Economics and values

The Values of Economics - An Aristotelian Perspective by Irene van Staveren; Eburon Publishers, 2001; pages 242, 18.99.

IN her book The Values of Economics - An Aristotelian Perspective, Irene van Staveren discusses how the values of freedom, justice and care have been kept beyond the pale of modern economics and examines related issues incisively. She won the Gunnar Myrdal Prize for 2000 for her dissertation "Caring for economics - An Aristotelian perspective", from which this book evolved. Staveren is a lecturer in Labour Market Economics of Developing Countries at the Institute of Social Studies at The Hague.

The study of economics in universities is dominated, by a large extent, by the neoclassical or orthodox approach, which rests on axioms about consumer preferences and on the assumption of rationality of consumer behaviour. The actor is constructed as the 'rational economic man' or Homo Economicus. Economics is introduced as a subject that deals with the price system, rational utility maximising individuals who are price takers, their demand curves, the profit maximising firms' supply curves, indifference maps, constrained maximisation behaviour, and the Pareto optimal situation in which no one can be made better off without making someone else worse off, which is learnt by the calculus method, more recently by using set theory. Quotations from the Fable of bees: Or Private Vices and Public Virtues by Bernard Mandeville (1670-1730) and from Adam Smith - regarding each one's maximisation of self-interest leading to maximum social good - are often adverted to.

The concept of Utils though can be argued as being analogous to weight, volume and temperature, its measurement in numbers being nothing but the whim of the author. In this book the author looks at the missing ethical capabilities of the rational economic man and at what has been lost in the evolution of the dominant strand of economics. She conducts an elaborate inquiry into this and offers a reasoned critique. The book encourages students of economics to look beyond the world of axioms, constrained maximisations and optimisations.

The author lays emphasis on the value domains of Freedom, Justice and Care, how closely they are interwoven and how an excess or deficiency in one can result in an inability to feed on one another and how an excess of one can create problems. The preface of the book starts with the passage, "Somewhere along the route of modernisation economics has lost its connection to the most basic characteristics of human behaviour. It has come to disregard human motives, emotions, evaluation and the different forms of interaction through which human actions in economic life provide for themselves and for others. With this neglect the discipline not only lost much of its charm but also became less persuasive."

The author narrates the case of two victims who suffered brain damage in accidents but were later cured. One of them, Phineas Gage, who was 25 years old at the time of the accident in 1848, was a foreman. A 1.10-metre-long iron bar weighing 6 kg pierced his skull from the left cheek, passed through the front of his brain and the top of his head, and landed 30 metres away. After treatment for two months, he was cured, though he lost one eye.

However, Gage's personality underwent a metamorphosis. The polite, precise and committed person became rude, blasphemous, stubborn and capricious. He lost his job, broke up his family and ended up as a vagabond. He was incapable of planning ahead or earning a living, though he had not lost his rational capabilities or his ability to read and talk, remember and process information and to direct his hands to do a task. The author characterises this person as a real- life clone of the rational economic man. The deficiency of the rational economic man is that he interacts with society without being influenced by it and he interacts only through an ideal market in which prices form the only means of communication. He is depicted as having a utility function and his foremost aim is to maximise it.

Values are not ends in themselves. According to the author, commitment, emotional attachment, deliberation and human interaction all express human values, and to some extent all these values are shared and contested among individuals in a society. The problem conceived by the author is how to address the role of such values in economics without, on the one hand, moving too far away from economics into sociology and without, on the other hand, reducing values to axioms that exclude any meaningful rationality, as in the case of neoclassical economics. Neoclassical economics is not value neutral. It takes value freedom for granted. She cites passages from Free to Choose, authored by Milton Friedman, and Rose Friedman, to bring home this point. The commitment to liberty in neoclassical economics is expressed as free individual, free choice and free exchange. The defence of liberty is based on a free exchange that leads to efficient markets.

Justice is described as a natural counter-value to freedom. Excessive pursuit of freedom will have negative consequences for others. For example, a pursuit of profit that results in the exploitation of workers, the unequal distribution of gains from international trade and so on. The author also cites from John Rawls' A Theory of Justice (1971). Can the poor suffer for the cause of a Pareto superior utility gain, the aggregate of which may benefit only or mainly the rich? Thus free exchange will not occur without a substantive form of justice.

CARE is another value that the author says modern economists excluded from the sphere of the subject. "Species activity that includes everything that we do to maintain, continue and repair our world so that we can live in that as well as possible" (Joan Tronto, 1993). In economics the relevance of caring commitments were recognised by Amartya Sen (1981), Jon Elser (1983) and Robert Frank (1988). Feminist economists have also made contributions on caring labour.

The author cites an interesting example of Sen's illustration of Ali, an immigrant shopkeeper in London who has a friend called Dona. Dona gets information about some racists planning to attack Ali and does not know how to warn him. Complaining to the police is not of any use as they dismiss Dona's story as a product of paranoid fantasy. Dona knows that Ali keeps Charles, a business contact informed about his movements. The only way she can warn Ali is by breaking into Charles' room and leaving a message about the planned attack. Under utilitarian thinking and justice reasoning there is no reason for breaking into Charles' room. Charles is a self-centered egoist, who will be more disturbed by his room being broken into than by Ali getting beaten up. From a justice perspective, there is no justification as Ali's life is not in danger, only his health and dignity. From a utilitarian perspective Charles' utility will decrease and Ali's further utility loss as a consequence of the bashing will be less than the utility gains by ten racist attackers. Does the very idea appear preposterous? If so, you value care as an end in itself. Sen encourages Dona to follow her "deeply held and resilient conviction that she must save Ali". Care is one's responsibility toward the community that one feels part of. Without responsibility, negative external effects will rapidly restrain the economic process, says the author.

