Saturday, August 8, 2020

Economics as a Moral Science

Kenneth Boulding's presidential address at the 81st meeting of the American Economic Association on December 29, 1968.

The article is here https://www.jstor.org/stable/1811088?seq=2#metadata_info_tab_contents, I've picked out a couple of topics that Boulding commented on. Examples of core, today virtually unquestioned, components of the economics curriculum.

The indifference curve

One of the most peculiar illusions of economists is a doctrine that might be called the Immaculate Conception of the Indifference Curve, that is, that tastes are simply given, and that we cannot inquire into the process by which they are formed. This doctrine is literally "for the birds," whose tastes are largely created for them by their genetic structures, and can therefore be treated as a constant in the dynamics of bird societies. In human society, however, the genetic component of tastes is very small indeed ... It was, incidentally, Veblen's principal, and still largely unrecognized, contribution to formal economic theory, to point out that we cannot assume that tastes are given in any dynamic theory, in the sense that in dynamics we cannot afford to neglect the processes by which cultures are created and by which preferences are learned.

The Heisenberg principle

The learning process of science is now running into two serious difficulties. The first might be called the generalized Heisenberg principle. When we are trying to obtain knowledge about a system by changing its inputs and outputs of information, these inputs and outputs will change the system itself, and under some circumstances they may change it radically. My favorite illustration of the Heisenberg principle is that of a man who inquires through the door of the bedroom where his friend is sick, "How are you?" whereupon the friend replies "Fine," and the effort kills him. In the social sciences of course the generalized Heisenberg principle dominates because knowledge of the social sciences is an essential part of the social system itself, hence objectivity in the sense of investigating a world which is unchanged by the investigation of it is an absurdity. 
The second difficulty is that as science develops it no longer merely investigates the world; it creates the world which it is investigating.

The definition of economics

Economics specializes in the study of that part of the total social system which is organized through exchange and which deals with exchangeables. This to my mind is a better definition of economics than those which define it as relating to scarcity or allocation, for the allocation of scarce resources is a universal problem which applies to political decisions and political structures through coercion, threat, and even to love and community, just as it does to exchange. I have elsewhere distinguished three groups of social organizers which I have called the threat system, the exchange system, and the integrative system. Economics clearly occupies the middle one of these three."

Pareto efficiency

Welfare economics attempts to ask the question "What do we mean when we say that one state of a social system is better than another in strictly economic terms?" The most celebrated answer given is the Paretian optimum ... State A is superior to State B if one or more persons prefer A and if nobody prefers B ... Many, if not most, economists accept the Paretian optimum as almost self-evident. Nevertheless, it rests on an extremely shaky foundation of ethical propositions ... it implies that there is no malevolence anywhere in the system. It implies, likewise, that there is no benevolence ... It assumes selfishness, that is, the independence of individual preference functions, such that it makes no difference to me whether I perceive you as either better off or worse off. Anything less descriptive of the human condition could hardly be imagined."

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