With an economic crisis that never seems to end and financial markets ever more volatile, it is an appropriate time to consider if anything is lacking in economic theory.
John D. Mueller did just that in a book published late last year titled: "Redeeming Economics: Rediscovering the Missing Element" (ISI Books). He argued that Adam Smith made a fundamental mistake in his economic theory, rendering it incomplete and unable to properly account for human behavior.
Mueller, currently the director of the Economics and Ethics Program at the Ethics and Public Policy Center, starts by tracing the main developments in economic theory. According to Mueller, Thomas Aquinas brought about a revolution in economics by synthesizing the ideas of Aristotle and St. Augustine.
Aquinas viewed economic activity as falling into four categories: production, exchange, distribution and consumption. It was Aquinas who for the first time in human history provided a complete description of human economic action, noted Mueller.
Centuries later Adam Smith brought about another revolution in economic thought, but he dropped two of the four categories of Aquinas. He eliminated the theory of consumption and of final distribution, in what came to be known as the classical theory of economics, which centered on production and exchange.
Production in particular was in need of a new approach because, as Mueller explained, by the 18th century -- Smith's era -- a theory was needed to explain sustained economic growth. During the time of Aquinas and in the 12th and 13th centuries, there was relative prosperity, but the 14th-century plagues and the subsequent implosion of Europe made the previous prosperity seem like an exception and the idea of explaining growth was a foreign one.
In the century after Smith's innovative theory, economists realized that his ideas were insufficient and so in the latter part of the 19th century the neoclassical economists restored the element of consumption with a modernized theory of utility. By utility they meant the relation between a person and a thing in terms of our order of preference for goods.
After his survey of the development of economic theory, Mueller affirmed that we will soon witness the emergence of a new school of economic thought, which he termed new natural law or neo-Scholastic economists.
This will happen, he said, because current economic ideas do not fully account for the empirical facts of human economic behavior.
- Father John Flynn LC
Can Neo-Scholastics transform economy? (Zenit)