Profit from an Islamic perspectives: Catholic Response to Zubair Hasan

This snowy weekend I was reading essays on profit when I stumbled upon Zubair Hasan’s Theory of profit from Islamic perspective.

It is a quick informative read that finished with a conclusion I do not agree with.

“In sum, for formulating an integrated operational profit theory let profit be defined as a
surplus over cost, the firm not the entrepreneur be made the focal point of its study, all
rudiments of dynamic change be regarded as its source, and scheme for its sharing
between capital and labor be devised to promote equity, growth, and peace in society.
Such a profit theory will impart realism to economics: both mainstream and Islamic”

My main disagreement with his conclusion is “let profit be defined as a surplus over cost”.

The late Spanish Scholastics had reached a different conclusion. Namely Saravia de la Calle, who said, “If we had to consider labor and risk in order to assess the just price no merchants would ever suffer a loss nor would abundance or scarcity of goods and money enter into the question.”

For Hasan’s search for a real definition of profit, he wanted numbers that could be measured. Yet by turning to “surplus over cost”, Hasan had prescribed the downfall to his theory of profit. For de la Calle correctly points out that “otherwise we would never find a case where merchants justly lose; they would always win.”

For de la Calle and other Scholastics, my source is Faith and Liberty: The Economic Thought of the Late Scholastics by Alejandro Chafuen.

Political Economy of Harry Potter: Ministry of Magic

The 2000’s have been a decade of Harry Potter. Although the series has finished, the story continues through the movies, and the love for the story spreads. Interestingly enough, a main theme through out the series has been the error in the Ministry of Magic who continuously undermine one of the most powerful greatest Wizard of all time.

The lesson? Government failure and their disillusion that they have the correct solution over the experts. Does real life need a villain in order for any fan of Harry Potter to see the errors of a strong central government which believes it knows better than the specialists?

Within the Potter world, could many events have been avoided if the Ministry of Magic had only listened to Harry Potter and Dumbledore?

Within the real world, could the events of the economic collapse been avoided if the government had corrected their policies according to what most economists viewed as the correct policy?

My last question is, why aren’t Harry Potter fans skeptical about government intervention?

Raising a child: Immediate solutions vs long term costs

After having a child, many people will come to you with advice. One of the main ones I have continued to hear is to not let your child get used to sleeping with you in your bed.
Yes, it maybe a solution to you finding some rest, but the some rest today, maybe the future loss of rest in the future when the child at an older age still feels comfortable sleeping in bed with his parents.

Now this parental wisdom makes complete sense. Why does it seem to be forgotten when addressing other issues such as bailouts and healthcare? Yes, bailing someone out may help them in the immediate future, but in the long run, will it not assist them to pick up on bad practices such as expecting to be bailed out again for poor judgment? Not being able to sleep unless in the parents bed isn't frowned upon by society if it were a child, but if a grown man were to do it, we'd think there is something wrong with him. Is this not what we are creating, incentives that entice grown men to feel the need to crawl in bed with their parents because they can't sleep?

Parental wisdom says it is best to listen to their cries holding the child or soothing him in order to put him back into his own bed so that he can make it through the night on his own. It is hard work as the easy solution of putting the child in your bed is only a decision away, but in the future it appears, you'll be glad you did only listen and help soothe the child by simply rocking them and supporting them.

Rocky and Economics

I have been stating that the Rocky series are some of the best films ever.
There have been books written about the economics and philosophies behind The Lord of the Rings, Matrix, and Star Wars series. Why has Rocky not made the list??

Rocky on comparative advantage:

                Yeah -- My ol' man who was
 never the sharpest told me --
 I weren't born with much brain
 so I better use my body.

   ROCKY
  (continuing)
 What's funny?

   ADRIAN
 My mother told me just the
 opposite.  She said, 'You
 weren't born with much of a
 body so you'd better develop
 your brain.'

Rocky on self interest and regulation:
Rocky Balboa:
Yo, don't I got some rights?
Boxing Commissioner:
What rights do you think you're referring to?
Rocky Balboa:
Rights, like in that official piece of paper they wrote down the street there?
Boxing Commissioner:
That's the Bill of Rights.
Rocky Balboa:
Yeah, yeah. Bill of Rights. Don't it say something about going after what makes you happy?
Boxing Commissioner:
No, that's the pursuit of happiness. But what's your point
Rocky Balboa:
My point is I'm pursuing something and nobody looks too happy about it.
Boxing Commissioner:
But... we're just looking out for your interests.
Rocky Balboa:
I appreciate that, but maybe you're looking out for your interests just a
little bit more. I mean you shouldn't be asking people to come down
here and pay the freight on something they paid, it still ain't good
enough, I mean you think that's right? I mean maybe you're doing your
job but why you gotta stop me from doing mine? Cause if you're willing
to go through all the battling you got to go through to get where you
want to get, who's got the right to stop you? I mean maybe some of you
guys got something you never finished, something you really want to do,
something you never said to someone, something... and you're told no,
even after you paid your dues? Who's got the right to tell you that,
who? Nobody! It's your right to listen to your gut, it ain't nobody's
right to say no after you earned the right to be where you want to be
and do what you want to do!... You know, the older I get the more
things I gotta leave behind, that's life. The only thing I'm asking you
guys to leave on the table... is what's right.
Perhaps this will become a regular theme, economics from Rocky.

