Economics and Theology

Slough Economy Slips Back?

Figures for the number of jobs in Slough in 2003 have only recently been released. They do not make comfortable reading. Although up on five years ago, total employment in Slough was down on 2000. The figures for 2003 are:

                  Thousands  % of total   % change on 2000

Male, full-time	     37          50	       -12.6

Male, part-time	      5	          6	        -8.3

Female, full-time    21          28             -0.3

Female, part-time    12	         16             +5.8

TOTAL	             74         100             -6.5

Source: National Statistics Office, Annual Business Inquiry

Only women and girls working part-time have increased, showing some sign of catching up with the national average for 24 % of the workforce to be female part-timers. The decline in men working full-time includes a 28% decline in manufacturing industry, which now accounts for only 15 % of all jobs in Slough – less than in either retailing and other distribution or property.

Now my best guess is that allowing for residents who commute out daily, very nearly half of those who work in Slough travel in daily. So is it residents or outsiders who have lost jobs? Well, the National Statistics Office also conducts a quarterly "Labour Force Survey". This is a sample survey based on residence. It shows 47 thousand Slough people were employees in 1998. This total rises to a peak of 56 thousand in 2002 and then eases to 52 thousand in 2003 and only 48 thousand last year. These figures are consistent with the already charted rise in Slough people claiming unemployment benefits since 2002. Job cuts at Mars will be coming at a very bad time.

Prosperity with a Purpose

"Prosperity with a Purpose: Christians and the Ethics of Affluence" is a glossy 60 page booklet published by Churches Together in Britain and Ireland. This is an important subject but I am disappointed by the way it has been treated. There are too many platitudes, too many restatements of arguments generally accepted by most people of good will and too few new or distinctive proposals for action. But my chief worry is that it betrays an outdated top-down "we church leaders know what's best for you" attitude. What communities and churches need is guidance and encouragement for Christian congregations and individual Christians to get involved in their local communities.

Examples of what arouse my suspicions about attitude are a discussion about subsidiarity and a polemic about marketing and consumerism.

My understanding of subsidiarity – akin to devolution - is that decisions should be taken at the lowest practicable level, if possible by those who are affected by the decisions. This seems to be accepted (on page 33 of the booklet). But on the next page subsidiarity seems to stop at national government level: "No function should be performed by the European Union that cannot equally well be performed by member governments." Does this not smack of little Englander Euroscepticism!

Now marketing and consumerism. The development of marketing as a discipline has led to a fundamental shift in the balance of power between producers and consumers. Formerly, businesses decided what, how, where, for whom and at what price they would produce. Those who organised production best made the biggest profits. Marketing, however, starts at the opposite end, asking who is the consumer and what does she want; then working out how her wants can be met. It's subsidiarity again (and marketing principles can be applied to social affairs and to life and worship in churches). But "Prosperity with a Purpose" seems not to like this, summing up all that it dislikes about modern society as consumerism: "Consumerism values only what can be consumed. Consumerism emphasises passivity, thus isolating individuals from their communities. Consumerism measures people by what they possess …" Lip service is given to freedom of choice, but only if those choices confirm what the elite think is best.

As I said I am disappointed. But the booklet "Prosperity with a Purpose" is to be accompanied by a volume of more substantial essays. When that becomes available, perhaps I will reconsider my verdict. I really hope so.

Chart of Slough Unemployment

Here is the promised chart.

Economics and its Enemies

Economics and economists have always had their enemies - from Charles Dickens and John Ruskin to Bishops of the Established church today. There is plenty to say in defence of economics and its importance, but two reasons for popular mistrust of economists and their work are:

1. It is a science, which deals with important everyday matters about which everyone has an interest and reckons to understand.

2. It is about making hard choices and in so doing points out unpopular truths: you can't have your cake and eat it

"No real Englishman in his secret soul was ever sorry for the death of a political economist; he is much more likely to be sorry for his life", said Walter Baghot. I trust he did not share the sentiment, but economics and economists have always had their enemies. Many of them.

Charles Dickens was allied with Thomas Carlyle and John Ruskin in opposition to what they supposed were the tenets of Political Economy, as the science of economics was then known. In "Hard Times", published in part form in 1850, Dickens satirised those who were obsessed by figures and averages - "the facts" - and disregarded human emotions and imagination as of no importance at all. Carlyle, in "Sartor Resartus", 1833, in addition to condemning what he called corrupt survivals and callous shams, promoted immaterial values which he believed to be neglected in that age. Ruskin was to denounce economics, without much understanding, as merely the study of the means for some to get rich in his 1862 "Unto this Last".

