The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction
• Part 1: Economics and Ethics
• Chapter 1: Are Economists Basically Immoral? *
• Chapter 2: Economics and Ethics: the Problem of Dialogue *
• Chapter 3: Income and Ethics In the Market System *
• Part 2: Economics and Theology
• Chapter 4: Can Homo Economicus Be Christian? *
• Chapter 5: Economic Scientists and Skeptical Theologians *
• Chapter 6: Christian Theological Perspectives On the Economy *
• Chapter 7: Controlling Stories: On the Mutual Influence of Religious Narratives and Economic Explanations *
• Part 3: Economics, Theology, and Justice
• Chapter 8: Justice, Natural Law, and Reformation Theology *
• Chapter 9: The Concept of Economic Justice In Religious Discussion *
• Chapter 10: The U.s. Catholic Bishops and the Pursuit of Justice *
• Part 4: Economics and History
• Chapter 12: Christian Social Thought and the Origination of the Economic Order *
• Chapter 13: Clerical Laissez-faire: a Case Study In Theological Ethics *
• Part 5: On Teaching and Learning
• Chapter 14: “the Nature of Man”: What Are We After? *
• Chapter 15: Researchers and Degree Purchasers *
• Part 6: Teaching Economics
• Chapter 16: Economics Is a Way of Thinking *
• Chapter 17: Teaching Introductory Economics *
• Chapter 18: Teaching Economics By Telling Stories *
• Chapter 19: Between Sterility and Dogmatism *
• Part 7: Economic Method
• Chapter 20: Ethics On the Road to Serfdom and Beyond *
• Chapter 21: Measures of Wealth and Assumptions of Right: an Inquiry *
• Chapter 22: The Foundations of Law and Economics: Can the Blind Lead the Blind? *
• Part 8: Policy Commentary
• Chapter 23: What Is the Responsibility of Business Under Democratic Capitalism? *
• Chapter 25: An Economic Perspective On Illegal Drugs *
• Chapter 26: Economics, Ethics, and Ecology *

PART 1

Economics and Ethics

CHAPTER 1

Are Economists Basically Immoral?*

Whenever my wife and I have economists and their spouses over for dinner, I try to keep the conversation away from politics, because otherwise it almost always ends up in a somewhat rancorous dispute, not about candidates or policies, but about the democratic political process itself. The division is always the same: all the economists insist that voters have no incentive to cast an informed ballot, while the non-economists protest that this is a cynical and immoral view of the world.

As another example, I recently gave my students a newspaper article that was headlined “Food Aid from West Falls Prey to Corruption.” It began with this line: “Western food aid to former Soviet Republics is being syphoned off to the black market or falling into the hands of corrupt local authorities.” I asked my students to tell me in writing what difference this makes and why donor nations should be concerned that their food is being stolen. I found that some of the students were appalled at my claim that stolen food was more likely to get to hungry people than food that had not been stolen. I hastened to add, I said, that I do not approve of theft. But the damage was done; the students were very upset. It was wrong to argue that thieves are usually more effective in getting food to hungry people than Red Cross officials are. But thieves have a more effective incentive: no sale, no profit.

What do you think of the following statement?: “One in every seven health-care dollars spent each year in the US is on the last six months of someone’s life; this is not an efficient way to allocate resources.” You will have lots of company if you think that it is immoral to discuss the efficiency of spending money to save lives. But economists not only discuss such questions; they try to get other people to take their discussions seriously. How much is too much to save a life? Is that an immoral question?

Lawrence Summers, the chief economist of the World Bank, got himself in serious trouble last December when he sent a memo to some bank colleagues arguing that polluting activities ought to be shifted from developed to less developed countries. He argued that the demand for a clean environment has a very high income elasticity: which means that people become keener on it as their incomes rise. He said that wealthier people are ordinarily willing to sacrifice more for aesthetically pleasing environments than are poor people. Moreover—and I suspect this is what really got him into trouble—he claimed that the health effects of pollution are less in a poor country than in a rich country because the forgone earnings of people whose health is adversely affected by pollution are so much lower in poor countries, because of both lower incomes and shorter life expectancies. Someone leaked that memorandum to an environmental group and a hail of criticism descended on the World Bank and Lawrence Summers. Summers protested that his statements were designed as a “sardonic counterpoint, an effort to sharpen the analysis.” Summers is a Harvard PhD and a nephew of not one but two Nobel Laureates in economics, Kenneth Arrow and Paul Samuelson. He was too faithful an economist to retreat completely, and he insisted that it was a legitimate question whether environmental standards should be the same worldwide.

Risk and Choice

These are the kinds of incidents that make me raise my question: are economists basically immoral? In order to clarify the issue I want to use the case of International Conglomerate (IC), a hypothetical corporation that produces “gizmoes” (I made them up too). Gizmoes are very useful devices that make people comfortable, happy and healthy. A profitable market exists for gizmoes if gizmoes can be produced at a low enough cost, and the key to cost is workers’ safety. IC cannot produce gizmoes profitably in Australia because it can’t obtain competent employees without paying very high wages because Australian workers demand high wages as compensation for the high risk to life and limb inherent in the production of gizmoes. But IC can produce gizmoes profitably in Malaysia, where employees are willing to accept the risk of working in a gizmo factory for relatively low wages. Is IC behaving immorally when it opens a gizmo factory in Malaysia?

As a baptized and confirmed economist I would say that if the Malaysian workers know what the risks are, then IC is not behaving unfairly to anyone. It is providing gizmoes to people who value them, providing profits to the shareholders of IC, and providing income to the Malaysian workers; everyone wins, or at least everyone with the right to be consulted. No one is exploited or treated unjustly. My question is: Why do so many people, at least in my country and I trust in yours too, believe otherwise? Why would so many people insist that IC is behaving unjustly in a case like that? When you ask them (and I have done a lot of asking), they say something like this: “Well, opening a plant in Malaysia amounts to saying that the lives of Malaysians are worth less than the lives of Australians: that is immoral.”

Now there are all kinds of risky jobs. Certain kinds of construction work are risky; fishing in the Gulf of Alaska is very risky. I’ve got friends who were injured and killed there. Racing hydro-planes is risky, guiding climbers up the Himalayan mountains is risky. I would not work at any of these, but other people do; and is anyone asserting that their lives are less valuable than mine? Less valuable to whom? What this seems to mean is that some people are more willing than others to accept certain kinds of risk. And for all sorts of reasons; perhaps because they’re highly skilled and they think that the risk to themselves is low; possibly because they have, as Adam Smith put it, an absurd presumption in their own good fortune. Perhaps because they enjoy challenge and risk. Or perhaps because they are so poor that they prefer the small risk of an industrial accident to the certainty of poverty.

Aha, says the critic, that’s the problem. The Malaysian workers accept these dangerous jobs only because they have such poor alternative opportunities. IC is taking advantage of their poverty, of the scarcity of good jobs in Malaysia, of the underdeveloped state of the Malaysian economy. The weakness in this response is that all of us regularly in our exchange transactions take advantage of the limited opportunities available to others. A couple of weeks ago I hired a man to fix my front porch at what some people would say is an outrageous price; but I took advantage of the fact that no one else was willing to hire him for an even more outrageous price that week. What the critic is really saying is that sometimes people’s opportunities are so poor that we should not—not what? That’s the question: not what? Not offer them somewhat better opportunities? What are the options for IC in this case? Should IC not produce gizmoes at all? That won’t help the poor Malaysian workers; it would leave them worse off as well as depriving eager consumers of the gizmoes they so dearly love. The Malaysian worker who takes a job in the risky gizmo factory increases his life expectancy. He will eat better and get better health care as a result.

Some people would say that IC should just not produce gizmoes in Malaysia. If Australians or other rich westerners want gizmoes then they should shoulder the risks inherent in gizmo production and not put the risk on people in other countries. But the trouble with this is that since the gizmo consumers in Australia are likely to be different people from the gizmo producers, the argument has little moral force.

No doubt IC should adopt safe ways to produce gizmoes. The trouble is that any productive process can always be made safer but only at some cost. In my hypothetical example, the cost of improved safety conditions is too high to make safe gizmo production profitable. Then the question rises: How safe is “safe enough”? Airline travel could always be made safer if we required planes to taxi from one city to another. But travel would become less safe because people would drive their cars, which is far more risky.

The US Federal Aviation Administration is thinking about requiring that all children under two years old have their own seats so that they can be strapped in. That might save one life every ten years, but we might kill about ten babies every year as mummy and daddy drive to see grandma instead of taking the plane.

Intentions vs. Consequences

The critics of International Conglomerate in my hypothetical case are calling for different decisions because they assume a different world from the one in which we live. They are assuming a social system that’s completely known and completely controllable. And that’s a very common practice in public discussions of social policy. The widespread moral suspicion, if not outright disapproval, of economists and economic analysis is rooted, I believe, in the fact that economists specialize in the analysis of social systems that no one controls and that produce results that no one intended. Moreover, economists don’t merely analyze such systems; they applaud them. Now you might wonder what’s morally dubious about a social system that no one controls and that produces outcomes no one intended. What many people find dubious about such systems was memorably expressed by Adam Smith in his famous passage on the invisible hand in The Wealth of Nations. Those who participate in such systems, Smith said, promote the public interest most effectively by pursuing their own interest. Most people seem to believe that is just not the moral way to promote the public interest. Morality has to do with intentions more than with results; so the person who tried to run you down with his car but missed is morally more culpable than the person who actually ran you down but while trying to get to church.

Now it’s true that morality does have to do fundamentally with intentions. Most of us assess the morality of other people by judging or attempting to judge their intentions and their motives. That’s how we learn what it means to be moral. We were praised or blamed when we were young not for what we did but for what we tried to do. Our intentions reveal our character, and moral training is a matter of nurturing the right motivations. But the fact remains that we live in social systems that, while they emerge from human intentions, nonetheless produce results that no one intended. Market systems (which is what I am talking about) simply would not work if the results had to be foreseen and intended. They are directed and coordinated not by achieving agreement on the goals to be pursued, but by achieving agreement on the rules of the game and then letting people exchange as their interests dictate.