Staveren says that Adam Smith's contribution to the domain of justice and care has been undervalued. Smith, widely known as the author of Wealth of Nations, had also authored The Moral Sentiments. He recognised the two objects of the economy: "first to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for public services" (Adam Smith, 1776, Book IV; Introduction: 428).

Smith also recognised the role of the care economy at home in moulding the labour force of the future. He recognised that labour, like capital, is a produced factor. His writing quoted below evidences Smith's contribution to the domain of justice: "No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged." (Smith 1776, Book I. VIII: 96).

The author examines the views of John Stuart Mill, Plato and Karl Marx in his writing. Margaret Reid's pioneering contribution to home economics is also discussed. The idea of care economy was developed from the experiences of women, their role as consumers and as unpaid labour at home. Her idea of a 'fair market' from a consumers' point of view has been dealt with by the author in Consumers and Market (1942). Another researcher on the home economy of care introduced by the author is Charlotte Perkins Gilman who wrote her books at the end of the 19th century and the beginning of the 20th century - The Home (1903) and Women and Economics (1899).

Gilman argued that the unpaid care labour of women at home is not compensated for by the income earned by their husbands. She described care as a basic human sphere and considers the valuing of the sympathy and care of a mother in market terms as unthinkable. Staveren considers this view more realistic than Pigou's famous statement that gross domestic product (GDP) decreases when a man marries his housekeeper. To generate a hypotheses on the behaviour of economic actors and each value domain, the author employed unconventional research methods - at least in economics, field surveys and focus groups. She also discusses the extended utility function espoused by Garry Becker and McCloskey's methods for a via media between individual and social approach.

The values of freedom, justice and care cannot be aggregated into one value, as they are incommensurable. They cannot be made to occupy a hierarchy of importance. They cannot be subordinated to utility. Staveren hopes that the outline of the empirical framework can guide further theoretical enquiry into care and other values in economics.

In dealing with care economics she deals with the issue of privatisation of health-care. For more than a decade or so, hard-boiled votaries of privatisation and some half-boiled experts have considered privatisation a magic wand that can exorcise the ghost of inefficiency that they attribute to the public sector. The importance of cost recovery fees, including in health care, is insisted upon in revival packages. In the health sector, privatisation results in making healthcare more expensive and this can in turn result in a lower demand for privatised healthcare. This case of a downward sloping demand curve can hardly be found objectionable by neoclassicals. This reduced demand will cause an increase in malnutrition and health problems, particularly for women and children. This has the effect of undermining the productivity of future generations in the labour market.

Cuts in health budgets, which aim to peg fiscal deficit at a fixed per cent of GDP, whatever the cost, and the draining of capable doctors from the public to the private sector, will cause longer waiting lists and queues in clinics. People who cannot afford expensive healthcare need more care at home. This will mean that women have to divert more time to care at home and less to other activities. This is a typical case of the substitution effect described in economics textbooks. The argument of efficiency is actually an argument of false efficiency, causing intergenerational loss of productivity and intragenerational loss of output. This is a classic case of privatisation adversely affecting productivity and output. It is interesting to note how the author uses concepts of traditional economics to show how its conclusion is unworkable. The magician who is recommended for exorcising public sector inefficiency is chased away using his own magic wand.

The author also points out how the oft-criticised 'inefficient state organised distributive measures' have in fact aided the growth of GDP in newly industrialising South-East Asian countries. Studies by believers of neoclassical paradigms of growth have shown that a fair distribution of income has in fact stimulated GDP growth. (Robert Baro 1991; Nancy Birdstall, David Ross and Richard Sabort 1995; United Nations Development Programme 1995, 1996, 1997; Sen 1998). Other things being equal, economies with lower inequalities at the start of 1960-85 grew faster (Birdstall, Ross and Sabort 1995; 50).

THE author identifies the domain of values - freedom, justice and care. When one is deficient it cannot adequately perform a role in the economy. "A deficient value domain is not able to feed into the other value domains to diminish the respective deficiencies." Each domain needs a threshold to feed the other. She argues that in the former Union of Soviet Socialist Republics (USSR), the domain of freedom was deficient, which led to substantial inefficiencies in the economy. In post-1990s Russia, the domain of justice is deficient. Likewise, the excess of any one domain is also problematic. Excesses in the domain of justice lead to bureaucratic over-regulation and oppression. Virtue is considered a mean between deficiency and excess. This develops through the rational behaviour of actors in each domain using all their ethical capabilities to further each domain's value, and therefore involves a 'balancing act' between them.

One most likely answer to the criticism of the rational economic man with missing ethical capabilities is that only in theory is the abstraction and ruling out of external influences permissible. The author does not disagree with this but adds, by way of caution, that the abstraction should reflect, although it is abstract in form, real, healthy human behaviour if it intends to explain the economic behaviour of human beings. Kaushik Basu is of the opinion that even though he has criticised conventional economics and positive political economy, he does not mean to detract from the many achievements of modern economics. The discipline's rigour and comprehensiveness have undoubtedly contributed to our understanding of the marketplace. A regrettable consequence is that it has spilled over to domains where we have little reason to be confident. Not only the individual self-interest but institutions also matter (Kaushik Basu, Prelude to Political Economy).

The book gives a good exposure to the basic idea of the value domains of freedom, justice and care and the limitations of looking at economics from the neoclassical point of view. It discusses writers and their ideas, which get little importance in the economics curriculum of the universities today.

V. Surjit and R. Mohan are research scholars at the Centre for Development Studies, Thiruvananthapuram.