HISTORY-ECONOMIC THOUGHT 125 (001) (Fall 2020)

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THE KARMA THEOREMS Craig B. McLaren University of California, Riverside

“Give and it will be given to you… For with the measure you use, it will be measured to you.”

Luke 6:381

1) Introduction Since publication of Adam Smith’s Wealth of Nations, political economists have been fascinated by his notion of the invisible hand. It has been popular to interpret the first and second welfare theorems as indicating that self-interested behavior on the part of individuals enhances aggregate wellbeing. The theorems of course say only that such behavior will produce a Pareto efficient distribution of goods and services. Frank Hahn is quick to remind us that any “claim to this efficiency for any actual economy would be a singularly weak claim in an argument designed to persuade us that the economy is also in some sense to be morally approved”2. The weakness in the connection between self interested behavior and aggregate wellbeing derives from how economists have traditionally interpreted “utility”. One might intuitively presume that the term “utility” as used in the definition of Pareto efficiency refers to wellbeing, per the thought of by Jeremy Bentham. In Bentham’s view however, utility was a philosophic principle by which laws could be judged3. The utility, which individuals are assumed to maximize is a completely different concept. As introduced by Wm. Stanley Jevons, the utility that one maximizes was understood to be psycho-physiological stimulus to which agents respond4. Since Paul Samuelson’s Foundations of Economic Analysis Utility has been seen by many as a mere formalism, a “hypothesis that places definite restrictions on demand functions and price- quantity data”5. Since such abstract formalisms are devoid of welfare implications, we have no basis for asserting that a Pareto superior allocation is more welfare enhancing than one inferior to it. We may say only that it is “better” when judged according to the objectives pursued by the agents themselves. Scholars such as Pattanaik6 and Sen7 have pointed out that individuals do not always choose alternatives that enhance their wellbeing. Not only might they not understand which option is most welfare enhancing; there are numerous reasons why they might reject it even when its nature is known.

1 Bible, NIV (1985) p.1550 2 Hahn (1973) p.4 3 Warnock (2003) p.4 4 See Blaug (1996) p.293 5 Samuelson (1961) p.92 6 See Pattanaik (2009) 7 See Sen (1987)

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The welfare theorems may thus be as profound in what they do not say as in what they say. The welfare theorems tell us only that, for good or ill, markets will efficiently hand us the fruits of our own decision-making. They take no responsibility for insuring our welfare. This insight is not at all new. It is implicit in the works of those who first began to speculate on economic matters millennia ago. This paper will begin with a discussion of difficulties with the assumption that utility maximization necessarily determines individual choice or enhances well-being. It will conclude by revisiting those who founded our discipline, and who sensed the necessary partnership between positive analysis and moral philosophy.

2) Utility as it Originated With Bentham For a description of utility, we will turn to its author, Jeremy Bentham. Though his work is considered a bit antiquated, it still provides a canvas against which the objections of modern thinkers can be hurled. Bentham was a quintessential maverick; one who challenged the authority of lawmakers, and helped found the University of London as a haven for academics at odds with the Church of England8. According to Cambridge Scholar Mary Warnock, Bentham was indeed one of the first to challenge the validity of law from an ethical standpoint. His project was to found a system of “scientific jurisprudence”. This would require a criterion by which an observer could evaluate the performance of an institution. Warnock, in her introduction to a volume containing Bentham’s Introduction to the Principles of Morals and Legislation9, points out that his life’s work was twofold: He was concerned first with providing a theoretical foundation for legal systems, and second, with criticizing existing systems in light of that foundation. “In practice, this programme amounted, in large measure, to a testing of existing systems of law by the criterion of the ‘principle of utility’ “10. This principle was inspired by a maxim found in Joseph Priestley’s Essay on Government. Priestly regarded government as “good” if it provides “the greatest happiness for the greatest number”11. As his interest was in a theory of government, not of individual behavior, Bentham was not interested in explaining why an individual might behave in such a manner; only how such a behavior might impact the well- being of others and thus be of concern to lawmakers. Bentham would have defined the action of an individual intent on improving his own happiness at the expense of society, as “mischief”, the opposite of utility12. Bentham begins his Principles with a flamboyant depiction of mankind forever chained between the pillars of pleasure and pain13. His style leads one to believe that his concept of utility is both simpler and more sensual than he actually intends. He spends the entirety of Chapter 5 of his Principles describing the different aspects of utility, which he defines as “interesting 8 See Warnock (2003) 9 Bentham (2003) p. 45 10 Warnock (2003) p.4 11 Warnock (2003) p.1 12 Warnock (2003) p5 13 Flamboyance consistent with having his remains preserved by a taxidermist to be ever present at board meetings at the University of London.

