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Economics as Religion: The Paradox of Self-Interest

Over the next few weeks, I will be live-blogging Robert H. Nelson’s Economics as ReligionThough the book is somewhat dated (published 2001), its discussion is still relevant. This is the first post in this series. Hope you enjoy!

Introduction: The Market Paradox

The role of self-interest in economic growth is a paradox.

Of course, no serious economist doubts the role of self-interest in facilitating economic growth. This idea began with Adam Smith and has since become an indisputable pillar of modern economic thought. But this doesn’t mean that the blessings of the invisible hand go without saying. In fact, defining the role of self-interest in economics is complex and represents a challenge to economists who seek to describe and prescribe the causes of economic prosperity.

“Society as a whole benefits from a well-functioning market, but many individuals could in fact themselves gain significantly from corrupt and other self-interested actions.”

While self-interest is undisputed as the motive for production and exchange, it is known to be the reason for theft, dishonesty, and countless other unethical (and economically-detrimental) behaviors. Africa, for example, is full of human beings pursuing their own self-interest. Yet corruption is rampant across the continent because no clear distinction exists between “legitimate” and “illegitimate” self-interested behavior. “The boundaries of community,” Nelson writes, “seldom extend much beyond the clan and the tribe, an arena much smaller than that required for the realization of the full benefits of competitive markets.”

Thus, Nelson explains, the pouring of financial aid into countries like Zambia has done little in the way of facilitating sustainable economic growth. While Zambia was for decades been one of the largest recipients of foreign aid in Africa, its GDP was actually less in the 1990s than it was in 1964.

Such phenomena has all but destroyed the once-common notion that a shortage of financial capital was the cause of economic underdevelopment. In its place, a focus on social factors and the role of social pressures in restricting illegitimate self-interested behavior has become of prime concern to those economists who seek to understand and aid in economic development.

One logical conclusion to such an idea is that wealthy countries must have more of these social pressures than poorer, underdeveloped countries. However, literature on this topic is sparse. Whereas economists around the world dedicate their energies to studying third-world economies, few have written at any length about the social values that have allowed for the sort of prosperity that exists in the modern-day United States.

“Culturally…a key requirement for a market system will be a set of values in society that offer vigorous encouragement to self-interest in the market and yet maintain powerful normative inhibitions on the expression of self-interest in many other less socially acceptable areas.”

As Nelson admits, describing such a culture is difficult in the ordinary language of the social sciences, not in the least because of the obvious allusion to religious belief. While the practical consequences of religious belief can be (and is often) integrated into economic analysis in the form of “preferences,” the sources of religious belief are all but unknown in traditional economic literature. Yet hardly anyone denies the special dependence of economic systems on underlying religious belief that provide a normative foundation for market activity.

Theologians, then, and not economists, may be the most important members of society when it comes to promoting economic growth. Their religious prescriptions often have much greater influence on the actions of the general public than cold, calculating economists, and–as argued above–religious belief is the most important cause of economic growth. But instead of simply handing the keys to priests and ministers, economists of the twentieth century assumed the role of priest themselves.

“Economists played their most important role in American society in the twentieth century as theologians and preachers of a religion.”

This religion, Nelson argues, has as its central tenet a limitation on self-interested behavior to (generally) those actions that are considered “legitimate” from a property-rights perspective. Economists justify this limitation by upholding the market economy as a religious end–its existence paving the road to economic progress, which will ultimately create “heaven on earth.” Indeed, many twentieth-century economists viewed economic progress as the means to create utopia. Describing their sentiments, Nelson writes, “If the love of money is…the root of all evil, the end of scarcity and the arrival of an era of full material abundance can mean the end of evil in the world.”

The implications of such ideas will be explored in later chapters. However, one obvious consequence is the justification of self-interested behavior in a market setting. Unlike Marxism and other “economic religions,” the religion of economic progress has facilitated economic growth by asserting that self-interest is, indeed, the fount of progress when manifested in the form of voluntary production, consumption and exchange.

Finally, one other immediate consequence of such a belief has to do with economic professionalism. If progress is a religious end that no rational human beings should act to thwart, then economist’s role in society is unlike any that of any other professional. This, too, will be explored in later chapters.

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