Face-to-Face vs. Commercial Society

It seems clear to me that we all of us live simultaneously in two kinds of societies, each with its own quite distinct morality. One is the face-to-face society, like the family, in which we can and should directly pursue one another’s welfare. But we also live in large, necessarily impersonal societies in which we cooperate to our mutual advantage with thousands, even millions, of people whom we usually do not even see, but whose welfare we promote most effectively by diligently pursuing our own welfare. We live predominantly in what Adam Smith called a “commercial society.” When the division of labor, he wrote earlier in The Wealth of Nations, has thoroughly extended itself through society, then everyone lives by exchanging; everyone becomes, he says, in some measure a merchant and the society grows to be what is properly called a commercial society.

Economists have acquired their bad reputation largely by defending commercial society. Commercial society simply does not function in accordance with the moral principles that most people learned in their youth and now take for granted as the only possible principles of morality. In many people’s judgment that makes commercial society and its defenders morally objectionable. Now, I think most of these critics are deeply confused. In a family, or another face-to-face society, the members know one another well. In these situations people can reasonably be expected to take the other person’s specific interests and values into account. But in a large society this is impossible. If I tried to apply in a class of 50 or even 25 students the principles of justice that I try to use in my own family, such as “from each according to their ability, to each according to their need,” I would end up behaving not justly but arbitrarily. And therefore unjustly. I should not be expected to distribute grades to my students on the basis of need. The economist Kenneth Boulding once formulated the issue I’m asking you to consider by contrasting what he called “exchange systems” with “integrative systems.” Integrative systems work through a meeting of minds, through a convergence of images, values and aspirations. Participation in integrative social systems can be deeply satisfying, and I think some participation in integrative systems is essential to human health and happiness. But it is a serious mistake to use the features of integrative systems to pass moral judgment on exchange systems.

Here’s an example of such a mistake. It’s from an essay by the nineteenth-century British art critic John Ruskin, who criticized economists even more harshly than he criticized bad architecture and bad painting. “Employers,” Ruskin said, “should treat employees the way they would treat their own sons” (he didn’t say “daughters” because he didn’t contemplate women working). Does that strike you as a worthy ideal? Even if a hopeless ideal, people might say it’s a worthy ideal, something we should strive for. But I want you to think again. It is a monstrous ideal. The proper term for it is “paternalism”: or, as my wife tells me, “parentalism,” a much better word. Parentalism is a non-sexist word for what we used to call paternalism; it really captures the idea, which is behaving like a parent. Parentalism degrades its victims and corrupts its perpetrators. I do not want the Chancellor of my university to treat me like a child, not even like his own child; he is in reality not my father and should not behave toward me as if he were. Parentalism is appropriate at most in actual parents who know their children intimately, who love them as much as, if not more than, they love themselves, and who recognize that their children have a unique claim on their resources. In those cases parentalism is appropriate. When those conditions are not met, then parentalism is degrading and corrupting. Employers should treat their employees like human beings, of course, with decency and common courtesy. But beyond that they should treat them as people who have something of value to offer the firm for which they will therefore have to be paid. This is not only efficient; it is also less unfair than the parentalist alternative. It is more worthy of both the employer and the employee.

The employer/employee relationship is properly part of the exchange system in which people are equals and do things for one another. Our hankering to personalize our relationships is a romantic revolt against dominant features of the modern world. It’s the kind of yearning that if carried through would have us abandon such coldly impersonal social mechanisms as traffic lights in favor of an integrated system in which the motorists who meet at each intersection form an encounter group to decide who most needs to go through the intersection first. This romantic yearning to make the family the norm for every kind of social interaction is fueled by another misunderstanding, the mistaken notion that commercial society and economic theory presuppose and endorse selfish behavior. But the economic theory that explains commercial society assumes only that people pursue their own interests. This is often inaccurately stated as the assumption that people are selfish. But people who pursue their own interests are behaving selfishly only if their interests are selfish.

The economist merely assumes that people pursue those projects that interest them, whether it’s bringing medicine to Ukraine, selling cocaine in Los Angeles or lecturing at the Centre for Independent Studies, and that they redirect their efforts in response to any changes in the anticipated costs and benefits of doing so. In other words, if I think you’ll smile at me, I’ll talk a little longer.

Interests and Incentives

I sometimes wish economists would pay a bit more attention to the nature of the interests that people pursue. We often sound confident that all the interests that people pursue are good ones; but they’re not. Be that as it may, the economist does assume that people pursue their own interests; and the question is, what follows from that? That is still the key question. That’s the question that Adam Smith posed. Under what circumstances will the pursuit of self-interest by the various members of society produce something that can reasonably be called the public interest? That is still the question for economists and for the rest of society. And economists answer that question without assuming a benevolent despot. It is characteristic of the economic way of thinking to ask what incentives are producing the present situation that we don’t like. What incentives would produce something better and how might we get from here to there, given the fact that we are here with our present incentive structure? Now that’s a very laid-back way to approach the world. The good economist is often perceived as immoral because he is suspicious of what Adam Smith called the “man of system” who in his own conceit supposes that the members of a great society can be moved about as easily as the hand moves the pieces on a chessboard.

I shall conclude with two recent newspaper items. One is a short news item reporting that Mother Teresa was about to appeal to prevent the execution of a convicted California murderer. I don’t know whether she did appeal or not, but the newspaper said that she was going to call the Governor and say that this man should be forgiven because that is what Jesus would have done. Now I don’t want to get into the issue of capital punishment; I just want to point out that if Mother Teresa made that argument she was mixing different moralities. I choose Mother Teresa because I can’t think of a person for whom I have more respect; she is a far better person than I am. But forgiveness is appropriate only in face-to-face relations or for God. The criminal-justice system of the State of California is not God nor is it running a face-to-face society. A judge who forgives a convicted criminal is not a candidate for sainthood but for impeachment. The morality of large social spheres is simply different from the morality of face-to-face systems. Arguments against capital punishment must take those differences into account, and so must our arguments for revised economic policies.

The other news item reports a recent call for a US$10-billion expansion of government food programs to end hunger in America. According to this article, adequate nutrition is a basic human right. Someone was quoted as saying “Hunger is an injustice.” I want you to think about that for a moment, because I am now going to seem immoral. I say the spokesman is confused. Hunger may be an evil. (How about fasting, an ancient and venerable religious tradition?) But it is not an injustice, because no one intends the hunger of other people. I can imagine someone intending to starve someone to death; that would be an injustice. But hunger is usually the product of a lot of interrelated choices, some of which may entail unjust acts but most of which probably do not.

If you were concerned about adequate nutrition for everyone then you would achieve your goal not by labeling it a basic human right but by changing the whole web of incentives that people face. It is an economic problem much more than it is a moral problem. Economists acquire their reputations for immorality by making statements like that; but I think it is our vocation to make such statements and I think I would be faithless to my vocation and therefore immoral if I said anything else.

CHAPTER 2

Economics and Ethics: The Problem of Dialogue*

Is economics a science or an ideology? Does it provide trustworthy descriptions and reliable predictions? Or are the descriptions and predictions of economists distorted by ideological presuppositions and commitments?

From Confidence to Confusion

As recently as fifteen years ago it would have been difficult to assemble a session on those questions at a professional economics meeting in this country. There were almost no Marxist economists in academic positions in the United States to press the argument that orthodox economics is bourgeois apologetics.1 And the “institutionalists,” who had vigorously attacked the philosophical and political biases of mainstream American economics a generation earlier,2 were by 1960 mostly intimidated, converted, compromised, or quarantined.3 Most economists simply accepted without serious question the position expressed in 1953 by Milton Friedman, that “economics can be, and in part is, a positive science” and that “positive economics is in principle independent of any particular ethical position or normative judgments.”4

The complacent consensus has been loudly shattered over the last decade. Those economists who remain convinced that economics is a purely positive science have found it increasingly difficult to ignore the charge that the theoretical corpus of their discipline is in large part an elaborate justification of capitalist society.5 Formation of the Union for Radical Political Economics;6 the selection by the American Economic Association of a president notorious for maintaining that economics is “a system of belief” and his subsequent presidential address castigating the profession for its blindness, biases, and sterility;7 the revival of a militant institutionalist movement organized in the Association for Evolutionary Economics;8 articles and reviews attacking “neoclassical economics” appearing regularly in official publications of the American Economic Association9 —the evidence is abundant that what was until recently a settled truth within the profession is today a very doubtful dogma indeed. Even the more determined defenders of the positive-normative distinction now admit that the line is extraordinarily difficult to draw.10

It would appear that Gunnar Myrdal, after many years of swimming “against the stream” (the title of a recent collection of his essays),11 is now riding triumphantly on the flood. When in the 1920’s he was composing his monograph on The Political Element in the Development of Economic Theory, Myrdal believed that it was possible to purge all political, ideological, or other normative elements from economic theory and thereby to construct a purely positive science of economics. But he soon afterward repudiated that position, calling it “naive empiricism.” Over the last forty years Myrdal has persistently criticized the implicit and explicit belief of economists “in the existence of a body of scientific knowledge acquired independently of all valuations.” He put the criticism succinctly in his Preface to the English edition of The Political Element:

Myrdal’s argument, elaborated subsequent to the 1930’s in books, essays, introductions, and appendices, was never seriously challenged. Nonetheless, economists continued to uphold and employ the positive-normative distinction in methodological essays, textbook introductions, and obiter dicta until the 1960’s, when the tide of opinion underwent a rapid reversal. Thomas Kuhn’s Structure of Scientific Revolutions,13 assisted by a changing political climate, accomplished quickly what Myrdal’s patient arguments had failed to do: convince a substantial number of economists that the science of economics is inescapably grounded upon non-scientific commitments. The new word with which to refute the defenders of a purely positive science became “paradigm.” Despite its considerable ambiguity—one careful reader has distinguished at least twenty-one different senses in which Kuhn employed that word14 —the concept of a paradigm became for some a philosopher’s stone that could transform any and every alleged science into a mere systematic elaboration of particular biases. Whether or not Kuhn intended this interpretation,15 and whether or not those who invoke his authority have actually read him, the entire context within which the positive-normative distinction was used, defended, or criticized by economists did change drastically toward the end of the 1960’s.