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perceptions”14 of various pleasures, and the absence of their opposing pains. The pleasures he describes can be grouped into Physical Satisfactions, and Psychic Satisfactions as shown in Figure 2-1. The physical satisfactions can be broken into additional categories that include Satisfaction of Wants, and Bentham’s Pleasure of Relief. The satisfaction of wants include Bentham’s Pleasures of Sense; the gratification that follows from consuming food, entertainment and the like; and the Pleasures of Wealth15 which include the security one enjoys from possessing the means of insuring his own safety and comfort. Modern psychologists such as Abraham Maslow would regard this as satisfaction of a basic human need that goes beyond mere sensual experience16.

Figure 2-1) A Simplified Taxonomy of Bentham’s Utility Bentham’s Pleasure of Relief is an “interesting perception” indeed. It is the “pleasure which a man experiences, after he has been enduring pain of any kind for a certain time, when it comes to cease, or to abate.”17 This is a temporary experience, resembling what Sen calls the “small mercies” that the battered wife, the hopeless beggar, and the hardened unemployed enjoy.18 Sen questions the efficacy of such a transient sensation as an indication of the person’s long-term welfare. The Psychic Satisfactions are among Bentham’s more subtle pleasures. These can be grouped into three categories. The Pleasures of Thought, which include Bentham’s Pleasures of Good Memories, Pleasant Expectations of the Future, Pleasant Associations Between Objects and Past Happy Experiences, and Pleasures of the Imagination19. Among Bentham’s

14 Bentham (2003) 15 Bentham (2003) p. 45 16 Maslow (1943) 17 Bentham (2003) p. 47 18 Sen (1987) p.45 19 Bentham (2003) p. 47

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Psychic satisfactions his Pleasures of Benevolence, and Pleasure of Malevolence are of particular interest. Bentham’s Pleasures of Benevolence include the pleasure one obtains from the knowledge that one has acted compassionately or ethically. This of course relates to what Pattanaik refers to as ethical, as opposed to subjective, preferences20. As Ian Little put it: “one might prefer a distribution is that is more to his personal benefit; yet oppose policies leading to that distribution if he finds them unjust”.21 It is unclear to what extent either of these preference-types would be expected to influence either the agent’s choice, or her well-being. In order to make a choice, she would need to have a “preference over preferences”: Does she “prefer” to act according to self- interest or justice? Intuitively, one would expect the former “preference” to provide her greater well-being than the latter. The Pleasures of Malevolence are what one enjoys when seeing harm come to “one who is the object of the observer’s malevolence”22. This pleasure is one that might be derived from witnessing a public execution. For our purposes, we include Bentham’s Pleasure of Power, i.e. the “being in the condition to dispose people by means of their hopes and fears”23 among the Pleasures of Malevolence. From the preceding discussion, one can easily see how such perceptions can influence one’s decision making. One can also see how the experience of such sensations can often indicate the state of one’s welfare. Problems arise however when we presume that such always determine ones choices and well-being, or that they are the only determinants of such. If both such presumptions are made, the circumstance one is observed to choose must be taken as the one which best enhances his well-being. Should a man choose a greasy hamburger and an order of fried chips over a vegetable plate, an economist following Pareto’s lead24 would have to assume the burger and chips are the better option, although it is doubtful that a cardiologist would agree!

