The Ethical Side in the Study of Economics

Economics, as it has emerged, can be made more productive by paying greater and more explicit attention to the ethical considerations that shape human behaviour and judgement.

– Amartya Sen

The neoclassical theory of Economics with its celebrated assumption of individual rationality has occupied a big share of our economic thought process and understanding. Starting from the utility analysis of consumer behaviour till the efficiency condition and much more, the neoclassical theory has focused on the positive aspect of economic science. Whether economics is free from ethical consideration and value judgements is an important question to be asked at this point. Mainstream economics has extensively quantified economic analysis,, including utility derived from consumption. As the shift took place from cardinal to ordinal utility analysis, the quantification changed from ‘utils’ to ‘preference’. Also, the Pareto Optimality condition further initiated a turning process. Given this background, it is quite imperative to state that apart from the purely engineering perspective, there is a philosophical understanding of the discipline. Also, beyond these two broad realms of economic theory, there is the need for a pluralistic approach along with the mainstream economic theory so as to make the prediction and understanding of economic phenomenon more real and adaptive.

Literature points out two features of economic theory for the ethical criticism of the discipline. One feature focuses on the optimizing behaviour of the individual. This economic theory gives a great deal of attention to the utility maximizing behaviour of the individuals. Assuming the individuals to be perfectly rational with complete information and foresight, economists follow the idea that individuals choose the option that best serve their capacity. The second feature of economic theory is the Pareto Optimality criteria where optimal point is the point of possible improvement in the state of an individual without making other persons worse off. Critiques of the Neoclassical school of thought hold these assumptions as the prime cause of categorizing economics as a totalitarian, highly mechanistic and cold science.

However, the extensive application and modelling of phenomenon in other social science disciplines have earmarked another name for the subject as a ‘predatory’ science. Personally agreeing to the above stated validations, economics as a subject must focus on an interdisciplinary approach while providing sufficient weightage for quantifying concepts as well. Thus, thinking in these lines provides a clear indication for the moral and philosophical side of economics. Neoclassical economists are widely critiqued for the unethical approach towards economics because of exclusion. With disciplines like behavioural economics, economics of gender, law, religion, crime and climate change gaining popularity, the modelling of the economic phenomenon in above areas without ethical or value consideration may lead to falsification or unreliable forecasting or explanation of the problem in the question.

The relationship between ethics and economics can be analysed under three areas of thought:

The philosophical understanding of economics

New Welfare Economics relies heavily on the Pareto Optimality conditions. The Pareto Optimality criteria largely denies the inter-personal comparison of utility aspect. Moreover, the concept of social improvement suggested by Pareto doesn’t seem to be easily acceptable. Non-Economists and scholars are disregarded the complete acceptance of Pareto Optimal condition. Buchanan is one among the scholars who have a given a capsule level understanding of the philosophical side of economics. He has focused on the idea of achieving the requirement of social justice. According to him, economics assessment is largely efficiency when based on theorems like Arrow’s Impossibility theorem and Pareto Efficiency Criteria dominating the analysis of market condition. As against the engineering aspect of efficiency analysis, he stressed how well moral evaluation of market helps in understanding the concepts of market failure and externalities so as to achieve social justice.

Since the Pareto Optimal condition falls in best resemblance to a common sense study of economic reality, it cannot be considered as the best substitute for utility theories. Also, the idea of achieving social improvement that is mutually advantageous comes without pushing anyone to a disadvantageous position. The efficiency side of market structure also has non-efficient background of improvement possible, which might not be acceptable for welfare economists. George D. Brower notes that the concept of equity and social improvements are non-efficient criterion of improvement and measuring the societal welfare purely on the lines of advantage and disadvantage concept may be misleading. The redistribution of land comes at the cost of rich and wealthy landlords. But even then this adds to the larger societal welfare because the welfare of rich class cannot be completed in a scenario of inequality and poverty operating around them. The enjoyment of individual welfare has a close connection with societal welfare.

Buchanan suggests market socialism as an alternative to market capitalism. Market socialism encrypts a number of models like goods and consumer models and production models where the democratic worker controls the means of production. Here, we can see Buchanan taking position in close alignment to that of Karl Marx. The ownership of means of production and resources were always an argument in economics. The assumption of subsistence wages of labourers and surplus of product to the producers, the choice theory, standard of living of labourers and exploitation as social injustice are all pertinent within ethical criticism.

The sociological and inter-disciplinary approach

The sociological underpinning of economics is laid by Etzioni in his work ‘The Moral Dimension: Toward a New Economics’. Etzioni holds the view of using sociological insights in better understanding of economics. Over the years, economics has enhanced its knowledge base to subjects of pure sociological interest like family, crime and religion etc. When Etzioni holds the view of sociological idea of economics, the social institutions and its value aspect also comes into picture. Thus, when economists neglect the ethical issues addressed by philosophers, it also undermines the group issues invoked by sociologists.

Economic analysis

Amartya Sen has taken a sensible approach to the understanding of ethics and economics. While Buchanan and Etzioni held the view of an in-depth criticism of the neoclassical and engineering facets of economics, Amartya Sen conceptualized how the relevance of dialogue between both the aspects of ethics and sociological points be successfully incorporated into engineering side of economics. Going in agreement with Amartya Sen’s idea of a blend of economics and ethics, the subject matter can be concluded as below.

Economics as a discipline of positive science has actually failed to address some of the real life economic problems. What the positive economists thought of achieving in the long run failed miserably because of the unrealistic assumptions. Moreover, while dealing with human beings, a complete rational assumption will be highly undesirable as they are not entirely bounded by rationality. Also, policy making and welfare programs without ethical considerations may not be able to achieve the long term goal of social improvement. But a complete criticism of positive and neoclassical economics cannot be entertained as the engineering side of the subject is quite required in the technical aspect of a firm or country. The ethical perspective is required for achieving greater social justice. An inter-disciplinary approach is desirable to make the subject itself efficient in approach.

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