Rediscovering social economics

This includes not only insights from the more clearlyrelated social and behavioral sciences that are currently making significantinroads into economics, but also those disciplines like ph

REDISCOVERING SOCIAL ECONOMICS

Pe r s p e c t i v e s f r o m S o c i a l E c o n o m i c s

B E YO N D T H E

N E O C L A S S I C A L PA R A D I G M

RO G E R D J O H N S O N

Series Editor Mark D White City University of New York

College of Staten Island, Staten Island, USA

The Perspectives from Social Economics series incorporates an explicitethical component into contemporary economic discussion of importantpolicy and social issues, drawing on the approaches used by social econo-mists around the world It also allows social economists to develop theirown frameworks and paradigms by exploring the philosophy and method-ology of social economics in relation to orthodox and other heterodoxapproaches to economics By furthering these goals, this series will expose

a wider readership to the scholarship produced by social economists, andthereby promote the more inclusive viewpoints, especially as they concernethical analyses of economic issues and methods

More information about this series at

http://www.springer.com/series/14556

Rediscovering Social

Economics

Beyond the Neoclassical Paradigm

Roger D Johnson

Mechanicsburg, Pennsylvania

USA

Perspectives from Social Economics

ISBN 978-3-319-51264-8 ISBN 978-3-319-51265-5 (eBook)

DOI 10.1007/978-3-319-51265-5

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grown-up children Katie, Erik and Megan for their encouragement.

of the quality of each instructor’s teaching In many ways, this story serves as

an allegory for the trajectory the discipline of economics has followed inattempting to maintain an appearance of objectivity, and in defining thepurpose or goal of its analysis

Mainstream or Neoclassical economics attempted to meet this challenge

by defining the human objects of their analysis as autonomous, able and perfectly rational individuals whose only goal was the maximization

knowledge-of their own welfare Every human problem could then be defined in terms

of an optimization problem that, like the evaluation of instructors, could beobjectively dissected using advanced mathematical and statistical tools ofanalysis It was their innovative use of these abstract tools of analysis that ledeconomists to proclaim their discipline to be the ‘Queen’ of the socialsciences, but in the process, they had in fact abandoned the concepts ofsociety and human relationships The continual narrowfixation on issuesregarding the identification of the ‘ideal’ equilibrium conditions, moreover,often leads them to recommend policies designed to emulate the results of

vii

perfect or ideal markets If economists were highway traffic and safetyengineers, they would design highways and safety rules to accommodatethe driving skills and vehicles of Formula 1 or NASCAR drivers A majornormative concern arises as efficiency is then effectively conflated with aparticularly narrow concept of justice, but this is never explicitly recognized.The primary objective of this book is to help economists understand howthe issues surrounding the subjective/objective dichotomy are stillfirmlyembedded in the foundations of the discipline, and unavoidably distort bothits pedagogy and policy analysis Many of the arguments put forward in thisbook are intentionally drawn directly from principles level analysis becausethis is where every academic discipline begins to establish and instill its ownideological perspective Secondly, this book attempts to convince econo-mists that, if they are genuinely interested in developing analysis and policiesthat advance human welfare, they need to consciously adopt an interdisci-plinary approach This includes not only insights from the more clearlyrelated social and behavioral sciences that are currently making significantinroads into economics, but also those disciplines like philosophy whichattempt to confront and identify the moral dimensions of human existence.Unfortunately, the conventional training of economists has rendered theminsensitive to the particularly pernicious types of market failures and forms

of injustice that can occur when market forces distort or undermine themoral bonds of society

The prevailing strategy of economists to maintain a façade of pureobjectivity can only serve to undermine the credibility of economics andturn off the next generation of potential disciples Studying the theoreticalparameters required to achieve market equilibrium may be an addictiveintellectual exercise, but it hardly constitutes the type of compelling visionthat many students are seeking Even more important, however, is the factthat this strategy will continue to severely handicap the ability of thediscipline to address vital‘social’ issues like the need for adequate healthcare, growing economic and social inequality and the inevitably increasingeconomic/social interdependencies that Adam Smith recognized to be acentral feature of market economies

It seems particularly ironic that the self-proclaimed intellectual heirs ofSmith have created a paradigm that reinforces the corrosive delusion ofindividual autonomy that he warned would creep into market-based socie-ties There are some promising signs, however, that the intellectual special-ization of labor that has long dominated academia is now being sufficiently

eroded so that economists will begin to recognize the type of positivesynergies that can occur if they join forces with the other social sciences.The ultimate transformation will come when economists become ade-quately trained to recognize the unavoidable normative dimensions oftheir analysis.

PREFACE ix

Part I Humans, Society and Markets 1

1 The Foundations of Economics 3

2 The Political and Moral Dimensions of Economics 17

3 The Moral and Social Problem of Scarcity 31

4 Social Welfare, Markets and Efficiency 41

5 Understanding Human Choice 57

6 Challenges to Homo Economicus 69

7 Understanding Markets 87

xi

Part II Income Distribution: Labor and Financial Markets 103

9 The Demand for Labor 121

10 Labor Market Equilibrium? 133

11 The Mondragón Alternative 145

12 Financial Markets and the Growth of Plutonomies 153

13 The Evolving Dialogue 165

xii CONTENTS

Fig 2.1 The moral values of liberals and conservatives (Source: Jonathan

Haidt.The Righteous Mind: Why Good People Are Divided by

Politics and Religion New York: Pantheon Books, a division of

Fig 2.2 113th Congress, 2013 session: senators casting the same vote

(Source: Lucioni, Renzo Senate Voting Relationships,

8 December, 2013

Fig 3.2 Crusoe’s production possibility constraint 34

Fig 4.2 Pareto improvement versus redistribution 46

Fig 4.3 Relative infant mortality rates in developed economies

*Probability of dying between birth and age 1, per 1000

live births (Source: World Health Organization) 50

Fig 4.4 Political economy and income inequality (Source: OECD

Fig 4.5 Political polarization and income inequality (Source: Keith

T Poole and Howard Rosenthal, voteview.com http://

voteview.com/images/House Polarization Index and Gini Index

Fig 6.4 The impact of poverty and wealth on risk taking 78

xiii

Fig 7.1 Price distribution over time 90

Fig 7.5 Market equilibrium versus market constraints 94

Fig 7.6 Market constraints and the average price 95

Fig 7.9 von Thünen’s theory of agricultural land use around

Fig 8.1 The‘Affluent’ neoclassical labor supply curve 107

Fig 8.2 Poverty and the labor supply curve 109

Fig 8.3 The generalizedinverted‘S’ labor supply curve 111

Fig 9.1 Russian folktale of the giant turnip 125

Fig 10.2 Labor market(s) and theinverted‘S’ labor supply 135

Fig 10.3 The Laffer curve (Arthur B Laffer“Supply Side Economics.”