20 This distinction is taken from Harsanyi. see Pattanaik (2009) p.336 21 Little (1952) 22 Bentham (2003) p. 46 23 Bentham (2003) p. 46 24 To an addict, Pareto would regard morphine as economically useful, “even though it is unhealthful, because it satisfies one of his wants” . See Pareto (1971) p.111

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Figure 2-2 Utility contributes to both a consumer choice and his well-being but uniquely determines neither. The argument against this strict use of utility is shown diagrammatically in Figure 2-2. Maximization of utility is shown as contributing to both an agent’s choice and her well-being, but not uniquely to either. Pareto was among the first to criticize the notion that such perceptions imply well-being. Pareto dismissed utility as being “simple ophelimity”, a measure of an individual’s arbitrary passions. Amartya Sen carries that argument even further. According to Sen: “Well being is ultimately a matter of valuation, and while happiness and fulfillment of desire may well be valuable for a person’s well being, they cannot - on their own or even together - adequately reflect the value of well-being.”25 When utility maximization is taken as the sole source of one’s well-being, Pattanaik identifies two classes of problem: one of inclusion and one of exclusion. Problems of inclusion occur when the assumption of utility maximization would cause choices to be included that should not be considered as welfare enhancing26. An example would be pursuit of Bentham’s Pleasure of Malevolence. This can be seen as a special case of the pleasure one might derive from being “nosey”. In Collective Choice and Social Welfare, Sen asks if the welfare of an agent is really enhanced if his neighbor sleeps on his side as opposed to his back, should have such preference over ’s behavior27. Extension of this argument to the enjoyment one might obtain from discrimination against minorities is quite apparent. Pattanaik’s problem of exclusion occurs when the assumption of utility maximization might cause options to be excluded, which should be considered as welfare improving. An example Pattanaik

25 Sen (1987) p.46. See also Sen (1980 and 1985) 26 Pattanaik (2009) p.328-334 27 Sen (1970) p. 79

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discusses is the case where one may not prefer classical music if one is not so educated28. If one is deprived of opportunities to hear such music, are we to consider his loss of well-being the same whether or not he has been taught to appreciate such music? A less subjective example would be that of an aboriginal tribesman who has no access to, or knowledge of, western medical care. We would clearly regard such an individual as deprived, whether he was aware of his deprivation or not. Both Pattanaik and Sen comment on the need for a standard of well-being that is determined objectively by expert observers, rather than subjectively by the agents themselves. Sen’s version of such is a broadly defined set of capabilities that the individual may achieve. These include longevity, freedom from morbidity, access to education, and the like. While individuals may naturally desire capabilities such as longevity, the choices necessary for their achievement (such as the foregoing of fried chips) may not bring happiness to the individual in the short term. While it is now clear that utility, no matter how broadly defined, cannot be considered synonymous with well being, one might still argue that utility maximization is what drives an agent’s choices. Bentham’s Satisfaction of Wants and his Pleasures of Thought clearly motivate consumer behavior. Marketing managers have long recognized that Bentham’s Pleasures of Memory motivate one’s purchase of photographic equipment, while his Pleasures of Association motivate the purchase of souvenirs and memorabilia. Bentham’s Pleasure of Expectation is recognized by Revlon Co., which defines its business as selling “hope” rather than cosmetics29. To answer the question of whether utility is the only motive that drives a consumer’s choice, we compare what Bentham calls the Pleasure of Benevolence, to what Sen calls Commitment. If one could make the argument that people behave ethically because it gives them pleasure to do so (or pain in the form of guilt if they do not), then one might be able to assert that utility maximization is the sole motivator. Sen does not accept this. He leaves open the possibility for agents to make choices based on ethical commitment, which he defines as involving ”the counter-preferential choice”, of an option that is not “…better than (or at least as good as) the others for the person choosing it”30. Sen distinguishes between commitment and benevolence or sympathy. The well-being of a sympathetic person is directly impacted by the well being of another. For example, “If knowledge of the torture of others makes you sick, it is a case of sympathy; if it does not make you feel personally worse off, but you think it is wrong and you are ready to do something to stop it, it is a case of commitment.”31 If we allow for the possibility of committed behavior, we can no longer consider utility to be the sole determinant of an agent’s choices.

28 Pattanaik (2009) p.336-337 29 Kotler (1994) p.69 30 Sen (1977) p.328 31 Sen (1977) p.326

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3) Utility as it Descended From Jevons Consumer theory concerns itself with the assignment of economic value rather than measurement of well-being. Specifically, it is concerned with the means by which market values of goods and services are derived from the values assessed such by individuals32. Though the term theory of value is not often used in discussions of consumer or general equilibrium theories, it appears in the titles of several seminal papers on these topics33.

