The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction
• Part One: the Needless State (chapters 2, 3, 4 Are Not Available Online For Copyright Reasons)
• 1: Who Gave Us Order? On Exclusion, Enforcement, and Its Wherewithal *
• 5: Empirical Evidence *
• Part Two: Redistribution (chapter 7 Is Not Available Online For Copyright Reasons)
• 6: A Stocktaking of Perversities *
• 8: Disjunction, Conjunction *
• Part Three: Justice (chapters 10, 11 Are Not Available Online For Copyright Reasons)
• 9: Justice As Something Else *
• 12: Slicing the Cake Nobody Baked *
• Part Four: Socialism
• 13: Ownership, Agency, Socialism *
• 14: Market Socialism: “this Square Circle” *
• Part Five: Freedom
• 15: Right, Wrong, and Economics *
• 16: The Paretian Liberal, His Liberties and His Contracts *
• 17: The Bitter Medicine of Freedom *
• Works Cited

15

Right, Wrong, and Economics*

The preacher, invoking the love of God or the authority of religion, expounds moral precepts that help tell right from wrong. It is these signposts of morality that he exhorts us to follow whenever “self-interest” would point the other way. (Our preacher is all of one piece; he is not bothered by the ambiguities of the word “self-interest,” and nor, as we shall see presently, is the economist when he steps up to the pulpit.) In tune with his fashionably open-minded flock, the preacher may dispense with God and authority altogether, and draw principles for identifying right and wrong from other sources: from “nature” with Aristotle, a priori with Kant, or in the manner of G. E. Moore, as matters knowable to our intuition. Whichever route he takes, his congregation can have no doubt about the object of the sermon. It is to make their conduct in life other, and worthier, than it would otherwise be.

To hear George Stigler tell it in his eponymous lectures on economics and ethics, The Economist As Preacher1 has a very different object. He gets his ethical system “wherever [he] can find [it],”2 namely in people’s actual conduct. In fact, “he needs no ethical system to criticize error,”3 which is what people commit when they pursue their ends inefficiently. If he adopts one that clashes with established behavioral norms, he will readily abandon it—a practice that “strongly argues for the acceptance of the community’s values with whatever inconsistencies they contain.”4 Why the fact that something is usually done (i.e., that a minority ethical belief is usually abandoned) counts as a strong argument that some other thing ought usually to be done (i.e., that the majority belief should readily be accepted), is left unexplained, as if it went without saying.

The important thing the economist seeks above all to preach is that, whether an ethical system is internally consistent or not, people should pursue the ends incorporated in it consistently, applying their means to their ends efficiently, and not make silly mistakes. Individuals probably do not make many really silly ones in this sense, i.e., their choices are instrumentally rational. Stigler concedes that this guess of his is hard to test “because there is no accepted body of ethical beliefs”5 against which to test it—a statement in surprising contradiction with his confident belief in the universality of the wealth-maximizing ethic. Collectivities, unlike individuals, do seem to make mistakes, choosing as they do policies that are inconsistent with their own stated purpose. In reality, the stated purpose is usually an alibi hiding the real one, and the policy is not as silly as it looks, for it serves some ulterior motive quite well.6 Here, the Stigler who has fathomed the dark depths of the regulation of industry and commerce is advising Stigler on ethics. Both Stiglers seem to me seriously to underrate the force of sheer, obtuse, slogan-ridden stupidity in shaping the course of public affairs.

Admittedly, the economist’s sermon is about efficiency and equity, too, but Stigler is largely satisfied that if efficiency is taken care of, equity will take care of itself, at least in the sense that “the distributional effects of the change in wealth . . . will be swamped by the change in aggregate wealth” and a significant increase in wealth will, as a general rule, also be a Pareto-improvement.7 There is, reasonably enough, no comfort here for the pervasive belief, held by a small part of the economics profession and the vast majority of the rest of humanity, that “the rich get richer and the poor get poorer.” We need have no qualms, on grounds of equity, about the wealth-maximizing ethic, unless we were to equate equity with equality—and there is no good reason for doing this, though there is always the bad one that many people do do it.