Financials Analysts Journal 37, no 5 (1981): 29–43.) 138

Fig 10.4 Racial and ethnic labor market segmentation (Source: Bureau

of Labor Statistics, U.S Department of Labor,The Economics

Daily, Unemployment rates by race and ethnicity, 2010

http://www.bls.gov/opub/ted/2011/ted_20111005.htm) 140

Fig 11.1 CEO compensation– financial market connection

(Alyssa Davis and Lawrence Mishel,“Top CEOs Make 300 TimesMore than Typical Worker.” Economic Policy Institute Issue

Fig 12.1 Market speculation and redistribution 157

Fig 13.1 Comparison of health care costs among developed economies

(Chloe Anderson.“Multinational Comparison of Health SystemsData 2014.” The Commonwealth Fund Nov.19, 2014;

Table 5.1 Jevon’s Marginal Utility: PA¼ $2, PB¼ $1 61

xv

PART I

Humans, Society and Markets

The Foundations of Economics

How selfish soever man may be supposed, there are evidently some principles

in his nature, which interest him in the fortune of others, and renders theirhappinessnecessary to him

Adam Smith,The Theory of Moral Sentiments (1759), emphasis mine.1

It is not from the benevolence of the butcher, the brewer, or the baker, that

we expect our dinner, but from their regard to their own interest

Adam Smith,An Inquiry Into the Nature and Causes of the Wealth

of Nations (1776).2

The modern world is an economic paradox and conundrum Poverty in itsmost extreme form continues to be an inescapable way of life for billions ofindividuals At the other end of the economic spectrum, an elite groupenjoys an almost obscene and continuously rising level of affluence that isflaunted through the emerging social media Somewhere between thoseextremes, a growing middle classfinds itself caught between the realistic fear

of falling back into poverty and the dream of joining the group at the top.Meanwhile, in what seems to be a totally different plane of existence, vastfortunes are made and lost in microseconds through convoluted, etherealfinancial transactions that seem disconnected from the creation of anytangible good or service Financial assets are seemingly created out ofnothing more than dreams and promises Risk taking and the most egre-gious forms of greed are applauded as virtues Yet when these samefinancial

3

© The Author(s) 2017

R.D Johnson,Rediscovering Social Economics,

DOI 10.1007/978-3-319-51265-5_1

markets implode, the wealth and aspirations of ordinary people far removedfrom the process are destroyed Government responses often seem eitherinept or designed to widen the disparities and protect those who created thecrises What does the discipline of economics have to say about this scenariowith its threats and promises? If economics is to contribute in any mean-ingful way to the conversation, itfirst needs to develop an adequate under-standing of human nature and the conditions needed to create a just andprosperous society.

While there has been an almost continuous stream of respected mists who have attempted to persuade the discipline to adopt a moreholistic, human-centered approach, mainstream economists have unfortu-nately become preoccupied with analyzing the theoretical conditions nec-essary to achieve market equilibrium Neoclassical economists tend to treattheir ability to generate complex optimization criteria as proof that theirmodels explain real-world events and outcomes Instead of attempting todesign a pedagogical and methodological approach that informs a discus-sion of social welfare, they persist in constructing their analysis as if conver-gence to a market equilibrium is the ultimate end

econo-The analysis and discussion that follows is not intended as an attack uponmarkets or capitalism but rather attempts to critically analyze the philosoph-ical, social and behavioral assumptions embedded in mainstream, Neoclas-sical economics The intent is to persuade economists that, if they are trulycommitted to the goal of improving the welfare of society, they need tobecome better equipped to recognize the unavoidable normative founda-tions and implications of their analysis

The introductory section focuses on establishing the intellectual roots ofeconomics as an applied branch of moral and political philosophy andcorrects some seemingly standard misuses and misinterpretations of thewritings of Adam Smith, the reputed founder of modern economics Theanalysis follows the intellectual trail that led current mainstream Neoclassicaleconomists to the questionable conclusion that their analysis could andshould be value-free Just because economists choose to ignore normativeconcerns, however, doesn’t make them disappear There is also an unfortu-nate tendency in the discipline to postpone discussing such issues under thepresumptions that (a) it would confuse the teaching of the basic principlesand (b) these issues can only be identified and understood by employingmore advanced levels of philosophical and economic analysis I am con-vinced that these are spurious argument, and if economists are to avoid

4 R.D JOHNSON

accusations of engaging in indoctrination, it is important that they engagethese normative concerns at the foundational level where many of thesenormative dimensions become embedded The examples employed to illus-trate these issues are thus intentionally drawn from typical undergraduatelevel microeconomics analysis precisely because this is where economistsbegin to train their protégés to either ignore or seek to gain a betterunderstanding of these normative issues.

These fundamental normative issues first appear with the caricature ofhumans that economists have developed as their basis for explaining markets

as a primary mode of interaction between individuals In the process, theynarrow the relevant range of human motivators to those directly associatedwith self-interest and unknowingly incorporate a similarly narrow concept

of justice Humans enter economic analysis only as abstract, physical units ofinput in the production process, or solitary, amoral individuals driven by

infinite appetites and a desire to avoid work Economists thus seeminglychoose to ignore what Adam Smith and sociologists have long recognized,that is, that market-based economic systems imply increasingly complex andinterdependent societies that cannot function without appropriate norma-tive constraints and guidelines True market failure occurs when markets areunable to accommodate these social and normative dimensions

Building on these observations, this text proceeds to examine the cations of assuming the‘ideal’ where markets move to precise equilibriumpoints, versus the more pragmatic approach where markets are assumed tomerely guide or constrain human behavior Mainstream Neoclassical econ-omists seem intent on prescribing the type of human behavior thatfit theneeds of ideal markets, rather than designing markets to meet the needs ofhumans Modern behavioral economists, however, have successfully chal-lenged the realism of many of these assumptions Thefinal section focusesfirst on the actual workings of labor and then on financial markets where thiscontrived and constricted understanding of markets and society tends toproduce its most egregious distortions The experience of the MondragonCooperatives in Spain, and other forms of businesses that encourage workerparticipation in ownership and management, serves to illustrate an alterna-tive normative as well as an efficiency-based understanding of the businessfirm The rapid evolution and changing dynamics of financial markets revealincreasingly convoluted interdependencies that appear closely connected tothe emergence of advanced societies characterized as plutonomies Theemerging patterns of inequality are intimately connected to critical socialissues such as stable family structures, poverty and health care It is in this

impli-context that we see most clearly the need for economists to consciouslyadopt a broader-based, interdisciplinary approach The introductory quoteswere thus chosen because they challenge us to start our analysis by becom-ing aware of the normative assumption we unavoidably make regardinghuman nature and also because of the singular importance of their source.

