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Ethics In Economic
Theory
Charles K.
Wilber (University
of Notre Dame, USA)
© Copyright Charles
K. Wilber
Introduction
Economics
and ethics are interrelated because both economists (theorists and policy
advisers) and economic actors (sellers, consumers, workers) hold ethical
values that help shape their behavior. In the
first case economists must try to understand how their own values affect
both economic theory and policy. In the second case this means economic
analysis must broaden its conception of human behavior.
In
this article I will focus on the first of these two issues-- economists
construct theory upon a particular world view, resulting in basic
concepts, such as efficiency, being value-laden.
Values,
World Views and the Economist
There is a
substantial body of literature on methodological issues in economics
(though seldom found in the “top” journals), much of it calling into
question its supposed scientific character. Part of that literature deals
explicitly with the impact of ethical value judgments on economics as a
science. Of this literature, a greater amount argues the value‑permeation
thesis than defends the idea of value‑neutrality. However,
value‑neutrality of economics as a science remains the dominant position
in the day-to-day work of mainstream economists. It seems expedient to
begin by laying out its arguments.
Value-Neutrality.
There are two pervasive tenets to the value‑neutrality argument. The first
is a reliance on the Humean guillotine which
categorically separates fact (`what is') from value (`what ought to be');
also known as the positive/normative dichotomy. The second basic tenet
strongly supports the first by claiming that since we have objective
access to the empirical world through our sense experience, scientists
need not concern themselves with `what ought to be.' This second tenet is
the really crucial point and the one which post‑positivist philosophy of
science has sought to undermine.
The
value neutral position argues that scientific economics is comprised of
three separate components:
pre‑scientific decisions, scientific analysis, and post‑scientific
application. However, there is a difference between the value judgments of
pre‑science and of post‑science. Hume's guillotine is protected by drawing
a distinction in social science between two types of value judgments. A
characterizing value judgement expresses an estimate of the degree
to which some commonly recognized (and more or less clearly defined) type
of action, object, or institution is embodied in a given instance. An
appraising value judgment expresses approval or disapproval either
of some moral (or social) ideal, or of some action (or institution)
because of commitment to such an ideal. Some value judgments are thus not
really value judgments of any ethical significance, but judgments that
merely allow one to carry on the scientific
enterprise.1
In
other attempts to reconcile value judgments and objective science, the
notion of `brute fact' is often used. This is the claim that facts are in
some sense `out there' for all to see, independent of scientific theory.
Unfortunately for the value neutral position, the idea of brute fact has
fallen on hard times in the philosophy of science literature. Today it is
generally recognized even by sophisticated logical empiricists that facts
are theory‑laden and that theories are tested by those facts deemed
important by the theory.
The
defense of value-neutrality still stands, but
the pillars have been shaken. Blaug conceded
that both `factual' and `moral' arguments rest `at bottom' `on certain
definite techniques of persuasion, which in turn depend for their
effectiveness, on shared values of one kind or another.'2 And,
of course, McCloskey’s writings on the “rhetoric of economics” have taken
this argument into the heart of economics– The American Economic
Review– where mainstream economists have studiously ignored
it.3
Value
Permeation. The value permeation position argues that while
science is driven by a search for truth, it is not interested in just any
truth. The relevant truth must be both `interesting' and `valuable,' and
thus all science is goal‑directed activity. Further, the criteria for a
`good' or `acceptable' scientific theory cannot be ranked in terms of
their intrinsic importance, but only in relation to the degree they serve
particular goals of the scientific community.
Theory
choice is not, therefore, based objectively on non‑controversial criteria
(e.g., degree of verification or corroboration), but on criteria that are
inevitably value‑laden (i.e. the extent to which each theory serves
specific ends). The scientists' search for `valuable truth' is directed by
what they think society (and science) ought to do. No amount of evidence
ever completely confirms or disconfirms any empirical hypothesis but only
renders it more or less probable.