Granted that neither individuals nor groups need an inordinate amount of help from the pulpit to pursue their ends efficiently and equitably, there is still something very, very important the preacher can do for them. Stigler passes the opportunity by, though its potential is obvious once it is pointed out, as James Buchanan8 has recently, and to my knowledge for the first time ever, done so. It is to preach an ethic which, if adopted by some people, generates positive externalities for all. In particular, the ethic of work and saving, as opposed to leisure and consumption, produces unrequited, windfall benefits for those who do not practice it. Hence, if they are rational maximizers, they should pay the preacher to preach it.

How does the economist’s ethics come to be identified with efficiency, or the consistency of means with ends?—to such strong effect that the economist as preacher need only preach against the making of silly mistakes, of the sort that people as individuals are not very prone to make anyway? A necessary, though not sufficient, move is the separation of morality from ethics. If morality is understood as a set of deontological rules constraining our legitimate choices, hence constraining the ends we may choose to pursue, it must be held in limbo, outside ethical theory, for only so can ethics be confined to the pure means-ends argument of instrumental rationality, where practical reason is, in proper Humean fashion, the servant of “passions,” of given ends about which non est disputandum. For the economist as preacher, as I propose to argue, there is only a black hole where others find non-consequentialist morals. This is a straightforward philosophical maneuver; it has significant consequences I intend to explore presently. Less straightforward, to my mind, is the almost surreptitious way in which the economist’s ethic puts only prudential motives in the empty box of “given ends.”

In the time it takes to get from The Theory of Moral Sentiments to the Wealth of Nations, the perfectly general and indefinitely diverse class of “given ends” gets amalgamated into a single synthetic one, “utility” or its visible alter ego, wealth. The economist used to take it9 that all competing ends are commensurate. All their possible combinations are accordingly comparable, too, and each can be assigned a single number which causes it to be ranked either above, or below, or possibly at the same place as, other numbered combinations, giving rise to a single preference ordering. The hierarchical ordering of ends that have many properties (i.e., many “dimensions”), in terms of a single number (i.e., according to a single “dimension”), makes everything easy. It removes the disability that handicaps the scrupulous theorist who is conscious of the multiplicity of possible ends. For no law of nature decrees that rational men will usually accept tradeoffs of any of their ends against any other, i.e., that for everybody who economically fits means to ends, everything has a price. What has and what has not, and for whom, is an empirical question that cannot be prejudged. Failing positive assurance on this point, it is impossible to rank alternatives that neither dominate nor are dominated by one another, i.e., alternatives that offer more along one of their dimensions but less along another. (Where this non-domination condition wreaks havoc with traditional economic reasoning is, of course, in evaluating collective choices by trying to aggregate, in a single and complete ranking standing for the Common Good, the preference-rankings of the individuals composing the collectivity, and balancing the gainers’ gains against the losers’ losses. Welfare statements about Pareto-noncomparable states of affairs come to be seen as arbitrary, about Pareto-comparable ones as trivial—a thoroughly salutary result if it leads to the making of fewer welfare statements.)

The more economics grew into a general theory of choice—rather than just of choices where both means and ends lend themselves to “the measuring rod of money”—the less tenable it seemed to confine it to studying the pursuit of well-being, albeit of the fairly broad kind that includes regard for both the self and others, a measure of “proximity-altruism.” Man after all can, and sometimes manifestly does, act under motives that are not conducive to anyone’s well-being; and it is surely not irrational to pursue ends that are not prudential. Yet the more general and imprecise the content of the single, synthetic maximand that serves as the standard by which conduct passes for rational, the more tautological becomes the theory.10 Subject only to consistency conditions (whose violation is often hard to detect), every deliberate choice is a rational choice and for that matter every non-deliberate one, too, for it deliberately avoids the cost of deliberation.11

