[Morality, Political Economy, and American Constitutionalism • By Timothy P. Roth • Edward Elgar, 2007 • X + 194 pages]
Timothy Roth has in earlier work offered a penetrating criticism of modern welfare economics. In Morality, Political Economy, and American Constitutionalism, he continues and extends this criticism; but he combines this with an unusual thesis. Not only is modern welfare economics wrong, he says: it violates the principles on which the American Republic was established.
The general theme of the book is, then, that both in its public philosophy and in its economics, our republic has strayed far from the Founders' vision. Preoccupation with preference satisfaction … has caused us to ignore, to deny or to forget what the Founders understood. (p. viii)
At first sight, Roth's contention seems impossible. Jefferson, Madison, and the other Founding Fathers, however great their merits, were neither professional philosophers nor economists. How could their ideas be relevant to a technical branch of contemporary economic theory? Despite the initial implausibility of Roth's contention, he makes a strong case for it.
He points out that the Founders stressed, most notably in the Declaration of Independence, that each person has inherent worth:
I [Roth] emphasize for the moment that Jefferson asserted it to be "self-evident, that all Men are created equal," and Madison averred that "the perfect equality of mankind" is "an absolute truth."
Why did the Founders think that this was true? Roth ascribes great importance to the influence of Adam Smith, particularly his notion of the "impartial spectator." Smith emphasized our natural sympathy for other people and our desire to be judged favorably by them. The criterion of morality should be the conduct that would elicit the favorable emotions of an imagined observer who had no particular interests at stake. Roth notes that Smith was widely read by the Founders. Jefferson in correspondence appealed to a principle that recalls the impartial spectator:
In an August 19, 1785 letter to Peter Carr, Jefferson urged that "Whenever you are to do a thing, though it can never be known but to yourself, ask yourself how you would act were all the world looking at you, and act accordingly." (p. 23)
Roth takes his argument one step further. Smith's impartial spectator theory, he thinks, bears a marked similarity to Kant's categorical imperative. This is hardly surprising, he claims, because Kant had read Smith and in his Reflections on Anthropology specifically mentioned the impartial spectator.
Kant's allusion to the impartial spectator is particularly revealing because there are elements of remarkable correspondence between Smith's and Kant's construals … the central point is that, for both Smith and Kant, the cultivation of virtue — of respect for the moral law — requires a two-person perspective. (p. 22)
Roth's argument, I must say, is rather thin. He rightly says that the Founders believed in individual rights, and it is also true that Adam Smith's Wealth of Nations attracted much attention in America. It hardly follows that the Founders adopted Smith's moral theory as the basis of their own views. It does not even follow, from the undoubted parallel between his quotation from Jefferson and the idea of the impartial spectator, that Jefferson was a disciple of Smith: Jefferson had read widely and paraphrased many other writers besides Smith. It would in any case be a leap from Jefferson to the Founders as a whole.
As if this were not enough, it also does not follow from the fact that Kant referred to Smith that their respective moral theories were similar. To appeal to an impartial spectator does not suffice to tell us how the spectator would arrive at his decisions. How does Roth know that the conduct that would earn the spectator's approbation would not be closer to utilitarian than Kantian morality? Utilitarians as well as their opponents have appealed to such a detached observer: a prime instance may be found in R.M. Hare's Moral Thinking (Oxford, 1981).
Roth has anticipated objections to his historical reconstruction.
My point is not that each of the Founders was, necessarily, aware either of Smith's impartial spectator or of Kant's categorical imperative. It is, to use a metaphor familiar to contemporary economists, "as if" they were familiar with both. If this means, as I shall argue below, that the contemporary politics of "wants and needs" and of economic growth and distributive justice found no place in the Founders' thinking, it also means their attention centered on just, in the sense of impartial, procedure. (p. 26)
Roth is in effect saying that the best explanation for the Founders' views is that they rejected utilitarianism in favor of a stress on following strict and impartial rules. His efforts at historical reconstruction need be taken as no more than suggestive.
