Throughout my life, a specter developed by the state has been used to haunt and cajole the world’s politics to favor centralized technocracy. I remember it first being called “global warming,” complete with apocalyptic prognostications meant to occur by specific years. Sometime after those predictions failed to materialize, it was rebranded as “climate change,” and the technocratic class’s predictions became more ethereal and vague.

The craze made its way into the discipline of economics, where mainstream theories of externalities are used to justify state intervention into the lives of their subjects under the guise of solving climate change. Despite their aspirations to be forward-thinking and progressive, medieval thinking would be preferable to the reasoning used by technocrats and mainstream economists.

Externalities and “Real” Prices

Beyond the broader categories of microeconomics and macroeconomics, mainstream economics has fragmented into mutually unintelligible fields, each with their own idiosyncratic axioms and laws, like labor economics, energy economics, health economics, development economics, and welfare economics. The latter is of the most interest concerning climate change and technocracy, as it deals primarily in externalities.

In mainstream economics, externalities are benefits (called positive externalities) or costs (called negative externalities) incurred by unrelated third parties due to a person’s consumption or production of a good. Since mainstream economics relies on a Marshallian framework when determining the existence of an externality, thanks to the contributions of Arthur Cecil Pigou, externalities are used to argue that the market fails to establish the “correct” price of certain goods, never reaching equilibrium on its own. Consequently, state intervention is required to correct the failure, either by regulating overproduction (brought about because negative externalities are not captured by market prices) or subsidizing underproducing industries (similarly brought about because positive externalities are not captured by market prices). Technocrats then use this theory to justify engineering society to be more “efficient.”

Austrians should readily see a few things wrong with this. The mainstream presumes that a state of actionless equilibrium, which people would naturally reach if various economic conditions ceased to change, would be achieved. This erroneous assumption forms the basis for determining that the market has failed and for the mainstream’s claim that the “real” supply-and-demand curves of a population are knowable.

Another incorrect assumption is that state interventions are more beneficial and efficient than the faulty market, as if an impossible system of interpersonal utility comparisons under bureaucratic management could ever be more efficient than private management by profit and loss. Furthermore, the theory’s foundation, that the cost of production determines supply, is ludicrous.

However, an often-overlooked error when talking about the climate craze is the assumption that externalities can be determined and measured at all. If we are to accept that externalities and their effects exist in the manner presented by the mainstream—something very charitable on our part—calculating the uncaptured costs from a negative externality to correct for them is impossible. The best that the mainstream can do is to develop models, and even then, only quantitative models attempt to estimate specific costs. By contrast, environmentalists typically opt for a qualitative method of measuring externalities, which relies on the author’s subjective assessment of data and general trends to determine a cost uncaptured by market prices. In either kind of model, it is only ever few people’s normative interpretations as to what constitutes an uncaptured cost that develops a social “true” cost.

Forgetting Medieval Knowledge

Using the theory of external costs, mainstreamers have been attempting to determine the “true” cost of carbon. The United States government in 2015 arrived at a social (external) cost of carbon at $36 per ton. The journal Nature, by trying to predict three centuries of costs derived from their models, determined in 2022 that the social cost of carbon was around $185 per ton.

What do these “true” costs have to do with medieval economics and knowledge? The mainstream has inhabited the false caricature of medieval economists. The usual story is that medieval Scholastics, particularly Thomas Aquinas, argued in favor of a just price derived by accounting for a wide variety of costs and labor, producing prices that ran contrary to voluntary market exchanges. This story is a myth, with Murray Rothbard saying,

Particularly revealing was a reply Aquinas made as early as 1262 in a letter to Jacopo da Viterbo (d. 1308), a lector of the Dominican monastery in Florence and later archbishop of Naples. In his letter, Aquinas referred to the common market price as the normative and just price with which to compare other contracts. Moreover, in the Summa, Aquinas notes the influence of supply and demand on prices.

If one were to make the same claims about modern economists and technocrats as are popularly used about medieval economics to describe them, they would be entirely justified. The “true” cost of carbon, and of any cost determined by mainstream externality theory, is derived using the same logic for which medievalism is falsely accused.

Somehow, progressive technocrats and contemporary economists have regressed far past the medieval age in terms of economic knowledge. Yet we are supposed to believe that these technocrats, armed with worse-than-medieval economic thought, are going to prevent certain climate catastrophes from occurring in the future. I am skeptical, and you should be too.