The resulting situation is unsatisfactory from any responsible point of view. Many economists continue to affirm the possibility of a positive science of economics, continue to assure their students and one another that economists possess or can create a purely scientific, purely descriptive, value-free, logical-empirical system of thought and knowledge, and continue to condemn as unscientific any attempt to derive economic generalizations with the explicit aid of value judgments. Such a rigid adherence to an untenable position severely restricts dialogue and inquiry16 and transforms suspicion into conviction for many who are beginning to wonder whether economics is not more ideology than science.17

At the same time we find economists and jubilant critics of economics who, in the words of Robert Solow, “seem to have rushed from the claim that no social science can be value-free to the conclusion that therefore anything goes,”18 or who—the words are again Solow’s—“have corrupted Thomas Kuhn’s notion of a scientific paradigm, which they treat as a mere license for loose thinking.”19

The Fatal Distinction

Where can dialogue begin? Surely it could begin with a universal agreement to abandon the positive-normative distinction. It is philosophically untenable, and all attempts to use it lead to question-begging procedures that stop discussion and impede the growth of knowledge. Myrdal’s basic argument, that values enter inevitably into the construction of any scientific generalization, has never been refuted because it is irrefutable. The analysis applies to every science, not just to the social sciences, as has been amply demonstrated by such distinguished and diverse students of the history and philosophy of science as E. A. Burtt,20 R. G. Collingwood,21 Alfred North Whitehead,22 Michael Polanyi,23 and now Thomas Kuhn. The citation of names is hardly an argument; but the horse is too dead for flogging. It is not possible, not even “in principle” (that strange phrase economists invoke when they do not know how to do what they nonetheless believe can somehow be done) to construct a science of economics that is “independent of any particular ethical position or normative judgments.”24

But the next constructive step is not so easy to discern. Myrdal has maintained that economists have an obligation to reveal their presuppositions as fully as possible so that readers can more easily assess the significance and limitations of any piece of analysis or description. There is an obvious deficiency in this procedure, however, that makes it at least as likely to mislead further as to reveal more fully. And Myrdal’s own “confessions” demonstrate the danger. They tend to tire the reader well before they succeed in adequately exposing the crucial presuppositions. Myrdal probably exaggerates the effectiveness of introspection and assigns insufficient importance to the role of criticism by others in detecting the preconceptions that shape our knowledge. The widespread neglect for so long of Myrdal’s diagnosis may be grounded in large part in economists’ dissatisfaction with his prescription: the constant explication of underlying value judgments. Lionel Robbins, for example, has complained of “the minute search for implicit value judgments, which . . . has even become something of a heresy hunt—and, like most heresy hunts, something of a bore.”25 Those who are in general agreement with Myrdal’s analyses may find his prefaces instructive; but those who consider his analyses inadequate or misleading will most likely find the same flaws in his presentation of the value framework underlying the analysis.

Robbins’ objection suggests another reason why most economists have not responded to Myrdal’s epistemological diagnosis. They believe that the value judgments which enter inevitably into scientific inquiry are trivial or ones which all serious inquirers hold in common. But if that claim was ever defensible, it is no longer. The fact is that the guiding preconceptions which have shaped the development of economic theory are being disputed today, and disputed in quite specific and concrete ways. Economists are accused of doing economics on the basis of analytical preconceptions that cause them to count as solutions what their critics perceive as problems and that prevent them from even seeing certain social relationships as in any sense problematic. If someone were to suggest, for example, that college professors ought to do their own typing and a portion of the janitorial work in their own classrooms and offices, most economists would invoke the principle of comparative advantage in defense of present procedures. That is not an illegitimate response, but it is certainly a limited response. The principle of comparative advantage is at best a clumsy tool for dealing with the social meaning of work or the alienation that accompanies specialization and the hierarchical organization of labor, and at worst it is a tool of thought that conceals these problems altogether.

This is hardly a trivial or peripheral objection. The principle of comparative advantage is at the very center of price theory, which is surely the closest thing to a ruling paradigm in contemporary economic science. It is the pursuit of comparative advantage that makes demand curves slope downward to the right and that establishes opportunity costs, thereby giving supply curves their tendency to slope upward to the right. The crucial concept of efficiency is defined in economics in terms of comparative advantage, and it is the pursuit of comparative advantage that establishes prices which are indicators of social scarcity, that induces efficient decisions, and that gives meaning to the concept of equilibrium in price theory. The comparative advantage concept provides a theoretical orientation that is neither trivial in importance nor universally accepted by those who think systematically about social interaction. One may legitimately ask: Can economists defend the significant theoretical decision to view social reality through the prism of relative price theory and the principle of comparative advantage?

One reply is to say simply that it works; that it yields good predictions or that it explains what we want to understand. But that begs important questions. What are we trying to predict or explain? Which aspects of social reality are brought into prominence by our analytical procedures and which aspects are submerged or even distorted? Why this and not that?26

Economists and other practicing scientists easily become impatient with questions of this sort and are tempted to reply that each scientist, including the critic, has the right to study whatever interests him in whatever way he chooses. But such an individualistic, laissez faire conception of science is unrealistic. The separate sciences are not collections of individuals who do as they please; they are professional communities with definite intellectual standards and substantial power to enforce those standards. They exercise this power by granting or withholding membership in the community, the rewards of income and recognition, and opportunities to influence society through the dissemination of research results. The theoretical decisions of scientists have coercive power.27 Moreover, knowledge is always power, and absolute power corrupts absolutely.

The Criterion of Science

The determination of some economists to find and enforce unambiguous criteria for genuinely scientific work arises in fact from their recognition of the social power of science. Genuine science leads to the progressive accumulation of warranted knowledge while other modes of inquiry do not—or at least do so less surely and effectively. And knowledge is useful, not least in the social sciences, where the inevitable conflicts engendered by opposition of interests are so often exacerbated by disagreement over matters of fact. A purely scientific, purely descriptive, value-free, logical-empirical science of economics could be immensely useful as an impartial conciliator of social conflict.28

The Holy Grail is objectivity. The activities, institutions, and achievements of science rest upon the presupposition of an objective universe, a reality external to each observer that is what it is irrespective of the opinions people entertain about it; truth, in other words, is “beyond human authority.”29 This conviction or article of faith has given rise in turn to the concept of “objective truth.” But if by “truth” we mean correct statements about reality, the phrase “objective truth” is confusing.30 Statements, propositions, or judgments are made and held by subjects and are therefore always subjective. It might be argued that they are “objective” insofar as reality confirms them. But as soon as we speak less metaphorically we realize that it is always other subjects and never objects that confirm or disconfirm a judgment. Hypotheses in biology concerning pigeons are confirmed by biologists, not by pigeons; and hypotheses in economics concerning business cycles are confirmed by economists, not by business cycles.

There is consequently no way to establish the validity of a proposition in economic science except by persuading other economists. To persuade anyone, it is necessary to begin with what he is willing to grant and to reply to the objections he raises. This is the method of science. Science is not a purely logical procedure whereby true judgments are inexorably extracted from objective reality by automata called scientists. Science is a social activity, an activity of a community, and the cardinal rule of scientific procedure is: Submit your conclusions without reservation to the critical examination of others.31 Scientific knowledge grows by testing; but it is scientists who do the testing, not “objective reality.”

It is true, of course, that scientists are not at liberty to accept or reject scientific conjectures on arbitrary or irrelevant grounds. But it is the scientific community that finally decides what is arbitrary or irrelevant. Within the confines of what Kuhn calls “normal science,”32 such decisions are often made with little reflection and typically without controversy. But they are relatively simple decisions only because and insofar as members of the scientific community have no serious doubts about the adequacy of their ruling paradigm.

The danger lies in the circularity of this system of community control. One must step outside a paradigm in order to examine realities that the paradigm overlooks or distorts, but work done outside the paradigm is not accepted as scientific. Extra ecclesiam nulla veritas. Scientists tend to reject with indignation the very possibility that someone doing competent scientific work might be excluded from influential journals or positions because he adheres to unpopular values. But such a rejection misconceives the problem. The values at issue are ones that affect the content and presumptive quality of scientific work. The problem has even arisen in the natural sciences;33 it is clearly far more serious in a discipline like economics where the very perception of problems to be studied depends so fundamentally upon conceptions of what human beings and human societies ought to be or can become.

Unfortunately, the view that value judgments cannot be fruitfully discussed because they are allegedly mere statements of subjective preference has acquired wide currency within the economics profession. Some economists may be insisting upon the possibility of a purely positive science because they have accepted the odd notion that “men can ultimately only fight”34 when their value judgments conflict, that the issue is then reduced to one of “thy blood or mine.”35 But it is sheer dogmatism to deny the possibility that one’s choice of a theoretical orientation may have been significantly affected by prior judgments concerning such matters as the value of freedom versus equality, the relative importance of individual opportunity and social harmony, the merits of democracy versus some kind of aristocracy, the risks and the possible gains from conservative and from radical approaches to social reform, or the nature of man and the meaning of the good life.36 And obscurantism is added to dogmatism by the strange insistence that such disagreements can never be resolved through discussion.37 The soft side of the positive-normative distinction is the implicit encouragement that it gives to ethical solipsism. Everyone agrees that political or value judgments must be added to positive economics in order to obtain policy recommendations. The positive-normative distinction implies that these judgments are essentially arbitrary, mere matters of personal preference that cannot be tested or revised through rational discourse.38

The preceding argument is a modest one. Economists should stop talking about positive and normative economics and speak instead simply about the science of economics. Economics is a science because knowledge about economic phenomena has long been systematically cultivated and continues to be cultivated by a recognized community of inquirers who read, build upon, and criticize one another’s work. No more is required. Science neither rests upon nor discovers indubitable truths. The theories and generalizations of economic science are conjectures; but they are warranted conjectures because and insofar as they have withstood attempts at critical refutation. Such a conception of science clearly implies that scientists are not entitled to withhold any of their conjectures from criticism, and that the disciplinary boundaries within which they will inevitably work must be regarded as potential sources of error as well as guides to the discovery of truth.

Furthermore, economists ought to re-examine their thinking on the whole subject of value judgments. They enter inevitably into scientific work. Their critical examination can sometimes contribute at least as much to the development of warranted knowledge as can the further refinement of data or the logical improvement of formal models. Economists will, of course, shy away from such a challenge if they continue to maintain that value judgments are nothing but statements of subjective preference. But this is itself a dogma that flies in the face of the undeniable fact that people do hold at least some value judgments to be interpersonally valid, that they do offer evidence and reasons to support their value judgments, and that rational discussion often does lead to consensus among people who began by holding (or supposing that they held) conflicting ethical or political positions.