Between the devil of a plurality of ends which may not be commensurate and permit only partial preference orderings, and the deep sea of a tautological “utility” that is meant to provide a synthetic common measure of the totality of motives that enter into choices, enabling the complete ordering of all alternatives along a common numerical scale, and is maximized by the definition of rational choice, it is perhaps understandable that in everyday discourse the economist keeps relapsing into the traditional usage where, if the “content” or the causa causans of utility is defined, it shows up as material wherewithal, wealth, sometimes equipped with such bells and whistles as the precautions the wise man takes to preserve (and enhance) his capacity to enjoy it, to help deal with his own myopia and weakness of will, to gain and hold the esteem of his fellows, to keep the social edifice where he dwells in good repair, and so on. Thus embellished, the ethic of “wealth-maximization” is but a short step removed from prudential reason. It is, if I may be repetitive, far removed from morality if morality is a constraint on prudential reason, imposed by duties to do non-consequential, intrinsic right and to avoid intrinsic wrong. It is, of course, not removed at all from morality if the latter is derived, in a lamentably circular fashion, from the requirements of prudential conduct itself.

Stigler seems to delight in showing engagingly, wittily, with inexhaustible erudition and no-nonsense bluntness, that the most conventional of utilitarian positions is really all we have by way of universal ethics. The empirically discoverable utilitarian ethic is good enough as a normative code. No doubt deservedly, he makes a pitiful figure of fun of the Preacher as Economist (“[i]t cannot be denied that the economist’s economic theory is better than everyone else’s economic theory”;12 “flagrant inconsistency, usually stemming from that great source of inconsistency in intelligent men, a warm heart”13 ). He is all a civilized, rather agnostic yet conservative congregation could ask for: except around the rim of the black hole, he is thoroughly reassuring. His reassurance comes in two parts.

In the first place, he is persuaded that if people held, or at least professed, ethical principles that conflicted with their “self-interest” (as he chooses to call, for example, the appropriation of small sums of money manifestly destined for other people), self-interest would win “much of the time, most of the time.”14 Happily, however, people do not hold ethical beliefs that would often cause such conflicts.

For, in the second place, utility-maximization, manifesting itself as wealth-maximization, is the personal ethic most people adhere to. It is hardly surprising, then, that ethics and “self-interest” seldom clash.

Though he does not say so, by omission he suggests that pride, arrogance, charity, shame, envy, snobbism, a sense of justice, spite, emulation, posturing, class hatred, and the many other plausible motives for human conduct that do not square with and may positively obstruct wealth-maximization, are negligible. Whether excluding them from the maximand is a fair simplification is, of course, an empirical question. Stigler is confident that “systematic and comprehensive testing”15 would prove it correct. This reader begs to express mild doubt both about the capacity of such testing to decide the question, and about the answer it would furnish if it were able to decide it.

The fit between people’s putative ethical code and wealth or income maximization is, as we would expect from their definition, so close that not only is conflict between them predictably rare, but it becomes questionable whether the two have any independent existence. Honesty is the classic, and somewhat embarrassing, case in point. If we knew that people are honest because they simply think it right that they should, or because they owe it to their fondly embraced self-image, we could rejoice at the sight of their disinterested virtue being unexpectedly rewarded by material success in the marketplace. But we do not know why they are honest. What we do know, instead, is that honesty is the best policy and it pays in the long run. Hence utility-maximizers would have to be honest anyway, for prudential reasons. Is it, then, that their moral principles correspond, by pure happenstance, to what material success requires, or is it that they have none? Stigler, I suspect, would consider the question somewhat puerile, hardly worthy and hardly capable of a response. His passing reference to it16 leaves the problem exactly where he found it.

And now to the rim of the black hole. A man takes a short cut through the park every night on his way home, and one night in five on the average, he is robbed of his trousers. This, for Stigler, is indistinguishable17 from a voluntary transaction in which the same man pays a toll of one-fifth of a pair of trousers for access to the short cut, and which (assuming the toll-taker owns the short cut, an assumption Stigler does not make) is “honorable dealing” (ibid.). Do we then gather that since trousers-robbing, where the victim has knowingly exposed himself to a statistically established risk of being debagged, is indistinguishable from a voluntary transaction, it is a voluntary transaction? If two phenomena are indistinguishable, they are the same phenomenon; logical positivists with the record of a George Stigler cannot mean anything less.

