Sunday, March 27, 2011

Economics and Theology

TGGP, a participant on this blog, has recently called my attention to the Austrian view of the relationship between economic theory and theology. See here and here. This was prompted by a comment I made on the Austrian economists blog concerning the importance of theology for the development and revision of economic theory. Austrians, however, wish to assert that economists have very little to learn from the theological literature.

I think there is some confusion here. Walter Block, for example, in his assessment of theology, relates economics to the concern of theologians with issues like "the just price" or "fairness." This is not what I meant. I am concerned rather with the philosophical implications of theology for the science of economics. It seems like Walter Block is simply picking up on Rothbard's discussion of the "just price" in his Power and Market, and wishes to argue that theologians do not understand economics.

But I think theology has a lot to teach us. I am by no means an expert on the subject, but I am currently reading the secondary literature on the philosophy of Baruch Spinoza with an eye to its relevance for economic theory. Spinoza is concerned primarily with the implications of God's omniscience. He argues that this fact reduces all phenomena --- mental and physical --- to God himself. Thus, omniscience guarantees the existence of only one entity, namely, God. To have perfect information of something is to have knowledge of that thing directly, rather than having knowledge of a representation of it. In other words, to have perfect knowledge of everything is the same thing as saying that everything is a part of me. There no longer is any distinction either in terms of temporality or space/extension. God is all and everything because he is omniscient.

This is all well and good you might say, but how does this relate to economics? Well, economists also use the concept of "perfect information" to justify the operation of a perfectly decentralized market economy. In fact, equilibrium in the economy requires the assumption of perfect knowledge. But for Spinoza, perfect knowledge would destroy the economy because it would preclude the existence of multiple individuals and exchange. Social cooperation and the division of labor are impossible under conditions of perfect knowledge. But for economic theory, perfect knowledge is required for social cooperation and the division of labor to operate optimally!

A lot follows from this if we accept Spinoza's logic (and what economist could deny it?). First of all, Hayek's notion of equilibrium as mutual plan coordination is incorrect because all plans are the product of a single agent in conditions of equilibrium. Also, one could also use this to attack Coase's theory of private property and externalities with zero transaction costs (perfectly available information).

I plan on spending the next semester (Spring 2009) reading up on Spinoza and the literature that surrounds his mature work to better understand this idea of omniscience. All the economist has to do is substitute the economy for God, and everything falls into place. Spinoza had a lot to say about knowledge and omniscience, and I think a lot of it is germane to the study and theory of economics.

This is what I meant when I said that economists should start reading the literature in theology. I also believe that John Duns Scotus had many important things to say on these matters. Someday I hope to write all this up in the form of a paper that will conclusively refute the entire corpus of economic theory (and the assumption of equilibrium as a prerequisite for economic optimality).

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