Paul and the Modern Economy

<a name=”TOP”></a> Conference to Celebrate 25 Years of the St Andrews Trust for the Study of Religion and Society, 7 November, 2009.

Keywords: History of Ideas, Methodology & Philosophy;

I am traditionalist enough to begin a presentation in a church with a biblical text. Verses 5 to 10 of chapter 6 of the first pastoral epistle from Paul to Timothy read:

“5: Perverse disputings of men of corrupt minds, and destitute of the truth, supposing that gain is godliness: from such withdraw thyself.

“6: But godliness with contentment is great gain.

“7: For we brought nothing into this world, and it is certain we can carry nothing out.
“8: And having food and raiment let us be therewith content.

“9: But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition.

“10: For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.”

The last verse is often misquoted as ‘money is the root of all evil’. The difference is important. Paul is not ruling out that money may be a useful part of an economy and of society, a means to an end. The evil arises when it becomes an end in itself. The Rev John Murray, who once chaired the trust reminded me that Jesus said:

“No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and Mammon.” (Matthew 6:24; Luke 16:13)

Money is vital for a modern economy, because a medium of exchange makes specialisation possible. Without money, exchange would depend upon a coincidence of wants. Without it we would have to be largely self-sufficient in our production and consumption and our standard of living would be much lower. Paul was not proscribing money , nor the economic organisation of specialisation which money makes possible.

There is a difference between money today and two millennia ago. In those days the money was – in the jargon – ‘fully backed’. Its coins were made of metal equal to their face value. Thus the denarius of the bible was made of silver – it was a day’s pay for a labourer. We have since realised that the material content of a coin – or even more so a note – need not be equal to its face value. What is required is that the community trusts that the money will be valued at its face value – thus saving the use of gold, silver and copper in the coin. Ultimately a currency’s value is that the government will accept it in payment of taxes – giving an unexpected meaning to ‘Render unto Caesar the things which are Caesar’s.’ (Matthew 22:21)

It is not a great stretch of Paul’s meaning to replace the term ‘money’ with ‘wealth’ (or Mannon). The epistle says we need sufficient to live with, but if we pursue wealth after that sufficiency we tread a path of destruction and perdition. That is not a bad description of what has increasingly happened in recent years. Instead of using money as a means to help attain a sufficiency, it has become an end in itself.

Today’s seminar is about responding to the recession. I want to talk about the Global Financial Crisis, which is a far greater challenge than the recession. Recessions are common. There has been about twenty in my lifetime – say one every three and a bit years. For about a third of the life of the St Andrews Trust the economy has been in recession. Recessions are an ordinary part of the economic life. A Global Financial Crisis – the last was eighty odd years ago – is a stimulus to ask fundamental questions about the economy.

So in the spirit of the Pauline epistle let us ask what is the purpose of an economy? You will appreciate that as an economist I am operating outside the normal competence of my profession. What I hope to do is give you some background to build a better understanding.

Utility and Happiness

Although there have been numerous modifications to the initial idea, most of economics is built around the notion that individuals maximise something called ‘utility’, which is their response to the various things they consume. A simple summary of the underlying philosophy might be ‘more means better’; for utility assumes that the greater the consumption the better off one is.

I dont have time to go through the caveats of this analysis – economists have many caveats – but ultimately it concludes that an approximate indicator of the total utility in a community is measured by aggregate total output, such as GDP (perhaps with modifications like for environmental degradation) and that a market economy (with modifications) is the best way to produce the maximum GDP – that is, maximum utility

Utility was thought to measure happiness. Jeremy Bentham, the founder of utilitarianism, said ‘happiness is the greatest good’. He is even better known for ‘the greatest happiness of the greatest number is the foundation of morals and legislation’. Two hundred years ago it was assumed the more one had the happier one was. But is this true?

Today we can directly measure happiness by asking people how happy they are. The New Zealand and international research can be summarised as follows

– Women say they are happier than men, all other things we can measure being equal.

– The young are happier, but as they grow older, they become less happy, hitting the bottom at the age of about 50. After that, life satisfaction starts improving again – for the over 65s their life satisfaction is about the same as at late teenage levels.

– On the whole of ethnicity does not matter, all other things being equal (although of course they are not)

– One of the strongest effects is that the divorced and single are less satisfied with their lives than the married are. These are averages; of course there are some married couples who are deeply unhappy, and there are singles and divorced who are on top of the world. But as a general rule, the married are happier.

– There appear to be few differences in satisfaction with life by educational attainment. However education may give one life opportunities which affect happiness.