Equating value with a single, identifiable force that we may call utility is an artifact of history rather than a theoretical necessity. While Jevons gets credit for making such equation, it follows from assumptions made by John Stuart Mill. Mill’s hypothesis which has since come to be known pejoratively as homo-oeconomicus34 “considers [man] solely as a being who desires to possess wealth, and who is capable of judging the comparative efficiency of means for obtaining that end” 35. Mill was of course aware of, and emphatic about, the fact that this is a simplifying abstraction “…not that any Political Economist was ever so absurd as to suppose that mankind are really thus constituted, but because [the making of such assumptions] is the mode in which science must necessarily proceed”36. Some of his colleagues however were not so similarly enlightened37. It was a next logical step for Jevons to explain the thought process of wealth seeking in terms of his biomechanical model of utility maximization. The results of his theory however do not require that utility be interpreted in so strict a manner. The great contribution of the marginalist approach was of course its explanation of relative prices in terms of marginal changes in the values assessed goods by their respective traders. Utility could just as easily have been defined as the integral of marginal utility rather than vice versa38. All that is required of utility is that it represent assessed value in terms of a mathematical function, meeting the technical requirements needed to insure that the constrained maximization problem has a solution. The founders of the marginal revolution were not in agreement as to what utility actually was. Karl Menger and the French scholars, upon whom Leon Walras drew, held much broader notions of utility than did Jevons. Menger’s position was strongly influenced by Aristotle39. Menger defined use-value as “judgments economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well being40”. In Menger’s definition the key

32 The scholastics saw the process as bringing about a consensus as to the value of the goods considered. According to Bernadine of Sienna (1380 – 1444), “Price is a social phenomenon and is set not by the arbitrary decision of individuals but by the community.”32 The phrase communis aestimatio used of “community estimation” was used interchangeably by the scholastics with aestimatio fori or “market valuation”. See De Roover (1958) p.424 33 For example Hicks and Allen (1934a), (1934b), and Debreu (1959) 34 Mill (1874) pp.137-9 35 Mill (1874) pp.137-9 36 Mill (1836) 37 Nassau Senior is an example. He commented that “In short, it [the pursuit of wealth] is in political economy what gravitation is in physics…the ultimate fact beyond which reasoning cannot go, and of which every other proposition is merely an illustration.”. See Senior (1965) p.28 38 To be done in a concise and intuitive manner when multiple variables are involved, this requires the techniques of vector analysis as the author discusses elsewhere. See McLaren (forthcoming). 39 Hands (2001) p.39 40 Menger (2003) p.446

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term is “judgment”, implying that humans are homo-agens41, the purpose-seeking creature. External forces do not determine human behavior. From the time of the Physiocrats, French political economists avoided speculating about human motivation. Turgot commented: “I do not wish to investigate how pleasure and pain…influence the determination of the will. I merely say that we find in experience only one principle productive of movement, and that is that the will of intelligent beings is not primitively determined but determines itself.42” Paul Samuelson sought to banish utility from consumer theory entirely with his theory of Revealed Preferences. Though the consumer is “revealed” to have preferences over available alternatives, there is no need to know why she prefers one option to another. Consumer behavior is thus accepted as given, with no necessary connection to pleasure, happiness, or sensation. Humans pursue goals of their own choosing.

4) The Welfare Theorems and Classic Wisdom To the extent that such goals are considered to vary arbitrarily between individuals, the social implications of the welfare theorems are quite weak. If however, such goals are on average the product of a cultural consensus, the welfare theorems say that markets will reward a society with the fruits of whatever value system it holds, its “social karma”, so to speak. To a society that values instant gratification, the market will provide obesity and indebtedness. As European history has shown, nations that pursue military prowess may well be rewarded with bankruptcy and decline43. This reinforces the hand and glove partnership between positive science and moral philosophy. Positive science may provide insight as to how well-being might be achieved, once its nature is understood. Any definition of well-being however ultimately requires a value judgment. This position is implicit in the teachings of the Greek philosophers and the Scholastics who followed their lead. They challenged the populace to think through whatever might constitute well-being. The method of Socrates was to train one’s judgment through exposure to different problems and viewpoints.