Capitalism and Death Challenge

There have been many comments in recent threads across the net (such as this one) stating that to find the problem with abortion, embryonic stem cell research, euthanasia, etc one must simply follow the trail of money.

Let me first define money in economical terms.
Money is a

• Good
• Medium of Exchange
• Standard of Value
• Store of Value

Do they believe the "Culture of Death"to be a product of capitalism?
Why do we not hear, follow the trail of voters or political pull?
Let's hear your replies.
What do think the Culture of Death is a product of?
Is money the trail to follow to reach the root of the problem?
And how do you commend we fix it?

Critique of Capitalism by Hilaire Belloc

Hilaire Belloc on Industrial Capitalism.

Some quotes from his essay.

"It is equally clear that the more Catholic a country is, the less easily does it accommodate itself to the social arrangement of a proletariat subjected to millionaire monopolists."

"There is the point of Usury, which I have dealt with elsewhere, there is the all-important point of the Just Price, there is the point of the "Panis Humanus"-----man's daily bread, the right possessed by the human being according to Catholic doctrine to live, and to live decently."

"and what moral authority has mere money? Why should I reverence or obey the man who happens to be richer than I am?"

“Everything about Industrial Capitalism-----its ineptitude, its vulgarity, its crying injustice, its dirt, its proclaimed indifference to morals [making the end of man an accumulation of wealth, and of labor itself an inhuman repetition without interest and without savor] is at war with the Catholic spirit.”

“In the absence, the gradual decline [where it is declining] of the Catholic ethic, slavery is coming back. Anyone with eyes to see can watch it coming back slowly but certainly-----like a tide. Slowly but certainly the proletarian, by every political reform which secures his well-being under new rules of insurance, of State control in education, of State medicine and the rest, is developing into the slave, leaving the rich man apart and free. All industrial civilization is clearly moving towards the re-establishment of the Servile State, a matter I have discussed at greater length under the title of "the New Paganism." 2”

To what does Belloc refer in his essay? Is it the market economy? A market economy wouldn't have "State control in education". What then is it?

Your thoughts...

HT: Lucas Bernet

Was Pope John Paul II in support of Capitalism?

This article advocates that he was not. It has many arguments but let us begin with solidarity.

One paragraph in the article states:
"John Paul II criticized the economic systems that lacked solidarity, lacked the biblical and Catholic vision of the “option or love of preference for the poor ,” a phrase coined by Latin American theologians and later refined, which eventually became a key concept of the social teaching of the Church. The phrase appears also in John Paul II's Centes-imus Annus, Pastores Gregis, Tertio Millennio Adveniente and Ecclesia in America . "

Yet the Catechism of the Catholic Church defines solidarity as:

III. HUMAN SOLIDARITY

1939 The principle of solidarity, also articulated in terms of "friendship" or "social charity," is a direct demand of human and Christian brotherhood.⁴⁵

An error, "today abundantly widespread, is disregard for the law of human solidarity and charity, dictated and imposed both by our common origin and by the equality in rational nature of all men, whatever nation they belong to. This law is sealed by the sacrifice of redemption offered by Jesus Christ on the altar of the Cross to his heavenly Father, on behalf of sinful humanity."⁴⁶

1940 Solidarity is manifested in the first place by the distribution of goods and remuneration for work. It also presupposes the effort for a more just social order where tensions are better able to be reduced and conflicts more readily settled by negotiation.

1941 Socio-economic problems can be resolved only with the help of all the forms of solidarity: solidarity of the poor among themselves, between rich and poor, of workers among themselves, between employers and employees in a business, solidarity among nations and peoples. International solidarity is a requirement of the moral order; world peace depends in part upon this.

