The Debate on the Science Behind Economic Choices

The choices you face in the ordinary business of your life – buying clothing, deciding what to eat, or seeking a job all involve considerations of cost, scarcity, and tradeoffs with other options – are economic decisions. The Enlightenment of the 18th century opened up the floodgates of new ideas, new thoughts on everything from the way man saw government and his role in society to the way scientific ideas were conceived. During this period one of the major desires of the philosopher was to discover the underlying laws that govern society. David Hume and Adam Smith developed an empiricist doctrine of knowledge believing Newton’s theory of gravity applied to the human sciences. The choices you face in the ordinary business of your life – individual choices conscious or otherwise – fit into a higher order affecting not only those who make them but also their families, communities, countries, and even the world.

Francis Hutchison (1694-1745) was a proponent of moral sense theory, the position that human beings make moral judgements using their sentiments rather than ‘rational’ capacity. According to Hutchison a sense of unity among human beings allows for the possibility of other-oriented actions even though individuals are motivated by self-interest. The moral sense, which is a form of benevolence, elects feelings of approval in those witnessing moral acts. Hutcheson opposed ethical egoism, the notion that individuals ought to be motivated by their own interest ultimately, even when they cooperate with others in a common project. Adam Smith, Hutchison’s most famous student, wrote that moral behavior is, at core, the human capacity of sympathy, the faculty, that in Hume’s account, allows us to approve of others character and “to forget our own interests in or judgements” and to consider those whom ”we meet with in society and conversation” who “are not placed in the same situation, and have not the same interest with ourselves.”1

The Scottish philosophers, David Hume (1711-1776) and Adam Smith (1723-1790) were good friends looking for natural causes of the phenomena that we describe as moral. Their empiricist theories were based on experience and observation. The ‘moral subjects’ that Hume referenced in his book meant the human sciences in general, of which ethics is one branch. According to Hume we must restrict ourselves to what we can observe in the human sciences. In his writings, Smith explored political economy, essentially the laws governing human behavior. In a commercial society he emphasizes that economics is only one component of the human condition. The moral character of a people is the ultimate measure of their humanity. There is a relationship between morality and economics, and some of our actions ought to be motivated by a sense of duty. At the centre of Smith’s writings was the attempt to articulate the laws of human behavior.

Adam Smith believed that human activities were governed by discoverable principles in the same way that Newton argued that motion was explainable through principles. For Smith self-interest and competition are very important economic forces. Self-interest is the motivator of economic activity. Competition is the regulator of economic activity. Smith argued that people have a natural drive to improve their own lives. This self-interest he suggested propels markets to satisfy individual demands by producing the goods and services that people want. He called this the invisible hand – transforming the individual’s pursuit of gain into the general utility of society. He suggested that competition between businesses prevents exploitation of consumers by ensuring fair prices and quality products, encouraging constant economic innovation and satisfying customer demand. In short, competition keeps everyone honest, because consumers treated unfairly by one business can always patronize another instead.

The philosopher Herbert Spencer (1820-1903) was a social Darwinist of the late nineteenth century who used Darwin’s theory of evolution to justify extreme laissez-faire capitalism as natural and right in the sense that free competition ensured the survival of the fittest. Spencer believed that human society reflects the same evolutionary principles as biological organisms do in their development. Spencer’s philosophy provided a foundation for an integrated, scientific approach to individualism. In particular, his emphasis on science caught the attention of anarchists of his day as progress was defined as ‘that form of society in which government will be reduced to the smallest amount possible, and freedom increased to the greatest amount.’ Spencer believed that the rich and the powerful become so because they are better suited to the social and economic culture of the time. In turn, the robber barons embraced his theory as it provided the necessary ‘science’ to support long workdays, low wages and child labour.