In 1776, a Scottish philosopher by the name of Adam Smith fired amassive broadside against the prevailing political-economic dogma of theday with the publication of the earlier notedAn Inquiry Into the Nature andCauses of the Wealth of Nations Economists have over the intervening yearstruncated the title, referring to it asThe Wealth of Nations, and perceive it tohave effectively inaugurated the study of economics as a distinct academicdiscipline The ideological paradigm Smith attacked, which we now refer to

as Mercantilism, was not a set of well-defined principles but a pragmaticinquiry focused on the problem of how to best use commerce as a tool toestablish a strong national government Though difficult for individualsliving in modern developed economies to imagine, most countries in thisperiod were still struggling to establish governments that could adequatelymaintain public safety, provide systematic rules of law or even create stablepolitical boundaries

Early in the developmental process, it became obvious that any viablegovernment could not support itself by taxing its subjects in terms ofdifficult to transport and variable quality commodities like wheat, pigs andcows To standardize and facilitate these tax payments, governments cre-ated currencies/money in the form of gold and silver coins: The durability,portability and scarcity of these metal coins made them attractive for thispurpose As societies and market systems evolved and expanded under theprotective umbrella of government, an increasingly larger portion of thatmoney thenflowed through the hands of the emerging, prosperous mer-chant class It did not take too much insight to realize that any viablegovernment would have to somehow adapt to the shifting economic andpolitical balance that was occurring around them

Though economies of this period were still primarily agriculturally based,agriculture had seemingly reached its limit in the ability to generate increas-ing tax revenue Land holdings throughout Europe were hereditarily con-centrated in the hands of the aristocracy, and they had been burdened bytheir traditional obligations to maintain the serfs and peasant workers whowere tied as virtual property to their lords Taxes on agricultural productsgrown for local consumption would have severely impacted the welfare ofthe serfs and peasants already existing close to a subsistence level The rise of

6 R.D JOHNSON

standing armies, moreover, meant that the aristocracy could no longer fulfilltheir obligations to support their rulers by providing military services orsupplies Forced to pay taxes in the form of currency, the aristocrats increas-ingly converted their lands away from producing the traditional crops whichdirectly satisfied the basic needs of the manor community to the production

of cash crops sold in national and international markets These traditionalsubsistence crops had been grown on small plots of land by individualtenants, or produced on the village commons, that is, land that was jointlyused The ensuing process of consolidating the village commons, and smallplots of land farmed by individual tenants into more easily tilled, large singlecropfields was referred to as the ‘enclosure movement’

As the enclosure process gained momentum over several centuries, therewere sporadic and regional waves of serfs and peasants being expelled fromtheir work on rural, feudal manors and‘set free’ to seek alternative means tosustain themselves You can imagine that this new found freedom wasgreeted with somewhat mixed emotions by these former serfs as theymigrated into alien, congested urban settings which often lacked the basicinfrastructure to support this surging populace Inadequate sewage systems,the lack of access to clean water and crowded slum housing led to highmortality rates among the urban poor that increasingly diverged from themortality rates of the more affluent merchants and landed aristocrats.3

Rising productivity yielded increased access to some former luxury goods,which then gave their poverty a strange twist The transition from the ruralmanors to urban centers then added to their confusion and uncertainty byintroducing them to a new social phenomenon called the labor market Theincreased‘market’ supply of labor generated by the enclosure movementcontributed to low-wage rates and high profits While these former serfsstruggled to both relocate andfind new means of supporting themselves,the burgeoning merchant class found itself enjoying both increased pros-perity and influence in the political realm Their prosperity made them anobvious potential source for extracting tax revenue, but the problem washow to collect the maximum amount of revenue without killing off trade.4The answers that emerged unavoidably reflected the varied political andeconomic positions of various writers, many of whom came from theincreasingly affluent and educated merchant class Countries like Englandand Holland, with a limited land mass and relatively few natural resources,tended to focus on international commerce and overseas colonies State-sponsored regional trade monopolies like the Dutch East India Companyand the British East India Company epitomized their approach England’s

North American colonies chafed under the foreign trade restrictionsimposed on them by similar British trading monopolies France, with itsrelatively huge land mass and large population, took a slightly different tackwhich was referred to as Colbertism In the seventeenth century, under thedirection of Jean-Baptiste Colbert, Finance Minister and Secretary of theNavy, a movement was begun to develop policies which harnessed France’sinternal markets and natural resources while reforming internal tax struc-tures The articulated goal of these efforts was to enhance social order andglory of the king who personified the social and political identity of thecountry.

Spain, having acquired territories in the Americas which were fortuitouslyendowed with massive amounts of gold and silver, found itself with aseemingly endless supply of the resources needed for minting money,which could then be converted into tax revenue It was easy to confusethe availability of gold and silver with the creation of prosperity In what ispresent-day Germany and Austria, there was a greater emphasis on well-structured government and building up a skilled labor force A commontheme for all these countries, however, was the linking of military power andcommerce as tools for strengthening the power of government Govern-ment supported monopolies were viewed as a useful tool for generatinghigh profits which could then be siphoned off into tax revenue: The selectedmerchants who received this preferred monopoly status and the resultingprofits were more than willing accomplices

The ongoing dialogue made it clear in the minds of most policy makersthat government power and commercial power were inextricablyintertwined in defining what constituted a wealthy nation—hence thename mercantilism Mercantilist-type policies are still widespread today,even among countries that profess to be advocates of free markets: Eco-nomic, political and military powers never go out of fashion Since power is arelative concept, it was natural to then think of the whole process as a sort ofzero-sum game: If countryA gains power, then country B has effectivelylost power Smith saw this focus on power to be one of the many fatalflaws

in the mercantilist paradigm When Smith’s Wealth of Nations appeared in

1776, it attempted to fundamentally shift the public discourse of the day byradically redefining what it is that makes a nation truly wealthy

The Western European societies Smith addressed his remarks to were allsimilarly stratified into what he identified as three distinct socioeconomicgroups At the apex of the political and economic pyramid were the landedaristocracy, whose hereditary land holdings enabled them to dominate

8 R.D JOHNSON

agricultural production They earned their incomes from the return on land

in the form of rent charged to tenant farmers The second group, whichprogressively challenged the political power of the aristocracy, was theburgeoning merchant/manufacturing class who generated income in theform of profits Lastly, and at the bottom of the political-socio-economicladder, was the largely unpropertied working class who relied on wageincome Smith jumped into the ongoing clash of mercantilist ideas andpolitical power struggles to argue that the causal factor that created awealthy country was the productive power of its labor force and that thenature of a truly wealthy society was one in which the real wage rate of theworking class was rising.5The unfortunate tendency of modern economists

to truncate the title of his work to merelyThe Wealth of Nations seems tolead them to miss the essential points of his‘inquiry’, regarding both thenature and cause of social wealth, and thus end up more like the mercantil-ists who focused on the market value created

Smith recognized that poverty was the natural state of mankind living insmall, relatively isolated communities and thus not something that wascreated by either complex societies or by markets This explains why hedidn’t focus on explaining the causes of poverty He also asserted that tradeand exchange were found in even the crudest forms of society The marketsystems that appeared in more complex societies did enable some individ-uals to enhance their productivity and escape out of poverty, but markets bythemselves were not a sufficient condition for producing a truly wealthysociety Smith understood that a society might have all the outward trap-pings of affluence in the form of grand buildings, sophisticated art, fineclothes, jewelry and so on, but if most of the populace, that is, the workingclass, was living in a state in which they could not meet many of their basicneeds, then that society was poor He was particularly critical of the idea that

an increasing level of affluence in the topmost segment of the populationwas the proverbial,‘rising tide that lifts all boats.’ It was the broad-basedreduction of poverty, not the creation of affluence, that both produced andcharacterized a wealthy nation This emphasis on the welfare of the workingclass was a shocking and radically liberal argument that seemed to shift thewhole debate away from a focus on what mercantilists assumed to be asymbiotic relationship between government and markets The trick was toimagine how markets could function independently of government and topersuade both the aristocracy and merchant class that rising real wage wouldenhance rather than worsen their positions

