We’re continuing our attempt to move Toward a Truly Free Market with the help of John Médaille’s book by that name. In the introductory post we began and ended with brief discussions of terms like love, hate, and free. Médaille begins his book in a similar vein, looking at the difference between the terms economics and political economy. Interestingly, he notes that the first version of the Oxford English Dictionary (completed in 1928) has no entry for ‘economics’ (2). Before that, men like Adam Smith, David Ricardo, and Karl Marx would have thought of their science as political economy. So why the change? Médaille writes:

…if they were synonyms, there would be no reason for the change. The difference between the terms is that the political economists saw their science as a humane science firmly embedded in human institutions. The new economists, on the other hand, saw their discipline not as a humane science, but as something in the order of the physical sciences, which operate independently of human intentions. (2-3)

According to Médaille, the downgrade from thinking in terms of the political economy to thinking in terms of economics evidences a misunderstanding of the world and diminishes what it is to be a man:

…to make economics work as physics works, guided by physical measurement and ruled by pure mathematics, they have to reduce man to a physical object in a world of physical objects. They have to reduce man’s labor to a mere commodity, purchased at the lowest value like any commodity; they have to reduce man to an economic calculator, the mythical homo œconomicus. Mostly, they have to divorce the economic question…from any question of ethics. (3-4)

In other words, because there is simply no way to live as a man outside the realm of ethics, to pretend to do so when we practice economics is the height of folly. Building off these ideas, Médaille explains for us “the over-riding theme of this book:”

Economics, or more properly, political economy, cannot be a proper science unless it is a humane science; to be a humane science it must embody some notion of justice, and particularly of distributive justice. (5)

And so the stage is set for the rest of the work. He won’t develop his understanding of distributive justice until later in the book. We’ll pick it back up when he does.

As he closes out this chapter, Médaille faults modern economists for not foreseeing and preventing the 2008 housing bubble crash. Because “90 percent [of economists] missed the coming of the last disaster, and the one before that” (5), he asserts that economics must be “an incomplete science” and “not able to make any rational policy prescriptions” (6). The distributists, who share Médaille’s vision of the political economy, have also failed though. They haven’t been able to articulate their vision in a way that would engage with people on an economic level in the same way that they’ve succeeded so well in engaging on an ethical level. Addressing this issue is one of Médaille’s goals for Toward a Truly Free Market. He aims to give distributists reasons for the hope that is in them and to arm them with economic arguments so that they have “the intellectual arms and armor necessary to enter the debate on more equal terms” (9).

In this first chapter, Médaille also mentions the Austrian school of economics, dubbing it one of the branches of economics which is “nearly the opposite of distributism” (8). If the opposition between distributism and “Austrianism” is true in general, it’s certainly not true with regard to the specific points Médaille makes in this chapter. To a man, Austrians object to the idea of homo œconomicus, for example. Over at Mises.org, Ryan McMaken has suggested instead that the concept is a tool for central planners because it allows them to flatten man’s desires down to economic utility. Were man to behave mechanistically with only economic motivations, he would be much easier to predict and control. To refer back to Médaille’s language above, if it were legitimate to reduce men down to physical objects, it would be more plausible for outside authorities to plan their lives. Austrians agree with Médaille, however, that man is motivated by far more than monetary considerations in his actions. In the article just mentioned, McMaken quotes Mises on the subject:

It was a fundamental mistake…to interpret economics as the characterization of the behavior of an ideal type, the homo œconomicus. According to this doctrine traditional or orthodox economics does not deal with the behavior of man as he really is and acts, but with a fictitious or hypothetical image. It pictures a being driven exclusively by “economic” motives, i.e., solely by the intention of making the greatest possible material or monetary profit. Such a being does not have and never did a counterpart in reality; it is a phantom of a spurious armchair philosophy. No man is exclusively motivated by the desire to become as rich as possible; many are not at all influenced by this mean craving. It is vain to refer to such an illusory homunculus in dealing with life and history.

Mises and Médaille agree that man is more than a merely physical, material, or monetary being.

Dutch Flower Market by Hans Herrmann…homo œconomicus at a loss amidst the beauty

So too, Austrians have always rejected the mathematical approach to economics. Consider this from elsewhere in Mises:

The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. Its syllogisms are not only sterile; they divert the mind from the study of the real problems and distort the relations between the various phenomena.

If the mathematical method is no good, what method ought to be used instead? Mises terms his own approach “logical economics,” which he says is “a theory of processes and changes,” namely the “analysis of the market process.” The market process is, at its core, simply “purposive human action.” This is why Mises called the book from which I’ve pulled these quotes Human Action. Note that this is a far cry from Médaille’s charge above that the “new economists” understand their discipline to “operate independently of human intentions.” So innocent are the Austrians of this charge that their whole system is based on the axiom that humans act. Men intend things. They are purposive beings. This is right where economics starts for the Austrians, and because this axiom is true, we’re able to logically deduce from said axiom a system of laws which have both meaning and sound predictive capabilities.

Remember that this is exactly what Médaille was after: an understanding of the political economy that did not reduce man down to a physical object, and which would at the same time have the ability to suggest policies which would be able to prevent (or at least anticipate) economic disasters. On this point, it’s worth marking that there was no mention of distributists that predicted the crisis of 2008 in Médaille’s book. Maybe some distributists saw it coming, but Médaille doesn’t provide any examples. Austrians, on the other hand, were describing the housing bubble and predicting a coming crash as early as 2001 and 2002. And not just a few of them. Over at the Mises wiki you can find documentation of two dozen or more Austrians sounding the alarm about the impending crisis throughout the early 2000s.

But, overall, we’re off to a good start as we move toward a truly free market. We must recognize what man is if we’re to analyze his behavior in social cooperation and exchange. He is not simply a physical object, but also an ethical being, motivated by desires toward certain ends. There will be plenty of time for disagreements later on. Médaille maintains that his system recognizes the ethical element of economics and embodies distributive justice particularly. Mises defines his system as an analysis of human action in the market process. These different starting points will come to a head especially in chapters three, four, and five. But if the core contention of chapter one is that economics as a science must deal with man holistically, then I am happy to affirm it. And, as far as I can tell, so are the Austrians.