Going further than this is speculation rather than exegesis, but it is tempting to add that if a toll of one-fifth of a pair of trousers is demanded at the short cut, and our man takes the short cut fully prepared to pay it, the transaction is “honorable dealing,” and never mind whether the toll-taker has title to the short cut, leases it from the owner, or is just squatting on it without the owner’s consent. By the argument that buying passage through the short cut at the cost of one-fifth of a pair of trousers is a utility-enhancing voluntary transaction, it is presumably beside the point whether the robber was entitled to rob, or the toll-taker to take tolls.

A minor and a major objection arise, and the major one seems to me decisive.

Take the minor one first. Predictably losing one’s trousers, and keeping them but paying a toll in lieu, are unlikely to be indistinguishable. If the trouser-robber, instead of lurking in the bushes, could choose to sit at a gate and collect a regular toll instead, he may well not charge a toll of one-fifth of a pair of trousers. If he thought the elasticity of demand for the short cut was greater than unity, he would expect to do better to charge less. If, in addition, the continuing existence of the trouser-robbing business looked more precarious than the toll-taking business, there could well be good reasons to “milk” the former while the going was good, and build the latter by a tariff even lower than that indicated by the short-run elasticity of demand. By extension of the same argument, the toll-keeper who had title or a secure lease could be expected to charge less than the squatter. The idea that an economist of Stigler’s acuity and subtlety did not see this is too preposterous to entertain. If he chose to ignore the law-and-economics type effects that would make trouser-robbing distinguishable from toll-taking, it must have been in order not to blunt the point he thought he was making and was trying to drive home: that if both enhance utility to the same extent, the distinction between robbery and “honorable dealing” is metaphysical obfuscation.

However, Stigler has incompletely specified the institutional framework of his fable. This is the major objection to his thesis. If a vital missing piece is put in its proper place, it is immediately clear that the distinction between his two transactions, far from being metaphysical, is plain to the most austere logical positivist, and to you and me too; and this, to my mind, decides the case. Who, in this fable, is entitled to what? If the short cut is owned by nobody, or if title to it is limited by a general right-of-way, our man has the liberty to pass through it unhindered, just as he has the liberty to perform any other action that is within his feasible set (the economist’s “budget constraint”) and is not preempted by another’s duly acquired prior right. Hindering him is a violation of his liberty and if the hindrance is more than trivial, it is a tort. Forcibly taking off his trousers is robbery, charging him a toll is extortion. By a universal convention that varies but little across cultures and over the ages, neither is recognized as “honorable dealing,” and they are perfectly distinguishable, too, from one another. If, on the other hand, the short cut is owned by someone and is not subject to an easement, and our man passes through it, he is not exercising a liberty; he is violating the owner’s right by trespassing.

Suppose, next, that the owner allows passage against payment of a toll, and our man, to save the toll, takes a different, perhaps less convenient short cut. At this short cut, robbers lurk and he runs a known (and small) risk of losing his trousers. For argument’s sake, take it that the expected utility of passing by the robber-infested short cut, however, is still greater than of the safe passage through the toll gate. By voluntarily letting himself be involuntarily undressed, our man has made a utility-maximizing transaction which has all “the ethical attractiveness of voluntary exchange.”18

The plain man, sitting in the congregation the economist is preaching to, who felt so comfortable and reassured by the beginnings of the sermon, is by now thoroughly bewildered. For him, the transaction involves coercion and looks, ethically and otherwise, quite unattractive.

Stigler, in full flight under the ample power of his logic, will have none of this. He insists that punishing illicit parking by a fine of $6— and charging $6—for parking space are either both coercive, or neither is: making an action subject to a sanction coerces no more and no less than a relative price change that makes the action more expensive.19 Coercion is admittedly a difficult concept, and some attempted definitions of it, including Hayek’s (with which Stigler takes issue in the essay cited), are not very successful. However, for Stigler, no definition of it, nor of freedom, can be successful, because the very concept presupposes some moral code, and he thinks any such code is moot:

It is baffling why he refuses to take any notice of the very moral code whose alleged lack is turned into an empirical justifier of narrow, minimalist ethics; a code which, except for some exotic nooks and crannies of the known world, its essentials universally accepted, not particularly incoherent, a living refutation of moral relativism, and in which noncoercion is indubitably a corollary. The code is not a comprehensive moral law directing all possible human action. It deals only with actions affecting the person and property of others, and not all of those at that. It has fuzzy edges that blur the status of acts versus omissions, the distinction between negative externalities and harms properly speaking, questions of intent, negligence, and accident, and the respective places of restitution and retribution. On these and other, even finer points, acceptance is not uniform cross-culturally and even within the same culture.