Radicals and Neoclassicals

How does contemporary American economics fare when we apply this criterion, openness to criticism, to determine whether it is scientific or ideological? Contrary to what most outside observers currently seem to believe, it satisfies the criterion remarkably well. Despite formal adherence to the positive-normative dichotomy, with all its potential for begging questions and deflecting fundamental criticism, the economics profession over the past decade has encouraged the publication of radical criticism, has paid attention to it, and has publicly responded to it. This is not enough, of course, for those critics who define as ideological any position incompatible with their own or who distinguish science from ideology by looking at conclusions rather than procedures. And it will never be admitted by those who, whether from ignorance or malice, persist in caricaturing or flatly misrepresenting what economists are currently doing.39

The Journal of Economic Literature, an official publication of the American Economic Association, has repeatedly opened its pages in recent years to critics of “establishment” works and ways. The Association’s other journal, the American Economic Review, has also published, usually in the annual Papers and Proceedings volume, numerous criticisms of orthodox economics. Other prestigious “establishment” journals, such as the Quarterly Journal of Economics and the Journal of Political Economy, have offered articles, reviews, and symposia in which general and specific criticisms were forcefully presented. The accusation of official indifference or conspiratorial silence in the face of radical criticism simply cannot be sustained by anyone who pays attention to what economists have actually been doing in the last decade.

On the contrary, it is the critics who have tended to substitute dogma for dialogue by failing to modify their criticisms in the light of the responses that have been given to their arguments. Kuhn’s concept of scientific paradigms has become in some radical circles a justification for refusing to listen to those who do not begin with the correct presuppositions. The distinguished Marxist economist Paul Sweezy, commenting on Assar Lindbeck’s The Political Economy of the New Left: An Outsider’s View, complained that Lindbeck “has no empathy for the radical position” so that “I, as a radical, find it as irrelevant and boring as most neoclassical economics.”40 Lindbeck’s responses was testy:

Empathy is essential, of course, to genuine dialogue, but consensus is the goal of dialogue, not its precondition. While passion neither can nor should be excluded from scientific discussion, it does not entail or excuse abusive and ad hominem argument. And it surely does not justify a refusal to pay attention to what opponents are actually saying and doing.

Anyone who follows the professional literature and also reads the complaints leveled against it must wonder occasionally about the good faith of the critics. The charge is constantly made, for example, that economists ignore questions of income distribution and that this is an “untouchable” topic. Did the critics perhaps overlook the publication of two comprehensive books on income distribution by two well-known economists in 1971?42 Or the pair of review articles on these books featured in the Journalof Economic Literature?43 Or the Richard T. Ely Lecture to the 1974 meeting of the American Economic Association?44 Or the research and arguments associated with the names of Lester Thurow,45 A. Michael Spence,46 or Doeringer and Piore?47 The income distribution studies of Thurow, Spence, and Doeringer-Piore are specifically mentioned here because they have significant non-conservative implications and have attracted considerable attention among economists and others interested in public policy.

The Neoclassical Perspective

Fortunately, an alternative hypothesis to that of bad faith can be constructed. And as we sketch it out we begin to discover the nature of the gulf that currently divides Marxists from so-called neoclassical economists. The radical critics of orthodox economics are reluctant to concede that any research undertaken within the framework of neoclassical theory could constitute genuine investigation of real problems. Not even the radical implications of Thurow’s work or of Spence’s can redeem research that employs the perspective of marginal productivity theory. Marginal productivity theory is allegedly circular, empty, incoherent, and consequently nothing more than apologetics for capitalism.48 But marginal productivity theory is essentially nothing but the neoclassical or orthodox perspective applied to questions of resource pricing and allocation. It is the fundamental perspective of that broader theory to which radical critics are really objecting.

The neoclassical perspective is a way of thinking about social phenomena that conceives society as composed entirely of individuals whose conscious actions aim at maximizing expected utility. People choose continuously among perceived options, weighing the expected benefits and costs of each decision and electing those actions through which they expect to secure for themselves the largest net advantage attainable. Monetary prices are an important set of data for decision makers because they provide a common denominator through which the relative advantage of innumerable options can be precisely compared. The decisions people make entail offers and bids which ultimately establish these prices by moving them toward market clearing values.

Neither selfishness, materialism, nor obsession with money is assumed. The maximization of expected utility can lead to anything from self-sacrifice to self-aggrandizement; the self whose interests are pursued is not prescribed in the neoclassical perspective. Moreover, the notion that economizing is peculiarly directed toward “material” wealth is probably a careless inference from the correct observation that neoclassical economics is centrally concerned with exchange and consequently directs most of its attention to goods that are augmentable and transferable. The substantial role played by monetary costs and monetary transactions in economists’ analysis and research is simply a consequence of the fact that the institution of money enormously facilitates exchange.

Why is this perspective so offensive to most radical critics of economics?49

To begin with, it assigns fundamental importance to the actual preferences of individuals. Every sensible economist knows that the wants of individuals are the product of socialization and that people’s socialization sometimes serves them badly. But neoclassical economists place a heavy burden of proof upon anyone (Galbraith, Nader, Marcuse, or the Federal Communications Commission) who claims to know that what individuals want is not in their best interest.50 Wants expressed in the market are at very least the beginning point for all evaluative judgments.

Secondly, the neoclassical perspective assumes that each party to a voluntary exchange gains from that exchange; otherwise it would not occur. This is not the same as assuming a complete harmony of interests in society, as radical critics repeatedly claim. But voluntary exchange is the focus of attention and voluntary exchange is a method of inducing others to cooperate by adding to their range of opportunities rather than subtracting from them. Market interaction secures social cooperation, in short, through persuasion rather than coercion; and orthodox economic theory has developed over the last two centuries largely in an effort to explicate the coordinative potential in voluntary exchange. It must be noted at the same time that this preoccupation of economists with exchange relationships has produced a vast literature on “market failure” in which the limitations of market arrangements have been minutely explored. Orthodox economists have paid far more attention to the deficiencies of market arrangements than advocates of socialism have paid to the deficiencies of central planning.

This is closely related to a third major difference in approach. The neoclassical perspective views power as an insecure possession, because the advantages that power confers upon its possessor will tend to attract additional bids and offers that will undermine the power base. It is misleading to claim, as radicals do persistently, that orthodox economists ignore the problem of power. Ownership of resources is clearly recognized as power, and resource control coupled with the ability to exclude competitors is a constant object of study by neoclassical economists. It is ironic that the critics so rarely see the blindness toward the problem of power implicit in their own stated preference for a usually unspecified “social control” of resources. And it is an empirical question, on which neoclassical theory sheds important light, whether particular private individuals or organizations in any society actually possess excessive power through disproportionate resource ownership.

It is, furthermore, a critical difference between orthodox and Marxist economics that the former views competition as occurring between parties on the same side of the market. Thus employers compete against employers, employees against employees. This point of view is hostile toward notions of “the power of the capitalist class” or “the solidarity of the working class.” But these alternative conceptions so central to Marxist social analysis have not fared nearly as well as the neoclassical approach in explaining and predicting observed events. The radical contention that orthodox economists deliberately conceal the class basis of the distribution of income ought to be, but largely is not, supported by arguments and evidence showing that a class-oriented analysis can better explain actual changes over time in patterns of income distribution.51

Finally, neoclassical economics, by focusing on the efficient allocation of resources, implicitly asserts that the task of assigning resources to their most advantageous use is a task of great importance and complexity. This follows from the almost incalculable variety of presumably legitimate wants that individuals have and from the infinitely varied ways in which resources can be combined. Marxist economists deny the fundamental importance or difficulty of the allocative task and assert that efficient coordination is a relatively simple problem. They do this by claiming that people’s real wants are fairly simple and uniform and that the appropriate ways of combining resources for production are largely known data of technology. If the Marxists are correct, markets are a dispensable social institution and central planning will encounter no major information problems. If the neoclassical perspective is more nearly correct, the problem of information may not be solvable except through decentralized decision-making and market coordination.52

Conclusion

The thesis of this entire essay has been that the enemy is dogmatism, and the requirements of brevity have at the end led to a manner of statement which is unfortunately dogmatic in tone if not in intent. But perhaps these insufficiently qualified interpretations of the principal radical-orthodox disagreements will serve to focus attention on the depth of the divisions that give rise today to controversies over theory. Debates about marginal productivity theory are symptoms of divergent visions. It could not be wholly a waste of scientific energy for economists to explore, through critical but empathetic dialogue, the conflicting conceptions of human nature and society that the West and, increasingly, the entire world has inherited from the Enlightenment. We might begin, for example, with the French Revolution and ask to what extent liberty presupposes fraternity and the circumstances under which equality is the enemy and the circumstances under which it is the precondition of defensible liberty and genuine fraternity. But that is clearly a task too large to begin here.

CHAPTER 3

Income and Ethics in the Market System*

Among those who lecture or write about economics and ethics, the market system generally has a dubious reputation. That reputation rises and falls in response to historical events and the shifting discontents of civilization. But even in those times when ethicists are speaking well of capitalism or the market system, they usually do so with faint damns rather than genuine praise. They may grant that it works, that it gets people fed, clothed and housed. They may even be willing to concede that alternatives cannot be made to work nearly as well—at least not yet. But they will attribute this, more often than not, to something like the compatibility of capitalism with human greed, which isn’t a very inspiring recommendation from a moral point of view.

A New Look at an Old Complaint

Why is this? What is the basic moral flaw, or supposed moral flaw, in the market economy? Why have so many eminent and respectable moral thinkers looked upon capitalism and pronounced it an unfortunate necessity at best? I want to argue this evening that the condemnation rests largely upon a set of interrelated misunderstandings. But these are not, I also want to maintain, the misunderstandings of which people in the business community usually complain when they set out to defend the profit system against its critics. The misunderstandings run deeper than the customary rejoinders recognize, which is why the arguments in defense of capitalism rarely silence the critics or even slow them down.

