Understanding the True Meaning of Charity

The Misesian (TM): The economics behind gift giving and charity have long been a neglected topic among researchers and economists. What prompted you to launch your own investigation into the topic? Jörg Guido Hülsmann (JGH): The economic literature on gifts is actually quite massive, but it’s true that these writings don’t make it into standard micro- and macroeconomics. My initial interest was sparked by Benedict XVI’s 2009 encyclical letter Caritas in veritate. The pope wondered how the scope of gratuitous goods could be increased in the human economy, and he called on all people of good will to deal with this issue in thought and action. I put a doctoral student to work on this subject in 2011 and she successfully defended her French-language dissertation four years later. Still I sensed that much more work was needed and that the economics of gratuitous goods promised to shed new light on the very foundations of economics. In 2018, during a sabbatical semester, I therefore set out to study three specific areas in more detail: (1) How do gifts fit into the general theory of economic goods? Is the act of giving a distinct praxeological category on its own? (2) Which are the major types of positive externalities, or side-effect goods, that spring from profit seeking and other human actions that do not have the express purpose of providing gratuitous benefits to others? Which are the causes that promote and hamper the development of such side-effect goods? (3) In which ways and to what extent do government interventions influence these processes? At first, I thought this could be done fairly quickly, but I overrated my speed and underestimated the difficulty of the subject. All told it took me four years to produce a complete draft of the book. TM: The idea of Homo economicus has long plagued economics, and many people conclude the idea tells us that people engage in economic activity only for monetary profit. Does the Homo economicus model have value or is it an impediment to understanding the full economy? JGH: With a few exceptions, economists have always understood that the Homo economicus fiction is precisely that, a fiction. Its proper use is to serve as a pedagogical tool. Sums of money can be directly compared. It is clear that nine units of money are more than eight units of money. It is also straightforward to argue that everybody prefers more money to less money. But outside of this narrow pedagogical use, the fiction becomes problematic. It is clearly not the case that all goods can be given a monetary expression. Nor is it the case that people only care about money. Human action designed to acquire and hold money must be balanced against all alternative actions. People do not desire to own as much money as possible but the proper amount of money, along with the proper amounts of all other goods that they also wish to own. Last but not least, it is not the case that all human actions have the purpose of providing the agent with monetary revenue or other advantages. Genuine donations of time and material goods are also possible. TM: Why is the Austrian School uniquely suited to analyze gifts and charity? JGH: The starting point of Austrian reasoning is real human action, not any fictitious stipulations. Carl Menger strongly emphasized that acting man pursues different objectives that cannot be summarized by a single one. In other words, human action does not aim at maximizing a single variable, such as monetary profit or utility. It aims at establishing a proper balance between different goods that cannot be reduced to a common denominator. It follows that, from a Mengerian perspective, it is not difficult to concede the possibility that gifts are meant to serve others, and that the satisfaction of the needs of others has to be brought into a proper balance with the satisfaction of our own needs. By contrast, the Homo economicus of present-day mainstream economics maximizes a single variable; namely, utility. But this implies from the very outset that only one person counts; namely, the agent whose utility is being maximized. Whatever he may do for others he ultimately does for himself. Mainstream economists are therefore willy-nilly led to the conclusion that genuine gifts are impossible. They hold that donors always and everywhere give in order to benefit from “warm glow” feelings and for other selfish objectives. But such contentions have nothing to do with any science or empirical research. They are implied in the stipulated premise of Homo economicus. They are grounded in a fiction, not in a fact. Let me also highlight that Austrians are uniquely well positioned to understand the nature and scope of positive externalities. The reason is that, contrary to the mainstream, they do not subscribe to Aristotle’s equivalence postulate. Aristotle contended that a just exchange is an exchange of equal values. Unless ea