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 *

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.

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