Of course, my arguments aren’t likely to change many minds, either. When it comes to this issue, those who care are quite certain of their views, and they listen to talks such as this one more in order to grade the speaker’s position than to reexamine their own. Or else they know in advance where the speaker stands and have only come out in order to hear once again that old-time religion that so comforts the heart. They want to nod approvingly while the speaker flails the greed and materialism of the corporate sector or, on the other side, flails the ignorance and self-righteousness of those who flail the greed and materialism of the corporate sector.

This is not a complaint. The topic before us has been treated so often that everyone’s entitled to assume that nothing new is likely to be said. Nonetheless, I mean to try. The issues are extremely important both for the way in which we organize our political life and for the way in which we think about ourselves and our society. Alfred North Whitehead was profoundly correct when he contended, more than half a century ago, that a great society was a society whose principal members thought greatly of their functions. In a society dominated as ours is by the business mind, it is essential that business and economic activity be seen, at least by those who participate in it, as a worthy vocation. Is that possible? The answer will depend in large part on our moral assessment of the free-market economy.

Standards for Assessment

What should we consider when we want to assess the morality of a social system? Two criteria immediately suggest themselves: the criteria of justice and efficiency. Social systems must obviously be just or fair if they are to be ethically acceptable. But they also have to be efficient in the sense that they enable us to accomplish our purposes. Is anything more required? In particular, do we also want to take account of intentions, of motives, as we ordinarily do when we pass ethical judgment on the actions of individuals?

Motives and Consequences

We all recognize the importance of distinguishing between motives and consequences in judging people’s behavior. If I knock you over accidentally, I may be a clumsy lout, but I’m not an evil person. If I try to knock you over, however, with no provocation, I’m a malicious person even if I miss you completely. The law agrees. Attempted murder is a more serious crime, with more severe penalties, than involuntary homicide. Should this distinction also be applied to social systems?

The temptation to personify non-persons is sometimes irresistible. We curse chairs over which we stumble and we blame the weather when it upsets our plans. Of course, we also realize that these are irrational responses, signs of our own frustration rather than of any genuine intentions on the part of chairs or the weather. But what about social systems and institutions? They aren’t impersonal objects, and we know that motives do matter within social systems. Since they seem to have intentions as well as consequences, we are disposed to judge them, as we judge individual persons, by what they are aiming at as well as by what they finally achieve.

And so Adam Smith’s famous statement about the invisible hand leaves many of us feeling ambivalent at best. Even if he was correct, and there really is some kind of invisible-hand process that extracts the public interest from everyone’s pursuit of purely private gain, wouldn’t it be better if people aimed at the public good directly? Doesn’t it count against a social system, at least from an ethical standpoint, that the motives which make it work are selfish, even if it should be the case that the ultimate consequences are completely satisfactory from a moral perspective?

But this whole line of argument is fundamentally mistaken. Social systems, including the market economy, have no intentions at all, and to suppose that the motives or intentions of those who participate in the system are the motives and intentions of the system itself is a confusion of thought that can lead us seriously astray. It is an especially dangerous confusion when we start to ask about the justice of social systems. Moreover, self-interest is not the same as selfishness, and the narrow pursuit of private purposes has no necessary connection with greed, materialism, or a lack of concern for others.

Those are strong statements. Can I persuade you that they may all be true?

A Roundabout Route

The position for which I want to contend can best be understood if we approach it indirectly, by reflecting on a social system with which we’re all familiar but which doesn’t arouse the belligerent convictions that so often infuse the discussion of economic systems. It’s a social system that serves us remarkably well and that has often served me effectively when I wanted to get people reflecting on the basic nature of social systems. It’s the system we use to move about on our urban streets.

This is a social system. From Boston to Bucharest to Bozeman, people would not be able to get from home to work and back again without the system of social coordination that we casually refer to as the traffic system. Have you ever thought about how it works?

Radical Individualism

It’s a radically individualist system, to begin with. Drivers sit in their own vehicles, cut off from any communication with the other drivers who surround them, pass them, meet them, and cross their path. There are citizens-band radios, of course, but it’s my impression that drivers use them to communicate with people who aren’t close by and whom they don’t expect to encounter. I’ve seen no evidence that drivers use citizens-band radios to work out problems of potential conflict on the freeways, during the rush hour, or generally while driving in urban areas.

On the contrary, drivers formulate their plans quite independently, with no knowledge of the plans that have been or will be made by others whom they’re going to encounter. Each of us decides what time to leave for work and what route to take, and we do so without even consulting anyone else. The choice of both ends and means is made by individual drivers who characteristically don’t have the slightest inkling of what others are going to do. There is certainly no grand plan, no overarching design constructed by the Department of Commuting to make sure that you and I aren’t planning to occupy the identical road space at the same time. (The urban traffic system, in short, is not like the air traffic control system.)

Individualism, Selfishness, and Concentration

Now one could correctly say of this system, as Adam Smith said about investors in his day: Each person intends only his own gain. But is that selfish? Is it selfish of me, while driving, to focus exclusively on getting to my chosen destination as quickly as is consistent with my personal well-being? Is it selfish of me to ignore completely, not even to think about, the welfare of other drivers? If in fact I start to wonder where other drivers are going and whether their missions might be more urgent than mine, I’m beginning to daydream, and I become to that extent a greater menace not only to my own welfare but also to the welfare of other drivers in my immediate environment. An important insight emerges from this: Responsible, ethical behavior will often require an exclusive preoccupation with the technical task at hand. Driving in traffic is an example that we will all concede. So is the act of performing surgical operations; surgeons don’t operate on close friends or relatives, because the personal relationship could easily introduce considerations irrelevant to the task at hand and inimical to success.

Might this also be true of most activity in the market? We’ll return to that question.

Morality or Muddle?

Meanwhile, let’s note in the traffic situation what harm is likely to be done by people who decide to insert “morality” into their decisions. What will a driver accomplish if he refrains from advancing when the light turns green, perhaps because he’s running early and suspects that some in the cross-traffic are running late? He will almost certainly not persuade the cross-traffic to go on red; he will delay people behind him, who could well be on much more urgent missions than his own; and he will increase the likelihood of an accident by introducing substantial new uncertainties into the calculations of drivers who are observing and trying to anticipate his erratic behavior. And, of course, if everyone decided to be “unselfish” in this manner, traffic would come to a halt, as drivers regularly got out of their vehicles to discuss the relative urgency of their current goals and to insist that the welfare of others be advanced before their own.

Is this also generally true of ordinary market activity, that it would come to a halt, at enormous cost to all participants, if they were all to act consistently on the principle of advancing the welfare of the most needy or the most worthy—rather than focusing on the accomplishment of their own personal goals? To that question, too, we’ll want to return.

The Rules of the Game

I have not mentioned a very important aspect of traffic systems: They are not systems of complete anarchy. There are definite rules of the game that must be obeyed by participants if the system is to work. Drive to the right, stop for red lights, stay close to the legal speed limit, and, above all, do not touch the cars around you. We even have rules for suspending the rules: Everyone stops and yields to vehicles with sirens and flashing lights, and uniformed police officers may trump all the rules.

Clarity and Stability

In the case of a social system for moving traffic, the rules are often arbitrary. Drive to the right. Why not to the left? Stop on red. Why not on green instead? What the rules stipulate is often unimportant. What matters, in addition to the rules’ being mutually consistent, is that they be clear to all and stable over time. We have to know exactly what the rules are. Recall the panic that you must have felt at some time in your life when you found yourself heading in the wrong direction on a one-way street, or trapped in the exit lane on a freeway when you wanted to go through, because the relevant rule hadn’t become clear to you in time. This is why uniform rules are so desirable. Imagine the confusion if drivers had to keep remembering whether they were in a town that drove on the left or on the right, that required drivers to stop on red or on green, or that did or did not permit right-hand turns against a red light.

Stability over time also promotes the clarity that is so essential for traffic rules, but in addition, it reduces the costs of adjusting to changes in the rules. It doesn’t much matter that people drive on opposite sides of the road in England and France, but it does matter that it’s the left side in England and the right side in France, because those are the rules to which other rules and practices have adjusted over time. The most obvious example is the placement of the driver’s seat in cars made respectively for British and French operation. One reason England doesn’t conform on this matter to the way that most of the world drives is simply the cost of readjustment.

All this is quite obvious and non-controversial. Is it equally true—it is certainly less obvious and more controversial—with respect to economic systems in general? Does it matter greatly what the rules of the game are, as long as they are clear and stable? In addition, of course, the rules must be obeyed. That’s all true, I shall argue, in economic systems as well as in traffic systems.

Parallel Definitions

Let me now try to summarize in one sentence the social system for moving traffic with which we are all familiar. It is a system in which individuals pursue their own interests on the basis of the situation they perceive, obeying a few clear and stable rules of the game.

And let me follow that up with an equally brief definition of capitalism, or a free-market economy. It is also a social system in which individuals pursue their own interests on the basis of the situation they perceive, obeying a few clear and stable rules of the game.

Looking at the Consequences

What emerges from the traffic system? Some fatal accidents. More damaged fenders. A certain amount of anxiety. Occasional incidents of personal nastiness. But if those were the principal consequences of the system’s operation, none of us would participate. The fact is that we do play the game, and we do so voluntarily, because we expect to be better off by playing than by not playing. We venture into traffic every day, and we regularly get back home in satisfactory condition. The system works. Judged by its consequences, it’s a success. I don’t doubt that improvements will be made in the system in the future as they’re discovered and we learn how to implement them. But the system works astonishingly well as it is right now, with all its warts; and no one really knows how to design a better system for enabling people who live in dense population clusters to move about quickly, freely, safely, comfortably, and inexpensively.

Social Cooperation as Mutual Accommodation

One of the elements that make it work is the mechanism of mutual accommodation that it embodies. This mechanism becomes especially important and visible in large cities during the rush hours. Have you ever wondered—we too seldom ask such absurdly instructive questions—why it never happens that everyone using the freeway chooses to drive in the same lane? Just too unlikely, you might think. But isn’t it also most unlikely that each of the four alternative lanes on a freeway will be chosen by precisely twenty-five percent of the drivers? And yet that’s roughly what happens every day, morning and evening. A coincidence too improbable to be believed—until we notice how and why it happens.

