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Friday, May 22, 2015

Economics as a Moral Science

“Similarly, calls for ‘solidarity’ (or fiscal transfers) run straight into concerns over moral hazard. Mario Monti, a former Italian prime minister, likes to claim that in Germany economics is seen as a branch of moral philosophy.”
— “Of Rules and Order,” The Economist (9 May 2015), p. 47.

The above lines appear in an article on German ordoliberalism that claims the doctrine has become unquestioned orthodoxy among economists and policymakers in Germany, to sometimes detrimental effect. Ordoliberalism is an offshoot of classical liberalism, which advocates a strong role for the state in setting the legal and regulatory framework within which markets can operate to their full potential. It was named after ORDO, the journal strongly associated with the school of thought.

It is not my aim to critique ordoliberalism. I am more interested in Monti’s statement to the effect that Germans see economics as a branch of moral philosophy. The impression given is that Monti sees this as a bad thing, as if economics and moral philosophy should properly be kept separate. On the contrary, I see them as almost necessarily connected and that any attempt to pretend economics has nothing to do with moral philosophy is quixotic at best, downright harmful at worst. It is my belief that economics is a branch of applied ethics.

I will begin by observing that many of the big names in the founding pantheon of economics saw themselves as moral philosophers. Let us not forget that the sainted Adam Smith was Professor of Moral Philosophy at the University of Glasgow from 1752 to 1764, and that before The Wealth of Nations (1776), he was already well-known as the author of The Theory of Moral Sentiments (1759).

Smith’s friend David Hume wrote extensively on moral philosophy in addition to his many well-regarded essays on political economy. In the 18th century there was indeed no clear line separating the one from the other.

Even in the 19th century, Thomas Malthus was a clergyman before he was an economist. His solution to his famed population problem was a moral one: personal sexual restraint. His rejection of birth control was based on the belief that it would undermine public morals.

John Stuart Mill’s Principles of Political Economy (1848), which went through seven editions in his lifetime, was the standard textbook on economics in the 19th century. At the same time, Mill was an exponent of the moral philosophy of utilitarianism who wrote extensively on politics and such questions of “applied” ethics as women’s rights and slavery. Book Six of his A System of Logic (1843) was entitled “The Logic of the Moral Sciences”.

Put simply, the history of economics is littered with famous economists that were also (and even primarily) moral philosophers.

At some point late in the 19th or early in the 20th century, academic philosophy in the English-speaking world decided it would be a value-free “hard” science, akin to physics or mathematics. The fad was to reduce all philosophical problems to linguistic ones, which were in turn seen to be reducible to mathematical ones. This process made academic philosophy the irrelevancy it largely is today. The fact is, not all philosophical problems are linguistic in nature, nor is a language simply a calculus. Indeed, the most interesting things about languages are not mathematical but social.

Economics underwent a similar transformation, at least insofar as it aspired to be a value-free hard science. The problem here is twofold: First, economics necessarily deals with human beings as its subject matter, and human beings are not value-free. Second, stripped of values, it is difficult see what would be the point of economics at all other than to serve basic human curiosity — hardly the sort of endeavor that will attract much grant funding.

Fortunately for us, try as it might, economics cannot avoid being value-laden. The fundamental dependence of economics on morality was exemplified by Adam Smith early on in The Wealth of Nations when he wrote that “Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog” (Bk. I, ch. 2). The notion of voluntary exchange is fundamental to economics, and neither the word “voluntary” nor the word “exchange” is value free. And once we start talking about fair voluntary exchange, we have arguably left the realm of economics proper and stumbled into the land of moral philosophy.

Aside from the concepts used in economics being value-laden, there is a deeper sense in which the discipline is a moral science. It helps to think of what economists do, and of why they do it. Yes, there is the descriptive side of it, the study and explanation of human interaction as embodied in exchange. To be able to do this well it helps to understand and be able to deploy such concepts as “value”, “institution”, “law”, “rule”, custom”, “contract”, “property” (and property “rights”), all of which are grounded in human morality. In other words, a good economist should understand that there is a moral framework that makes economic phenomena possible (it seems to me that German ordoliberalism is on the right track here). Morality is the specie that backs the economist’s paper currency.

