Ethics, Economics and Political Economy Theory

Political Economy Definition

Economics claims to be a science. Hypotheses are formed about human behaviour concerned with the acquisition and disposal of resources. These hypotheses are regarded as testable. In essence, economics is 'value-free' and to be an economist does not entail the acceptance of any ethical position. An economist need not be precluded from evaluating how individuals and governments conduct their economic affairs, but the process of evaluation requires making judgments about the 'good society' which are not derived from economic analysis itself. Whether such judgments, embodying statements about human values, are themselves capable of being derived from 'objective analysis', which can be submitted to scientific methods of proof, is a matter for further discussion.

A liberal view of the organization of the economic system, broadly speaking, shows what roles are to be assigned to the individual and, by some system of consent, to the state. One must make clear what this view is, that is to say, one must clearly differentiate statements about values from statements about economic arrangements which reflect these values. This is normally described by economists as a distinction between 'normative propositions', which are non-verifiable, and 'positive statements' which, in principle, can be verified. I shall argue that this distinction has to be carefully explored if my purpose is to be achieved. The preliminary point may be made that the scientific validity claimed for economics itself depends on the acceptance by all economists of the moral precept of intellectual honesty, i.e. evidence must not be consciously suppressed or distorted.

The tradition of 'political economy', which forms a link between ethics and economics, has an honourable history. It may be claimed that it has been a major motive force in the development of economics as a scientific discipline. It is beyond the scope of this chapter to verify this statement, but it is incontrovert­ible that improvements in economic analysis have often been stimulated by the urge of economists to find a solution to some problem about the good society which worried them.
Ethics is concerned with the identification of human actions as 'right' and 'wrong'. The classification of actions in this way is often made with reference to some broad statement of principle about the goals of individuals as members of a society, such as 'we should aim for the greatest happiness of the greatest number' or 'individuals should be wholly responsible for their own actions', or 'God's will must be done'.

Clearly, individuals acting alone or in concert pay attention to moral precepts so that the study of ethics has a descriptive and analytical element to it. In other words, one can study ethical systems without having to evaluate them. The distinction is illustrated by the story of the Harvard Professor of Law who owned a summer house in Maine in a small community. It was some time before he was regarded as a fully-fledged member of the community and the signal to be such was to be invited to put his feet on the stove when a community meeting was held in the local general store. Eventually it was indicated to him that on a particular evening he might be so invited and, very excited, he arrived for the occasion to discover that a heated argument was in progress on the subject of baptism. Some were in favour and some very much against. He saw the dilemma approaching him. If he declared for one side or the other, he would give offence and be denied the final accolade of acceptance - putting his feet on the stove. At last, the question was put to him: 'Do you believe in baptism?' and all eyes turned towards him. He replied 'Believe in it? I have seen it done!' He was allowed to put his feet on the stove.

The typology of moral or ethical systems must certainly add to our knowledge of society and their systems of government. Indeed, an obvious link between ethics and economics is forged by the study of the influence of ethical conduct on the use of resources. It is interesting to note that the emphasis on an ethical dimension in the way individuals allocate their resources was a particular concern of liberal Classical economists, notably Adam Smith. In modern parlance, it is frequently contended that, in devising a utility function for an individual maximizing his/her satisfaction, we would miss a vital element in human behaviour if we did not embody an argument reflecting the satisfaction derived from concern for others. Therefore, to generalize the point, identifying economics with the study of 'materialist' behaviour is a mistake. Economists are bound to recognise that an individual's motivation is influenced by both the opinion of others and the effects of one's actions on others. However, a word of warning is necessary. To describe an 'interdependent utility function' as evidence of ethical behaviour may be to go too far. Further evidence is required as to whether an individual is following some moral imperative, such as 'we must help others', when there is an inter-personal transfer of resources. A more profound question still is what are the individual's motives for subscribing to the moral imperative itself and how these are to be evaluated with reference to some moral code. Is my behaviour 'more moral' if I conform to the code because of my conviction that it is right when I may conform simply because it is convenient or advantageous? Such a question is well outside the scope of economic investigation and is not an essential part of a study merely of the content of ethical systems. Nevertheless, it is one which has to be addressed.

The fact that what is regarded as moral behaviour appears to differ between societies and between groups within a given society seems to offer sufficient reason for accepting that value systems are subjective. However, a respectable line of argument used by some philosophers is that these differences may be more apparent than real. It could be claimed that at least the general objectives of ethical systems have distinct similarities as, for example, in the prevalence of the precept 'do as you would be done by'. The difference may lie in identifying the appropriate human actions which accord with these general objectives and which are manifested in differences in social and economic structure between societies. Although it may seem a superhuman task, it is possible to imagine that close investigation of these differences might lead to their resolution, in the same way as discovery of new facts and analytical developments are designed to resolve disagreements amongst scientists about cause and effect.

However, it would be a false step to argue that resolution of differences about moral ends and means for achieving them would confer any objective status on the result. We may detect a coherent pattern in human striving to achieve some moral end, but we could only conclude from the 'scientific' study of moral values that this might represent a consensus. However, the goal itself is independent of whether human beings seek to reach it or do not. Agreement about the goal and how to reach it merely represents a situation where the subjective judgments of individuals about moral goals happen to coincide.

Economists, understandably, on the whole have kept clear of philosophical discussion of the nature and status of value judgments. The result has been interesting. Although it has become widely accepted that statements about the 'welfare' of individuals in a community are normative, attempts have been made to confer a special status on particular value judgments, notably those associated with Paretian welfare economics. Thus a form of Paretian welfare economics has been supported (e.g. by Archibald and Hennipman - see Blaug, 1980) because it appears to minimize the normative propositions that need to be made. One 'trick' used by such authors is to argue that we do not need to invoke the assumption of 'consumer sovereignty' as a normative postulate in judging any particular economic arrangements. It is simply assumed that 'self-chosen' preferences are the ones that 'count', and we do not even have to argue that such preferences are translated into choices which reflect the 'real' interests of consumers. With this assumption before us, positive statements can be made about which economic arrangements conform to this preference system. Such is 'positive welfare economics' whereas actually doing something about this, such as invoking government policies to remove tariffs and promote competition, must be based on normative recommendations - such measures 'ought to be instituted'. It is not clear what purpose is served by this process of 'minimization', so long as it is agreed that policy recommendations are clearly labelled as value judgments. It is also entirely a subjective matter what weight is to be put on each component of a 'bundle' of value judgments representing 'good' policy objectives. An attempt to remove some of them from the 'bundle' does nothing to render the 'bundle' more 'value-free'.
Even if 'minimization' of the number of value judgments does nothing to fuse positive and normative economics in a form which would be universally acceptable, to economists at least, the view that Paretian postulates about welfare have some 'special' status is still widespread in writing on welfare economics. Thus it is claimed that the three basic postulates of Paretian welfare economics -consumer sovereignty, individualism of social choice and unanimity - are self-evidently 'common sense' and are (ought to be?) widely accepted amongst economists. What needs to be noted here is that economists who take this line can easily fall into the trap of confusing consensus with objectivity. As Blaug argues, uncontroversial value judgments are value judgments nevertheless (Blaug, 1980).