A lane carrying fewer than one-fourth of the traffic will move more quickly; that advantage will be noticed by a few drivers traveling in adjacent lanes; they will respond by changing lanes. As they do so, they slow down the lane which they enter and accelerate the lane which they left. Through this continuous process of marginal adjustments, initiated by individual drivers responding to the perceived advantages to themselves of changing lanes, the traffic is continuously adjusted to keep each lane moving at approximately the same speed. And thereby the sum of the time traveled by all of the commuters together is minimized.

Each participant intends only his own gain, as Adam Smith put it.

In a market economy, the changing net advantages that participants perceive are communicated not by different lane speeds but primarily by changing relative prices. When suppliers and demanders aren’t accommodating each other very well, relative prices start to move. The prices that rise relative to other prices induce suppliers to offer more and demanders to ask for less. The prices that decline encourage demanders and discourage suppliers. These responses begin to close the gaps that had opened up between what producers were offering and what users were requesting, which in turn checks the relative price movements that had induced the mutually accommodating responses. Changing money prices serve both as information and as incentive in that remarkable system of social co-operation that we call a market economy.

The Limited Relevance of Productivity

It’s not enough, however, that the market system be efficient and productive. Productivity and efficiency are in fact far less important in our time and society than they were in the Europe of Adam Smith. In the eighteenth century, a decline in national wealth (or what we today call gross national product) meant actual destitution for masses of people, including the possibility of starvation. Adam Smith’s emphasis upon economic growth was a sensible and humane emphasis in his time, grounded as it was in his desire that the great majority of the people, whose labor fed, clothed, and housed the whole society, should “be themselves tolerably well fed, cloathed and lodged.”

During a recession such as we’re now experiencing, one may have to argue a bit for the position that additions to GNP aren’t very important. The issue is complicated by the fact that the costs of a recession are so unevenly distributed; most of the costs fall upon a small percentage of the total population. But even the unemployed in our society don’t face the prospect of genuine destitution. For Americans, an economic reverse entails principally the frustration of expectations. We fail to obtain what we had hoped to obtain and counted on obtaining. We make our plans in the expectation that we’ll be receiving no less than some minimum amount of income; and when those expectations aren’t fulfilled, we’re compelled to revise our plans, our life patterns, and sometimes even our conception of our own worth.

Income, Expectations, and Injustice

I am not trying to minimize these costs of economic failure. Social expectations are vitally important. We look to one another for assistance and cooperation in obtaining not just the goods that money will buy, but also the more fundamental goods (more fundamental, at least, in an affluent society) of justice and respect. When our income expectations are frustrated, most of us feel the cost primarily in the ultimate frustration of expectations with regard to our personal worth. If at the same time we believe that we were morally entitled to the fulfillment of those expectations, we will conclude that an injustice has been perpetrated against us. And we will begin to look for changes in the legal-political order that might correct the injustice we think we have suffered.

It is in this area that we find the deepest and most genuine moral dilemmas of the market system. Complaints about selfishness and materialism are altogether wide of the mark. Ethical thinkers who object to capitalism on the grounds that it is based on or even that it encourages selfishness or materialism only prove, to me at least, that they have not paid close attention to the system they claim to be criticizing.

Selfishness: A False Indictment

There is nothing peculiarly selfish about the behavior of participants in a free-market system. Whether we judge that behavior by its consequences or by its presumed intentions, there is simply no basis for a general verdict of “selfish.” The primary consequence of people’s participation in the market system is a continuous expansion of cooperative endeavor, mutual accommodation, and valued goods. That’s certainly not a selfish outcome.

But it’s the intentions, not the outcomes, against which most critics want to level the charge of selfishness. At this point I appeal to the traffic analogy. Surely no one would want to argue that drivers are selfishly motivated when they concentrate exclusively on using the means available to achieve their own personal objectives. Drivers cannot take any effective account of what others want, and any attempt to do so will make others worse off rather than better off. A narrow obsession with their own welfare, if you want to call it that, is what distinguishes the best drivers. But I think we could more accurately call it a dedication to the task at hand.

The Complexities of Motivation

There is, after all, nothing inherently selfish about trying to reach one’s destination as quickly and safely as possible. Doesn’t it matter crucially what that destination is and why one has chosen to go there? A driver could be taking children to school, going to work as a hospital volunteer, heading for an illicit rendezvous, meeting a friend to rob a bank, driving to church, or heading to a lecture on the ethics of the market system. Even that information wouldn’t be enough to tell us whether the driver’s intentions were selfish. Why is he going to that lecture? To find arguments with which to intimidate his friends? To get out of his turn at doing the dishes? To nourish his soul? To pick up some easy academic credit?

We are much too ready to impugn people’s motives, including even our own at times. Participants in the market system are human beings, with all the variety of motivation and intention that this entails. People don’t do many things for simple reasons, much less for simply selfish reasons. Insofar as the claim that capitalism relies on, rewards, or encourages selfish behavior can be given any clear meaning, I maintain that the claim is false. Whatever plausibility that claim might have—and public opinion polls show that it unfortunately has a great deal—stems largely from the fallacious identification of focused responsibility with selfishness. This confusion is compounded by the fact that responsibility is monitored in a market system primarily through the comparison of values expressed in monetary terms. And we have great difficulty breaking free from the notion that there is something inherently immoral about trying to maximize monetary magnitudes.

Monetary Values, Greed, and Morality

An almost perfect example of the confusions to which I’m referring was provided by a recent Wall Street Journal article on inner-city churches that have been selling their property to developers. The background facts are simple. Many old church buildings sit on pieces of real estate that would have enormous value in residential or business uses. The congregations are typically small, because most members have long since moved away. Moreover, the buildings, being old, are frequently expensive to maintain. The pressure on churches to sell their property in such situations is easy to understand.

But the article reports some interesting comments. A Seventh-Day Adventist congregation in Manhattan found that it couldn’t afford to maintain a building that it had purchased two years earlier from a synagogue for $400,000. When the members decided to sell, the first offer was for $800,000—twice what they had paid. As additional offers came in at progressively higher figures, the church decided to take sealed bids, in order—I quote the language of a member on the church’s sale committee—“to avoid a bidding war.” War? What an inappropriate and yet revealing choice of words!

The article gets even more interesting. A Manhattan pastor was interviewed, one who obviously doesn’t want to see old churches torn down. I quote his comment directly from the Journal article: “ ‘I don’t give a damn what others think,’ he says. ‘It’s a perversion that property is more important than beauty.’ ” An extraordinary statement! Property cannot be more important than beauty for the same reason that mountains cannot be more important than beauty: the categories aren’t comparable. What the indignant pastor must mean is that the aesthetic values to be realized from preserving old churches are more important than whatever alternative values are promoted through sale of such property. That’s a claim that can be discussed. Of course, it will be hard to discuss it with someone who doesn’t give a damn what others think because he has decided that any opposing view is based on a love of property and is therefore a perversion. Arrogance of that sort is much easier for people who have somehow convinced themselves that it’s immoral or materialistic or greedy to allocate scarce resources in accord with monetary bids. Such people very rarely ask what the alternative method of allocation might be, and so they don’t discover, as they almost surely would if they thought more carefully, that alternative systems would have far less tolerable consequences.

Who Is Being Selfish?

The Journal article quotes two other Manhattan critics of property sales by inner-city churches, neither one, incidentally, a member of the congregation whose decisions they’ve opposed. One is a woman who lives near a Christian Science church that was put up for sale and who questioned the motives of the members. “I wonder if they need the money,” she is quoted as saying, “or if it’s all just a matter of greed.” Another woman, who chairs a community organization on Manhattan’s Upper West Side, credits her organization with saving a number of churches from what she calls the “demolition squads” of condominium developers. This was done by persuading the New York City Landmarks Preservation Commission to designate the buildings as historical landmarks, sometimes over the objections of the congregations that owned them and wanted to sell. In defending this tactic she argued that many such sales are “a matter of greed.”

The confusion that permeates the whole area of economics and ethics is vividly revealed in the willingness of so many people to accept such arguments uncritically. It is not greedy for the members of a congregation to sell their church building to the highest bidder. The Seventh-Day Adventist congregation eventually sold its property for $2.4 million in cash, from which it then established a scholarship fund and made donations to other churches. On its face I would call that far less greedy than the behavior of the woman who wanted to preserve a church building because it contributed to the attractiveness of the neighborhood in which she lives. The critic, not the church members, is the one who seems to be setting her own personal welfare ahead of the welfare of others, by claiming new rights for herself even though this violates the well-established rights of many others. I’m not really sure what greed is, especially not in people other than myself, but the statements and behavior of the Manhattan church critics seem far more selfish to me than the actions of the congregations whose alleged greed they’re criticizing.

An Impersonal System

In that system of social interaction that we call a market economy, decision makers focus their attention on changing money prices. Their motives in doing so are infinitely varied and complex, and no more likely to be selfish or otherwise morally objectionable than the motives of people at a church picnic or a university lecture. The principal consequence of their behavior is ongoing mutual accommodation among millions of people who do not even know of one another’s existence, but who are nonetheless dependent upon one another for the basic necessities of life as well as the innumerable luxuries to which we have become accustomed.

We have indeed become accustomed to the near-miraculous benefits of social cooperation through the mechanism of money prices; we expect them as our due. We have, however, not learned to accept the social system without which these benefits would be impossible. We feel an inner disquiet and are morally suspicious of a social system that works so impersonally.

The Root of Our Moral Discontent?

Isn’t that, when all is said and done, the deepest root of our chronic moral dissatisfaction with capitalism or the market system? We use such words as greedy, selfish, and materialistic; we complain about the excessive importance of money or property values; but what we are really objecting to is a system that works so impersonally. We don’t want people to be fed, clothed, and lodged through the operation of an impersonal system, because persons are too important. We aren’t satisfied with a system in which the public good isn’t aimed at directly, but only emerges as an unintended consequence of much more limited objectives, because such a system seems somehow to violate our profound moral conviction that nothing is more valuable than individual persons, and that each person ought to be treated as a unique end, never as a means to some further end.

These moral convictions also underlie, I suggest, our misgivings about the justice of capitalism. Income and the other goods produced by the social system ought to be distributed among individuals, we believe, in accord with what they deserve as unique persons. The market system clearly does not satisfy that test. The benefits people receive in a market system derive from a complex interplay of mostly impersonal decisions, and the results are a varied and unpredictable product of effort and luck.