1942 The virtue of solidarity goes beyond material goods. In spreading the spiritual goods of the faith, the Church has promoted, and often opened new paths for, the development of temporal goods as well. And so throughout the centuries has the Lord's saying been verified: "Seek first his kingdom and his righteousness, and all these things shall be yours as well":⁴⁷

For two thousand years this sentiment has lived and endured in the soul of the Church, impelling souls then and now to the heroic charity of monastic farmers, liberators of slaves, healers of the sick, and messengers of faith, civilization, and science to all generations and all peoples for the sake of creating the social conditions capable of offering to everyone possible a life worthy of man and of a Christian.⁴⁸

Does Capitalism fall short in any of these areas defined by the Catechism or does the author of the article have a misconception of what Capitalism is?

In Memory of Pope John Paul II - Update 4/3

It was four years ago today when Pope John Paul II left us for the heavenly kingdom.

Let us pray for him today for his Beatification process so that we may know that he is in Heaven with our heavenly Father.

Let us also take a moment to reflect on his life's work and perhaps receive a chance to browse through the Vatican's website on him filled with his many homilies, encyclicals, and other works.
Overcoming evil with weapons of love becomes the way in which each person can contribute to the peace of all. Christians and believers of different religions are called to walk this path, together with those who accept the universal moral law.
- Homily from the Solemnity of Mary; January 1, 2005

UPDATE:
A man who had been shot is miraculously healed after receiving a rosary blessed by Pope John Paul II.

Milton Friedman on Greed

Earlier I had proposed a question on greed.
Milton Friedman responds.

Thursday Evening Highlight

Upon reading Fulton Sheen's You, I get to chapter "How You Are Re-made?" which has a great ending.

Do not fear God with a servile fear, for perfect love casts out such fear. Be bold enough then to believe that God is on your side, even when you forget to be on His. Live your life not by law, but by love. As St. Augustine put: "Love God and then do whatever you please." For if you love God, you will never do anything to hurt Him or break off relationship with Him - and then you will always be happy.

Furthermore- Pope Benedict had stated:

in his homily, to urge the faithful to imitate that trust in God, rather than submitting to "the tyranny of materialism" or "selfish illusions and false ideals." [...]
Economic development is certainly necessary, the Pope said, but "it is high time to place greater emphasis on this: every human being, every tiny human person, however weak, is created in the image and likeness of God."
Trust in God is a formula for hope, the Pontiff said. He reminded Christians: "Africa is called to hope through you and in you." By the witness of Christians, he proclaimed: "Africa can become the continent of hope!"

Do you think the Holy Father's words "tyranny of materialism" is against those who believe in a free market or those who look to government to intercede and save the economy?

Love and Economics on Econ Log with Bryan Caplan

Bryan Caplan, professor of economics at GMU, blogs at EconLog and he raises questions on Jennifer Roback Morse's book Love and Economics.

Why do I link it here?
Morse defines herself as a Catholic first, a parent second, and an economist third.
With priorities like this, why shouldn't we look into her work more.

She also rebuts Caplan and others in the comments.

Cardinal Fulton Sheen Challenge

The fact is: you want to be perfectly happy, but you are not. Your life has been a series of disappointments, shocks, and disillusionments. How have you reacted to your disappointments? Either you became cynical or else you became religious. If you became cynical, you blamed things rather than yourself. [....] In every instance, you made happiness extrinsic to yourself. No wonder you are never happy. You are chasing mirages until death overtakes you. But cynicism did not work, because in seeking pleasures you missed the joys of life. Pleasure is of the body; joy is of the mind and heart. [....] You can quickly become tired of pleasures, but you never tire of joys. A pleasure can be increased to a point where it ceases to be a pleasure; it may even begin to be a pain if carried beyond a certain point[....]

Furthermore, have you noticed that as your desire for pleasure increased, the satisfaction from the pleasure decreased? Do you think a philosophy of life is right that is based on the law of diminishing returns? (emphasis mine) - Fulton Sheen - Are You Happy?

Three Sentence Challenge: Update

I answer the question I had raised end of last week.

Obama orders funding embryo stem cell

I watched the signing ceremony on CNBC for President Obama's "lauded and historic" signing; an executive order to allow federal funding for embryonic stem cell research.

Larry Kudlow following the signing quickly added, "This is a bad idea. I have moral and religious objections to this type of stem cell research. It's a hot button issue. I'm not objecting to having private investment in the free market for this, but to ask the taxpayers, who have religious and moral objections, to pay for this is just a bad idea. It's a hot button issue."

Following that quote, the CNBC host reported that many stem cell research companies are already seeking those funds.

A glance at major news headlines tells a one-sided story. One states, "Stem-cell policy change liberating to researchers" [emphasis added]. Empryonic stem cell researches could get any person in the world for funding, but only now do they feel "liberated" now that the restrictions lifted on federal funding have been removed.

Many people assume (and rightly so due to the media) that funding for embryonic stem cell research stopped in 2001. This is incorrect. Connecticut, Arkansas, and most notibly California have been funding for it.

