Economics East of Eden

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."

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. In a term, “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.

This post was adapted from my personal blog, A Fuller's Soap.