Another
line of reasoning, Kuhnian in character, has
been another line of attack. Kuhn, referring to the natural sciences,
speaks of paradigms, characterized by the shared values of a given
scientific community.4 It is Kuhn's rejection of the second
tenet‑‑ that we have objective access to the empirical world through our
sense experience‑‑ that is important for those opposed to the
value‑neutrality position. He argues that the empirical world can be known
only through the filter of a theory; thus, facts are theory‑laden. Thus, a
major argument of those who build on Kuhn's approach runs as follows: A
world view greatly influences the scientific paradigm out of which one
works; value judgments are closely associated with the world view;
theories must remain coherent with the world view; facts themselves are
theory‑laden; therefore, the whole scientific venture is permeated by
value judgments from the start. This world view, or Weltanschauung, shapes the interests of the
scientist and determines the questions asked, the problems considered
important, the answers deemed acceptable, the axioms of the theory, the
choice of relevant facts, the hypotheses proposed to account for such
facts, the criteria used to assess the fruitfulness of competing theories,
the language in which results are to be formulated, and so
on.
The
Neo‑Classical World View:
A Case in
Point
Let me
illustrate this world view argument by applying it to neo‑classical
economics.5 The world view of mainstream neo‑classical
economics is closely associated with the notion of the good embedded in
its particular scientific paradigm. It is founded on a world view made up
of the following propositions:
1.
Human nature is such that humans are a/ self‑interested and b/ rational.
That is, they know their own interest and choose from among a variety of
means in order to maximize that interest.
2. The
purpose of human life is for individuals to pursue happiness as they
themselves define it. Therefore, it is essential that they be left free to
do so.
3. The
ideal social world is a gathering of free individuals who compete with
each other under conditions of scarcity to achieve self‑interested ends.
As in the natural world with physical entities, in the social world too
there are forces at work which move economic agents toward equilibrium
positions.
Neo-classical
economists either accept the preceding empirically unverifiable and unfalsifiable statements or, barring overt acceptance,
conduct scientific inquiry with methods based thereon. The first two
propositions contain the motivating force in economic life (satisfaction
of self‑interest) and the third proposition spells out the context in
which that force works itself out. It is interesting that experimental
studies by psychologists indicate that people are concerned about
cooperating with others and with being fair, not just preoccupied with
their own self-interest. Ironically, these same studies indicate that
those people attracted into economics are more self-interested and taking
economics makes people even more self-interested. Thus economic theory
creates a self-fulfilling prophecy.6
It
seems fairly clear that judgments of value, of a particular notion of the
good, are directly implied by propositions one and two of this world view.
If the purpose of life is that individuals pursue happiness, and if they
do so self‑interestedly, then it certainly would be good for individuals
to receive what they want. Here is the basic notion of the good
permeating all neo‑classical economics: individuals should be free to get
as much as possible of what they want. There are two basic judgments
required to translate this concept of the good into economic theory, such
as cost‑benefit analysis. The first of these is that individual
preferences are what count. The second is a value judgment on
distributional equity. But this value judgment is rather superficial, for
it is external to the neo-classical paradigm. Because it is external it
often obstructs our view of the more fundamental value judgments, those
deeply embedded in the paradigm itself.
Other
ancillary value judgments of the neo-classical paradigm either qualify
what types of individual wants will be considered or are derivative from
this basic value judgment. These other ancillary value judgments can be
summarized in this way:
1.
Competitive market equilibrium is the ideal economic situation. Therefore,
a/ competitive market institutions should be established whenever and
wherever possible; and b/ market prices should be used to determine
value.
2. Means
and ends should be bifurcated into two mutually exclusive
categories.
3. Means
and ends should be measured quantitatively.
The
first ancillary value judgment derives from elements one and three of the
neo‑classical world view and from the basic value judgment that individual
preferences should count. If one takes the core ideas of individualism,
rationality and the social context of harmony among diverse and
conflicting interests, along with a number of limiting assumptions, it can
be shown that competitive equilibrium maximizes the value of consumption
and is therefore the best of all possible economic situations. This
ancillary value judgment does not stand alone. Competitive market
equilibrium is good, in part, because it allows the greatest number of
individual wants to be satisfied. Moreover, this value judgment is also
determined by the world view. Without the third proposition such a
judgment could not be made, for then some other economic condition could
be found to satisfy individual wants. Competitive market equilibrium is
good because the world view insists that only this condition can be
ideal.
The
notion of competitive equilibrium carries out two basic functions: it
serves as an ideal and as a standard by which to measure the real value of
current economic conditions. Because it serves as an ideal for which we
strive, it leads directly to the value judgment that wherever competitive
markets do not exist or are weak, they should be instituted or promoted.
