Redeeming Economics (6) Augustine's Solution

In his book called Redeeming Economics, John D Mueller explains how Augustine resolved the mother's problem.

If we consider her more closely, we realize that the mother is always doing two things at the same time, not one: she is simultaneously ranking persons as ends, and she is ranking things as means. To understand how she does this, we need to turn to St. Augustine, who might with justice be called the co-founder of economics (along with Aristotle). For it was St. Augustine, as a matter of historical fact, who first described how every human person uses two decision-making tools to integrate his or her economic decisions about scarce means with moral decisions about their ends or ultimate goals. Augustine’s explanation of economic value begins with the broader question of “goods” and “values” in general. So it is of interest not only to the economist or historian of economics, but also to anyone trying to understand the role that economic choice does or should play in his or her own life. Augustine begins by taking a sort of inventory of everything that can be known, and which therefore can be a possible object of value. Everything is obviously a thing, “for what is not a thing is nothing at all.”

We humans are ourselves among those things. Our intellect is what enables us to know what a thing is. And considering things in themselves, we recognize a kind of “scale of being,” ascending from inanimate objects to plants to animals to humans to God. Everything’s intrinsic value is simply its degree of being. Whatever exists, insofar as it exists, is good, in exactly that degree. But if we consider a thing in relation to ourselves, we consider it potentially as something to attain (or avoid): as an object of the will. In this light, a thing is viewed either as an end or a means to an end. An end is said to be “enjoyed,” and a means is said to be “used.” But which things are ends and which are means? What should we enjoy and what should we use? This requires us to rank things, not according to their intrinsic value, but their value to us. Yet we are not forced to choose one thing over another, even if we recognize that either its intrinsic or its moral value is higher. We can choose rightly or wrongly, whether measured by others or by our own understanding. That’s what we mean by “free will.”

By mentioning intellect and free will, we express an important factual distinction among things. Some things are endowed with intellect and free will—these we call “persons”—and some are not. All humans are persons, since humans are “rational animals,” as Aristotle put it, and “made in the image and likeness of God,” as the Bible puts it. Humans are, as far as we know, the only animals that are persons. Other animals are like us in having sense, imagination, memory, affections, desires and aversions, and the ability to calculate means—but not in possessing intellect. Animals therefore also have choice, but not free choice: they can choose their means, but not their ends; because the ends are already determined by natural inclination. Only persons can choose their ends as well as their means. But if all humans are persons, not all persons are human: notably God, whose existence we know both by reason reflecting on experience and by divine revelation.

All this indicates that in human action, says Augustine, persons ought to be considered as ends, and other things as means. This is true, both as a description of, and a prescription for, human action. The Two Great Commandments—“You shall love God with all your heart, soul and mind,” and “You shall love your neighbor as yourself”—agree with the “scale of being” that we find in reality. They are therefore in accord with reason. No commandment, “You shall love yourself,” is necessary, says Augustine, because this is taken for granted: everyone loves himself by nature. The whole problem is to love ourselves “ordinately,” that is, while observing the proper ranking of ultimate moral goods.

But what sets Augustine apart as the co-founder of economics is not his prescription, but his description. Others had said—and would, like Emmanuel Kant, say after him—that persons ought to be treated as ends and not merely as means. Not only Jewish prophets and Christian Apostles, but also Confucian sages and Greek and Roman philosophers, had argued before Augustine, and would argue long after him, about what humans ought to hold as their summum bonum, or highest good. What sets Augustine apart as an analyst is his observation that every human does, in fact, always act with some person as the ultimate end, even if that person is only him- or herself. A miser is said to love money as his highest good, notes Augustine—yet he still parts with it to buy bread to continue living. Augustine does not, however, jump to the empirically false conclusion that every human acts solely for him- or herself. That is precisely what each person is free to decide.

After making this point, Augustine immediately goes on to make another important observation: our ranking of both ends and means is necessarily affected by the fact of scarcity. What does it mean, he asks, to say that “you shall love your neighbor as yourself”? Since loving a person means willing him some good, the kind of love is conditioned by the person loved and the kind of good we will to him. Plato and Aristotle had distinguished between goods of the soul (such as knowledge of truth, or moral virtue), goods of the body (such as health, beauty or physical excellence), and external goods (such as wealth). They noted that external goods should be subordinated to goods of the body, and goods of the body and external goods to goods of the soul. We should therefore want all, but especially the higher, goods, both for ourselves and for those persons we love. But Augustine adds that what “loving others equally” means depends on whether or not the good which we will to them is “diminished by being shared with others.”11 If the good is not scarce, then no problem arises. But when it comes to distributing our scarce goods, it is impossible to share equally with everyone, and therefore in practice we cannot rank all persons equally with ourselves...

However, Augustine goes farther, by observing that every person, by virtue of being a person and therefore having interdependent relations with others, also has a “distribution function,” which determines how the person allocates his scarce goods between himself and others. The principle of distributive justice in any community is independent of the transactions between individual members. But in the case of a person, the principle of distributive justice is identical with the person’s ranking of other persons relative to him- or herself: that is, his love of the other person. We might call this the “Good Samaritan principle,” because it operates whether or not the person expects to receive any current or future benefit from the persons to whom he allocates the use of his goods.13 We’ll consider later on what this means in practice. Augustine had worked all this out and written it around 396 A.D., shortly after becoming bishop of Hippo. But in writing City of God, a sort of history of the human race, which he began in 410, Augustine had to develop a further analytical refinement, which economists now call the “utility function.” Talking about ends and means, “enjoyment” and “use,” becomes difficult when we are trying to describe the actions of men who obey the moral laws as well as of those who don’t. What the good man seeks as his end to “enjoy”, the bad man “uses” as his means.

