Economics as Moral Philosophy

Among the many dimensions I have listed in “New Directions in Macroeconomics”, the most important is the moral dimension. If we take Adam Smith as the founder, economics was born as a branch of moral philosophy. However, modern economists claim that the subject is purely positive and scientific, and makes no value judgments. Before we can discuss moral dimensions of economic theories, we must counter this claim, and establish that, contrary to claims made by economists, the subject is deeply and inherently normative. The level of cognitive dissonance required to maintain that economics is objective and value free is much greater than that required to maintain that the earth is flat. How apparently rational and sane people can hold such a stance is in itself a puzzle. I have attempted to provide an explanation of this puzzle in Section 2 of “Islam’s Gift: An Economy of Spiritual Development”.

Because economists deny their existence, it is necessary to unearth and expose the norms at the foundations of modern economics, in order to create the room for rational discussion of alternatives. In “The Normative Foundations of Scarcity”, I have displayed three major normative assumptions, all of which are required to make scarcity the foundation of economics. A book length examination of the topic by Hausman and MacPherson on “Economic Analysis, Moral Philosophy, and Public Policy” comes to the conclusion that morals are so deeply embedded in economic theories that economists must learn to become moral philosophers. One obviously normative concept is the idea that “rational” behavior consists of the attempt to maximize pleasure obtained from consumption of goods and services. My post on “The Coca-Cola Theory of Happiness” explains the inherent fallacy of this concept. The discovery of Easterlin’s Paradox in the 70’s, that massive increases in consumption of goods and services have not led to increased happiness, led to a much deeper study of sources of human welfare. These studies lead us back to the ancient wisdom that long-run happiness depends on good social relationships and cultivation of certain good character traits, not on consumption of goods and services. In “Secrets of Happiness”, I summarize some of these developments.

How can a poisonous moral philosophy masquerade as an objective science, and achieve hegemonic status, displacing all alternatives? This is due to the enormous and increasing inequality, which allows a tiny minority to control the discourse, and shape knowledge imparted to students in universities all over the globe. Maintenance of power by a small minority requires the willing consent of the vast majority. This consent is manufactured by the spread of false theories which justify the economic system and paint it as just, fair, and efficient (see ET1%:Blindfolds Created by Economics). One of the key tasks of modern economics is to justify the highly inequitable distribution of wealth produced by capitalism. This is done via the argument that wages are the marginal product of labor and interest is the marginal product of capital. That is, both factors of production get what they deserve, according to their productivity. There are many ways to counter this argument. A very simple counter comes from noting that this can only hold for a Cobb-Douglass type production function. In a constant proportion production function, both factors jointly produce the output. Thus the entire output is the marginal product of both factors, who cannot both get the full value of the product. For a more detailed discussion of the flaws in the economic theory arguments justifying the exploitation of labor and the wealth of the capitalists, see Chapter 8 of the Hill and Myat Economics Anti-Textbook. For a broader critique on multiple dimensions, see “Economics for the 21st Century”.

It is not enough to critique the hidden moral foundations of modern economics. We must find alternatives. Noting the power/knowledge duality of Foucault, an attempt to modify the moral foundations of economics is a direct assault on the wealth and power of the ruling elites, metaphorically known as the 1%. In my estimation, this task is well-nigh impossible in the heartland of capitalism, where the 1% has a stranglehold on education. See my paper on “Challenging the Current Economics Curriculum: Creating Challengers and Change” for some of the obstacles to a revolution. The anti-social philosophies of individualism, freedom, hedonism, greed, competition have taken a deep hold on the populace. Thus, the solidarity, social networking, and sacrifice of personal gains for social goals required for collective action seems almost impossible to achieve. To create this, one needs to find some basis for working together. This is why “Christian” economics is not a viable option — it would not command sufficient consensus in the West to create a basis for collective action. Secular humanism is basically a live and let live philosophy which encourage us all to seek personal pleasure and not create constraints on others pursuits of their pleasures. At least to me, an outsider, this does not seem to provide a basis for collective action to create alternative moral foundations for economic theory. The repeated failure of excellent alternatives to orthodoxy, and the current dismal status of heterodoxy in the West, leads me to the conclusion that an internal revolution within the heartlands is impossible. These brief comments require further elaboration, which I plan to make in a subsequent post.

In my view, even though the bottom 90% in the West is equally oppressed by capitalism, the only possibility for a revolution lies in the East. The poisonous philosophies of individualism, hedonism, greed and competition, are spreading throughout the world (for my personal view of evolving portrayals of love from Hollywood, see “Shut Up and Deal”). Nonetheless, enough survives of traditional social norms, cultures, and philosophies based on generosity, cooperation, social responsibility in the East, that it appears possible to build a counter-movement to capitalism. Any proposed alternative moral foundation must command sufficient consensus to provide foundations for a revolution. This provides the context for my efforts to launch a revolution on the basis of moral foundations provided by Islamic teachings, which would command widespread consensus within the Islamic world. Most of the moral teachings, like the Golden Rule, are widely accepted by most human beings. This leads to a possibility of creating a moral framework which is in accordance with Islamic teachings, but would be generally acceptable to a much broader audience. Choice between these two alternatives for creating a moral foundation is a political act. One must balance the gain in terms of a larger audience, against the loss in terms of appeal to Muslims by dilution of the message. My own judgment is that constructing an Islamic Economics on purely Islamic moral foundations is an essential first step. We must demonstrate a practical living example of alternative to capitalism, before trying to generalize the lessons to be more inclusive of others. Others, with different judgments may choose different paths to alternative moral foundations for a revolution in economics. A number of different moral philosophies would provide adequate foundations, but all who take this path would do well to examine the fate of Marxist Economics — I hope to provide a deeper discussion of this issue in a later post. A brief introduction to Islamic Economics is given in my interview on the topic: “Islamic Economics”.