Perspectives on Morality and Human Well-Being. Syed Nawab Haider Naqvi

CHAPTER 2

       Morality in Economics

I. Introduction

      Economic behaviour since Adam Smith has been assumed to be characterised by the ubiquity of self-interest, selfishness and greed. The “butcher”, the “baker” and the “brewer” are seen as motivated only by their self-interest (“self-love”) in the mutually beneficial exchange that follows the production of the goods which consumers demand. Any benevolence they may entertain towards their consumer is not a relevant element in consummating such exchanges to the benefit of both parties.¹ An influential modern (mis)interpretation of the Smithian creed is to go a step further and proclaim self-interest to be an empirical reality: “self-interest dominates the majority of men” [Stigler (1975); p. 237].² A direct implication of this dominance of self-interest or self-love is a cheerless economics that refuses to include ethical values and moral concerns in the list of explanatory variables of human motivation and behaviour. Yet another is to equate self-interest with rationality: it is entirely rational to be self-interested even in the sense of being self-denying – i.e., “I will never do what I believe will be worse for me” [Parfit (1984)]. Indeed, so overwhelming has been this dominance of the self-interest creed that rationality and rational behaviour have come to be regarded as synonyms for self-interest maximisation; and, any motivation other than profit-maximisation is condemned as irrational!

II. Competing Moral Perspectives

      An exaggerated trust in universal cupidity as the ‘invisible’ deliverer has been strengthened both on ‘positivist’ and normative grounds. In the former category, the economic universe is kept efficient by profit-seekers with ambition, vanity and hubris; and any concern for the social good contemptuously shunned as redundant, inefficient and counterproductive. These beliefs have been formalised with tantalising elegance by the (two) fundamental theorems of welfare economics; which show that a state of the economy in competitive market equilibrium (i.e., that which is Pareto optimal) is “unimprovable” by public-policy, or through moral manoeuvring. In the latter category, which is the domain of non-market decision-making and where ‘market failures’ are explicitly admitted, considerable theoretical effort has been expended on matters relating to allocative efficiency (to points on the Pareto-efficiency frontier and those off it). In this area of public enquiry, christened as positive public-choice theory, the central assumptions are that “man is an egoistic, rational, utility maximiser” [Mueller (1979); p. 1]. Not only that; even a significant part of what is known as normative public-choice theory, supposed to tackle distributional issues, remains exclusively focused on proving the centrality of the Pareto-optimality principle, guided by self-interest behaviour and amoral rationality (see Chapter 1, note 1).

      Fortunately, the progeny of Adam Smith has not been completely lacking in imagination. To make the world an interesting place to live, it is increasingly realised (though not always understood) that the vast desert of self-interestedness needs to be flooded with humanity. Thus, Harsanyi (1991) pointedly remarks: “there was a time when many economists wanted to ensure the objectivity of economic analysis by excluding value judgments, and even the study of value judgments from economics…Luckily, they have not succeeded; and we now know that economics would have been that much poorer if they had” (p. 704).³ The fact is that, beyond the domain of unalloyed selfinterest, “valuation and obligations” intermingle with “ascertainable facts” to produce morally acceptable solutions of the vital problems of economic growth, a just distribution of income and wealth, and human development. This is because “a capacity for a sense of justice and for a conception of social good” is required to be able to ask the type of questions just mentioned and seek probable answers to them [Rawls (1999); p. xii]. Thus, to fix the direction of a social transformation that commands popular support the basic structure of society must be so changed that the rights and duties of the people and the distribution of social and economic advantages among them are fair and just.

      The fact is that the role of values in human affairs is too extensive to be ignored; and no science of any kind can be divorced from ethical considerations because doing that would limit the scope of human rationality [Boulding (1966)]. An obsession with self-interest is, therefore, artificial and arbitrary. Adam Smith, who is mistakenly credited with having fathered only the self-interest principle, had the foresight to emphasise the great importance of altruism in economic activity, which comprises a lot more than simple acts of exchange. The production and distribution of goods that enter the exchange arena are not necessarily governed by the same motivations. In his Theory of Moral Sentiments (1790), he notes that while “prudence” (read, self-interest) remains “of all virtues that which is most helpful to the individual”, yet “humanity, generosity and public spirit, are the qualities most useful to others” (p. 191). Would it not be a gross exaggeration, then, to regard self-interest as solely responsible for the success of capitalism?⁴ Many empirical studies, like those for Japan, show that a punctilious observance of values like honesty, fulfilling contracts, avoiding (excessive) corruption has contributed nearly as much, if not more, to Adam Smith’s “Natural Progress of Opulence”. But even common sense suggests that a significant hold of complementary moral values on the human mind is necessary to shape an efficient society that vibrates with justice and fair play, positively values a sharp reduction in the inequities of human condition, and ensures an abundant provisioning of public goods – all issues at the resolution of which capitalism has been singularly inept.

      In what follows both the positivistic and normative aspects of economics are presented. It is shown that a purely positivist view (in which self-interest is the oriflamme of economic forces) must be balanced by an ethics-related view (where considerations of social justice, and a commitment to the welfare of the “voiceless millions” guide human endeavour) to produce a creative synergy of the essential plurality of human motivation and conduct. Only thus can the equality of the human condition be ensured, and those adrift in a sea of powerlessness and poverty brought ‘on board’.

      To set the stage for a fuller discussion of the moral issues in economic matters, let us first recapitulate the case for giving a starring role to the self-interest principle as the defender of the economic universe.

III. The ‘Universality’ of the Self-Interest Principle

      The assumption of universal ‘selfishness’, regarded as a sure sign of rationality, is the regnant idea in much of modern economics. The point of emphasis of neo-classical economics (of which Benthamite Utilitarianism and Pareto-optimality are the central components) as well as of the positive public-choice theory (which admits ‘market failure’ but still accepts Pareto-optimality as a standard of reference for public policy) is a unifocal quest for efficiency. The moral-economic issues, like distributive justice and helping the poor, wither on the vine of scientific neglect. Even some ‘normative’ public-choice theories tell much the same story: they highlight such moral values as neutrality, unanimity and the priority of liberty to the exclusion of all other worthwhile social goals of what is generally accepted as good life. Yet another feature of this framework of thought is that, in it, a (minimalist) government is not expected to do anything positive