Smith was not the first writer to suggest that businesses and marketscould function better if they were not manipulated and constrained bygovernment interference His travels through Europe had brought himinto direct contact with the Physiocrats, a group of influential French writerswho advocated limited government involvement in markets They had,however, deprecated the importance of manufacturing and concluded thatimprovements in agriculture were the basis for economic growth Busi-nesses that did not receive the largesse of government protection werenaturally sympathetic to these ideas of limits on governmental intervention,but the greater challenge for Smith was to convince business owners thatincreased real wages could somehow end up in generating higher totalprofits for businesses Smith’s genius in effectively carrying out this agendawas not primarily in the form of new ideas but rather in how he wovetogether existing ideas about the way markets function to illustrate thispossibility.

I have emphasized the wordpossibility, because for Smith this was not aforegone result of allowing market forces free reign It was rather somethingthat could occur if the moral structures, rules of law and political structureswere also properly framed Smith understood that a fundamental character-istic of a market-based society was the increased level of interdependencythat necessarily occurs For workers, this was a particularly acute issue:Without employment in the labor market, they could not simply revert tosubsistence-level farming as the enclosure movement had shut off thatoption He also understood that market forces inducing the increasedmobility of the labor force could play havoc with family and social struc-tures The combined effects of these market induced social changes, andmarkets themselves was to delude individuals into believing that they were

in fact increasingly independent To understand these dimensions ofSmith’s analysis, however, we need to understand the full context of Smith’swriting

Smith was what we call a‘polymath’—someone who is gifted in a widerange of intellectualfields Unfortunately, the term polymath is a somewhatdated term that tends to conjure up images of someone gifted in mathe-matics Smith’s life goal was to write a complete intellectual history of all ofhuman knowledge The opening quote for this chapter was thus veryintentionally drawn fromThe Theory of Moral Sentiments, the philosophicalwork published in 1759 that established his academic reputation The thesis

of this work is that it is empathy, that is, an innate ability to identify with thewelfare and experiences of others, that creates the so-called social passions

10 R.D JOHNSON

that in turn make both civil society and extended markets possible WhenThe Wealth of Nations appeared, his readers would in all probability haveimmediately observed the rhetorical and substantive connections to hisearlier work For modern readers, however, afirst reading of the two quotespresented at the beginning of this chapter poses a major problem as Smithappears to be employing contradictory views of human motivation that canonly be easily resolved by eliminating one of the two BecauseThe Wealth ofNation makes very oblique references to the‘social passions’ which directour concerns toward others, modern economists have wrongly interpretedthis to mean Smith thought that self-interest was a sufficient basis forconstructing markets and society Not everyone, of course, has boughtinto this view.

Jumping ahead to the mid-twentieth century, an illustrious British omist/polymath by the name of Kenneth E Boulding attempted to use hisposition as President of the American Economic Association as a platform tocajole his contemporaries to recognize the normative foundations of theirdiscipline.6More recently, 1998 Nobel Laureate Amartya Sen has taken upthe same gauntlet and challenged the conventional interpretation of Smithheld by economists He astutely observed that in bothThe Theory of MoralSentiments and The Wealth of Nations, Smith was merely recognizing thatself-interest was an innate part of the human condition but that it was not asufficient motive to create and sustain society or even markets.7Smith drew

econ-a criticecon-al distinction between the sociecon-al pecon-assions which drecon-aw us towecon-ardothers and the asocial or selfish passions which direct us to advance ourown welfare Though both are necessary, innate moral sentiments, theyeach posed unique problems, and without appropriate constraints, theycould easily become excessive or perverted

InThe Wealth of Nations, Smith describes the most basic forms of interest as innate and necessary passions but then proceeds to offer anexhaustive explanation of how they could be appropriately restrained bymarkets to produce benefits for the greater society, even when this was notthe intended result In his book, Self Interest Before Adam Smith, PierreForce suggests that Smith's roots in Stoicism explain the distinction he drewbetween moderate and appropriate self-interest vs contrived and excessiveself-interest.8Smith was also not an idealist who believed that society couldrely entirely upon the counterpoised‘social’ passions to restrain the selfishpassions Smith observes in theTheory of Moral Sentiments the arguments

self-of philosophers who assume that the so-called social passions are innatelybenign, but he argues that even these‘social’ passions could be similarly

perverted.9 Mob rule, and the rise of demagogues, for example, posedproblems for democratic forms of government.

Though not directly attributable to Smith, it is significant to note thatsimilar views on appropriate limits on democratic institutions are found inThe Federalist Papers published in 1787, where Alexander Hamilton, JamesMadison and John Jay attempted to justify the transition to a new consti-tution.10 One of the recognized defects of direct democracies was thetendency for narrow social and/or economic interests to coalesce and end

up working against broader social welfare or exploiting minority groups.The controversial Electoral College arrangement for determining the pres-idents of the United States was thus intended to ensure that the winnerwould have to acquire a qualified majority that was economically, sociallyand regionally diverse Smith’s central tenet, built on the foundations ofStoicism, was that the collective functions of government, society andmarkets were to appropriately constrain or channel both the selfish andsocial passions, and not merely give free reign to either of them A carefulreading of the full body of Smith’s works thus reveals a complex view ofhuman motivation and requisites social institutions, and values, but latergenerations of economists took the easier route of abjuring the moral andphilosophical roots posited by Smith

Many introductory economics texts take Smith’s opening remarks in TheWealth of Nations that acknowledge the presence of self-interest and inap-propriately interpret them to imply he was arguing that unconstrainedmarkets forces, guided solely by individualistic self-interest, are a sufficientmechanism for maximizing social welfare Free markets then become merelytools that enable humans to fully express their selfish passions, and ‘greed’ istherefore good The rhetoric has become even more twisted as someeconomists argue that‘altruism’ is nothing more than rational self-interest:

We only do good things to others because it makes us feel better aboutourselves A modern manifestation of this attempt to reduce every humanactivity to merely an expression of self-interest is the 2005New York Timesbest seller, Freakonomics, by economist Steven Levitt and his co-authorStephen Dubner.11

Contrary to the hype on the jacket of their book proclaiming Levitt to besome sort of‘rogue’ economist, his methodology is in fact as conventional

or orthodox as the Pope is Catholic The term‘orthodox’ is used here tomerely indicate that their approach reflects the dominant view of theeconomics profession, rather than necessarily an accurate/correct under-standing What characterizes this dominant methodology is the use of a

