Economics as Ethics

I'm going to claim that economic theories include assumptions about what is "best" that are taken for granted and determine subsequent policy recommendations. I'm going to do this is the style of a mathematical proof.

Here are the axioms:
1. Economics' role is to find the best way to allocate resources.
2. The "free market" is the best way for these allocations to occur.

By "free market" I don't necessarily mean one free of all regulation. I mean one that is free to run within the rules set up by society. So a market would be "free" by my definition if, say, monopolies were prohibited. I think extreme free marketeers and libertarians might disagree with this, but they aren't being consistent. I'll give an example. I go to an open air market to buy vegetables with a loaded gun pointed at the vendor. We negotiate a "fair" price. The vendor, rightly, demands protection from intimidation. What he is demanding are rules. Every human interaction has rules, some are just so common they aren't noticed.

OK, so we have our axioms, now I'm going to add an initial condition.

3. The commodities being traded are in short supply.

These are so short that there isn't enough to go around. Those who don't get an adequate amount will die. This is not a far fetched situation, it exists presently in many refugee camps and also in areas of famine. Loss of land and water through environmental degradation is also leading to cases where there isn't enough to go around.

So what is the economic answer to the problem. Notice that because of axiom 1 there is supposed to be a "best" way. So whatever solution is proposed must include an ethical component. Frequently one hears things like "women and children first" when on a sinking ship. But in the case of resource depletion maybe it should be healthy men who can farm most efficiently would be the best choice since they could extract the most production out of whatever resources remained.

Now in the situations that economists like to talk about there are always escape hatches. One of the favorites is substitutability. If there isn't enough rice then buy wheat. If there is too little of something then the price will rise and consumption will moderate. Even if the situation is not as dire as the one I used as an illustration, the implication is still the same, the choice of what to do includes an ethical component. If rice is the preferred food stuff, and there isn't enough, then the poor will have to buy the less preferred substitute. Why should this be? Why not arrange it so that everyone gets a similar fraction of the rice and the wheat? In both cases the outcome is the same at the macro level, but not at the individual level.

My conclusion:

Economics is not an objective discipline but uses unstated ethical preferences to determine the suggested course of action.

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Copyright © 2007 Robert D Feinman
Feel free to use the ideas, but the words are mine.