The American Republic, if Roth is right, was not founded on a utilitarian basis. But should it have been? Roth clearly thinks not, and this leads us to his criticism of utilitarianism and, with it, contemporary welfare economics. He indicts utilitarianism for a familiar reason; it sometimes leads to policies that fail to respect individuals, if doing so is necessary to advance the general welfare:
For John Rawls, at any rate, the utilitarian argument is not persuasive: "The fault of the utilitarian doctrine is that it mistakes impersonality for impartiality." (p. 68, quoting Rawls)
In other words, utilitarianism does not weight moral options from the point of view of a particular person, but this does not guarantee fairness to each person. If one objects that rule utilitarianism eliminates the problem, since rules with the greatest utility will not sacrifice individuals, Roth is ready with his response. Following David Lyons, he contends that rule utilitarianism collapses into act utilitarianism.
So much for utilitarianism; but why must welfare economics accompany it on its downfall? The Pareto criterion precludes changes that make some worse off: is not welfare economics thus immune from the objection against utilitarianism just discussed?
In response, Roth advances a formidable battery of technical objections to welfare economics. True, welfare economics has followed Lionel Robbins and does not use interpersonal comparisons of utility, but this lands it in another problem:
Recall that [Kenneth] Arrow's Possibility Result (1951) establishes that, if interpersonal utility comparisons are ruled out, there is no possible method of aggregating individual rankings of social alternatives that meets five apparently innocuous criteria.… If the interpersonal utility comparison militates against the specification of a social welfare function, the same is true of the impossibility of a Paretian liberal. Roughly stated, the juxtaposition of meddlesome or "nosy" preferences and respect for minimal privacy rights prevents the emergence of any social choice. (pp. 122–23)
I shall leave to readers of the book the problem that Roth finds in specifying another crucial concept of welfare economics, the "efficiency frontier." Further, the theorem of second best of Kevin Lancaster and Richard Lipsey practically destroys all chance of practical application of welfare economics, even if the problems so far canvassed could be solved. Suppose, as would nearly always be the case, that the economy deviates in more than one place from Pareto optimality. A correction of some of these deviations that leaves others untouched need not move the economy toward efficiency: "[T]he point is that social welfare theory cannot, legitimately, be used to justify either 'market interventions' or income redistribution policies." (p. 126)
Roth also finds a deeper philosophical failing at the foundation of welfare economics. It takes people's preferences as if they reflected only self interest: Roth calls this the assumption of the "transcendental autonomous self." In fact, persons live their lives tightly bound up with one another. The Founders of the American Republic, along with Kant, believed that human beings had a moral sense that should guide their choices.
Whatever else is said, the single-equation, strictly personal, intertemporally stable and exogenously determined utility function of social welfare theorists' imagination is ill-suited to accommodate any of these [communal] phenomena. (p. 115)
Modern welfare economics cannot accommodate the moral dimension of choice because it was conceived in sin. It was at its inception dominated by the false doctrines of logical positivism, which reduced ethical judgments to expressions of emotion.
If, following Roth, we reject welfare economics, what should be put in its place as a guide to policy? For him the key is a system of stable rules and institutions: the "constitutional political economy" of his mentor James Buchanan is everywhere apparent. Among the features of this approach are a stress of federalism and opposition to centralized power. Also, policies must be strictly impartial: discriminatory taxation, e.g., is not allowed. "I emphasize … that tax increases targeted at individual companies are patently discriminatory and, pari passu, immoral." (p. 146). The sum and substance of Roth's project, then, is twofold. He offers a Kantian justification for political economy in the style of Buchanan; and he maintains that this view of things is at the root of the American Republic. Readers of a libertarian bent will not be fully satisfied; but Roth's carefully argued book deserves, and rewards, close study.
 See his Equality, Rights, and the Autonomous Self: Toward a Conservative Economics (Elgar, 2004) and my review in The Mises Review Summer 2005; and The Ethics and Economics of Minimalist Government (Elgar, 2002) and my review in The Mises Review Fall 2002.
 For a discussion of Smith's moral theory, see James Otteson, Adam Smith's Marketplace of Life (Cambridge, 2002) and my review in The Mises Review Fall 2004.