PRINCIPLES OF PERSONALIST ECONOMICS A Critical Examination of Human Persons as Economic Agents Revised: May 8, 2014 Edward J. O’Boyle, Ph.D. Senior Research Associate Mayo Research Institute Copyright 2014 by Mayo Research Institute. All rights reserved. Table of Contents FOUNDATIONS 1. Three Definitions of Economics 2. Three Principles of Economic Justice 3. Processes, Organizing Principles, Social Values, and Economic Justice 4. Essential Characteristics of Capitalism MICROECONOMICS 5. Money and Banking 6. Private Creation of Credit 7. Who/What Determines Price? 8. Consumer Behavior 9. Starting and Controlling Private Business Organizations 10. Worker and Producer Behavior 11. Perfect Competition 12. Demand, Marginal Revenue, and Market Structure 13. Monopoly 14. Monopolistic Competition and Oligopoly RE-CONSTRUCTING MICROECONOMICS 15. Profit Maximization and the Subjective Dimension of Work 16. Mainstream Economics, Schumpeter, and Market Structure 17. The Industrial Commons and Other Workplace Regimes 18. Humanness, Personhood, and the Acting Person 19. Capital: Physical, Financial, Human, and Personalist 20. How Consumption, Work, and Leisure Change the Economic Agent 21. Re-constructing Microeconomics: A Summation (continued on following page) 1 MACROECONOMICS 22. Macroeconomic Circular Flows 23. Four Diagnostic Tools 24. The Classical School, Unmet Physical Need, and the Safety Net 25. The Keynesian Revolution 26. The Monetarist Counter-Revolution 27. The Neo-Classical Counter-Revolution 28. The Supply-Side Counter-Revolution 29. Macroeconomic Policy RE-CONSTRUCTING MACROECONOMICS 30. Subsidiarity and the Proper Role of Government in Economic Affairs 31. Financial Meltdown 2008 THE VIABILITY OF A PERSONALIST ECONOMY 32. Integral Human Development 33. Economic Freedom 34. The Eighteen Tenets of a Personalist Economy The search function available on Acrobat Reader is the best way to search the text by word or phrase. For that reason, no index has been provided. 2 FOUNDATIONS Addressing Economic Affairs from the Perspective of the Human Person 3 TOPIC 1 THREE DEFINITIONS OF ECONOMICS To demonstrate that economics involves the study of certain material objects such as goods and services, natural resources, and wealth, but most fundamentally it involves the study of human beings as workers and consumers and their behavior in those roles. For that reason economics is a moral science. There are three definitions of economics: (1) the study of the transformation of economic resources into goods and services; (2) the study of the nature and causes of the wealth of nations; and (3) the study of human beings as economic agents. As to the first definition, there are two economic resources involved in the transformation process: natural and human. There are three types of goods (something tangible such as a desk or a book) and services (something intangible such as legal advice or medical consultation): consumer, capital, and public. A consumer good or service is used by consumers to satisfy a want or meet a need. A capital good or service is used in the workplace to help produce other goods and services more efficiently. A public good or service that is purchased and administered by a government agency is intended for use by the general public. Need, or its equivalent necessities, is mentioned several times in the 1948 edition of Samuelson’s Economics 1 in ways that indicate that the concept has a legitimate place in analyzing and understanding everyday economic affairs. Nevertheless, mainstream economics today has removed need entirely from the conceptual tools used by economists to address economic affairs. 2 Excluding the concept of need is required in order to preserve the appearance of economics as a positive, value-free science because need is a normative concept that is defined and used differently by different analysts according to each one’s own value system. This exclusion, however, proves to be especially awkward when it comes to addressing the problem of poverty that obviously must be defined and measured in terms of human need. A capital good or service is used in the workplace to help produce other goods and services more efficiently. A public good or service that is purchased and administered by a government agency is intended for use by the general public. 1 See for example pages 16, 31, 67, 72, 83, 118, 256, and 581. The first edition of Economics that was published in 1948 quickly became the number one best-selling college textbook of its time, and remains even today in its 19th edition a very popular principles text. Economics is cited here and elsewhere in this e-text because for many years Samuelson set the standard for anyone who authors his/her own principles textbook and for those who teach or take the principles course. Later in his career, Samuelson was awarded the Nobel Prize in economics. 2 Throughout this text, “mainstream economics” and “conventional economics” are used interchangeably. 