Wherever markets do not exist, the natural competitiveness of human beings
will be channelled into other non-productive directions. It would be
better to establish markets where this competitiveness and self‑interest
seeking behavior could be channelled into
mutually satisfying activities. Wherever markets are weak and distorted
due to monopoly power or government interference there is sure to be a
reduction in actual consumption. Therefore, perfectly competitive markets
should be promoted so that the ideal competitive equilibrium can be
achieved.
The
second and third ancillary value judgments do not spring directly from the
world view. Instead, they make the paradigm based thereon operational. The
separation of means and ends is not strictly required by the world view
itself, but is an operational requirement, without which the paradigm
could generate no meaningful research or study. If means and ends were not
mutually exclusive, then neo-classical economics would be nothing more
than a simple statement that humans do what they do because they wish to
do it. There could be, for example, no inquiry into how satisfaction is
maximized by choosing among various alternatives. If some activity (e.g.,
production or consumption) could be both means and end then one could not
determine which part is which. This results in the value judgment that
consumption is the end or `good' to be achieved. In so doing, any good
inherent in the process or means for obtaining higher consumption is
ignored. For example, if the production activity of human labor were more than just a means-- if work was good
in and of itself regardless of the final product-- then it would be
impossible for the neo-classical economist to discover how much individual
wants are satisfied by the activity. The ends and the means would be all
mixed together and it would be impossible to speak of the value of the
product and the cost of the resources independently.
The
splitting of economic activities into means and ends by its very nature
promotes a particular notion of the good. It may be an operational
necessity, but it is also a judgment of value. With means and ends
separated, it becomes convenient to measure the satisfaction given by
particular ends and the dissatisfaction (costs) resulting from employing
various means. It becomes possible to measure how much better one
situation is than another, by comparing numbers instead of concepts or
ideas. Things that are apparently incommensurable thus become
commensurable. This is evident in many branches of neo-classical analysis;
when money values are unavailable or inappropriate, quantified units are
used in their place.
The
emphasis on quantification in neoclassical economics adds another element
to its particular notion of the good. While the second ancillary value
judgment separates means and ends, the third ancillary value judgment
tells us to focus on means and ends that can be quantified. One practical
outcome of this is a heavy emphasis on `things' over interpersonal
relationships, education, cultural affairs, family, workplace
organization, etc. Things are countable while the quality of these other
spheres of human life is not. In the area of economic policy especially,
such concerns are treated often as obstacles to be removed or
overcome.7 To the extent that this occurs, the notion of the
good which focuses on quantifiable inputs and outputs is embedded in the
paradigm.
Within
neo-classical economics there are thus judgments of value which are rooted
in a fundamental world view. There are also ancillary judgments of value
which operate in concert with the world view and which allow the
neo-classical approach to be operational. Together these judgments make up
the neo-classical position on the character of the good, and when an
economic policy is planned, implemented and evaluated, it is done on the
basis of these clearly defined standards.
To
conclude this discussion, the paradigm or research program of any
scientific community is circumscribed by boundaries laid out in a world
view which, while not perhaps individually subjective, is nevertheless
empirically untestable, or metaphysical as
Boland would say.8 How then do value judgments about the good,
the just and the right enter into scientific analysis? Such value
judgments are themselves entailed by the same world view which gives rise
to theoretical and factual analysis. `What is' and `what ought to be' are
thus inextricably commingled in the data, the facts, the theories, the
descriptions, the explanations, the prescriptions, and so on. All are
permeated by the a priori world view.
Economists
must recognize that there is no alternative to working from a world view.
Making explicit the values embodied in that world view will help keep
economics more honest and useful. For example, many institutional
economists see the social world as characterized by interdependence of
economic actors with the result that “externalities” are ubiquitous. The
assignment of rights by the political and legal systems, therefore,
determines “who gets what.” The distribution of income, wealth, and rights
that results from economic transactions and public policies becomes as
important as efficiency.9
Furthermore,
it is not sufficient to simply reject the neo-classical position that
satisfying individual preferences, as expressed in the market, is the only
measure of economic welfare. Alternatives must be proposed and developed.
Let me sketch out one possible
alternative.10
We
must broaden our view of human welfare from that of a simple consumer of
goods and services with consumer sovereignty as the goal. Rather, once
biological needs are met, people derive welfare primarily from social
activities such as working, dancing, theorizing, playing golf, painting,
partying, and so forth. In order to engage in such activities people need
instruments, capacities, and a social context or environment.