– Thus, those in higher skilled occupations are happier than those in lower skilled ones.

– As far as employment status is concerned, the sick and unemployed are unhappier that those working, whether part or full time. Those studying or parenting are much the same as those working; the retired are likely to be slightly happier.

– The evidence supports the utilitarian view that the higher the income the happier one is. However the effect is surprisingly small, compared to the variables I have just covered. For instance a person on $15,000 a year with a job is likely to be happier than a sick person on $30,000; a person on $50,000 a year who is married is likely to be happier than a single person on $100,000 a year.

The small benefit in life satisfaction from additional income is even more paradoxical if we look at happiness and income through time. The American government have been surveying Americans for the last sixty odd years. In that time their average real incomes have tripled. But the average level of happiness has hardly changed.

We get a similar picture of average level of happiness by country. If Bentham and economics were right, we might expect countries with higher average incomes to have higher average happiness. Among rich countries – New Zealand and those like us – that is not true. There are country differences in average happiness but they are not explained by differences in average real incomes. All rich countries are about equally happy; the particularities which cause differences are nothing to do with income

So while for two hundred years it has been assumed that ‘more is better’, the evidence is that higher incomes do not seem to mean greater happiness, whether we are looking through time or between countries.

That higher incomes within a country generate a little more happiness at a point in time, suggests there is a relativity effect which I shall try to explain. But whatever that explanation, it is humbling for economist and would-be economists to realise that phenomena, such as marital status and job satisfaction are far more important than income is when it comes to determining life satisfaction.

While, as I have already mentioned, average happiness in rich economies does not rise as the economy gets richer, that is not true for those economies which are poor – say below two-thirds of the New Zealander’s average income. Below that threshold there is a stronger correlation between happiness and income by country. As income and consumption rise, people in economies below the threshold say they are happier.

What this suggests is that Bentham may have been right in his time, when ‘more’ did mean better. Increased production meant people ate better, were better clothed and lived more comfortably. Above a material threshold more spending does not increase happiness because the material requirements of life are already met. America seems to have been at that stage for about sixty years. We dont have the same longitudinal data for other rich countries, but New Zealand is among those that are now comfortably above the threshold.

The Maslow Hierarchy of Needs

Once a country is above the threshold what is the purpose of the extra production? To try to answer this (albeit only in part given the time I have) I am going to use  a framework widely used by other social sciences; the notion of a ‘hierarchy of needs’ as first proposed by the American (Jewish) psychologist Abraham Maslow.

Maslow’s hierarchy of needs involves five steps. At the bottom are physiological needs such as food, water, and shelter. A central role of an economy is to provide these basic needs. The rich world’s economies has done that pretty successfully, and most of their people are above the first step of the hierarchy of needs. However we should never forget that most of the world’s population live in countries which are not so rich, where their basic needs are not met, and where they are, on the whole, not so happy.

The second step up the Maslow hierarchy involves safety needs although perhaps we dont think a lot about them until, say, there is a crime or accident in our neighbourhood. While responding to these needs usually takes resources – jails and safety equipment for instance – economics is not at the centre of these issues.

Social Inequality

There is a curious paradox involving crime and social inequality. Richard Wilkinson in his The Impact of Inequality argues that the degree of social inequality affects the society’s health and welfare. Let me as a social scientist say I am cautious about his work, for while the findings are plausible they do not have the same rich data base that the happiness research depends upon.

Using data bases from to compare countries, the states of America and cities it appears that the greater the social inequality, the worse is average health (which is where the research area is most worked through). But the murder rate is also likely to be higher when there is greater social inequality, while there is also likely to be greater social hostility and lower social trust. In a different venue we might ask whether New Zealand’s rise in income inequality in the late 1980s and early 1990s triggered this phenomenon, increasing demand for law and order.

Apparently the greater the degree of social inequality the harder it is to secure the second step on the hierarchy of safety needs. So you may want to justify reducing social inequality in order to increase community welfare. That is a pretty self-serving reason for thinking about social inequality. The biblical tradition against social inequality is in different – ethical – terms.

I am going to ask my good friend Robin Lane to paraphrase from the Jerusalem Bible some verses from the prophet Amos. Robin was not only a minister of St Andrews but he was Chairman of the Trust during some of its most difficult financial years.

“Listen to this word, you cows of Remuera

Lolling in your summer palaces on Waiheke,

Oppressing the needy, crushing the poor,

Saying to your husbands,

‘Bring us a glass of Bollinger’!


The day is coming to you now

When the your bonds will turn to dust,

And homes will go in mortgagee sales.”

