" to the 1998 50th anniversaryedition of his textbook. He there quotes from a famous paper of Lord Keynes (which Idiscussed in my column Economic Possibilities for our Grandchildren on January 2), wherehe looks forward to a society where people concentrate on the true values of life and placethe accumulation of wealth in its appropriate subordinate place. The paradox is that to get tothis nirvana, the forces of self interest and even greed have still to be used. And even if theyare no longer indispensable in a wealthy country like the US, they still have an essential roleto play for two thirds of the world's population still mired in poverty.By the mid-1970s, the Samuelson approach was under challenge from the Chicago School.One problem about assessing Chicago is that it never produced a single text equivalent toSamuelson's. The advocacy of its best known member, Milton Friedman, of certain monetarypolices, gave a misleading impression. The main effort of Chicago academics, on whomFriedman drew in his popular writings, was devoted to analysing sector by sector the effectsof government attempts to improve matters. They always managed to convince themselvesthat such efforts made matters worse. Regulators are all too easily captured by the industries
 
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they are supposed to regulate; and in any case in a slow and subtle way the market oftendevelops its own correctives.They were helped by the dogma that their subject had nothing to say about value judgments:if private negotiations to compensate those who had been injured by some pollutingdevelopment led to an efficient solution, then economics had nothing to say about theresulting effects on the distribution of income. A further strand to the Chicago analysis arosefrom the theoretical analysis of the effects of politicians who were guided by their own self interest, and who were more likely to provide support for particular interest groups than topromote the general welfare. Perhaps over-fancifully, Nelson sees the economic mainstreamas a Roman type of religion; and the Chicago school as a form of Calvinist dissent.Nevertheless the two sides had in common the use of the market in pursuit of efficiency.In the last decade or two, both the Social Democrat and the libertarian versions of marketeconomics have been challenged -- not just by traditional socialists or conservatives whodislike change -- but by a school of "new institutionalists", of whom the most prominentmember is the Nobel prize winner Douglass North. They pay a lot of attention to history andinstitutions: to questions such as why China has been more successful in moving towards amarket economy than Russia, despite greater Russian willingness to remove controls.The new institutionalists remind us that there is no shortage of markets or self seekingbehaviour in areas which have failed to achieve an economic takeoff, whether in West Africaor in southern Italy. What they lack in such places is the basis of trust and institutions whichwould enable them to make long-term contracts and refrain from Mafia-type raiding on eachother.This new institutionalism covers a great variety of approaches and has yet to coalesce into aschool. It ranges all the way from inserting some extra variables into mainstream economicequations to calls for a return to the traditional study of political and cultural history. [Butwhat has yet to be established is how people can come to see the value of self interest in itslimited market role while developing the institutions and constraints, which make it a forcefor good.]Nelson does not claim to have found a new faith which will resolve the paradox of self-interest. He pins his hopes on some mixture of environmentalism and libertarianism freedfrom the Chicago technical apparatus. Nelson's own avowed inspiration comes from FrankKnight, an inter war economist little known in Europe apart from one technical book fromearly in his career, but who was the true founder of the Chicago School and to whom itsmembers still pay lip service. Unlike his postwar successors he was highly sceptical of theeffects of economic growth in improving the human condition and also of the use of scientific method in any of the so-called social sciences. His core belief was in humanfreedom. A student once succeeded in getting his money back because he had devoted alarge part of his classes to an anti-Catholic harangue instead of his official subject.At this point one needs to go slowly. Nelson summarises the prevailing economic religion of the second half of the 20th century as the pursuit of economic efficiency. By this he seems tomean two rather different things. First, he means rationality in the sense of choosing the least

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