The Critical Problem of Information

The problem with this whole way of thinking, however, is that we cannot have the benefits of a market system unless we’re willing to accept its impersonal features. The remarkable productive achievements of the market system are the result of its ability to gather vast amounts of detailed, continually changing information and to disseminate it quickly to precisely those persons who want it. That won’t happen unless people respond in their actions to the signals that prices emit and those prices are in turn allowed to respond to people’s actions. The impersonality of the market system that so much disturbs us is an essential feature of that system. We cannot have the benefits of a market system if we are at the same time determined to prevent that system from operating in an impersonal manner. An economic system that successfully coordinates the efforts of millions of people will necessarily work like an urban traffic system: Individuals will pursue their own goals, obeying general rules of the game, in response to the net advantages they perceive in their immediate environment, and adjusting those net advantages in the process so that they more adequately accommodate the diverse wants and abilities of the participants.

It’s important to notice that what I have just asserted about large economic systems is true of all large economic systems, not just of so-called capitalist systems. Socialist systems don’t escape this limitation. The abolition of private property doesn’t abolish the information problems that all economic systems must solve if they are to be efficient and productive. It only changes the rules of the game. Moreover, it changes them so that they become less clear and certain and less stable over time.

Justice in Large Societies

The consequences, as so much twentieth-century history now demonstrates, include low levels of productivity and notorious inefficiencies. But that’s not all. Clear and stable rules are also a prerequisite of fairness in any large society. What many advocates of economic justice fail to recognize is that, in a large society, the one indispensable condition for justice is the existence and enforcement of impartial rules. How large is large? No precise numerical answer can be given. Justice requires impartial rules in any society so large that tasks and benefits cannot be fairly allocated on the basis of the principle: from each according to ability, to each according to need and merit. That’s the principle we use in families. It works effectively and fairly in families, for the most part, because the people involved are few enough and close enough to care for each other in a personal way. In societies significantly larger than families, the members simply cannot know enough to assign tasks and benefits on the basis of personal circumstances and still do it fairly.

The problem is knowledge; it is not simply goodwill. Goodwill by itself will not enable us to determine one another’s abilities, needs, or merit in a society as large as two hundred people, much less one of two hundred million people. Any attempt to do so is bound to produce arbitrary and hence unfair results.

The Spurious Conflict Between Efficiency and Justice

Justice and efficiency, it turns out, are not conflicting objectives between which we must choose. They are complementary. If we have failed to see that justice and efficiency in a large society both presuppose clear and stable rules of the game, it is probably because we have not yet seen the fundamental impossibility of securing justice in a large society in any other way. I am not making any sort of case for laissez-faire or even for a smaller government role in the economic system. I am rather insisting that to whatever extent government controls the use of resources and the distribution of income, it ought to do so by promulgating and enforcing clear and stable rules. That leaves a great deal of room for government assistance to less fortunate members of society. What it excludes are vague and uncertain rules, which permit and encourage bureaucratic self-seeking, tyranny, and other political injustices, while making it more difficult for members of the society to plan effectively. I am far from arguing that government has no place in the economy. I am rather insisting that, on economic and ethical grounds, in the interest of both justice and efficiency, government must establish clear and stable laws.

The Pursuit of Community

Our persistent yearning for a more personal society does not have to be denied or suppressed. But it must find its expression where it is appropriate, where people can actually relate to one another on the basis of the “family principle.” That can’t possibly be at the level of national politics or even state politics; the scale is far too large. The illusion that government can extract just outcomes from the economic system, outcomes consistent with our notions of what individuals deserve as unique persons, prevents us from insisting that government promote justice in the one way it can do so: by clarifying, stabilizing, and enforcing impartial laws. Our vain pursuit of a chimerical justice produces not only inefficiency but also more injustice. On top of that, our obsession with government solutions to social problems prevents us from finding and acting upon our genuine opportunities to nurture personal relationships and community.

Conclusion

Let me summarize briefly. Most ethical criticism of the market system reflects confusion and misunderstanding. Moreover, it does positive harm, because it fosters political interventions that produce not only inefficiency but also injustice. It is the injustice that troubles me most. A nation without justice, St. Augustine observed, is no more than a robber band. The productivity of our economic system has given us a lot of room to practice inefficiency and folly. We have far less room to practice injustice. The tragic irony is that so many of the “best people” among us are today undermining the foundations of social justice in the name of ethics.

[* ] Reprinted from Policy 9 (Autumn 1993): 33-36, by permission of The Centre for Independent Studies (www.cis.org.au).

[* ] Reprinted from Belief and Ethics, ed. W. Schroeder and G. Winter (Chicago: Center for the Scientific Study of Religion, 1978), 183-98, by permission of Mrs. Juliana Heyne.

[1. ] See Martin Bronfenbrenner’s “Notes on Marxian Economics in the United States,” American Economic Review (December 1964), pp. 1019-26, the subsequent exchange with Horace B. Davis, American Economic Review (September 1965), pp. 861-64, and Bronfenbrenner’s insightful survey “The Vicissitudes of Marxian Economics,” History of Political Economy (Fall 1970), pp. 205-24.

[2. ] Their best-known manifesto was The Trend of Economics, edited by Rexford Tugwell and published in 1924.

[3. ] A good sense of the situation two decades ago can be obtained from Kenneth Boulding, “A New Look at Institutionalism,” with comments by discussants, American Economic Review (May 1957), pp. 1-27; also Fritz Karl Mann, “Institutionalism and American Economic Theory: A Case of Interpenetration,” Kyklos (July 1960), pp. 307-23.

[4. ] The quotations are from Friedman’s influential essay on “The Methodology of Positive Economics,” published in his Essays in Positive Economics (Chicago: University of Chicago Press, 1953), pp. 3, 4. Friedman’s essay triggered an extensive discussion, but the discussion revolved almost exclusively about his claim that the proper test of a theory was the conformity of its predictions to observation rather than the realism of its assumptions. The premise with which he began, that there can be and is a positive science of economics independent of any particular ethical position or normative judgments, went largely unchallenged.

[5. ] The charge that the analytical tools employed by the majority of economists are marred by a fundamental bias in favor of laissez faire has been made most often and most vociferously by Joan Robinson, who enjoyed the forum of a Richard T. Ely Lecture for “The Second Crisis of Economic Theory,” American Economic Review (May 1972), pp. 1-10.

[6. ] The Minutes of the Annual Business Meeting of the American Economic Association in December, 1970, record one impact of URPE upon the larger profession: American Economic Review (May 1970), pp. 487-89. See also Martin Bronfenbrenner, “Radical Economics in America: A 1970 Survey,” Journal of Economic Literature (September 1970), pp. 747-66.

[7. ] John Kenneth Galbraith, “Economics as a System of Belief,” American Economic Review (May 1970), pp. 469-78; “Power and the Useful Economist,” American Economic Review (March 1973), pp. 1-11.

[8. ] The Association publishes the Journal of Economic Issues. The issues of December 1975, and March 1976, will adequately illustrate the militance of the institutionalist renaissance.

[9. ] See the Journal of Economic Literature and the annual issue of the American Economic Review which publishes the Association’s Papers and Proceedings.

[10. ] Friedman’s rethinking of his position is discussed in the Introduction, “Why Economists Disagree,” to his collection of essays, Dollars and Deficits (Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1968), pp. 1-16.

[11. ] Gunnar Myrdal, Against the Stream: Critical Essays on Economics (New York, New York: Pantheon, 1973).

[12. ] Gunnar Myrdal, The Political Element in the Development of Economic Theory, trans. Paul Streeten (London: Routledge & Kegan Paul, 1953), p. vii. Paul Streeten assembled Myrdal’s scattered writings between 1933 and 1957 on the role of values in social science and wrote a lengthy introduction for the volume Values in Social Theory (London: Routledge & Kegan Paul, 1958). The most succinct statement of Myrdal’s essential position is his note on facts and valuations in Appendix 2 of An American Dilemma, reprinted in Value in Social Theory, pp. 119-64.

[13. ] Thomas S. Kuhn, The Structure of Scientific Revolutions (2d ed., enlarged; Chicago, Illinois: University of Chicago Press, c. 1962, 1970).

[14. ] Margaret Masterman, “The Nature of a Paradigm,” in Imre Lakatos and Alan Musgrave (eds.), Criticism and the Growth of Knowledge (Cambridge: At the University Press, 1970), pp. 61-65.

[15. ] Kuhn’s two contributions to Criticism and the Growth of Knowledge pass up numerous opportunities to dissociate himself from this position. See “Logic of Discovery or Psychology of Research,” op. cit., pp. 1-23, and “Reflections on My Critics,” pp. 231-78.

[16. ] A recent and particularly glaring example of an effort to restrict inquiry with the aid of this distinction may be found in Richard A. Posner, “Economic Justice and the Economist,” The Public Interest (Fall 1973), pp. 109-19.

[17. ] In an extended review of Assar Lindbeck’s The Political Economy of the New Left: An Outsider’s View (New York, New York: Harper and Row, 1971), Bruce McFarlane impatiently complains that Lindbeck assumes “objective research” is possible and “ignores what Thomas Kuhn has taught us about the nature of discovery in social sciences, to say nothing of Myrdal who not only maintains that research in the social sciences is subjective and based on political values, but especially singles out economics.” The Review of Radical Political Economics (Summer, 1972), p. 88.

[18. ] Robert M. Solow, “Science and Ideology in Economics,” The Public Interest (Fall 1970), p. 101.

[19. ] Robert M. Solow, “Discussion,” American Economic Review (May 1971), p. 63.

[20. ] E. A. Burtt, The Metaphysical Foundations of Modern Science (rev. ed.; Garden City, New York: Doubleday, c. 1932, 1954).

[21. ] R. G. Collingwood, The Idea of Nature (New York, New York: Oxford University Press, c. 1945, 1960).

[22. ] Alfred North Whitehead, Science and the Modern World (New York, New York: The Free Press, c. 1925, 1967); Modes of Thought (New York, New York: The Free Press, c. 1938, 1968).