Dickens in fact seems to have confused the teaching of the British classical political economists with the laissez-faire Manchester School and Hubert Spencer. As we shall see, some excuse for this may be found be the writings of some self-appointed popularisers of political economy.

The foundation figure, of course, is Adam Smith (1723-1790), whose "An Enquiry into the Nature and Causes of the Wealth of Nations" in 1776 marked the beginning of modern economics. He was followed by (The Revd) Thomas Malthus (First essay on Population, 1798) and David Ricardo (The Principles of Political Economy and Taxation, 1817). By naming two of Gradgrind's sons in Hard Times "Adam Smith" and "Malthus" Dickens showed that he had these classical economists in his sights. Dickens accuses them of elevating selfish self-interest above all other incentives for human behaviour, of excessive individualism and of neglecting all non-material values. This traduces what these economists and their successors actually believed and wrote.

Adam Smith and the others were basically reformers who were led into economic analysis by their desire to remove obstacles to better conditions of living, general well-being, for all people. They saw monopolies, especially those established by government, as among the main obstacles. And they advocated freedom of the individual since in most cases the individual is the best judge of her or his best interests; in other words, they were against the paternalism that coloured some other would-be social reformers. Economic freedom, with individuals free to follow their own interests in seeking the most profitable markets for their labour or their products, in competition with others, would lead to growth in "the wealth of the nation". At that time, the wealth of individuals was in a pyramid shape: most people were at the base of the pyramid and poor; there were fewer at each higher level of income or wealth; until at the apex there were very few. Thus an increase in general well-being, the wealth of the nation, meant an increase in the well-being, the wealth of the poor, the ordinary people. Adam Smith expressed sympathy for trade unions and their pressure for higher wages and better working conditions, but did not fancy their chances in strikes against the greater resources of factory owners.

Jeremy Bentham (1748-1832) was the founder of the Utilitarians (although the title "utilitarianism" was not coined until a book by John Stuart Mill (1806-1873) under that title was published in 1861. Bentham, James Mill and his son John Stuart Mill were eminent economists but their philosophical interests extended to legal, educational and political reform. The fundamental principle of utilitarianism is the happiness principle: that actions are right insofar as they promote happiness, defined as pleasure and the absence of pain. And the objective of the body politic should be to promote the greatest happiness (good) of the greatest number. This is surely a long way from Gradgrind's disparagement of emotion and imagination and Carlyle's belief that the economists were not interested in immaterial values. It should be noted that society is perceived in an organic sense, with each individual, pursuing self-interest as a cog in the social machine. Furthermore happiness, albeit a psychological concept, is assumed to be measurable in term of utility, hence "utilitarianism".

As Lionel Robbins pointed out in his "The Theory of Economic Policy in English Classical Political Economy"(Macmillan, 1952), the classicists and the utilitarians did not advocate "laissez-faire", the removal of all government intervention in economic affairs, limiting the role of government to that of "night watchman" providing a sufficient framework of law and law enforcement to protect life and property from criminals. As already mentioned, they were against inefficient state monopolies that obstructed enterprise and economic development, but they supported much positive government. To quote Adam Smith, the state has "the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain .... " It seems clear to me that the role of government in modern management of the economy is in direct descent from Adam Smith.

There were, however, popularisers of political economy. As early as 1816, Mrs Marcet wrote "Conversation on Political Economy" and this was followed in 1832 by Harriet Martineau's "Illustrations of Political Economy". These works were not abstract theories and rounded analyses of economic problems but polemical tracts to promote laissez faire capitalism and the political objectives of the Manchester School (Cobden and Bright), in particular abolition of the Corn Laws which protected British agriculture and denied cheap food to the urban industrial masses. In outline, these popularisers were in fact closer to ideas that were to be developed by Herbert Spencer than to the classical economists. They believed that what they understood to be immutable economic laws should be taught to children in school. WR Greg (of Quarry Bank Mill, near Manchester, now owned by the National Trust) wrote in 1844 that the cure for bad factory conditions was unrestricted free trade and that the laws controlling wages, ie that they were fixed at the subsistence level, should be taught in school. No doubt they were in the school attached to his factory. Greg, we may note, was prosecuted and fined for overworking children. Martineau eschewed orthodox religion but there were Christians who took "the laws of economics", especially those underpinning the operation of free markets, as God-given, natural laws. This was far from the view of the classical economists and utilitarians who saw all institutions of government, law and the economy as essentially man-made. For instance, Bentham described the idea that economic policy can be derived from understanding of natural law and natural rights as "nonsense on stilts". JS Mill made plain that he believed it was the physical world only that was governed by cause and effect of natural laws (without a role for an active God).

