The discipline of Adam Smith

By running up all the different virtues too to this one species of propriety, Epicurus indulged in a propensity which is natural to all men, but which philosophers in particular are apt to cultivate with a peculiar fondness, as the great means of displaying their ingenuity, the propensity to account for all appearances from as few principles as possible.

–Adam Smith, The Theory of Moral Sentiments

I quite like the quote, which found itself embedded in a discussion of Adam Smith’s beliefs about the role of self-interest in an economy. The meta-context is a slim book by Amartya Sen, On Ethics and Economics, which strives to lay a case for a closer union of modern ethics and economics, for the mutual benefit of the two disciplines. The basic idea is that ethical considerations are both an input and an output of economic systems — so the reduction of welfare economics (the branch of economics which studies well-being) to an emaciated subfield at the periphery of modern economics leaves the discipline with a big blind spot. Ethics, Sen argues, is an input to economics because ethical considerations actually figure into how people think and behave. It is an output of economics because, naturally, economic outcomes can be put into a relation with measures of well-being (and further, Sen maintains that the main tool of welfare economics, Pareto optimality, is an insufficient measure), as some outcomes must be better than others.

At the 2/3 mile marker now, I am having a mixed reaction to the Nobel laureate’s comments. According to its preamble, the book is more-or-less a written version of remarks delivered by Sen at the University of California–Berkeley in 1986 at the invitation of the Philosophy and Economics departments. I’ll begin my analysis with an example: while the discussion of objections to utilitarianism is interesting, Sen hardly makes the case to philosophers that economic models are the answer to those objections. That is, the discussion of ethics stands on its own, so the half of the thesis which suggests that ethicists ought to pay notice to economists is not really defended.

Sen makes more of an effort to convince economists that they need to put fresh focus toward the problem of incorporating ethics into economics, but one still feels that this too is poorly defended. For one, probably the majority of modern economists don’t purport to be delving into the deep philosophical questions of political economy, but rather tinkering with descriptive models of markets, etc. The success of these models is limited by (at least) two factors: the resemblance of the model to real world behaviors and environments, and the tractability of the math. Usually there is a trade-off between these conditions: the richer the description of behaviors and environments, the more awful the math. The canonical models of modern economics and finance, e.g. Diamond-Dyvbig, Diamond-Mortensen-Pissarides, as representative examples of the vast majority of models, are successful because they offer rich insights into how actual economic systems work, subject to the constraints of mathematical solution. As I see it, Sen is pushing for modern economics to incorporate ethics to a greater degree — which is fair — but he doesn’t indicate how to overcome the mathematical limitations which would arise from such an approach. (At one point, Sen argues that it is philosophically acceptable for a person to prefer A to B but also to prefer B to A. This is already marginal from a philosophical standpoint, but mathematically it is absurd.)

Just one example of the mathematical tractability of his approach would go a long way toward solidifying his credibility with economists, so the hitherto lack thereof is puzzling… either it can’t be done, or we have reached the constraining limits of technicality when addressing a dual audience of philosophers and economists (i.e. the former don’t want to see any spaces, functions, or proofs). There are a lot of loose ends at this point, so if I had faith in the author (good novels, like the one I just read by Yashar Kemal, often have a way of establishing that faith, but that takes the scope of this post way too far), the final third of the book would be rife with expectant suspense. As it is, we’ll see.

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