4 Consumer goods and services and capital goods and services are owned and controlled by persons or private organizations and are classifiable as private property. Public goods and services are classifiable as public property because they do belong not to a specific person or private organization but to everyone. By transformation we mean the systematic transforming of economic resources into goods and services in a process that is called the production process and in a special space that we call the workplace. There are eight types of natural resources or endowments of nature: minerals, animals, plants, air, water, weather, climate, and land or soil. Minerals such as oil and natural gas for example are crucial to the Louisiana economy. Animals are a source of food and clothing, as well as serving us as companions or pets. Animals entertain us, as for example thoroughbred horses at a racetrack, and at times are used as beasts of burden. Plants such as soybeans are transformed into food, other plants such as cotton are made into clothing, and others such as trees are changed into paper and lumber. The air we breathe may be clean and sweet as in the Dolomite Mountains of northern Italy or foul and acrid as in Los Angeles, and thus may affect the health of the persons who live and work there, the tourism that is sited there, and the willingness of families to remain or relocate there. Water as we all learned from our grade school science teacher is essential for human life. Water is used as a means of transportation; the Mississippi River is an important waterway in the Louisiana economy. Water is used in the process of producing steel, and is one of the ingredients in certain products such as beer. Thus a lack of water obstructs economic affairs, such as the effect that a drought has during the growing season. An extreme lack of water is the essential characteristic of a desert -- land with no value and therefore land that is not fenced and claimed as private property. Weather refers to variations in temperature, precipitation, humidity, and wind that influence economic activity. In the northern United States such as Minnesota and North Dakota outdoor construction activity comes to a halt during the severe weather of the winter months. In Louisiana hurricanes and tornadoes can wreak havoc on human life and property including workplace facilities. Climate refers to the four main zones: arctic, moderate, subtropical, and tropical. Certain crops such as sugar cane and rice are grown in a subtropical climate. Others such as strawberries may be raised in a subtropical or moderate climate. Land or soil may be fertile as is true of much of the land in the United States and therefore suitable for raising crops or it may be very rocky as in the west of Ireland and best suited for raising sheep. The second economic resource that is transformed into goods and services is the human worker. Of the two economic resources, the human resource is by far the more important because only the human worker can report to work and do nothing, do something, do all the work that he/she is assigned, or do more than what is assigned and expected. The challenge for the worker/manager is to evoke from his/her subordinates all that each one is capable of producing. Ideally, the supervisor is expected to assign work that provides opportunities for each worker to utilize his/her special creative talents and energies, makes each worker feel that he/she is a vitally important part of the organization, produces a good or service that is needed or wanted, and allows the company to earn a profit so that it can remain in business. Personalist economics underscores that work has two central effects: on the goods and services produced and on the person who performs the work. Conventional economics focuses essentially if not entirely on the first effect, ignoring the second. 5 The production of goods and services in the workplace has two bad consequences both related to the two types of resources that are used in the transformation process. The “bads” relating to the utilization of natural resources are the depletion of renewable and nonrenewable resources and contamination of the air, soil, and water. The “bads” relating to the use of workers in the production process are unemployment, excessive hours, wages that are below the legal minimum wage, and unsafe working conditions. To reduce or eliminate these “bads” certain limits are imposed on employers such as a limit on the amount of pollution that they are allowed to release into the environment, and a limit on the number of hours that employees are required to work without some extended rest period. The second definition of economics is the study of the nature and causes of the wealth of nations. This definition originates in Adam Smith’s seminal work The Wealth of Nations that was published in 1776 and is regarded as the beginning of economics as a formal discipline.