During the Great Depression of the 1930s, existing economic theory was unable either to explain the causes of the severe worldwide economic collapse or to provide an adequate public policy solution to jump-start production and employment. British economist John Maynard Keynes (1883-1946) spearheaded a revolution in economic thinking that overturned the then-prevailing idea that free markets would automatically provide full employment. Private sector decisions can sometimes lead to adverse macroeconomic outcomes, such as reduction in consumer spending during a recession. These market failures sometimes call for active policies by the government, such as a fiscal stimulus package. What distinguishes Keynesians from other economists is their belief in activist policies to reduce the amplitude of the business cycle, which they rank among the most important of all economic problems. Therefore, Keynesian economics supports a mixed economy guided mainly by the private sector but partly operated by the government.2

Milton Friedman (1912-2006) advocated letting businesses flourish, since their profits will ultimately trickle down to lower-income individuals and the rest of the economy. The trickle down economic theory was rebranded in the 1970s to an ideology – supply side economics – the doctrine that tax cuts could be had for free (incentive effects would generate new activity hence more revenue) without causing budget deficits. Its creators never believed supply side economics worked – it was an ideology that was created to unite the right. In 1984, Charles Murray published Losing Ground. It was described by the New York Times Review of Books as a “persuasive . . . new variation on social Darwinism.” Its central thesis was that all government welfare programs should be abolished, supposedly because welfare hurt the very people it was intended to help by “rewarding bad behavior” such as “illegitimate babies.” Murray also called for ending food stamp programs. Murray’s work was used as the ‘science’ behind an ideology that supports slashing social programs.3

Postmodernism introduces the attitude of skepticism or distrust towards ideology and various tenets of universalism. Supporters believe knowledge and truth are products of social, historical and political discourses or interpretations, and therefore contextual or socially constructed. Postmodernism is still alive in economic theory – economic truths are socially constructed. Herbert Marcuse notes the working class is no longer the agent of social change. In the system today there is no longer a separation between the rich and the poor. At the centre are the workers who pay taxes for a system of ‘handouts and entitlements’ against the excluded who missed the benefits of 1960s and 1970s. These two fractions of the proletariat redefine the social question. Neoliberal capitalism has enlisted these two fractions of the proletariat into destructive competition against each other. The clash is no longer between labour and the privileged elite rather between a proletariat that pays taxes with an underclass that relies on a system of handouts and entitlements.4

The Enlightenment writers were concerned about the inequality in the existing system and introduced questioning and critical thinking to replace the dead weight of tradition and challenge the blind faith in institutions. The philosophers wanted to understand the rationale behind inequality, were particularly interested if there were natural reasons for it, or if inequality came wholly from social conventions. Once the reality of the consequences of the economic debacle of 2008 set in that pleasant retirement and the promise that one’s children would have more choices and a better life than their parents had been destroyed, many became angry and disillusioned. For the first time in history middle class children will likely end up poorer than their parents. In the second decade of the 21st century the middle class in Canada and the US has been stripped of jobs, income and security. It is about the rise of business power and the decline of labour power (as part of the era of globalization) along with the attacks of the right on the welfare state – with a consequent rapid rise in social, income and health inequalities.

We need to refocus: the symptoms of the Great Depression that Keynes correctly diagnosed are back, though fortunately on a smaller scale: chronic unemployment, deflation, currency wars, and beggar-thy-neighbor economic policies. The treatment includes preventing a deepening recession with a temporary program of increased government spending. Democracy is embraced because the working class, in particular, understands democratic activism to be the most effective tool they have to attack extreme inequality and maintain a check on the power of elites. If citizens only play a passive role then the real politics are shaped in private by interaction between elected governments and economic elites – elites who are not interested in the welfare of the classes beneath them. These choices would include electing candidates identifying policies to end big money’s grip on politics, an issue that lies at the core of the debate on the economy.

1 Adam Smith.

2 John Maynard Keynes

3 The Social Contract of the Neoliberals (23 Jul 2016)

4 Why Co-operation is Necessary. (15 Jan 2017)

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