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7. Conclusion: Economics and Public Policy

2. Implicit Moralizing: The Failures of Welfare Economics

As we have reiterated, economics cannot by itself establish ethical judgments, and it can and should be developed in a Wertfrei manner. This is true whether we adopt the modern disjunction between fact and value, or whether we adhere to the classical philosophical tradition that there can be a “science of ethics.” For even if there can be, economics may not by itself establish it. Yet economics, especially of the modern “welfare” variety, is filled with implicit moralizing—with unanalyzed ad hoc ethical statements that are either silently or under elaborate camouflage slipped into the deductive system. Elsewhere we have analyzed many of these attempts, e.g., the “old” and the “new” welfare economics.5 Interpersonal utility comparisons, the “compensation principle,” the “social welfare function,” are typical examples. We have also seen the absurdity of the search for criteria of “just” taxation before the justice of taxation itself has been proven. Other instances of illegitimate moralizing are the doctrine that product differentiation harms consumers by raising prices and restricting production (a doctrine based on the false assumptions that consumers do not want these differences, and that cost curves remain the same); the spurious “proof” that, given the total tax bill, the income tax is “better” for consumers than excise taxes;6 and the mythical distinction between “social cost” and “private cost.”

Neither can economists legitimately adopt the popular method of maintaining ethical neutrality while pronouncing on policy, that is, taking not their own but the “community's” values, or those they attribute to the community, and simply advising others how to attain these ends. An ethical judgment is an ethical judgment, no matter who or how many people make it. It does not relieve the economist of the responsibility for having made ethical judgments to plead that he has borrowed them from others. The economist who calls for egalitarian measures because “The people want more equality,” is no longer strictly an economist. He has abandoned ethical neutrality, and he abandons it not a whit more if he calls for equality simply because he wants it so. Value judgments remain only value judgments; they receive no special sanctification by virtue of the number of their adherents. And uncritically adhering to all the prevailing ethical judgments is simply to engage in apologetics for the status quo.7

I do not at all mean to deprecate value judgments; men do and must always make them. But I do say that the injection of value judgments takes us beyond the bounds of economics per se and into another realm—the realm of rational ethics or personal whim, depending on one's philosophic convictions.

The economist, of course, is a technician who explains the consequences of various actions. But he cannot advise a man on the best route to achieve certain ends without committing himself to those ends. An economist hired by a businessman implicitly commits himself to the ethical valuation that increasing that businessman's profits is good (although, as we have seen, the economist's role in business would be negligible on the free market). An economist advising the government on the most efficient way of rapidly influencing the money market is thereby committing himself to the desirability of government manipulation of that market. The economist cannot function as an adviser without committing himself to the desirability of the ends of his clients.

The utilitarian economist tries to escape this policy dilemma by assuming that everyone's ends are really the same—at least ultimately. If everyone's ends are the same, then an economist, by showing that Policy A cannot lead to Goal G, is justified in saying that A is a “bad” policy, since everyone values A in order to achieve G. Thus, if two groups argue over price controls, the utilitarian tends to assume that the proven consequences of maximum price controls—shortages, disruptions, etc.—will make the policy bad from the point of view of the advocates of the legislation. Yet the advocates may favor price controls anyway, for other reasons—love of power, the building of a political machine and its consequent patronage, desire to injure the masses, etc. It is certainly overly sanguine to assume that everyone's ends are the same, and therefore the utilitarian shortcut to policy conclusions is also inadequate.8

  • 5. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” pp. 243 ff.
  • 6. See Richard Goode, “Direct versus Indirect Taxes: Welfare Implications,” Public Finance/Finance Publique (XI, 1, 1956), pp. 95–98; David Walker, “The Direct-Indirect Tax Problem: Fifteen Years of Controversy,” Public Finance/Finance Publique (X, 2, 1955), pp. 153–76.
  • 7. For a critique of “realism” as a ground for status quo apologetics by social scientists, see Clarence E. Philbrook, “ ‘Realism’ in Policy Espousal,” American Economic Review, December, 1953, pp. 846–59.
  • 8. It is probably true, of course, that general knowledge of these consequences of price control would considerably reduce social support for this measure. But this is a politico-psychological, not a praxeological, statement.