Economic Reasoning, Lecture 6

Economics and Ethics

Economics Is a Descriptive Science

●Economics differs from the physical sciences, but there is one respect in which it is like them. It tries to discover regularities in the world. The descriptive sciences try to find out the nature of the world. Whether the results are good or bad is not part of science.

●E.g., “money has diminishing marginal utility” is a judgment about the nature of money. This doesn’t imply either that it is good or bad that money has this feature.

Why Should Economics Be a Descriptive Science?

●One reason some economists want to make sure that economics is a descriptive science is that they think that all value judgments are subjective. By “subjective”, I mean just dependent on personal opinion.

●Economics is not committed to this opinion about ethics.

●Economics is descriptive because that’s the way the science works.

Can an “Ought” Be Derived From an “Is”?

●There is a famous passage in Hume’s Treatise that is usually interpreted to mean that you cannot derive a judgment of what ought to be the case from what is the case.

●Economics is not committed to this position. ● If Hume’s Law is true, this does not rule out

an objective ethics. An objective ethics means that ethical judgments are true or false, not dependent on subjective opinions.

An Objection

●If Hume’s Law is false, then isn’t it possible that some descriptive statements of economics do imply judgments about what ought to be the case? If they do, how can we say that economics is a purely descriptive science?

A Point on Terms

●In some contexts, it’s important to distinguish between judgments about what ought to be the case and judgments about what is good and bad, but I’m not going to do that here. I’m calling both “value judgments”.

Objection Answered

●There are two answers to the objection. Even if some factual judgments do imply “ought” judgments, many at least of the propositions of economics do not. “Price is determined by supply and demand” doesn’t appear to generate any judgments about what we ought to do.

A New Objection

●But aren’t there some statements of economics that do imply judgments about what ought to done? How about “minimum wage laws cause unemployment”?

●Doesn’t this, if true, give us a reason to oppose minimum wage laws?

New Objection Answered

●We could respond that in order to have a reason to oppose minimum wage laws, we have to accept the premise “unemployment is bad” and that this doesn’t follow from the premise “minimum wage laws cause unemployment.”

● If we take this line, we are accepting Hume’s Law. But what happens if we don’t?

Another Response

●We can admit that certain economic judgments may imply judgments about what should be done. However, economics doesn’t make such judgments. They are part of other disciplines. (Remember, this is true only if we reject Hume’s Law.)

● It’s more important to keep value judgments out of economics if we think that such judgments are subjective.

Value Freedom

●Economics is a value-free science. This is true whether we accept Hume’s Law or reject it.

●But is it possible to achieve this? One objection is that some economic laws concern values. E.g., “A person will choose his most highly valued alternative.” If so, how can economics be value-free?

Value Freedom Continued

●Note that this objection does not assume that Hume’s Law is false. The objection starts with certain statements that appear to be value-judgments.

●But these statements are not value judgments. They are factual statements about value judgments. When I say that you will choose your highest-ranking alternative, I’m not making a value judgment myself.

Judgments About Economic Policy

●Even though economics is a value-free science, almost everybody cares about particular economic policies.

●We have ethical views, and we can use these to help decide about what economic policies to support.

● It’s very important to be aware of what ethical views we hold. (This isn’t a proposition of economics, so it doesn’t violate value-freedom.)

Implicit Value Judgments

●Murray Rothbard pointed out that many economists take for granted controversial value judgments.

●Neoclassical economists will often take perfect competition to be the aim of antitrust policy, even though it is just a analytical model. (There is a possible counter here, but I won’t go into it because I think it’s wrong.)

More Examples

●Another example is the “efficiency-equity” tradeoff. Arthur Okun popularized this phrase.

● “Equity” here means movements toward equality. E.g., a situation where corporate CEOs earn several hundred times as much as ordinary workers is said to violate equity. But what is the argument that equality is desirable?

●Sometimes there are complaints that wages and prices are “sticky”. How fast should they move?

What About the Broken Window Fallacy?

●In a number of lectures, we have discussed examples of the broken window fallacy. E.g., defenders of government spending to stimulate the economy ignore the fact that money taken in taxes would also be spent.

●But in talking about this, are we making the value judgment that we should take account of these consequences?

Mises’s Answer

●Mises said that economists who stress the long run consequences of policy measures are not assuming that the long run is more important than the short run.

●Rather, economists are just saying that we should be aware of all the consequences of a proposed policy.

● Is this a value judgment? It appears to be a precept of rational action. (Are there others?)

Mises and Value-Free Economics

●Mises says that economics is value-free.●The economist can still criticize policy

proposals by asking, can they achieve the ends of their own advocates? His criticism of price control is an example.

●Those who favor a maximum price for milk, e.g., wants to make it easier for poor people to but milk. But price control reduces the amount of milk for sale.

The Point of the Example

●Thus, price control won’t achieve the aim of those who support it. This is not a value judgment, “price control is a bad idea”, but a factual claim that a certain means—price control--- will not achieve a certain end---making the good available to those who want it at affordable prices.

Blurring the Line

●Sometimes the results of economics strongly suggest value judgments.

●Once we know that price control won’t achieve what its advocates want, it’s hard to avoid the value judgment “price control is a bad idea”.

●Someone determined to avoid value judgments might say that it’s just a principle of rationality to adopt suitable means to achieve your ends.

A Clearer Case

●In a famous argument, Mises shows that in a developed modern economy, socialism leads to calculational chaos.

● If this is right, supporters of socialism have a choice: they must give up socialism or accept chaos.

● It’s difficult to imagine that people would accept chaos. We seem driven to the value judgment “socialism is a bad thing.”

Mises on Ethics and Economics

●Mises developed an important theory of ethics that made use of examples like the ones on price control and socialist calculation.

●He thought that all value judgments are subjective; there is no objective ethics.

●Almost all people wants peace and prosperity; and given this fact, we can say that they should favor the free market. The “should” tells them how to achieve their goals.