A Rationale Supporting a Decision by Pope Francis and the Arch Bishop of Canterbury to Remove All Economic Advisors from Any Advisory Role Concerning Church Proclamations on Income Inequality, Unemployment and Social Justice: 'Economics' is Not a Positive Science, But an Ethical System Based on Benthamite Utilitarianism
25 Pages Posted: 6 Jul 2016
Date Written: July 3, 2016
Economists can currently be divided into two different camps, Orthodox and Heterodox. Each camp operates under assumptions and models that have no objective, scientific support and involve extreme assumptions that are completely unsound. Neither of the schools is a positive, scientific discipline. Both approaches are built on conflicting normative views that directly conflict with the Virtue ethics that underlies the Church of Rome and the Church of England.
The Orthodox camp, also called “mainstream” or “neoclassical” economics, is directly based on Jeremy Bentham’s Principle of Utility and assertion that all individual utilities, outcomes and probabilities can be calculated exactly as point estimates, so that the mathematical laws of the probability calculus can be applied. Bentham’s rationality postulate asserts that decision makers are rational if, and only if, they maximize their utility using the mathematical laws of the probability calculus to quantify all “uncertainties”. The modern version of this Benthamite Utilitarian approach is called Subjective Expected Utility (SEU). It is the modern version of Benthamite Utilitarianism. It combines the Subjective interpretation of probability of Ramsey and de Finetti with the Expected utility of Von Neumann and Morgenstern. It is simply a more advanced mathematical treatment of Bentham’s approach, an approach that is based on the hedonistic, egoistic assertion that only the consequences or impacts on an individual decision maker of an action matters. Nothing else matters. Benthamite Utilitarianism underlies all current macroeconomic approaches. This approach operates under the “Atomic” hypothesis, that the whole is nothing more than the sum of the individual parts one hundred percent of the time. There are no positive or negative interactive feedback effects or impacts between the parts that might change the nature and composition of the whole over time. This approach amounts to modeling economic decision makers as if they were individual gas particles. In this approach, the individual gas particles randomly bump into and exchange electrons with other gas particles constantly over time. The major problem causing inflation and unemployment is random, exogenous shocks which will naturally dissipate over time as long as the government or central bank does not try to speed up the recovery process.
This Benthamite Utilitarian approach is directly contrary to the virtue ethics approach used by all religions. Its application in capitalist countries results in the formation of private banker financed speculative bubbles that periodically create havoc for the lower and middle classes by creating alternating problems of inflation and deflation. Immense social costs are imposed on the lower and middle classes under the guise of Free trade and Trickle Down economic polices based on the application of Bentham’s calculus of decision making.
The Heterodox camp is mainly composed of Post Keynesian, Institutionalist, and Austrian economics, which is a Hodge podge of Utilitarianism and Libertarianism. The Post Keynesians and Institutionalists are followers of Joan Robinson, G. L. S. Shackle, Paul Davidson and J. K. Galbraith. They have recently attempted to repackage themselves as the Institute for New Economic Thinking. They assert that all events are unique and non-repeatable, so that it is impossible to use the mathematical laws of the probability calculus for any applications. All functions are unstable and unpredictable. Total uncertainty reins. They claim that this “irreducible uncertainty” is built directly on J. M. Keynes’s work in his A Treatise on Probability (1921) and General Theory (1936), where he supposedly completely rejected the use of all formal, logical, mathematical and statistical analysis because he had shown that the best one could do is to apply a strictly ordinal theory of probability some of the time. These claims have no intellectual foundation in fact and are based on the writings of individuals who are mathematically illiterate, inept and illiterate. This school operates under the “Organic” hypothesis that claims that all of the individual parts of the whole are constantly interacting with the other parts of the whole in such ways that it is impossible to observe over time how each individual part behaves. Therefore, it is not possible to study any individual part except as it relates to the whole and is impacted by the simultaneous and instantaneous interactions of the whole itself as each part interactions with every other part. There are no stable relationships that would allow one to figure out how each part impacts the whole.
The economic analysis of this school blames the middle class and activist labor unions for seeking wage increases when the economy is supposedly operating at full employment. This supposedly leads to inflation. Wage and price controls, as well as incomes policies, are to be used to reduce the impact of such union policies on the economy as a whole. There is no support for this bizarre view in the real world.
The Austrian school of economics is based on empty tautologies that are characterized as a system of thought called praxeology. This approach is simply a system of empty, a priori, deductivist claims to knowledge whose foundation is the empty proposition that human beings act. This so called action axiom is an empty tautology from which no other propositions can be derived. Severe deficiencies regarding the impact of uncertainty on economic decision making lead to a situation where Austrians “talk” about uncertainty, but they have no analysis showing how or why uncertainty has any impact on economic systems and economic decision making that is different from the standard decision making risk analysis found in neoclassical economics.
Both Smith and Keynes presented a systematic, detailed, formal, technical analysis of uncertainty in decision making, based on the concept of interval valued probability, which demonstrated how and why uncertainty can lead to major speculative excesses in the financial and money markets that negatively impact the lower and middle classes if the central bank does not take measures to prevent speculators from using bank loans to leverage their debt positions. Both Keynes and Smith completely reject the orthodox and heterodox positions.
Keynes and Smith both arrived at economic theories that are in harmony with the virtue ethics approach used by all major religions. Both Smith and Keynes reject the extreme views that the economy is either 100% atomic, as assumed by present day orthodox, mainstream economists or that the economy is 100% organic, as assumed by the heterodox Post-Keynesian and Institutionalist schools. Both Smith and Keynes reject the Austrian position since that economic analysis is based on a tautology, that human beings act .Pope Francis and the Arch Bishop of Canterbury should base their economic analysis primarily on the work of Keynes and Smith.
The work of Benoit Mandelbrot and Nicholas Nassem Taleb could also be used to support regulatory policies aimed at preventing private banker and financial market financing of dangerous and debilitating speculative bubbles that are the real cause of inflation, deflation, and unemployment.
Keywords: interval valued probability vs. ordinal probability, atomic Hypothesis, organic hypothesis, Keynes, Smith
JEL Classification: B10, B12, B20, B22
Suggested Citation: Suggested Citation