Moreover, the terminology becomes confusing whenever an act involves a good which is an end under one aspect and a means under another. For example, one’s body and mental skills are an integral part of his person, and yet for analytical purposes the person must be said to “use” this “human capital,” for example, to earn wages to pay for other goods, such as food, which are necessary to sustain the person—whether himself or someone else—who is the end he is said to “enjoy.” And this person who is the purpose of one action may love other persons or intend as his highest end the enjoyment of God, still another person (or, in the Christian understanding, persons). A more general terminology was therefore necessary, and such a terminology is exactly what one needs to relate the personal scales of preference to market prices.14 Utility, explained Augustine, is simply the value of something, not in itself, but viewed as a means to some other end intended by the evaluating person. For example, Augustine noted, the intrinsic value of a live mouse—a sentient being—is obviously higher than that of a plant; yet most of us prefer to have loaves of bread (made from dead plants) rather than live mice in the house.

What Augustine has done, then, is to scale or rank everything in the universe in three ways. The first is the “scale of being,” which includes everything, ranked by its degree of being or intrinsic value. The second is the ultimate moral scale, on which each person selects and ranks the ultimate ends or purposes of action; and these ends consist entirely of persons (always including, but not limited to, the person doing the ranking). The third is the scale of utility, by which each person chooses and ranks the means to attain the ends chosen in his ultimate moral scale. And Augustine has explained that the rankings of both ends and means will be affected by the fact of scarcity. Let’s apply Augustine’s insight to explain what the mother is doing in distributing goods like milk to her family. We’ll break the explanation into two parts, starting with her ranking of means, like milk, before considering her ranking of persons as ends. For the first part, we can draw on Wicksteed’s lucid discussion.

The mother’s choice of means. The mother is forced to choose among different goods because of their scarcity: each good has a cost, and her budget of money, time and other resources is limited. But this raises a fundamental question: how can she value various objects that are so intrinsically different? She has a problem of comparing apples and oranges, so to speak, on a massive scale. How can the mother decide how much of the family’s resources to allocate toward food, a piano, the children’s French lessons or Indian famine relief? She does this, not by focusing on the qualities in which the various goods and services differ, but on the quantitative respect in which they are similar: namely, their ability to satisfy human needs or wants. This is what we always have to do when we choose between one scarce good and another.

A large part of what the mother is doing, then, is comparing the “differential significances” or “marginal utilities” of goods: whether of the same good in different uses, or of different goods in the same use, or of different goods in different uses. “We may conceive of a general ‘scale of preferences’ or ‘relative scale of estimates’ on which all objects of desire or pursuit (positive or negative) find their place, and which registers the terms on which they would be accepted as equivalents or preferred one to the other.”16 Such comparisons are necessary whenever we choose among limited alternatives, whether or not exchange is involved.

In all her economic decisions about scarce means, the mother is constantly applying two fundamental principles. The first is what Wicksteed calls the “declining marginal significance” of scarce goods. We said that the significance of any given amount of a good depends on how much of the good we already possess, and that in valuing goods we are always considering the difference made by one unit added to or subtracted from what we own. Declining marginal significance means that each additional unit adds to one’s well-being, but not by as much as the previous unit. The value of a glassful of milk depends not only on whether you like milk, but also on how long it’s been since you last drank any. If you’ve just had two glasses, the value of a third glass will be lower than if you haven’t had any since yesterday. This is why a baby, when she is hungry, drinks the first half of the bottle of milk more eagerly than the second half, until at some point she is full. If she drinks too much she may wish she had had less. Too much of a “good” can turn into a “bad.” In that case, the total significance does not merely rise at a slower rate, but actually falls. But when the baby feels better and gets hungry again, the milk turns back into a “good.” I said that as the quantity of a scarce good increases, its marginal significance declines “after a certain point.” Before that point, it’s quite possible for the marginal significance of a good to increase with its quantity.

When considering a single good in different uses, like milk, the mother applies the rule of declining marginal significances by satisfying the most urgent need first. Let’s return to the simple example with which we started. We recall that the baby gets to drink until she is full, before any milk goes to the older children. The older children’s cups in turn ordinarily take precedence over milk for the adults’ tea or coffee; and milk for the adults’ daily coffee or tea normally takes precedence over an occasional pudding or a saucerful as a treat for the family cat. The baby receives her milk before the older children because her need is judged more urgent, which means that more milk is necessary to reduce its marginal significance to any given level. The older children’s need for milk comes next in significance, which means that it takes less milk to reduce its urgency to the same level, as judged by the mother, as the baby’s after drinking the larger amount. And so on, down to the cat. That these priorities are not absolute becomes clear if the quantity available for all uses should change—say, because half the milk spoils, or if an unexpected use should arise. If the baby can drink other liquids like juice, or if water can be mixed with baby formula, there is the possibility of using a little less milk for the baby, and so leaving at least some for the older children. Or if there is no spoilage but the mother’s friend should unexpectedly drop by for tea or coffee, or wish to borrow a cup for a recipe, there is no great harm in giving the older children cups of milk that are slightly less full that day and serving them more of other food or liquids. The cat may receive extra dry food and affection, but no milk. Or even the milk for mixing in the adults’ beverages may give way if, say, the cat suddenly turns up after a week’s absence.

But here we must recall our earlier discussion. The mother is always doing two things, not one thing: she is weighing persons as ends and things as means. She is not merely considering the marginal significance of milk: she is effectively multiplying the marginal significance of milk times what might be called the “marginal significance of the person.”

Mueller sums up Augustines solution to the Mother's problem this way. Neoclassical economics cannot explain this.

Instead of always doing one thing—maximising the utility to herself of various things—the mother is always doing two things: weighing the importance of persons as ends, and the utility of things to serve those persons.