(Amos 4:1-3)

“I despise your prayers to the GDP,

Your worship of the share market.

No more chanting about your stinking bonuses.

But let justice flow like water

And integrity like an unfailing stream.”

(Amos 5:22-24)

Amos is arguing is that the rich and powerful should be concerned with those less well-off for reasons of righteousness, not because it is their advantage to increase safety. Admittedly the prophet argues that if the privileged dont, the wrath of God will come down upon them. In this more secular age one might see in Wilkinson the mechanism by which this wrath will be expressed. But Amos’s concerns are ethical, not instrumental ones.

Both Amos and Wilkinson are talking about living in a community. Instructively, the middle three steps in Maslow’s hierarchy involve genuine community. This contrasts with the first step of the primary physiological needs where in principle the economy which provides them may lack community – and many economic theories present an economy as independent of any society.

The next step up – it’s the middle step of the Maslow hierarchy – is love, affection and belonging, very much involving community relations. Economics has little to say about this need for people to seek to overcome feelings of loneliness and alienation. The Beatles tell us that ‘Money Cant Buy Me Love’; perhaps I should leave it there, except to note that money may provide the time and reduce the stress which makes effective love, affection and belonging possible.

The Importance of Self Esteem

The second to top step in the Maslow hierarchy is esteem, which covers both self-esteem and the esteem a person gets from others. Humans have a need for a stable, firmly based, high level of self-respect and public respect. Until they are fulfilled, the person feels inferior, weak, helpless and worthless. When their esteem needs are satisfied, the person feels self-confident and valuable as a person in the world.

At this stage economics comes back. Recall that while over time high average incomes do not increase happiness, at any point in time those with higher incomes are happier. One explanation for this – the currently most compelling in my view – is that higher income relative to others gives one greater self-esteem. So once the threshold required to meet Maslow’s first step of providing for physiological needs is passed, the value of income and wealth is that it helps enhance one’s self esteem.

We often rank people by their wealth, so that it appears that an individual can obtain greater public esteem by earning and owning more. Money may not be able to buy you love, but it seems to be able to buy public respect – or at least many people operate as if it can.

There are a couple of points here. First, if the only dimension of self esteem is income and wealth, then we have a striving to increase the inequality in order to obtain a higher ranking of public esteem. But recall that greater inequality increases crime, thereby undermining the second step of the hierarchy of safety needs.

Second, in order that income and wealth justify public esteem we have to believe that those with high incomes (which may accumulate into great wealth) represent some general benefit to the public. Economists have spent much time trying to establish whether this is generally true, although there is Hume’s problem that an ‘is’ cannot convert into an ‘ought’ – how the economy works does not tell us about what is ethical or good and bad.

Obviously in some cases income is associated with the social contribution. I hazard that Peter Jackson has made a greater contribution to the world welfare than most of us, although it is not clear that his contribution is in proportion to his income. However that is certainly not true for many others. It hardly explains the bonuses of those in financial institutions whose actions have contributed to the Global Financial Crisis. Nor can one easily say of those who have inherited wealth that their holdings in some way represent their personal merit. So we should be very cautious about assuming that high income or great wealth reflect social merit, and it would be unwise to assume that such people are automatically worthy of public esteem.

Those who desire public esteem from their wealth need to demonstrate it. Hence the importance of ‘Rich Lists’ – of showing off. Another way is by possessing what economists call ‘positional goods’ whose purpose is to demonstrate the wealth of the owner or consumer – to flaunt it. (Thorstein Veblin, called the phenomenon ‘conspicuous consumption’.) So the rich get bigger cars, not because they need them, but because the owner needs to publicly display that they are higher in the social ranking than the mass of car owners. Some people seem to have more houses than they can possibly use. Jewellery, designer clothes, expensive parties and so on are all potential positional goods too.

Positional goods are not confined just to the very rich. Recently, I was looking at housing in the more middling part of the market, and was struck that while recently constructed homes were larger, the additional space is not particularly functional. One can only live in a certain area – the rest is for display; ‘look at my house, it shows how well off I am. Dont you think more highly of me?’

This demand for positional goods becomes a major driver of economic growth, as we require more of them to demonstrate our position, and catch up on others. But the additional positional goods give only temporary relief. The higher incomes and technological innovation which economic growth generates continually undermine their value since those who are lower ranked acquire the positional goods too. Soon everyone can have a bigger car.

You observe this in the evolution of holiday homes. As they have become more common, the very rich have found their territories invaded by those they judge of lesser standing, so they move on, and on. Perhaps it is to a holiday home at a more remote location, or to a third one, or a yacht. So once the basic needs are met, there is no general rise in happiness over time. Yet that demand for self esteem from positional goods drives the rising production of material output.