4.1) Classic Descriptive Economics It has been popular among authors with viewpoints as diverse as Robert Heilbronner44 and Jacob Viner to dismiss writers of this period as pre scientific “anticipators” of economics theory. This is unfair. While they may have lacked the scientific methods that have since come into use they had considerable savvy as to how the marketplace worked. With respect to Aristotle’s era, Barry Gordon points out in Economic Analysis Before Adam Smith:

“Almost all the phenomena associated with modern market economies were present: commercial agriculture, manufacturing, business consortiums and

41 This term actually appears in the work of Mises but is implicit on Menger’s work as well. See Hands (2001) p.42 and p.39 42 Ingrao and Israel (1990) p.49 43 Though pre revolutionary France, or Spain at the fall of the Armada may not have been market economies in the modern sense, they relied on the sale of goods on international markets to finance their military. 44 See Heilbronner (1999) pp.22-23

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monopoly trading.” Commodity speculation was a feature of economic life in the port cities as banking companies “exerted powerful influence”. Such banking firms “received deposits, made payments for clients, undertook debt recovery, issued letters of credit, and invested in business ventures.”45

With regard to economic theory, it is evident that Aristotle understood the interplay between use- value and scarcity, and possibly the so-called law of diminishing marginal utility. In Rhetoric, Aristotle poses a version of Adam Smith’s Water-Diamond Paradox. “What is rare is a greater good than what is plentiful. Gold is a better thing than iron though it is less useful: it is harder to get and therefore better worth getting. Reversely, it may be argued that the plentiful is a better thing than the rare, because we can make more use of it. For what is often useful surpasses what is seldom useful, whence the saying, ‘The best of things is water.’”46 In 1905, Oskar Krauss47 suggested that Aristotle realized that use-value diminishes marginally. For this he relies on Aristotle’s Topics, 118: “A thing is more desirable if, when added to a lesser good, makes the whole a greater good. Likewise, you should judge by means of subtraction: for the thing upon whose subtraction the remainder is [made] a lesser good may be taken to be a greater good.” Aristotle as well as Scholastics certainly understood that through the process of exchange, the market values48 of goods are aggregated from the use values assessed by the respective traders. According to Bernadine of Sienna (1380 – 1444), “Price is a social phenomenon and is set not by the arbitrary decision of individuals but by the community.”49 The phrase communis aestimatio used of “community estimation” was used interchangeably by the scholastics with aestimatio fori or “market valuation”. 50 In his Nichomachean Ethics Aristotle introduces the notion of reciprocity or the “exchange of equals.”51 Here Aristotle actually defines exchange-value in terms of the use-values of the respective traders. Exchanges take place between unequal individuals with complementary talents. “For it is not two doctors that associate for exchange but a doctor and a farmer, or in general people who are different and unequal; but these must be equated.”52 It is quite apparent according to Soudek and Spiegel53 that what must be equal is the degree of want satisfaction the exchanged goods provide. “All goods must be measured by some one thing…now this unit is in truth need or demand 54, which holds all thing together.”55 In commenting on Ethics, Thomas Aquinas said that the criterion “which measures all truthfully is need, because it embraces all exchange goods insofar as they are related to need. … The price of saleable things does not depend on their rank in nature … but on their usefulness to man.” 56

45 Gordon (1975) p.11 46 Spengler (1955) p.376-77 47 See Footnote #2 in Spengler (1955) p.371 for the citing of the German language text of Krauss’ work. 48 The exchange value or market value of an allotment of a good is understood to be market price times the quantity of the good. 49 De Roover (1958) p.423 50 De Roover (1958) p.424 51 Aristotle (2003b) p.14 52 Aristotle (2003b) p.14 53 See Soudek (1952) p.46 and Spiegel (1991) p.32 54 The word for “need” used here is which can also be translated as “demand”. In this case Soudek feels that “need” is a better translation. See Soudek (1952) p.60 55 Aristotle (2003b) p.15 56 See footnote 41 in Gordon (1975) p.176

