November 12, 2023
In the Christian story, living “east of Eden” means living in a world marred by sin.
Our repeated “missing of the mark” means we don’t love the Lord with all our hearts, minds, souls, and strength. And we don’t love our neighbors as ourselves.
What are the implications of sin for conceptualizing economics?
Briefly: That economic problems come in two flavors. Some problems flow directly from sin—let’s put these in a bucket called “opportunism,” though that term has its detractors. Then there are problems that would exist without sin—let’s file these under “coordination,” though that term also has critics.
Opportunism
Let’s let “opportunism” mean: “An unauthorized transfer of resources from one party to another.”
Opportunism corresponds to issues of measurement, incentive-alignment, transaction costs, theft, shirking, and the like. I use various terms here because not everyone wants to just call these “transaction costs.”
When I shirk at work, I’m transferring resources from my employer to myself. Yes, my wage might account for the possibility I shirk. A lower wage is a “solution.” We’re not saying opportunism is insurmountable, only that it reduces wealth. No shirking means no need to adjust the wage, no need to create complicated incentive schemes, and no need to monitor me.
Coordination
Let’s use “coordination” to mean: “Using resources where they create the most value.”
This second problem corresponds to economic calculation. As long as there is an extensive division of labor, problems of coordination exist—even when sinless angels exchange. If opportunism is about “doing the right thing,” coordination is about “knowing what the right thing to do is.”
How do I know which capital goods to use when making cars? How do I know whether to make cars? All I want to do is serve my neighbor, but when my neighbor is a distant, anonymous other, and I’m trading his wants off against a million others, I need a guide.
Enter private property, prices, and profit & loss. In other words, private property is not a concession to a sinful world. It’s an institutional pre-requisite to widespread human flourishing, even in paradise.
A few other takeaways:
1.
Some combination of Austrian economics and New Institutional Economics is best. Problems of coordination (as I’ve defined it) correspond roughly to AE. NIE scholars mostly addressed problems of opportunism. “Epistemic institutionalism” and “incentive institutionalism.” The distinction here isn’t clean, but I do think it’s useful. Much of the NIE, for instance, focuses on “information problems.” Does that mean those are really problems of coordination? I still think opportunism is a better descriptor because so many of these “information problems” are only problems because imperfect information allows for an unauthorized transfer of resources.
2.
I don’t think scarcity is a result of the Fall. Scarcity exists at the beginning, separating Creator from creature. Adam can’t be in two places at once. But the Fall did aggravate scarcity. As a former colleague of mine puts it, after the Fall, mankind faces a “cherubim problem.” We want to get back to a place of relative abundance, but instead, we toil by the sweat of our brow.