12 R.D JOHNSON

stripped-down model of humans that assumes (a) that human beings actindependently, (b) are motivated only by self-interest and (c) respondpredictably/rationally to market incentives This artificial model of humans

is sometimes referred to as‘homo economicus’ and is in fact a foundationalprecept for today’s orthodox economic analysis which we refer to as Neo-classical economics

In their introduction Levitt and Dubner make the claim that‘Morality represents the way that people would like the world to work- whereaseconomics represents how it actually works’.12Beyond the above introduc-tory remark, however, Levitt and Dubner fail to acknowledge their use ofhomo economicus and its implications, but one does not necessarily expectthis from a book whose purpose is to be provocative Part of the appeal of abook likeFreakonomics is that it avoids the complexity problem by skippingthe assumptions and merely telling us the results Levitt’s research agenda issimply to discover esoteric and unexpected examples of human behaviorwhere there is empirical evidence that is consistent with the caricature ofhomo economicus This type of reductionism obviously makes the analyticalprocess easier but creates another set of problems by limiting the range ofthe discussion Taking the broader view of Adam Smith, one could arguethat morals, social hierarchies, psychological factors and legal systems allwork together with markets to tell us how the world really works Smith,however, was not attempting to write a modernNew York Times best seller,and he felt no need to simplify his pedagogy

It is incredibly paradoxical that many standard introductory text booksexplicitly claim to build on the foundations of Adam Smith, yet their use ofhomo economicus to describe the human condition exacerbates what Smithsaw as an insidious delusion of individual autonomy Unless society tookappropriate institutional countermeasures, this delusion would furthererode the social passions Smith saw as necessary to sustain a civil societycharacterized by increased interdependencies One of the untoward effects

of adopting the bare bones model of homo economicus, for example, wasthat Smith’s concern for relative income distribution and the importance ofmeeting basic human needs gradually disappeared from economic analysis.The reality, however, is that many of the core conflicts in modern economicanalysis continue to center on these exact same issues

In 1962 Michael Harrington’s book The Other America jolted politicalleaders into awareness of the problem of persistent poverty in the presence

of a growing economy.13 It provided the impetus for President LyndonJohnson’s ‘Great Society’ programs and brought sociologists as well as

economists into a dialogue More recently, Paul Collier’s The Bottom Billion(2007), Michael Piketty’s Capital in the 21st Century (2014) and JosephStiglitz’s The Great Divide: Unequal Societies and What We Can Do AboutThem (2015) seem to have successfully garnered the attention of a broaderaudience.14 Nobel Laureate Angus Deaton’s The Great Escape: Health,Wealth, and the Origins of Inequality (2013) is notable in that it capturesthe essence of Smith’s argument by noting that markets can provide avehicle by which some individuals escape poverty, but that major substan-tive changes have only occurred when there are also broad-based improve-ments in access to things like education and health care.15 Whereas Smithemployed logical precepts and a sort of hypothetical history, Collier, Stig-litz, Piketty and Deaton have been able to take advantage of some majoradvances in data collection and statistical analysis to establish their argu-ments Each of these writers seems to have been motivated by an implicitconcern for social welfare.

The two chapters that immediately follow outline the basic connectionsbetween market behavior and questions of social welfare How, for exam-ple, do we answer Smith’s inquiry regarding the ‘nature of the wealth ofnations’? What level and type of justice do we need? What values do webring into the discussions that shape our perceptions? These were theovertly normative issues that challenged Smith and his immediate intellec-tual successors, whom we now refer to as‘Classical’ economists

3 Angus Deaton.The Great Escape: Health Wealth, and the Origins ofInequality (Princeton, New Jersey: Princeton UniversityPress, 2013)

4 When the infamous Willie Sutton, a 1920s US criminal, was askedwhy he robbed banks, he was purported to have responded,‘That’swhere the money is.’ Government, like Sutton, followed the money.One well-known Libertarian legal scholar has in fact caricaturedtaxation as legalized theft

5 Adam Smith,Wealth of Nations 91, 96–99, 104

14 R.D JOHNSON

6 Kenneth E Boulding.Beyond Economics: Essays on Society, Religionand Ethics (Ann Arbor, MI: University of Michigan Press, 1968);Wilfred Dolfsma and Stefan Kesting, eds.Interdisciplinary Econom-ics: Kenneth E Boulding’s Engagement in the Sciences (New York:Routledge, 2013).

7 Amartya Sen.“Does Business Ethics Make Economic Sense?” ness Ethics Quarterly 3, no 1 (1993), 45–54; Amartya Sen Eco-nomics, Business Principles and Moral Sentiments.” Business EthicsQuarterly 7, no 3 (1997): 5–15

Busi-8 Pierre Force Self-Interest Before Adam Smith (New York: bridge University Press, 2003), 64–68, 75

Cam-9 Sen (1993); Roger Johnson Adam Smith’s Radical Views on erty Rights, Distributive Justice and the Market,” Review of SocialEconomics, 18, no 3 (1990), 254, 267

Prop-10 Alexander Hamilton, James Madison and John Jay,The FederalistPapers, 2014 Dover Thrift Edition Gen editor Mary CarolynWaldrop Vol editor Jim Miller Mineola, New York: Dover Publi-cations (1787)

11 Steven Levitt and Stephen DubnerFreakonomics 1st ed (New York:Harper Collins, 2009)

12 Levitt and Dubner, 11

13 Michael Harrington The Other America (New York: Simon &Schuster, 1997)

14 Paul Collier The Bottom Billion: Why the Poorest Countries AreFailing and What Can Be Done About It (Oxford: Oxford Univer-sity Press, 2007); Michael Piketty Capital in the 21st Century(Cambridge, Massachusetts: Harvard University Press, 2014);Joseph E Stiglitz The Great Divide: Unequal Societies and What

We Can Do About Them (New York: W.W Norton, 2015)

15 Angus Deaton.The Great Escape: Health Wealth, and the Origins ofInequality (Princeton, New Jersey: Princeton UniversityPress, 2013)

a very narrow, need-based index derived from the price of the basic foodcommodity of corn/wheat.1There were some Classical economists who ofcourse disagreed with Smith’s interpretation of what it was that determinedthe wealth of a nation David Ricardo, a British merchant and politician, andSmith’s effective heir in continuing the attack on Mercantilism, was one ofthose dissenters.