For all that, however, the code is remarkable in two respects. First, while it is largely silent on what ought to be done, it is probably as full and clear a system of stipulations of what must not be done as it is possible for mankind to agree on and by and large to respect. Second, while it is no doubt possible to impute to every one of its rules a consequentialist (particularly a rule-utilitarian) explanation and to make a good case that it was adopted for a (functional) reason, men for many centuries have recognized and applied the rules without seeking such explanations. They do not often ask themselves whether compliance with a particular rule has good consequences in a given case or in general.21 The person who needs convincing that killing or maiming another is wrong because the victim deserves to live, and needs the use of his limbs, or because if killing and maiming were not deemed categorically wrong, anyone might turn around and kill or maim him, is a rare bird most of us would regard with some mistrust if not distaste. The person who thinks stealing is wrong because secure property is an instrument of efficient resource allocation, and is also needed for social stability, is less rare but no more admirable. For the ordinary member of Stigler’s congregation (and perhaps unbeknown to him) killing, maiming, stealing, damaging property, and defaulting on agreed reciprocal commitments, are wrong without having to be wrong torts in the original meaning22 of the word, before a large part of torts was swallowed up by the criminal statute and another large part in the law of property and contract.

The moral code of torts functions through an immensely old, immensely widespread and influential convention, by which most people most of the time coordinate their conduct upon tort rules serving as norms. The convention needs to be supported by various second-order or satellite conventions to sanction transgressions of the various norms. (It used to be a convention that when someone cried “stop thief” all had to run and catch the thief.) Progressively, states took over the enforcement function, and most of the satellite conventions (ostracism, mutual help, vigilante action, local and voluntary adjudication) fell into desuetude. The primary convention, however, manifestly remains implanted in people’s moral consciousness, and to assert the contrary, as I read Stigler to do in the passage above, is hard to comprehend. The common understanding of tort rules that people have, enables them to tell, except for the borderline cases that seem inseparable from any rule, not only what is wrong and must not be done, but by elimination also what morally is licit—without having to be above reproach, let alone positively commendable. One implication of this common understanding of what is licit is that everybody has a fairly clear idea which part of his own and other people’s sets of feasible choices are admissible subsets: this is how everyone has some moral grasp of the liberties of each, that is their feasible actions that are not torts, and can either be freely chosen, or are obligations to be carried out as the consequence of the rights granted to others in voluntary contracts.

Once again, it need not be claimed that the tort convention is a complete, all-embracing moral guide to all that ought and ought not to be done in all circumstances. Stigler may well be right that no such universal code is (or could be) agreed. But he is not looking for that kind of code, and it is not of that kind of code that he denies the existence: he is merely looking, oddly enough in vain, for one that has “noncoercion as its irresistible corollary.”

In making his case by pointing to the sameness of a $6 parking fee and a $6 parking fine, both diminishing wealth and neither impinging more, or less, on liberty than the other, Stigler has, probably unwittingly, defined coercion right out of his example. This is so because most of his congregation, while firmly holding on to the convention against torts, would consider that neither the fine nor the fee are coercive, since the city ordinances under which presumably both were imposed were “legal,” and from the moral point of view not tortious.

