Original Sin of Economics and Original Sin of macroeconomics

Lynn Parramore in this INET article writes that we need to discuss original sin of economics:

When you think of original sin and the fall of Adam and Eve, an economics class probably isn’t the first thing that comes to mind. After all, economics is a secular discipline. Or is it?

Maybe not entirely, considering that the earliest economic thinkers had religion very much in mind when they laid down its tenets. Economist A.M.C. Waterman notes that economics was a branch of moral theology in the Christian West until the eighteenth century, while ethics professor Michael S. Northcott holds what we now call “economics” or “political economy” was the province of moral philosophers and theologians until the mid-nineteenth century.

Adam Smith was the son of a devout Presbyterian mother and lived in a world dominated by the Kirk. As economist Paul Oslington notes, his writings, despite a certain amount of personal skepticism of religion, are strewn with religious concepts, such as his view of nature as demonstrating “providential care” and the “wisdom and goodness of God” (Theory of Moral Sentiments). And, as Oslington attests, Smith’s work was often interpreted theologically by early economic enthusiasts like Scottish minister and political economist Thomas Chalmers and Richard Whately, holder of the first chair in economics at a British university. Both saw God’s will in the conversion of self-interested actions into the greatest economic good.

This God, it appears, was a classical economist.

According to Northcott in “Political Theology and Political Economy,” economics developed with a Christian perspective that can be traced to a particular time and place. This view held that human beings, and nature in general, were forever tarnished by the Fall and Original Sin. He points to the Reformation, which swept through Europe in the 1500s, as the catalyst for a widely accepted view of hopelessly sinful humans capable of redemption only through individual faith. The combination of pessimism and individualism, Northcott argues, is the key innovation of this period of Christian theology, which manifests in the work of Thomas Hobbes, who depicted wicked humans who would run amok unless the State protected them by underwriting private property, law enforcement, and contracts.

Economic individualism is born, with the State as its guarantor


In macroeocnomics, origial sin applies to countries that can’t raise debt in their own currency.

Mert Onen, Hyun Song Shin and Goetz von Peter in this BIS article say emerging markets have made progress towards overcoming original based on new data:

This paper introduces a new dataset on emerging market sovereign bonds, distinguishing between the currency of denomination and the residence of investors. Our dataset is on long-term government bonds and provides a more complete coverage of bonds issued in domestic markets. We document several salient trends. While a preponderance of foreign currency bonds is associated with greater holdings by foreign investors, the correlation is weak at best. Over time, emerging market governments have enhanced their ability to borrow abroad in their own currency, reducing their reliance on foreign currency debt. In this sense, EME sovereigns have made progress toward overcoming original sin. Nevertheless, the greater role of market and duration risk and the activity of foreign non-bank financial intermediaries (NBFIs) mean that emerging markets remain subject to fluctuations in global financial conditions.



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