People
need instruments (goods and services) to engage in activities-- fishing
poles to fish, tools to work, shoes to dance in. Traditional economics
focuses solely on this need. However, the instruments are worthless unless
people have the capacity to use them-- training is needed to learn how to
fly-fish, to use tools to repair a car, to dance the Tango. Finally,
people need a social context or environment to carry out these
activities-- a clean river is needed to fish in, good working conditions
are needed to enjoy working, clean air and safe streets are needed to
enjoy jogging.
The result of such a world view is that the measure
of human welfare expands from consumer sovereignty to also include worker
sovereignty (Do people have the jobs they want; are the jobs fulfilling;
does the work enhance people's capacities?) and citizen sovereignty (Do
people have the communities and environments they want; do they have the
power to construct the social contexts within which they can develop their
capacities?). With this expanded conception of human welfare the
evaluation of economic policies can be quite
different.
Notes
1. see Ernest Nagel,
The Structure of Science: Problems in the Logic of Scientific
Explanation (New York: Harcourt, Brace and World,
1961).
2. See Mark Blaug, The Methodology of Economics: Or How
Economists Explain (Cambridge: Cambridge University Press, 1980), p.
132.
3.See Donald N.
McCloskey, The Rhetoric of Economics (Madison: University of
Wisconsin Press, 1985) and the voluminous literature generated by
it.
4. See Thomas S.
Kuhn, The Structure of Scientific Revolutions, 2nd Ed. (Chicago:
University of Chicago Press, 1970); `Reflections on My Critics,' in Imre Lakatos and Alan
Musgrave (eds.), Criticism and the Growth of Knowledge (Cambridge:
Cambridge University Press, 1970); `Notes on Lakatos,' in R.C. Buck and
R.S. Cohen (eds.), Boston Studies in the
Philosophy of Science, vol. 8 (Dordrecht,
Netherlands: Reidel,
1971).
5. This section is
based on Charles K. Wilber and Roland Hoksbergen, `Ethical Values and Economic Theory: A
Survey,' Religious Studies Review, 12, 3/4 (July/October 1986), pp.
211-212.
6. See Robert H.
Frank, Thomas Gilovich, and Dennis T. Regan,
`Does Studying Economics Inhibit Cooperation,' Journal of Economic
Perspectives, 7, 2 (Spring 1993), pp. 159-171.
7. A classic
example is the construction of public housing for the poor. Square footage
per household is the key variable, not such intangibles as neighborhood, community, or access to services.
Another example is welfare policy that concentrates on levels of support
and ignores the psychological impact of means testing or the prohibition
of able bodied males in the household.
8. See Lawrence
Boland, `On the Futility of Criticizing the Neo-classical Maximization
Hypothesis,' American Economic Review, 71, 5 (December 1981), pp.
1031-1036 and his The Foundations of Economic Method
(London: Allen & Unwin, 1982). The recent
literature on `rhetoric' takes the argument another step--economic theory
is a conversation, and different groups of economists (neo-classicals, marxists, institutionalists, et al.) have their own
conversations which are different. See McCloskey, The Rhetoric of
Economics.
9. See A. Allan
Schmid, Property, Power, and Public Choice:
An Inquiry into Law and Economics (New York: Praeger, 1978) and Benefit-Cost Analysis: A
Political Economy Approach (Boulder, CO: Westview Press, 1989). Also see the exchange of
correspondence between Warren Samuels and James Buchanan: `On Some
Fundamental Issues in Political Economy: An Exchange of Correspondence,'
Journal of Economic Issues, 9 (March 1975), pp.
15-38.
10. See Herbert
Gintis and James H. Weaver, The Political
Economy of Growth and Welfare, Module 54 (MSS Modular Publications,
1974); Denis Goulet, The Cruel Choice: A New
Concept in the Theory of Development (New York: Atheneum, 1971); Charles K. Wilber and Kenneth P.
Jameson, Beyond Reaganomics: A Further Inquiry into the Poverty of
Economics (Notre Dame, IN: University of Notre Dame Press, 1990); and
“The Ethics of Consumption: A Roman Catholic View,” in Ethics of
Consumption: The Good Life, Justice, and Global Stewardship, eds.
David A. Crocker and Toby Linden(Lanham, MD: Rowman & Littlefield, 1998), pp.
403-15.
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SUGGESTED CITATION:
Charles
K. Wilber, “Ethics In Economic Theory”, post-autistic economics review,
issue no. 20, 3 June 2003,
article 1, http://www.paecon.net/PAEReview/issue20/Wilber20.htm
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