David Ricardo clarified some issues regarding the benefits of marketexchanges, but rejected Smith’s advocacy of increasing wages to assertthat high rates of profit and continuous accumulation of capital were thehallmark of an affluent society.2He argued that economic progress requiredkeeping wages and rents low Rent in Ricardo’s vocabulary referred topayments to the owners of land who were still the hereditary aristocrats ofthe time One of Ricardo’s major political agendas was the repeal of theCorn Laws, a system of taxation on imported wheat He argued that taxes

on a basic food such as corn/wheat would necessitate an increase in nominalwages if workers were to survive Rising nominal wages would in turn cause

17

© The Author(s) 2017

R.D Johnson,Rediscovering Social Economics,

DOI 10.1007/978-3-319-51265-5_2

profits to fall, causing a reduction in market output For Ricardo, profitswere the engine that drove economic progress He seems to have had acautious optimism regarding the possibility of a general improvement insocial welfare, particularly in regard to raising the real wage rate of commonworkers His belief that competitive forces would continually push realwages towards a subsistence level was referred to as the‘iron law of wages’.The Rev Robert Malthus, one of Ricardo’s contemporaries with whom

he maintained an ongoing dialogue, was clearly a pessimist.3 Malthussecured the label‘the dismal science’ for economics by arguing that workerswere doomed to a sort of endless cycle which would prevent wages fromcontinuously rising According to Malthus, rising wages would lead to theincrease in birth rates, and increased population levels would in turn drivewages down, producing poverty, misery and disease Increasing povertywould drive birth rates down, decrease the labor supply and cause wages

to rise so that the cycle endlessly repeats itself Reflecting the class prejudices

of the period, he observed that upper income groups could enjoy economicprogress, supported by rising profits, provided they restrained their sexualpassions Attempts to minimize poverty via charity, however wellintentioned, were therefore doomed to failure as they would merely encour-age higher birth rates among the poor Malthus’ polemics were largelydirected at a group of idealistic/utopian writers who thought that economicprogress would remedy the faults in human character Karl Marx was one ofthe more infamous idealists or‘utopian’ writers to emerge from this ideo-logical debate In an odd sense, he was both the prophet of doom and theultimate optimist

Marx reinforced Malthus’ conclusions regarding ongoing market cyclesand wages, but attributed the existence of these cycles to the method bywhich the market system distributed income.4He argued that the increasedproductivity of capitalism created an opportunity to resolve the issue ofpoverty, but that solving the distribution problem would require the col-lapse of the existing system and its evolutionary replacement with othersystems, that is, socialism and then communism Though the increase inproductivity was a necessary step in the progress of humanity, he saw thedistributional issue to be an inherently fatal flaw New economic systemswould then evolve from the roots of capitalism, progressively resolve thefundamental social/moral problems that plagued humanity and lead to asocial and economic utopia As the debate raged on among what we nowrefer to as‘Classical’ economists, most of the participants seemed to at leasthave an awareness and ability to articulate their normative differences This

awareness and willingness of economists to articulate these differencesseems to dissipate near the end of the nineteenth century as Neoclassicaleconomic analysis began to progressively disavow any connection to phi-losophy and morals.

John Stuart Mill, the last of the great Classical economists, was a tarian philosopher who argued that issues concerning social justice could beresolved by a comparison of the benefits with the cost of every action.5Millhad improved upon the foundational work of Jeremy Bentham by notingqualitative differences in utility and the existence ofnon-commensurability,that is, the inability to compare or interchange the utility of certain goods Ifyou were thirsty, the type of utility provided by water could not necessarily

Utili-be provided by substituting another good like a car Some goods provideimmediate and highly intense levels of short-term satisfaction, while othersprovide lower, but more enduring levels of satisfaction Among otherthings, this suggests the possible existence of a distinction between needsand various wants or desires

John Stuart Mill believed that the ideals of neither capitalism nor munism were attainable, and also argued that we needed to focus on therational construct of social institutions which would lead to a more equita-ble distribution of income His belief in a common hierarchy of needsamong individuals provided justification for a progressive income tax sincethe loss in welfare from taking $1 away from a rich person would be smallcompared to the gain in welfare of giving that $1 to a poor person He thusaccepted the principle that utilities of individuals werecommensurable, that

com-is, capable of being compared to one another He was also actively involvedwith numerous social reform movements such as women’s suffrage andchild labor laws Writing as the industrial revolution was gathering momen-tum, he noted the inherently unjust evolution of the prevailing propertyrights and the resulting distribution of income He specifically applaudedongoing experiments with worker-owned firms as an alternative to theprevailing forms of business ownership

HisPrinciples of Political Economy, continuously republished from 1848until 1900, was effectively the last recognized, substantive attempt tomaintain the ties between economics, politics and sociology His book,

On Liberty (1858), also earned him the continued admiration of modernday Libertarians who see political and economic freedom to be integral toone another After John Stuart Mill economics took a different turn, and itwas ironically in part the utilitarian, logical construct of human decisionmaking that inspired this change

THE POLITICAL AND MORAL DIMENSIONS OF ECONOMICS 19

At every point in the ongoing debate among Classical economists, it wasclear to the participants that they held differing views of human nature andsociety which were inextricably linked to their differing understandings ofeconomic progress The idea of writing a normatively laden polemic, however,seems to not have carried as much of a negative connotation then as it doestoday It is in the last part of the nineteenth century that mainstream econo-mists gradually drifted towards the position that they could, and should,divorce their understanding of economics from any contentious philosophicaland normative arguments Many economists had found the supposedly ratio-nal, objective utilitarian methodology to be attractive, but there were someaspects that needed to be pruned away or modified if this was to occur.

If one accepts the Utilitarian assertion that moral choices and rules aresimply derived through a logical, deductive process of comparing costs andbenefits, it is easy to drift into the belief that they are not qualitatively differentfrom the typical amoral choices one makes in the market Morals are thensimply something that could be folded into the normal types of daily decisionsindividuals make rather than being a separate issue Following these leads,mainstream economists chose to focus on the uniqueness of individual per-spectives and the manner in which these individuals proceeded to optimizetheir own individual utilities Once optimizing behavior began to be modeledusing advanced mathematics, the shift had effectively occurred, and it wasonly a matter of time until economists began to overtly assert the view thateconomists ought to eliminate moral consideration from their analysis Whenall the dust was settled, the adherents of this new iteration of economicanalysis adopted the moniker of Neoclassical economics

Today we refer to the view that human rationality enables one to separatevalues from analysis as‘Modernism’ It is perhaps no coincidence then thatvirtually every text on the principles of economics begins by discussing thedifference between objective, value-free analysis and normative or value-dependent analysis Referring back to the earlier noted remark on moralityand economics by Levitt and Dubner, it is easy to see the implicit orsometimes overt assertions made that‘good’ economics is value free andthat markets are merely amoral tools The ‘tool’ metaphor is a grossdistortion, however, as markets are not objects but rather a form ofhuman interaction where individuals overtly assign relative worth and sig-nificance to objects and other humans They are by their very natureincapable of being value free

It is probably fair to say that most external critics of economicswould argue that the discipline has not really purged itself of any normative,

value-laden arguments but instead has hidden them through the use ofmathematics and clever rhetoric Undoubtedly the most important value-based concept that continually resurfaces in economic debates, even whenthe rhetoric is not explicitly used, is the termjustice By attempting to avoidnormative concerns and rhetoric, however, economists have unavoidablyadopted what one might call a‘minimalist’ definition of justice To get abetter grasp of the issue, we can again go back to Adam Smith, theintellectual movement referred to asnatural law, and retrace the train oflogic that led modern mainstream economists to this outcome.