But as importantly, there is the prescriptive side of economics, insofar as economists study with an eye to being able to make recommendations as to what will facilitate exchange, maximize production, improve well-being, etc. The bare desire to achieve any of these things presupposes, directly or indirectly, some ethical stance. Put another way,

Every economic policy prescription presupposes a moral philosophy.

By “moral philosophy” here I mean roughly a system of beliefs about what will make people happy (or good, as we’ll see). Philosophers have always asked the fundamental question, “What is the good life?” Economists ultimately ask “What is the best way to achieve the good life?” Whether they know it or not, their prescriptions presuppose an answer to the philosopher’s question.

Now, the prescriptive economist’s moral philosophy may not be a fully conscious thought in the mind of the economist who is prescribing, and whether conscious or not, it may not be all that well worked out. But trust me, it is there.


What is the moral philosophy of the prescriptive economist? Most commonly it is some form of maximizing consequentialism, such as utilitarianism. The consequentialist aims at maximizing the good. There is no good unless there is a person who experiences it, and the most obvious candidate for such an experienced good is pleasure. Pleasure has a necessary material basis, and the goal of prescriptive economists is to find ways to create more pleasure, mostly through expanding that material basis. However, beyond this point the details get messy.

For example, one economic prescription may be better at producing a greater amount of pleasure, while another is less good at that but better at making sure that more people get to experience the lesser amount produced. Which should be favoured, the production of greater overall pleasure, regardless of who gets to experience it? Or does distribution matter?

Then there is the sacrifice problem: if we agree that our goal is to maximize overall happiness, this may have to be done by sacrificing the happiness of particular individuals. It may seem like a good bargain from a disinterested point of view (though Nietzsche argued that there is ultimately no such thing as a disinterested point of view). But from the point of view of the person whose interest is being sacrificed, it can justifiably be asked, “Why me? Why should my happiness count for less than another person’s?”

There is also the “poetry or pushpin” problem: not all pleasures are the same. Some seem more worthwhile than others in terms of quality, even if not in terms of quantity. The sadist’s pleasure should not be privileged in the same way as other more innocent pleasures (though if the sadists can be happily paired off with the masochists…). If it’s easier to produce violent video games than sonnets, should we simply abandon sonnets as the less efficient form of pleasure production and plough all our economic efforts into improving on Grand Theft Auto and its dubious ilk? Or are there certain pleasures we should encourage and others we should discourage? If so, on what grounds? These are unavoidably questions of value. If we choose to value some pleasures over others, we must be able to justify that choice, and it seems impossible to do so without leaving the confines of pure utilitarianism.


After consequentialism, the most common moral philosophy of the prescriptive economist seems to be some form of deontology or rights-based approach. For example, economists of a more libertarian bent will tend to see property rights as inviolable, no matter how much more pleasure the utilitarian might be able to produce through expropriation and redistribution. Often these rights are called “side constraints” in that they constrain the extent to which consequentialists can carry forward their pleasure-producing projects. There is something attractive to this approach, insofar as we feel intuitively that there should be certain things that are simply off-limits to governments, policymakers, regulators, and other assorted do-gooders. We feel that there ought to be a certain sphere in which we can make our own choices (and mistakes) without interference, even if we disagree on just what size and shape that sphere should be.

It is not just libertarian economists that have a tendency to defend their prescriptions in deontological terms. While the libertarian defends an extensive personal sphere, the socialist will emphasize the rights of others, and defend a redistributive scheme on the grounds that others are equally deserving of the fruits of production as those who currently happen to own them. If I own everything and everybody else is starving, how can I defend my holdings in a way that will carry weight with those who are starving? What about their right to eat? When redistribution is defended on the basis that those on the receiving end have a right to what they are given, it is being defended deontologically.

