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Ethics In Economic Theory
Charles K. Wilber (University of Notre Dame, USA)
http://www.paecon.net/PAEReview/issue20/Wilber20.htm


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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