The termnatural law was in vogue during the period in which Smith waswriting, but people meant very different things when they employed theterm For some writers, such as John Locke, it meant a logical appeal to ahypothetical condition—the state of nature—that prevailed prior to humansociety I specifically mention Locke because his writings had a huge impact

on many of the so-called founding fathers of the United States, such asThomas Jefferson Jefferson’s ideal society, for example, was one mainlypopulated by small, independent farmers, and he was very clearly disturbed

by the growing commercialization of society that also posed an economicthreat to the slave culture in which he was immersed For Smith, however,the state of nature existed in a set of social relationships and emotionalbonds that held people together in civil society Continued economicprogress, in Smith’s view, required that society be increasingly dominated

by commercial interests and evenfiner degrees of specialized labor skills Acrucial link in Smith’s argument that is frequently overlooked is found in aset of class notes taken by a student of Smith’s second group of Lectures onJurisprudence (B), in which he specifically confronted the views of Locke onthe issue of property rights.6

Locke argued that property rights to external objects exist prior to thecreation of society and are meant to protect our independence from oneanother, that is, our liberty When we apply our physical labor to an object,

we somehow metaphysically unite our innate rights to protect and controlour own bodies to these objects In Smith’s Lectures on Jurisprudence (B) hepointedly attacked Locke on this issue, arguing that property rights toexternal objects were derived in a social context and required the approval

of others These rights, furthermore, had to then be continuously modified

in order to reflect the growing interdependencies that emerge in a marketsociety Smith thus referred to property rights as being‘derivative’ ratherthan natural.7 As noted earlier, he also argued that empathy, that is, theability to identify with the interests of others, is key to supporting a complex,

THE POLITICAL AND MORAL DIMENSIONS OF ECONOMICS 21

market-based society Though it is tempting to think that these are ronistic and irrelevant ideas, many of Smith’s ideas have recently beenrevived by non-economists, but provided with new labels.

anach-Jonathan Haidt, a neuropsychologist, recently published a book, TheRighteous Mind: Why Good People Are Divided by Politics and Religion(2012), in which he examines what he describes as the basic moral founda-tion of human society Based on the results of neurological studies, Haidtargues that our brains are hardwired to respond emotionally to the follow-ing six foundational moral issues:

is not the basis for morality, but rather that it follows along as a tool we use

to justify what we have already decided is moral Haidt uses these values toexplore the hypothesis that the differing weights we assign to these foun-dational values can explain the difference between modern political conser-vatives and liberals Figure2.1is a simplified version of his analysis where heused only the first five moral foundations from his list to illustrate hisfundamental conclusions regarding the liberal–conservative dichotomy.Although he doesn’t focus on the moderates, I have added the shadedoval to identify their position

Haidt notes that although all five of the foundational values/moralsentiments are necessary to sustain society, extreme Liberals tend to focusalmost exclusively on Care/Harm, and Fairness as Equity, and effectivelyreject the need for Loyalty, Authority and Sanctity Extreme Conservatives,

on the other hand, appear more inclusive, but reverse the ordering by

placing a Care and Fairness near the bottom, and Authority, Sanctity andLoyalty at the top In this initial iteration, Haidt simply employed the word

‘Fairness’, but he later divides this into two sub-categories: (a) Equity and(b) Proportionality Proportionality refers to the idea of getting what onedeserves based on effort and choices made and this is the definition thatappeals to most Conservatives Equity refers to a concern for meeting basicneeds and avoiding wide disparities in outcome Though absent from thisgraph, he also included the concern for Liberty in his complete list of values.Libertariansfit uneasily within Haidt’s Liberal vs Conservative dichotomysince they believe that liberty trumps all other values The circumscribedposition of Moderates, who typically make up the largest portion of society,

is more ambiguous

Fig 2.1 The moral values of liberals and conservatives (Source: Jonathan Haidt.The Righteous Mind: Why Good People Are Divided by Politics and Religion.New York: Pantheon Books, a division of Random House, 2012)

THE POLITICAL AND MORAL DIMENSIONS OF ECONOMICS 23

Because the ordering of values among moderates will likely shiftdepending on the issue being debated, this can easily lead to a sense ofincoherence This helps explain why the polar positions seem clearer andthus psychologically more attractive Although Haidt doesn’t draw theinference, it is obvious that a coalition of moderates, faced with the constantpull of the extremes, will be extremely tenuous and require a commitment

to maintaining social relationships, that is, Loyalty This is a loyalty orcommitment to a broader society, however, rather than loyalty to thesmaller and more proximate segments with which, Smith argues, we tend

to most closely identify (Fig.2.2)

Recent research on trends in inter-party collaboration in the UnitedStates by Renzo Lucioni, as shown in Fig.2.2, provides a wonderful visualdepiction of what seems to be in fact an increasingly polarized polity, lesscommitted to cooperation The Economist magazine, in presenting theseresults commented that,“Though America’s political polarisation(sp.) hasbecome a fact of life, it has never been seen so graphically: as a diseasedbrain, with few neural pathways between the two hemispheres,” (Fig.2.2).9

Fig 2.2 113th Congress, 2013 session: senators casting the same vote (Source:Lucioni, Renzo Senate Voting Relationships, 8 December, 2013 https://renzolucioni.com/renate-voting-relationships/)

The disinterest and lack of formal training in the political/moral arenaamong economists exacerbates the problem as it leaves them unaware of theway in which their supposedly value-free methodology merely narrows theset of moral values embedded into their analysis, and thus unwittinglyadvocate Neoclassical economists (if pressed) would undoubtedly recog-nize the relevancy of the following two moral foundations from Haidt’s list:

(a) Fairness as Proportionality

(b) Liberty/Oppression

The concern for Liberty is sometimes based upon the assertion that

efficient markets are fundamentally designed for the purpose of maximizingthe range of individual choice and action To the extent that economistsonly recognize these two values they have effectively adopted and promul-gate a negative or minimalist concept of justice that I will callcommutativejustice

To avoid confusion, we will use the following working definition for ourdiscussion.Commutative justice focuses on the‘process’ of human interac-tion and essentially argues that justice is served regardless of the outcomes,provided the process does not involve (a) coercion or (b) fraud/deceit It is

a negative concept in that it is the absence of these two characteristics thatprovides the definition Commutative justice often sneaks into economicanalysis un-announced, as these two criteria also appear in the list of pre-requisites for perfect competition The nature of the complete list, as we willsee in Chap 7, frames these as ‘technical’ rather than ‘moral’ consider-ations Free market advocates also believe that markets will ordinarily tend

to produce results that are consistent with Fairness as Proportionality SomeNeoclassical economists, however, admit that an efficient market systemrequires a certain level of integrity and trust and believe that markets willtherefore tend to reinforce this type of moral behavior

George Gilder’s Wealth and Poverty (1981) espoused the view thatmarkets actually reinforce certain individual virtues like honesty.10 ThenPresident Ronald Reagan seemed to have effectively adopted this book as asort of pragmatic and normative policy guide This was followed in 1982 byMichael Novak’s The Spirit of Democratic Capitalism, which employedanalogies with the game of baseball to make similar normative arguments,and together these two books became sort of required reading among