[23. ] Michael Polanyi, Personal Knowledge: Towards a Post-Critical Philosophy (rev. ed.; New York, New York: Harper and Row, c. 1958, 1964).

[24. ] Whether or not we choose to designate these preconceptions as value judgments is less important than that we recognize the fact of pre-analytic commitments in scientific inquiry.

[25. ] Lionel Robbins, Politics and Economics (New York, New York: St. Martin’s Press, 1963), p. 6.

[26. ] The issue is not simply between radical and conservative points of view, of course. The various social sciences employ differing analytical frameworks, with the consequence that one group of scientists may see as a solution what another group takes as its problem. This point is clearly argued and illustrated in Mancur Olson, Jr., “Economics, Sociology, and the Best of All Possible Worlds,” The Public Interest (Summer 1968), pp. 96-118. Albert Hirschman has perceptively explored some consequences of the alternative frameworks brought by economists and political scientists to the study of social systems in Exit, Voice, and Loyalty (Cambridge: Harvard University Press, 1970).

[27. ] This is one of the themes running through Kuhn’s Structure of Scientific Revolutions. He has stated that if he were writing the book again he would begin by discussing the community structure of science. Kuhn, “Reflections on My Critics,” p. 252 and also pp. 237-41. The creative and disciplinary role played by the community in every science has been ably described by John Ziman in Public Knowledge: An Essay Concerning the Social Dimension of Science (Cambridge: At the University Press, 1969). Further implications of the fact that most sciences are now integral parts of the industrial and political structure are pointed out in Jerome R. Ravetz, Scientific Knowledge and Its Social Problems (New York, New York: Oxford University Press, 1971).

[28. ] This is the argument used by Friedman to support the sharp separation of positive from normative economics in “The Methodology of Positive Economics,” op. cit., pp. 3-7.

[29. ] The quotation is from Karl Popper, who has consistently criticized both the notion of an authoritative source for knowledge and the absolute relativism which is its polar opposite. See especially Popper, Conjectures and Refutations: The Growth of Scientific Knowledge (New York, New York: Harper and Row, 1965), pp. 29-30.

[30. ] The concept of “objective knowledge” is legitimate if it means knowledge that has been objectified by being expressed in language or some other external form. It is then public knowledge. Ziman finds a unifying principle for all of science in the quest for “public and consensible” knowledge. Public Knowledge, p. 11 and passim. If I understand him correctly, this is also what Popper has in mind in Objective Knowledge: An Evolutionary Approach (Oxford: At the Clarendon Press, 1972).

[31. ] “It is important to guard against the illusion that there can exist in any science methodological rules the mere adoption of which will hasten its progress, although it is true that certain methodological dogmas . . . may certainly retard the progress of science. All one can do is to argue critically about scientific problems.” K. Klappholz and J. Agassi, “Methodological Prescriptions in Economics,” Economica (February 1959), p. 74.

[32. ] “Normal science” means research firmly based upon one or more past scientific achievements, achievements that some particular scientific community acknowledges for a time as supplying the foundation for its further practice.” Kuhn, The Structure of Scientific Revolutions, p. 10.

[33. ] Instructive case studies from the natural sciences may be found in Polanyi’s Personal Knowledge. The problem is one of implicit beliefs rather than any kind of bad faith. See also Kuhn, The Structure of Scientific Revolutions, especially pp. 77-90, 110-34.

[34. ] Friedman, “The Methodology of Positive Economics,” p. 5.

[35. ] Lionel Robbins, An Essay on the Nature and Significance of Economic Science (2d ed.; London: Macmillan, 1935), p. 150.

[36. ] An excellent stimulus for economists willing to reflect on these questions has recently been rescued from the relative obscurity of its initial publication and reprinted as the leading essay in Edmund S. Phelps (ed.), Economic Justice (Baltimore, Maryland: Penguin, 1973): See W. S. Vickrey, “An Exchange of Questions between Economics and Philosophy,” pp. 35-62. This extraordinary essay was originally published in the first volume of the old Federal Council of Churches series on Ethics and Economic Life, Goals of Economic Life, edited by A. Dudley Ward (New York, New York: Harper and Brothers, 1953), pp. 148-77.

[37. ] Why do so many social scientists dogmatically assume that criticism of conflicting judgments (inevitably?) produces consensus in one area but is altogether useless in another? For philosophically informed discussions of this issue by economists, see Sidney S. Alexander, “Human Values and Economist’s Values,” in Sidney Hook (ed.), Human Values and Economic Policy (New York, New York: New York University Press, 1967), pp. 101-16, and Amartya K. Sen, Collective Choice and Social Welfare (San Francisco, California: Holden-Day, 1970), pp. 56-64.

[38. ] “We must certainly hold fast to the idea of a neutral science of economics. . . . To have recognized in this connection the distinction between positive and normative judgments is one of the achievements of thought since Adam Smith and the Physiocrats; and nothing but confusion could come from any attempt to slur it over. But the idea that there can be constructed a system of prescriptions which results more or less inevitably from the results of positive analysis can involve scarcely less of a confusion: any theory of economic policy must depend partly on conceptions and valuations which are imported from outside.” Robbins, Politics and Economics, p. 19. But if value judgments are arbitrary statements of subjective preference and also an inescapable part of any policy recommendation, then are not all policy recommendations finally arbitrary? And what then is the value for policy of a positive science?

[39. ] As long as the market for tirades is so much better than the market for balanced, judicious assessments, the intelligent lay public will continue to derive most of its notions about economics from books like Robert Lekachman’s Economists at Bay: Why the Experts Will Never Solve Your Problems (New York, New York: McGraw-Hill, 1975). The reasons for this harsh judgment may be found in a review of the book in Worldview (September 1976), pp. 53-54.

[40. ] “Symposium: Economics of the New Left,” Quarterly Journal of Economics (November 1972), p. 659. Lindbeck’s book, first published in 1971, has been reprinted in an expanded version that contains the contributions to this symposium plus additional reviews of the book and a further rejoinder by Lindbeck (New York, New York: Harper and Row, 1977). The book itself, its reception by economists, and now its republication along with vigorous radical criticism of the book (including a long and hostile review article from The Review of Radical Political Economics) are continuing evidence of establishment economists’ willingness to confront controversy and honor dissenting views.

[41. ]Ibid., p. 668. The Ethics and Society Department in the University of Chicago Divinity School would surely want to object to Lindbeck’s choice of a home for solipsists. If divinity schools are to be sanctuaries for those who wish to work without criticism within closed systems of thought, their faculties are no more entitled to a place in the university than are fundamentalist social scientists. For at least as long as Alvin Pitcher has been quartered in Swift Hall, students in the Divinity School have been urged to criticize fundamentalism of every type, religious or scientific, not to give it a comfortable home. This note offers a good opportunity to thank Al Pitcher for pushing me along the road of dialogue almost twenty years ago and for continuing efforts in the recent past to prevent my straying in the company of economists too far from the straight path.

[42. ] Martin Bronfenbrenner, Income Distribution Theory (Chicago, Illinois: Aldine-Atherton, 1971) and Jan Pen, Income Distribution: Facts, Theories, Policies (New York, New York: Praeger, 1971).

[43. ] C. E. Ferguson and Edward J. Nell, “Two Books on the Theory of Income Distribution: A Review Article,” Journal of Economic Literature (June 1972), pp. 437-53. These are actually two separate review articles. Ferguson was a neoclassical stalwart (he died before his review could be published). Nell writes from a neo-Marxist perspective.

[44. ] Alice M. Rivlin, “Income Distribution—Can Economists Help?” American Economic Review (May 1975), pp. 1-15.

[45. ] Arguments developed by Thurow against the notion of effective wage competition are summarized in his Generating Inequality: Mechanisms of Distribution in the U.S. Economy (New York, New York: Basic Books, 1975).

[46. ] Major presuppositions of the “human capital” approach to research on income distribution are sharply questioned in A. Michael Spence, Market Signaling Informational Transfer in Hiring and Related Screening Processes (Cambridge: Harvard University Press, 1974).

[47. ] The authors’ theory of dual labor markets is presented in Peter B. Doeringer and Michael J. Piore, Internal Labor Markets and Manpower Analysis (Lexington, Mass.: Heath, 1971).

[48. ] A surprising number of Marxists and other radicals who know nothing else about the professional literature of contemporary economics have heard about the Cambridge Capital Controversy and its alleged result: demolition of the marginal productivity theory. But the Cambridge Controversy only showed that marginal productivity theory could not produce a consistent and coherent theory of the aggregative distribution of income between workers and capitalists. The claim that it could perform this task was never central to neoclassical theory. No adequate account of the Cambridge Controversy will be easy reading. For good summaries by economists with opposite sympathies, see G. C. Harcourt, “Some Cambridge Controversies in the Theory of Capital,” Journal of Economic Literature (June 1969), pp. 369-405, and Mark Blaug, The Cambridge Revolution: Success or Failure (London: Institute of Economic Affairs, 1975).

[49. ] But not to all! Some Marxist economists have maintained that neoclassical theory will be an indispensable tool also in a socialist society because it can handle more effectively than Marxist theory problems of efficient planning. See for example the classic statement of Oskar Lange, “Marxian Economics and Modern Economic Theory,” reprinted from The Review of Economic Studies (June 1935) in David Horowitz, ed., Marx and Modern Economics (New York, New York: Monthly Review Press, 1968), pp. 68-87.

[50. ] For evidence that neoclassical theory can be used effectively to criticize the outcome of “consumer sovereignty,” see Staffan Burenstam Linder, The Harried Leisure Class (New York, New York: Columbia University Press, 1970) and Tibor Scitovsky, The Joyless Economy (New York, New York: Oxford University Press, 1976).

[51. ] There would seem to be no a priori reason to assume that any single theory will best explain both the British and the American economies. The relative preference of British economists for a class-based theory of income distribution may in part reflect the persistence of the class distinctions that were so obvious in David Ricardo’s time (the time of Jane Austen).

[52. ] The classic statement of the problem is still the essay of F. A. Hayek, “The Use of Knowledge in Society,” American Economic Review (September 1945), pp. 519-30.

[* ] Unpublished typescript of lecture at Montana State University in Bozeman, Montana, 20 October 1982. Reprinted by permission of Mrs. Juliana Heyne.