Herbert Spencer (1820-1903), however, did believe in natural rights - of the individual. In "Social Statics" (1851), he attacked the Utilitarians for not considering the individual other than as merely a cog in the social machine. Morality comes from innate moral sense, not, as the utilitarians argued, from experience, association and reason. He adapted Darwin's biological theory of evolution to the psychology of the individual. Survival of the fittest meant that "each individual must have the opportunity to do whatever his desires prompt". Thus there must be no government interference with individual self-interested enterprise and free markets. This had much in common with the laissez-faire doctrines of the French Physiocrats of the 18th Century, but is far from the most prominent free market advocates of the 20th Century - Friedrich Hayek and Milton Friedman. Hayek believed that free markets, even in such matters as the supply of money - he would do away with the state monopoly of central banks - , were the best means of realising a just, moral and economically efficient society. But that belief was an empirical judgement not a conclusion based on the concepts of natural law. Friedman differs from Hayek in being consciously amoral, but again the free market conclusion is based on observation not predetermined principle.

The popular belief, stretching from Dickens, Ruskin, et al. to many commentators today that economists preach laissez-faire owes something to the pedagogical use of the "perfect competition" model. This model demonstrates that an "ideal" equilibrium can be reached if there are no restraints on competition and each producer seeks to maximise profits. In that equilibrium, costs are minimised, "normal "profits - just sufficient to keep the enterprise in business - are earned, there is full employment with each worker being paid according to her/his "marginal productivity" and prices equal marginal costs. No one can be made better off without someone being made worse off. I repeat, it is a pedagogical tool and all economics textbooks make it plain that perfect competition is unrealisable, not least because of its preconditions, including perfect knowledge of market facts, not only of the present but also the future, by all engaged in economic activity. The use of the perfect competition model is to demonstrate how through markets scarce resources and products can be allocated efficiently according to human preferences expressed through prices. It is fair to say that some economists have given the impression that anti-monopoly measures to correct so called "market failure" are steps towards a desirable (though ultimately unreachable) perfect competition ideal. Some arguments in favour of privatisation of nationalised industries may also give that impression. It should be noted, however, that Hayek and the "Austrian" school of economic thought that he represented opposed anti-monopoly legislation on the grounds that the perfect competition model was of a static system which bears no relation to the dynamic reality of the economic system. Competition is a process in which free competition, given removal of any barriers on market entry, will ensure that monopolies' power to control markets will be short-lived.

Continuing prejudice against economics and economists owes something to their enthusiasm for the perfect competition tool of analysis, but more significant is the popular refusal to face the reality of scarcity and the necessity of means of allocating scarce resources. A current example is the abhorrence of motorists to any suggestion of road pricing, despite the apparent early success of rather simplistic congestion charging in Central London. On this subject a recent study by John Atherton "Marginalisation" (SCM, 2002) is insightful. The book seeks to discover why some communities are impoverished and marginalized in the global economy, why threatened and marginalized churches are often located in marginalized, urban communities, and what can be done. He is a theologian, but his analysis connects, economics, politics, sociology and other disciplines as well as theology. He follows in the footsteps of Ronald Preston in a school of social theology in Manchester that takes economics seriously. Of particular interest here then is his discussion of economics. He states that many theologians pronouncing on economics are either economically illiterate or perverse, principally by ignoring the basic economic problem of how to deal with scarcity; this, despite the seminal contribution of the Reverend Thomas Malthus in his essay on Population. But Atherton is not uncritical of modern economics. The gap between what Amartya Sen has called "engineering economics" and "ethical economics" has become too wide. Engineering economics is positive, commonly highly mathematical, value-free and, in principle, non-prescriptive while ethical economics is normative and influenced by ethical, human considerations.

