Book in Progress:

God and Money:
Human and Divine Economy in the 21st Century
By John D. Mueller

In God and Money, John D. Mueller, a financial-market economist and Fellow of The Lehrman Institute, argues that to correct what's wrong with both modern economic theory and the practice of American economic policy, it is necessary to "rediscover the stepping-stones of economics": that is, restore and update the natural-law philosophy in which economic theory originated.

Mueller begins with "A Brief, Remedial History of Economics," which is necessary for a little-known reason: Beginning in 1972, Mueller points out, the economics departments at all major American universities abolished the requirement that students learn the history of economics before being granted a degree. Tracing changes in its basic outline, Mueller argues that economic theory has had three distinct phases. Scholastic economics began when Thomas Aquinas integrated four elements drawn from Aristotle and Augustine-utility, production, equilibrium and final distribution-in an outline that was taught for centuries by Catholic and (after the Reformation) Protestant thinkers alike. This basic outline has been revised twice: once by Adam Smith, who eliminated the theories of utility and final distribution; and again by neoclassical economists, who restored the theory of utility around 1870.

Mueller predicts that the next phase will be "neoscholastic," in which the still-missing element of final distribution will be restored, while taking advantage of technical advances in all the elements. Mueller then proceeds to outline the basic implications of the neoscholastic approach at four levels: Personal Economy, Domestic Economy, Political Economy and Divine Economy.

In Personal Economy, Mueller updates St. Augustine's insight that all economic action involves a twofold choice: first, a choice of persons as ends, which is expressed by the distribution of income or wealth between oneself and others; and second, the ranking of scarce means to be used by those persons. In contrast, modern neoclassical theory attempts to reduce all behavior to the choice of means (utility) alone. Mueller outlines the logical and empirical difficulties with the neoclassical approach, and shows that the relationship between "economic fatherhood" and homicide yields strong evidence in favor of the neoscholastic theory. And using an exchange with philosopher Peter Singer, Mueller illustrates the moral implications of scarcity according to the new approach.

Regarding Domestic Economy, Mueller notes that around 1960 economists rediscovered Aristotle's theory that wealth is of two kinds-people and property, which economists call "human and nonhuman capital." But the neoscholastic view, unlike the neoclassical version, combines with it the understanding that family household is necessarily built around the relationship between a man and a woman, which normally produces children. Though some of the functions of the ancient household have been specialized by the business firm and nonprofit foundation, and though the family has been revolutionized in the past century by a longer lifespan, Mueller shows that an updated version of Aristotle's family economics explains the empirical facts of income growth and distribution for American families at the start of the 21st century, far better than its main competitor, which Mueller calls the "Economic Stork Theory.">

In Political Economy, Mueller argues, the most basic and enduring economic policy problems are problems of economic disequilibrium and political faction: violations of the two kinds of justice outlined by Aristotle, "justice in exchange" and distributive justice, respectively. Drawing on the insights of the French economist Jacques Rueff, Mueller addresses the two biggest problems of disequilibrium: unemployment and monetary instability. Using "Rueff's Law," Mueller explains why welfare reform worked, and updating Rueff's monetary analysis, he argues that to restore monetary stability to the United States and to the world, it will be necessary to end the dollar's "reserve currency curse." Drawing on James Madison's theory of faction, Mueller proposes practical solutions to the two biggest challenges of political distribution: reform of the income tax and the pay-as-you-go Social Security retirement system. Updating a proposal he made in 1995 to the National Commission on Economic Growth and Tax Reform, Mueller proposes a comprehensive plan combining "the fairest, simplest lowest (pro-family) income tax" and "the fairest, simplest (pro-family) way to balance Social Security."

Finally, in Divine Economy, Mueller examines the two ways in which economists have been forced to deal with metaphysical questions about the ultimate nature of reality. First, Mueller contrasts the "nominalist" approach that George Stigler called "the economist as preacher" with the "realist" approach correctly attributed by Joseph Schumpeter to Thomas Aquinas (which Mueller calls "the preacher as economist"). Second, Mueller considers the overall views of God and man implied by each of the three outlines of economic theory. In the scholastic view, God freely created the universe from nothing and man is a rational animal created in God's image. In classical economics, the basic worldview is Stoic pantheism: not each human, but the whole universe is a rational animal-the idea behind Adam Smith's famous "invisible hand." In neoclassical economics, the world-view is Epicurean: man is not a rational but merely an uncommonly clever animal; there is no god and thus no providence; the ultimate realities are uncreated (and unaccounted-for) matter and chance. In the end, Mueller argues, we face the "choice of 1776": either the "invisible hand" of a universe which itself is god, or the Creator of the Declaration.

Table of Contents

God and Money:
Human and Divine Economy in the 21st Century
By John D. Mueller

Introduction: Rediscovering the Stepping-Stones of Economics

1. A Brief, Remedial History of Economics
1.1 Joseph Schumpeter Sets the Stage
1.2 Scholastic Economics (1250-1776)
1.3 Classical Economics (1776-1870)
1.4 Neoclassical Economics (1870-present)
1.5 Next: "Neoscholastic" Economics

2. Personal Economy
2.1 The "Mother's Problem" and St. Augustine's Solution, Updated
2.2 Why Adam Smith Thought He Could Ignore the Mother's Problem
2.3 The Neoclassical Failure to Solve the Mother's Problem
2.4 An Empirical Test: "Economic Fatherhood" vs. Homicide
2.5 The Moral Implications of Scarcity

3. Domestic Economy
3.1 Aristotle's Family Economics, Updated to 21st-century America
3.2 The Main Opposing View: The "Economic Stork Theory"
3.3 What Explains the Growth and (Pre-Tax) Distribution of Income?
3.4 The Stock and Bond Markets, Backwards and Forwards

4. Political Economy
4.1 'Justice in Exchange' and 'Distributive Justice,' Updated
4.2 Jacques Rueff: Doctor of Disequilibrium
4.3 Reducing Unemployment: What Works and Who Doesn't
4.4 Money: Why It's Time to End the Dollar's "Reserve Currency Curse"
4.5 The Fairest, Simplest Lowest (Pro-Family) Income Tax
4.6 The Fairest, Simplest (Pro-Family) Way to Balance Social Security

5. Divine Economy
5.1 George Stigler and "The Economist as Preacher"
5.2 Back to the Preacher as Economist
5.3 The Invisible Hand in the Human Puppet
5.4 Augustine's "Trace of Supreme Equity Stamped on Business"
5.5 The Choice of 1776: Created Equal or Not?