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4.2) Classic Prescriptive Econommics Pursuit of well-being was the focus these scholars, their understanding of human nature and market processes enabled them to prescribe pursuits for individuals as well as to advise policymakers. In Henry Spiegel’s Growth of Economic Thought, Aristotle’s position is interpreted as saying that “People can be changed by the proper environment, by suitable institutions, and by the power of persuasion, and if they become better men, the economic problem of pervasive scarcity of material goods will be less oppressive.”57 Lionel Robbins points out that Aristotle’s most significant discussions of economic principles were made in context of their relevance to the rest of society. His most significant writings on the subject appear in his Politics,58 which, like Bentham’s Principles, was intended to be a guide for good government. Aristotle regarded the state as an extension of the household. What contributes to good household management also contributes to good government. The term Oeconomicus, from which the word “economics” is derived, literally translates as household management. The term, which comes from two Greek words (house) and (rule) refers to the art of arraignment of the family’s material goods for providing “the good life”. According to Aristotle, “Property is part of the household, and the art of acquiring property is a part of managing the household; for no man can live well, or indeed live at all, unless he is provided with necessaries.”59 Mill’s assumption of homo-economicus is one that Aristotle and his colleagues would have soundly rejected. Aristotle was keenly aware of the distinction between the pursuit of wealth and the pursuit of well-being, Aristotle scorned chrematistics, the art of acquiring wealth for its own sake, as “unnatural” 60 since one’s need is finite, one’s greed is not. Solon (Chief Magistrate of Athens c. 590 BC) cautioned his citizens against the destructive power of greed as follows:

But men of the city themselves, hearkening to the call of wealth, are minded by their folly to destroy a mighty city…For they no not know how to check their greed or to order the good-cheer that they have, in the quiet enjoyment of the feast61.

Even Epicurus, who was considered and an anticipator of Bentham’s calculus of pleasure and pain recognized the distinction between well-being and desire fulfillment. Epicurus taught his followers to discipline their minds so as to temper their desires with judgment. “If you wish to make a person wealthy, do not give him more money, but diminish his desire.”62 The Aristotelian view of economics was later to be given a Christian ethical twist by the Scholastics. According to Sir Alexander Gray, the scholastic position was that: “We are all brothers and should behave as brothers, respecting each other’s right and position in life. Each

57 Spiegel (1991) p.25 58 Robbins(1998) p.18 59 Aristotle (2003a) p.7 60 Spiegel (1991) p.25 61 Gordon (1975) p.8 62 Spiegel (1991) p.38

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should receive that to which he is entitled. … No one under any circumstances should take advantage of his neighbor.” To Gray, “this is the sum and substance of medieval teaching.”63 In his Summa Theologica, Aquinas reflects the ethic behind Aristotle’s “exchange of equals”. There he writes; “Purchase and sale are seen to have been introduced for the common utility of both parties, since one needs the goods of the other … but what was introduced for the common good ought not be more of a burden on the one than the other; and so the contract between them ought to be established according to an equality.”64 As Schumpeter points out, Scholastics such as Aquinas were the academic experts of their time. As such policymakers sought their advice. The Scholastics proposed regulations intended to protect the marketplace from speculative trading practices, and to insure price stability in times of famine or glut65. Attempts to manipulate the market were a common problem during that period. There are many recorded prosecutions of traders who engaged in practices such as “engrossing, forestalling, and regrating. Engrosing refers to the accumulation of a commodity in attempt to corner the market, while forestalling is the purchase of stocks of goods before they reached the market for which they were intended. Regrating is speculative buying in a given market with the intention of selling the same commodities in the same market at a higher price.”66 The scholastics were unanimous in their condemnation of any form of conspiracy to fix prices above or below the competitive level.67 They also condemned the craft guilds for their tendency to set prices “for their singular profit and to the common hurt and damage to the people.”68 Violent price swings were a major source of hardship. J. Gilchrist cites the price of wheat in England as rising ten fold between 1287 (a good year) and 1315, which marked the beginning of a famine. Additionally, Gilchrist cites that in 1497 the price of wheat in Florence nearly doubled, then returned to its original price within the space of a single month.69 Such price fluctuations could have a catastrophic impact on the poor, many of whom were reported as committing suicide over inability to buy bread at the prevailing price.70 The stabilizing policies, which the scholastics advised were set at the township level. Each township functioned as an independent economy with its own sets of tariffs and trade regulations.71 In time of dearth, town officials stepped in to place price ceilings on staples as a means of preventing riots. Occasionally, public stores of grain were stocked in times of plenty, for resale to the poor in times of famine72.

63 Gray (1959) p.46 64 Summa Theologica II-II, Q77, art. 1, quoted in Gordon (1975) p.174 65 In so doing the Scholastics have been criticized for imposing a set of “just prices” which are not market determined. This criticism is incorrect. According to Aquinas, the just price is “the [price], which at a given time, can be gotten from buyers, assuming common knowledge and in the absence of all fraud and coercion.” See De Roover (1958) p.423 66 Gordon (1975) p.220 67 De Roover (1958) p.426 68 De Roover (1958) p.432 69 Gilchrist (1969) p.87 70 Gilchrist (1969) p.87 71 Spiegel (1991) p.52 72 Development economists in recent years have advocated this practice in third world countries.