This brings out a central instability in just about any deontological economics. If pushed, the libertarian will often be compelled to shift from deontological to consequentialist argument to defend his rights: “I’m entitled to my entitlements because if I weren’t, production would suffer and we’d all be worse off. I’m a job creator.” This is a consequentialist argument. Deontological ethics requires far more metaphysics to defend it than an economist is typically able to offer; it’s usually easier to make a strategic retreat to consequentialism instead.

It should be noted that the consequentialist can be forced into a similar kind of strategic retreat. Finding that she too ultimately agrees that not everything can be sacrificed on the altar of pleasure production, she will usually fall back on the notion of rules, which can look very much like the deontologist’s side constraints. The difference is that the consequentialist will defend these rules on consequentialist grounds, again avoiding metaphysics. For example, having a rule allowing for inviolable property rights, a rule utilitarian will argue, leads to greater production by allowing property owners to put their property to its most productive use, etc. This rule will contribute to overall happiness in the long run and for greater numbers, even if in specific cases it works what seem like grave injustices. Of course, these claims of ultimate utility may or may not be empirically verifiable, but they allow the utilitarian to seemingly serve two incompatible imperatives — that happiness should be maximized while personal liberty remain unviolated.


Aside from consequentialism and deontology, there is another moral position sometimes implicitly adopted by prescriptive economists. Though somewhat rarer, I find it very interesting when I see it, in part because it seems to go against the grain of everything we think of when we think of economics, in that it doesn’t necessarily concern itself with producing utility (nor with personal liberty). Let us call it perfectionism. There are many different kinds of perfectionism. What they tend to have in common is that, put in ethical jargon, they are non-eudaimonistic, meaning that they are not centered around the concept of happiness as such.

Utilitarianism is eudaimonistic, in that it offers views on how to increase happiness, ultimately identifying happiness with goodness. Perfectionism is the opposite of this; it uncouples happiness and goodness. The good may very well be something that has nothing to do with happiness at all. Maybe we live in a kind of broken universe, where the ethical life requires us to be unhappy, in the service of some impersonal good. It may simply be the case that ethical goodness is incompatible with being happy. Up to a point, Christianity presents us with a perfectionist morality, since it counsels us that doing our duties as God wills may require us to suffer greatly. On the other hand, Christianity degenerates into a sort of bastard utilitarianism once it starts offering future rewards and punishments in the hereafter.

Another example of a perfectionist moral theory might be certain versions of virtue ethics, which begin with an account of the virtuous moral agent, while not necessarily tying that virtue to human flourishing or happiness. It is possible to read Nietzsche this way. Malthus arguing against the use of birth control might be another instance.

What does a perfectionist economic prescription look like? Well one sees hints of it in talk of “moral hazard”. For example, some economists argue against certain schemes of public insurance because they remove the incentive to exercise caution in one’s affairs. Now this could be given a utilitarian spin: public insurance increases negligence, which increases the number of accidents, which increases overall costs, thereby decreasing overall utility and happiness. But it sometimes sounds more as if the economist is offering a virtue-ethical position: negligent citizens are less virtuous than prudent ones, so that if insurance encourages negligent behavior, it is encouraging vice. In other words, it’s not about negligence as it pertains to productivity, but negligence as it is a vicious trait of character.

A similar situation holds with regard to many of the arguments one hears against welfare or other forms of poor relief: it removes the incentive for poor people to work. This can mean that it discourages productivity (utilitarianism), or it can mean that it makes poor people lazy (virtue ethical perfectionism). Another example might be arguments offered against safe injection sites.

In practice, economists have a tendency to slide from one way of speaking to the other without thinking much about it. This interests me, because this slippage gives a window into the economist’s moral stance and value commitments at the exact moment when they think they are practicing a value-free science. The economist who speaks of the “unintended consequences” of welfare sometimes betrays an assumption that poor people are naturally vicious — or will be if given the barest opportunity.

In any case, whether consequentialist, deontological, or perfectionist, or some inconsistent mixture of these, economists are unavoidably practicing a kind of moral philosophy in doing what they do. Whether they are also practicing a moral science is less clear.

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