Let us open up the example, to admit tort. Let there be only two alternatives if you want to park. One is to ask me to let you use my reserved parking space. The other is that you park in the road along my garden wall. In the former case, I let you park for a fee of $6. In the latter case, I let you know that as soon as your back is turned, I will tow your car away, or slash a tire or two, unless you pay me a fine of $6. I do not own the road outside my garden wall and nor does anyone else. You are free to park there. I have destroyed this option of yours by (credibly) attaching to it the threat of tortious acts (towing your car away, slashing the tire), coercing you to take the second-best option of paying for what ought to have been a liberty. In the case of the former alternative, however, you never had a corresponding first-best option, a liberty to park in the space reserved for my car. Paying me $6 (or, in dire need, $60) for its use was your first-best option. Though each transaction was avoidable (one was a close substitute of the other), was entered into voluntarily, and both had the same effect on your wealth, they did not have the same effect on your liberty; and my interference with your liberty to park in the road passes for coercion by virtue of its being “an irresistible corollary” of the moral norms incorporated in the convention against torts.

It is, I trust, not a sure sign of hopeless obtuseness to be at a loss why Stigler denies all this. Must he insist that the alleged effects on our liberty are effects on our wealth, neither more nor less, since both describe the same diminution by $6 of our remaining options, if they describe anything,23 and are indistinguishable from one another? He votes, with dogged conviction, for the much disputed merger of the concept of “liberty” with the concept of the “power to do.” This is not the place to go into the whys and wherefores of their sadly counter-productive merger. In fact, no place is the place; least said about it, soonest it might be mended. Clearly, however, there is something missing in Stigler’s ethics, or in what he seems to be taking for the ethics of the economist. It is due to the missing piece that he is determined to get by without distinguishing between a pair of ideas for which ordinary language has never hesitated to employ two different words, “right” and “wrong.” It is the missing piece that leads this superb economist to let his logic confound us and to argue that another pair of concepts for which ordinary language always uses two different words, “wealth” and “liberty,” are really the same.

[* ]This paper was delivered at a Liberty Fund Colloquium on the work of George Stigler in Chicago in May 1995 and subsequently published in Journal des Economists et des Etudes Humaines, 6, no. 4 (December 1995): 669–79; reprinted here with permission.

[1. ]Stigler 1982.

[2. ]Ibid., p. 19.

[3. ]Ibid., p. 8.

[4. ]Stigler 1982, p. 20. True to his own advice, Stigler is not shy of the odd inconsistency in his own ethics. In an essay castigating our tendency to look for our well-being to a meddlesome state, he claims that “our society is not dedicated to the principle that the good society consists of large herds of well-cared-for people.” (Stigler 1961, 9). His own analysis, as far as I can see, shows what is obvious to the naked eye anyway, to wit that it is precisely this principle our society is dedicated to, and the opposite principle he praises, namely “the greatest possible individual responsibility and the freedom to meet it” (ibid.), clashes with the community’s values and behavior. He is nevertheless not ready to change his ethical beliefs accordingly. For this, we owe him a full measure of gratitude.

[5. ]Stigler 1982, 36.

[6. ]Stigler 1982, 10.

[7. ]Stigler 1978/1984, 141.

[8. ]Buchanan 1994.

[9. ]At any rate, he used to take it before being persuaded, notably by Little’s Critique (Little 1950, 1973, 30) that a handful of axioms of choice suffice to explain behavior in the face of assured alternatives, and the proposition that “people can and do value all possible collections of goods in terms of some common measure” is not saying anything more, if it is saying anything at all. The same lesson was taught with regard to all alternatives, including uncertain or “risky” ones, by Neumann and Morgenstern, Savage, Harsanyi, and others.

[10. ]Stigler 1982, 36.

[11. ]If radical proponents of “bounded rationality” and “transactions cost economics” take this for a malicious caricature of their position, they will have correctly divined my intent.

[12. ]Stigler 1982, 130.

[13. ]Ibid., 132.

[14. ]Ibid., 25–26.

[15. ]Ibid., 25.

[16. ]Stigler 1982, 25.

[17. ]Stigler 1982, 24.

[18. ]Stigler 1982, 22.

[19. ]Stigler 1978/1984, 139.

[20. ]Op. cit., 141.

[21. ]Scanlon 1982, 108–9.

[22. ]The original meaning is very broad. It includes being in error, being (morally or legally) in the wrong, or wrongfully inflicting harm. It is derived from the Latin torquere, i.e., to wring, to twist; arm-twisting is direct enough.

[23. ]Stigler 1978/1984.