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Maintaining price stability for the protection of tradesmen was more important than a modern observer might think. This is due to factor immobility, particularly that of labor. Peasants were tied to the land, and an artisan’s occupation was chosen by tradition. Generally, one’s trade was the same as his father’s and of his father’s father regardless or the misfortunes the marketplace might bring him. Aquinas’ assertion that the just price should cover “labor and costs” is a policy prescription, lest “the arts …be destroyed if prices are not so determined” 73. Debates of this period over the effectiveness of regulation bear resemblance to the debates of the present. On one side was British theologian John Duns Scotus (1265 – 1308) who taught that the just price should be sufficient to compensate the producer for his costs, including, transportation and risk undertaken in bringing his goods to market. 74 Duns Scotus was later denounced by Francisco Vitoria (c. 1480 – 1546) of the School of Salamanca. According to Vitoria, “inefficient producers or unfortunate speculators should simply bear the consequences of their incompetence, bad luck, or wrong forecasting.”75 In an argument that anticipates the view of the Chicago School, Martin Azpilcueta (1493 – 1587), also known as Navarrus opposed price regulation as he found it “unnecessary in times of plenty and ineffective or harmful in times of dearth”76

5) Conclusion There is no “magic” to the marketplace. The welfare theorems tell us of the power of market forces and also of their blindness. Such forces propel a society towards whatever ends its members choose to pursue. Whatever wellbeing those ends provide will depend on the wisdom by which they were chosen. From the example set by the Greeks and Scholastics, we see that there is a considerable active role for welfare economists to assist in determing which activities will enhance well-being, once the nature of such has been agreed upon. To abdicate, by claiming that positive scientists must abstain from normanitave decision-making, is itself a normanitave decision. The fruits of moral abdication will be handed us by the marketplace.

73 Summa Theologica II-II, Q77, art. 2 and 3, quoted in Gordon (1975) p.176 74 Gordon (1975) p.223 75 De Roover (1958) p.424 76 De Roover (1958) p.426

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REFERENCES Aristotle Politics (Benjamin Joett trans.) in The History of Economic Thought: a Reader (S. Medema, & W. Samuels ed.) Routledge NY (2003) Aristotle, Rhetoric reprinted in University of Chicago Great Books Vol.9 Encyclopedia Britannica (Chicago 1952) Bentham, J. An Introduction to the Principles of Morals and Legislation in John Stuart Mill - Utilitarianism and On Liberty (M. Warnock ed) Blackwell Publishing (Oxford 2003) Bladen, V. Introduction to Mills Principles of Political Economy Univ. of Toronto Press (Toronto 1965) Blaug, M. The Methodology of Economics Cambridge (UK 1992) Clarke, R. Einstein, The Life and Times World (NY 1971) Debreu, G. Theory of Value: An Axiomatic Analysis of Economic Equilibrium Yale Univ. Press. (New Haven,CT. 1959) De Roover, R. The Concept of the Just Price: Theory and Economic Policy The Journal of Economic History Vol. 18, No. 4 (Dec. 1958) 418 - 434 Gilchrist, J. The Church and Economic Activity in the Middle Ages Machmillan (London 1969) Gordon, B. Economic Analysis before Adam Smith, McMillian. London (1975) Gray, A. The Development of Economic Doctrine Longmans, (London 1959) Hahn, F. On the Notion of Equilibrium in Economics: An Inaugural Lecture Cambridge University Press (Cambridge 1973) Hands, D. W. Reflections Without Rules: Economic Methodology and Contemporary Science Theory. Cambridge (UK 2001) Heilbronner, R. The Worldly Philosophers 7th ed. Touchstone (NY 1999) Hicks, J. and Allen, R. A Reconsideration of the Theory of Value, Part I, Economica, New Series Vol. 1, No.1, (Feb. 1934), 52-76 Hicks, J. and Allen, R. A Reconsideration of the Theory of Value, Part II, Economica, New Series Vol. 1, No.2, (May. 1934), 196-219

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