There are currently 70 stem cell lines that are producing very positive results and effective treatments - using adult stem cells.

This begs the question: Why is embryonic stem cell research still being pushed? Follow the money.


On a side note, if Roe v. Wade was overturned, embryonic stem cell research would not fit the criteria for an Abortion in the legal sense.

"Ab" in Abortion means literally "to pull away from". The term Abortion in US criminal law did not include the killing of the child. For example, in Virginia's anti-abortion statute, which passed in the 1850's through 1971, the language read, "No abortion, except to save the life of the mother or the child." So, clearly, Abortion did not mean the killing of the child, rather the separation of mother and child. And since the embryo is concieved in a petri dish, this would not be concidered an abortion.

If Roe v. Wade was thrown out due to no grounds to make the ruling in the first place, then to protect life you would need personhood amendment's in the states which defined life at conception, and did not take into account the means of conception, whether it be a petri dish or intercourse.

Three Sentence Challenge, Encyclical Edition : UPDATE

Let us say the Holy Father is working on his new encyclical and needs assistance in his economic thought.
He will take three sentences from anyone.
What would you write?

Update:
I had made the challenge, but I had not given my own three sentences.

1. Incentives matter
2. Institutions (rules of the game) matter
3. Price controls do not only have short term effects but long term effects.

I think if Frederick Bastiat were alive, he would advise the Holy Father with words from one of his famous essays.

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

I wish I had challenged five sentences so that Bastiat could add the next paragraphs:

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

Any system built on Greed will fail...

I look forward to this new encyclical with each passing word of its coming.
Morals are an important issue that should be addressed.

The question will be, do most Catholics believe that Capitalism is based on greed?
I know there are economic professors who teach that greed is good, but as Catholics, we recognize greed as one of the Seven Deadly Sins.
Are professors and Catholics discussing two different types of greed?
Or can Catholics not be Capitalists?

Catholicism and the Sciences

Many are still taught today that Galileo went against the Catholic Church when he proclaimed the Earth went around the sun. This is false, and that it is still taught / believed is very troublesome.

Truth is that many Catholics shared this belief of a helio-centric universe. It was Galileo's interpretation of scripture that caused the troubles, we all read about in history books.

Find more here.

Being a Catholic, does not take away economic logic. Demand curves slope downwards, and a price fix on anything will surely cause a problem in either a shortage or a surplus. As long as we don't make outlandish claims against scripture i.e. Jesus belongs to any political party, believes in any type of governing body, etc.

Thus we can disagree with Catholic Social Teaching as it is not dogmatic. I hope this will be the beginning of my posts against some beliefs held widely within the Church. For instance, that Fair Trade is good for the Third World.

Pigou Club for Children?

If I'm a Green Puritan it makes sense. Children impose a negative environmental externality. Therefore, the social cost of a child is greater than the private cost. So we draw our little externality graph, and pick Q*, and tax each additional child for n >2 to get the "socially optimal" number of children. With moral and economic understanding like this, I wouldn't be surprised to see it suggested at some point. 

Jonathon Porritt, who chairs the government’s Sustainable Development Commission, says curbing population growth through contraception and abortion must be at the heart of policies to fight global warming. He says political leaders and green campaigners should stop dodging the issue of environmental harm caused by an expanding population.

A new Social Encyclical to be coming

Pope Benedict XVI is working on a new encyclical on macro and micro economic policies.

Can find more info here.

What do you expect Pope Benedict XVI to address in this encyclical?

Signs and Symbols Help to Communicate

Man is an empirical being. We have been given our senses to learn things through our interaction with the world. Many philosophers try to use this as the staple to their thought, but man is not simply a body. We have a soul.

This is the notion that we begin to understand once we begin studying Pope John Paul II's Theology of the Body.
Our Lord, Jesus Christ, has given us certain Sacraments so that we may experience God within the world through our senses of the body.

The Catechism tells us that Man "needs signs and symbols to communicate."(no. 1146)

In the market economy, we have a sign that helps us to communicate. It allows us to know who needs what resource more than another in comparison with other individuals.
There is not enough information within the world for us to know how much of something or another any individual but ourselves need. Preferences are known only to the individual self, unless he tells another. Even then, his preference will change from one moment to the next and the person he had told will no longer know for a fact what the other needs.
If conventional communication such as speech is not suitable for us to notify others of our ever changing needs, how does man interact without conflict?

The answer is prices. Prices are the sign within the market economy. When one purchases an apple he sends a message to others that there is one less apple in the world. The prices of all the other apples would then change to signify the use of an apple. In this format, man can successfully interact without conflict.

What other signs help us communicate? What other symbols allow us to socially cooperate with one another peacefully?