There are several points here. First, Lionel Robbins made plain 70 years ago the importance of the distinction between ends and means. ("An Essay on the Nature and Significance of Economic Science", Macmillan 1932, 2nd ed. 1935.)Choices between value-determined ends - should there be more or less equality? should agriculture be protected by the CAP of the EU or not? - cannot be decided through economic analysis, by economists as economists. But those making such choices may be guided in their decisions, indeed they ought to be, by scientific economic analysis of the consequences of alternative policy choices. And if those consequences are shown to be inconsistent with other already chosen value-determined ends, then the economist should issue warnings. This is not to say that economists themselves should not have views on ethical issues; as Robbins says, they are better able to appreciate the implications of the problems put to them if they do. But it should be made clear where economic analysis ends and personal value judgements (or prejudices) begin. It is not clear that Atherton has fully understood this distinction.

Second, Atherton does make a valid point that there are some hidden value judgements in basic economic theory concerning human nature. "Economic Man" is assumed to be individualistic by nature, making choices to increase his personal satisfaction. There may be an unconscious gender bias here and the social or communal aspects of human nature seem to be ignored.

Third, some economists have lost the Robbinsian humility, seeming to exalt "the market" from a means to an end in itself. Non-economist critics may be forgiven for seeing Milton Friedman's amoral emphasis on simplistic monetarism, free markets and a minimalist state as a complete socio-political system built and run entirely on (nasty) economic principles. But, as Atherton observes, there is a long line of leading economists carrying on from Adam Smith and Malthus who have used economic analysis to propose policies to ameliorate the human lot in a social context. Alfred Marshall saw economics as a contribution to the study of the causes of poverty, John Maynard Keynes to the problem of long-term unemployment, James Meade to the human problems of international trade and inflation, Amartya Sen to development issues. (See further in Roger Middleton "Charlatans or Saviours? Economists and the British Economy from Marshall to Meade", Edward Elgar, 1998.)

It is no wonder the general public is confused about economics and economists - and sometimes hostile. B Caplin (Economic Journal, Vol 112, No 479, April 2002) and Alan Budd (The Royal Economic Society Newsletter, No 118, April 2002), one-time Chief Economic Adviser to the Government, discussed this in a recent exchange. Caplan's article "Systematically Biased Beliefs about Economics" was based on a survey of American citizens and professional economists in 1996. Opinion was sought about such issues as the economic effects of immigration, import controls, wage controls, taxation and government spending. He concludes that the most plausible explanation of the robust findings (adjustments being made for political ideology, education and class) is the naive theory that the economists are right and the public wrong. Some of the public "errors" may plausibly be attributed to bias in the data made available in the media, but they may also indicate priority of emotion over analysis, eg negative attitudes towards foreigners. Deviation from efficient policy prescriptions may reflect systematically biased beliefs rather than the influence of pressure groups. The main reasons why citizens thought the economy was not performing as well as it might were that taxes, foreign aid, profits, petrol prices and immigration are too high and that technology is replacing workers. Budd in his response, noting that education levels had little effect on the results, suggests that some economics taught at school or in preliminary courses in higher education had been forgotten or ignored. He confesses that on some issues his opinion would be closer to public opinion that of the economists and pleads for economists to be more modest in their claims. In a further riposte, Caplan disagrees: "Economists should speak up and be counted."

So, two-and-a-quarter centuries after The Wealth of Nations, the mistrust of economics and economists persists. Perhaps, as hinted above, economists have not always been the best apologists for their subject. That apart, there are two main reasons for this mistrust.

First, economics is a science which deals with important everyday matters - jobs, work, prices, taxes - about which everyone has an interest and reckons to understand. This puts it on a different plane from, say, physics, chemistry or even sociology, which most people reckon not to understand and fail to recognise their importance for everyday life. People care passionately, and rightly so, about economics affairs, but too often fail to understand its logic.

Second, economics is about making hard choices and in so doing points out unpopular truths. You can't have your cake and eat it. Air to breathe is in most cases for most of the time available in abundance; so there is no economic problem; air is free. But most resources are not like that; supply is finite; so there is a problem of scarcity - how are those resources to be allocated? Economic analysis exists to solve that problem and in setting about this economists are accused of being unfair. "Fair shares" can be achieved through rationing. But, contrary to popular belief, equal shares are not fair, since needs and tastes are not equal. So, economists argue, the price mechanism is one of mankind's most useful inventions. Nye Bevan, Minister of Health, resigned from the 1945-50 Labour Government because charges (prices) were put on NHS prescriptions for which demand was exceeding supply. He described Hugh Gaitskell, the Chancellor of the Exchequer and an economist, as a "desiccated calculating machine". Enough said.

© Richard Hall, 2003