At a certain point the prime positional good seems to be money itself. What strikes one about the bonuses that those in financial systems paid themselves is that they could not possibly spend them usefully. A million dollar bonus has not been unusual – that is what an unskilled worker earns in a lifetime.

This cult of the pursuit of monetary wealth and its accompanying driver of greed has become the religion of the modern capitalist state. Hardly any of those scrambling for the vast sums asked whether they were worth it in absolute terms. What was important to them was their ranking in the hierarchy, with the certainty that they ranked well above the ordinary public. Those with such wealth thought it somehow indicated that they were of greater value, ignoring the epistle’s cautions.

Their strategy for community esteem succeeded. We rarely mention that the rich’s achievements had an element of luck, and that they may have – as the epistle says – gained their goals in ungodly ways. Instead we attribute to them desirable characteristics, such as wisdom, beauty, intelligence and virtue which would not be evident were they ordinary citizens. As Tevye, from The Fiddler of the Roof, observed: if he were a rich man ‘the most important men in town would come to fawn on me/ they would ask me to advise them,/ … And it won’t make one bit of difference if I answer right or wrong./ when you’re rich, they think you really know’.

The ‘we’ is not just the rich, insofar as others honour the goals of the rich, even if they cannot attain them. The entire society has adopted monetary goals as appropriate social goals – consider the demand that we should accelerate the economic growth rate to join the top half of the OECD or Australia in terms of GDP per capita. That is not what Paul counselled Timothy as the way to godliness.

This is the modern day version of Paul’s concerns about the love of money. It may not be able to purchase love, but it seems to be able to purchase social esteem. Money becomes the ultimate positional good, with the love of it as the root of the evil. It led to the financial boom and then the bust.

As long as individuals think they can purchase self-esteem then the system is vulnerable to repeating the evil. No law can prevent this. Instead we need a society whose thinking is not dominated by wealth, in which we award public esteem for other attributes. Accepting this means abandoning public ranking based only on crude monetary values. It requires more subtle understanding of the human condition, and one in which there is no single dimension on which each of us could be ranked. Recall that the sweetest thing of all to Tevye was to discuss the holy books. That may not be your ultimate objective, but you can still respect others for whom it is.

The Marginalised

If there is a social hierarchy, there have to be some people at the bottom. Amos is concerned with them and how the elite ignores them. Things are not too different today.

As a rule most of our marginalised are above some economic threshold – say the standard set by Paul. Never-the-less they have limited opportunities to do fundamental things – some would call them social rights. They may have enough – perhaps just enough – for the first step on the Maslow hierarchy, but miss out on the higher steps.

That is why when we began the development of the poverty research project a quarter of a century ago, we used a relative poverty line, rather than an absolute one. The test – derived from the Royal Commission on Social Security – was about everyone’s ability to belong to and participate in society.

An elaboration of the Amos critique may be that there are two problems with out elite. First, by focussing on material wealth as the sole criterion of success in society, they diminish the self esteem of those who have little material wealth. Second they further diminish them by ignoring their needs and aspirations.

So it seems that the issue is not merely a matter of reducing social inequality. That too. But to do only that is to reinforce the notion that material wealth is the measure of all things – to serve Mammon and not God. We need to develop societies which are not governed by the sole principle of material wealth, that it is not the sole goal of community activity.

The Global Financial Crisis forcing us to think about the purpose of an economy. The Crisis is not merely a technical one to be resolved by the application of economics. It exposes an ethical crisis. While the public has had vigorous ethical disputes, they rarely touch on the economic system, other than concerns about the poor (and that in a very sotto voice). What is the purpose of an economy, is rarely addressed. Is money a mean to an ends or the end itself? By not addressing such questions we implicitly answer that what the economy is doing broadly meets our approval.

To the Top of the Hierarchy

Two millennia ago we were given a broader vision. But before coming to it let me return to the Maslow hierarchy of needs. It was self-actualisation, the realisation of one’s potentialities with the implication that each of us has a different potential to realise.

The psychologists’ debate on self-actualisation is fraught with complications, and is outside my professional competence. For a characterisation of self-actualisation I turn to Paul’s epistle to Timothy. Verse 11, which follows that condemning the love of money as the root of all evil, says:

“But thou, O man of God, flee these things; and follow after righteousness, godliness, faith, love, patience, meekness.”

I was proud that this presentation followed one by Lloyd Geering, New Zealand’s greatest public intellectual.

<a href=”#TOP”>Go to top</a>