THE POLITICAL AND MORAL DIMENSIONS OF ECONOMICS 25

Neoclassical economists and defenders of markets.11Libertarians, however,openly admit that their advocacy of free markets is primarily founded upon aconcern for maximizing individual liberty, secondarily about efficiency andwealth, and morals are a purely private, individual concern Even if onecould show that freedom of exchange would decrease market value created

or reduce sociability, true principled Libertarians would still strongly resistany constraint upon markets

Libertarians argue that commutative justice is the only definition ofjustice that would generate unanimous acceptance, and thus avoid the use

of coercion Inspiration for their vision of the ideal society can be found inthe writings of individuals like Friedrich A Hayek, Ludwig von Misesand the philosopher-novelist Ayn Rand, who wrote Atlas Shrugged(1957) andThe Virtue of Selfishness: A New Concept of Egotism (1964).12

Their reliance uponcommutative justice makes it somewhat easy for them toadopt the basic methodology of Neoclassical economics which emphasizessocial interaction through markets Despite seeming to maintain an agnosticapproach regarding a broader normative discussion, there are inevitablysome market behaviors that engender a level of moral discomfort amongboth Libertarians and Neoclassical economists

Should we allow markets for human organ donations when we know that

it will be the poor who serve as the primary suppliers? You may be aware ofthe recent controversy over accusations that some abortion clinics wereselling fetal tissue to research institutes Does truthfulness require full dis-closure, or merely not telling a lie? The problem is that economists typicallylack the philosophical training to be able to articulate the nature of theirdiscomfort A fellow economist thus once posted a blog entry noting hisinadequacy to address issues of justice raised by his students, and concludedthat,“ maybe this is because grad school curriculum was virtually silent[on these issue].” He has correctly observed a fundamental contradiction inthat most professional economists are granted a Philosophiae Doctor (PhD),that is, a doctor of philosophy degree, without necessarily having taken anycourses that deal with these philosophical and normative issues While thisexplains the reticence and inability of economist to confront these issues, itdoesn’t justify their exclusion from the discussion

Those economists who care to offer normative critiques of specific types

of market outcomes often seem to be effectively driven by a concern for

‘Fairness as Equity’ The ‘Care/Harm’ criterion also seems to be important

in that they are inclined to believe that society has an obligation to protect

its least advantaged members If one envisions humans as essentially social innature, this may also evoke a concern for the conditions needed to sustainsocial bonds to others, for example, Loyalty Thefield of economic devel-opment has been particularly influenced by these concerns and has in theprocess taken an overtly sociological approach.

In a recent book entitled Poor Economics: A Radical Rethinking of theWay to Fight Global Poverty (2011), Abhijit Banerjee and Esther Dufloargue that one of the major causes of failure for the past generation ofeconomic development policies has been their reliance on the abstractNeoclassical model of individualistic humans that is perceived to reflect avery Western European perspective.13Banerjee and Duflo are also acutelyaware that inept and corrupt governments have exacerbated the problems.Once one takes into account the differing social structures, values and set ofbeliefs that shape human decision making, it becomes obvious why thesepolicies have often produced such insignificant results As noted above,many of the economists who seek alternatives to the Neoclassical modeloften effectively embrace Haidt’s Fairness as Equity Adam Smith referred

to this asdistributive justice, and locates its origin in the concept of empathy.Distributive justice tends to focus on the outcome of the process, partic-ularly as it impacts the least advantaged and the degree to which basichuman needs are unmet For economists who recognize the importance

of distributive justice, economic/political life reflects the convolutedattempt to balance concern for all the moral foundations Haidt has listed.This complexity inevitably produces intense disagreements even amongmore normatively conscious economists As noted previously, both Haidtand Smith seem to recognize that successful societies require the properbalance and ordering of all of thesemoral sentiments Smith, moreover, wasparticularly adamant that the problem of equity/distributive justice wouldbecome exponentially more critical for market-based societies Increasedspecialization necessarily creates a corresponding increase in interdepen-dencies and the need to create or derive appropriate property rights In hisearlier notedLectures on Jurisprudence (B), Smith argued that these‘deriv-ative’ property rights would have to be modified for the specific purpose ofrecognizing the impact of these growing interdependencies.14Both Haidtand Smith express similar concerns that the social bonds/empathy needed

to make such changes can be easily destroyed by markets themselves.Perhaps one of the best summaries of Smith’s attitude towards markets isoffered by Ryan Hanley in his book Adam Smith and the Character ofVirtue, where he portrays Smith as a friendly critic, whose intent is‘ to

THE POLITICAL AND MORAL DIMENSIONS OF ECONOMICS 27

describe as fully as possible, the nature of these deficiencies in order tostimulate the development of solutions’.15 Smith’s criticisms are notfocused on the ubiquitous types of market imperfections that preventthem from reaching equilibrium, but rather on those scenarios wheremarkets either fail to accommodate or pervert the moral sentiments needed

to create a just and prosperous society Haidt makes a related argumentregarding the malleability of our value structure, noting that our relativerankings are altered in part by our experiences While admitting his own

‘liberal’ predisposition, he also notes that liberals tend to unfortunatelydismiss the equally important values of Loyalty, Authority and Sanctity.The rhetoric of both Conservatives and Libertarians, however, oftenseems to portray a society bound together by nothing more than marketsand a concern for individual rights These tendencies are not new, but ifLucioni’s studies are correct, we need to get a better grasp on the factorsthat are exacerbating this division

In his 2015 bookRoad to Character, admittedly conservative New YorkTimes columnist David Brooks contends that rhetoric and language furthercontribute to the breakdown of empathy as modern western societies seem

to have lost their moral vocabularies Brooks suggests a dichotomy similar toSmith’s asocial and social passions, but uses the imagery of Adam I andAdam II, where Adam I‘ [L]ives by a straightforward utilitarian logic.It’s the logic of economics.’ Adam II, in contrast, lives by ‘ a moral logic,not an economic one’.16

Mary Ann Glendon, in her 1991 bookRights Talk:The Impoverishment of Political Discourse, attributes the problem to theindiscriminate use of the term‘rights’ by both sides.17 The methodologyand language of modern economics, as suggested by D.N McCloskey’s

1983 article,‘The Rhetoric of Economics’, may also aggravate the problem

18This loss of moral language among economists is perhaps epitomized bythe publication of Elements of Pure Economics in 1872 by the Frencheconomist and engineer Léon Walras, who attempted to construct a dis-cussion of economics relying solely on the use of modern calculus.19Who,after all, would imagine that a mathematics text would or should containany normative or moral content?

The ideals of the‘Modernist’ approach appeared to become more able under the methodological influence of two nineteenth-century Britisheconomists, William S Jevons and Francis Y Edgeworth This is the begin-ning of the so-called Marginalist school, epitomized by the use of abstract,mathematical models of rational, individual human decision making, that is,homo economicus.20 Jeremy Bentham, the founder of Utilitarian