Mark D. White and Irene van Staveren (eds) Ethics and Economics:
New Perspectives, Routledge, New York, 2010 ISBN: 978-0-415-55055-0 RRP
This is a significant book, which deserves to be read widely by
economists and others. A central theme in the book, the desirability of
reinstating the entanglement of fact, value and theory that existed
widely before the dominance of the neoclassical school, is particularly
important in a world economy still struggling to cope with the global
The eleven chapters in the book were first published as symposia in
the Review of Political Economy and the Review of Social Economics. Each
symposium is not published separately but articles from each are
presented in themes, beginning with broad methodological issues,
progressing into theory and modelling and finishing with a discussion of
policy issues. Nevertheless the two symposia were not identical in their
aims. The first symposium aimed to contribute to the discussion of
Sen's work, and that of ethics and economics more generally, in two
ways. 'First it shifts the debate from the methodological level to
the level of economic analysis.... Second, it goes beyond utilitarian
means of addressing ethics in economics' (van Staveren 2008:
159-160). All the articles in this symposium reject the now traditional
positive/normative dichotomy in economies, implicitly arguing that this
rejection is the way forward for economics. The editorial introduction
to the book makes this explicit.
The second symposium was more limited in its aims. The editorial
introduction notes that sometimes economists
... use the language of philosophical ethics merely to lend
authority to their own personal feelings about right and wrong, without
exploring the philosophical foundations of these intuitions, much less
admitting this to their readers. The danger here is that readers without
philosophical background themselves will take the author's ethical
presumptions as given. (White 2009: 1)
The symposium then offers a counter example of five articles which
discuss ethics and economics with explicit references to specific
philosophers or schools of philosophy. Thus, the symposium is itself a
positive exercise, an example of the correct way of doing things.
However, presumably White hopes that it will encourage others to avoid
the dangerous habits warned against in the above quotation.
Some of the eleven chapter authors are well known to economists,
notably Deidre McCloskey and Vivian Walsh. Others will be known only to
those specialising in methodology or with interests in moral philosophy.
The eleven authors are diverse in their interests and all are well
qualified to write on their chosen topics. Nevertheless, rather than
devote a paragraph or so to each, this review will comment at greater
length on the chapters which bring out the underlying emphasis on the
entanglement of fact, value and theory. Various others will be mentioned
more briefly when appropriate.
The chapter with the most emphasis on entanglement of fact, value
and theory is that of Vivian Walsh. Indeed the opening section of his
chapter is entitled 'Rationality: entanglement of fact, theory and
value' (p. 86).The title of the chapter itself is 'Freedom
values and Sen: towards a morally enriched classical economic
theory'. Walsh argues that he, Putnam and Sen share a definition of
rationality which implies that the 'treatment of rational choice in
neoclassical economics is in need of serious revision' (p. 87) and
claims that Sen has shown this is just as much the case for social
choice as it is for individual choice. Moreover, Walsh is completely
dismissive of those who claim Adam Smith as the patron saint of self
interest. Walsh claims that central to Sen's achievements is the
demonstration that the reintroduction of ethical concerns and concepts
into economic discourse is 'a reintroduction of something that was
everywhere present in the writings of Adam Smith and that went
hand-in-hand with Smith's technical analysis' (p. 88, italics
in the original).
After the first section on entanglement there is a wide-ranging
discussion of Sen's work. The unifying theme of this is rational
choice theory (RCT) with Walsh discussing how Sen argues for changes in
conventional RCT: changes that are necessary because this theory has
been developed to avoid any explicit ethical content whereas
entanglement is an inevitable part of any worthwhile theory. A large
proportion of this discussion is based on a consideration of material in
Sen (2002) but the discussion goes beyond that in three major areas. One
is Sen's acknowledgement of his debt to John Rawls and his
discussion of issues Rawls' work raises. A second is the somewhat
surprising choice of Sraffa's work to discuss as representative of
logical positivism. Walsh adds an ironic twist to this discussion by
quoting (on p. 114) Signorino (2005) who argued that in his lectures of
1928-31, Sraffa maintained that historically, economic theorems are a
joint product with debates on policy issues, if not sometimes a
by-product of such debates. Finally, more surprising and very
perceptively, Walsh discusses Pasinetti's growth theory as the best
alternative to the sterility of neo-classical growth theory. Quoting
himself, Walsh argues that Pasinetti's growth models are
'inspired by Adam Smith' (Walsh 2003: 372). While it can be
argued that Walsh has a somewhat limited view of Pasinetti's work,
he has certainly grasped an essential part of it, namely, to quote
Pasinetti himself, the introduction of capital goods into
Pasinetti's concept of vertical integration yields 'a series
of relations of the Harrod-Domar type ... [e]ach relation] linking the
sectoral rate of growth, sectoral investment and the sectoral capital
output ratio [with] each relation being specific to each (vertically
integrated) sector' (Pasinetti 2007: 303). Walsh argues that this
is the way forward for Sen, quoting a remark Putnam made to him in 2005
in a phone conversation: 'capability theory needs to be cashed out
by supplementing it with the kind of socially responsible growth theory
provided by Pasinetti' (p. 117).
In her chapter entitled 'Not by P alone: A virtuous economy,
Deidre McCloskey also argues for a substantial revision of neoclassical
rational choice theory: 'segregating the goals or purposes of life
into a ghetto of sheer unanalysed taste, as economists led by Paul
Samuelson have done rigorously since the 1930s, has been a scientific
mistake' (p. 47). McCloskey calls P variables (P for Profane) those
variables prominent in modern economics, e.g. price, profit, property
and prudence. She then contrasts these with S variables (S for Sacred)
or, in traditional Christian terms, faith, hope and love. S variables
can be cultural as well as religious and McCloskey instances tipping
habits 'as an easy-to-observe outcome of a sacred decision'
(p. 50). McCloskey finishes her classification of virtues by introducing
O variables. These are virtues purely secular in origin. Concerns for
justice, the secular parts of love and the self-sacrificing parts of
courage, are given as examples. While McCloskey does not mention this,
perhaps because she thinks it self evident, what are O variables for one
person may be S variables for another. McCloskey does, however, point
out that others besides economists use P-only analysis with a hard
hitting attack on evolutionary biologists and psychologists.
McCloskey's chapter is a pleasure to read, but despite the
attractive rhetoric her conclusion can be baldly summarised. Unlike
Walsh, McCloskey thinks that the neoclassical approach has value and
'has produced a lot of good science, but there is a great deal more
to be had by building into our thinking the virtues of O and S' (p.
62). Or, if one is prepared to think about the implications of a wittier
summary, 'economists want the world to be P only. The world is not
buying' (p. 59).
The chapter following that of McCloskey is entitled 'Virtue
and behaviour'. The author, Jennifer Baker has a very different
approach to the subject to that of McCloskey. The chapter has two aims.
The first is to defend Sen's concept of commitment 'by placing
it in an account of moral psychology (specifically the one on which
traditional virtue ethics is dependent)' (p. 66). This is of course
only one of many ways to explain why commitment occurs, but shows
Sen's claims about the nature of commitment are supported by a
respected tradition in philosophy.
The second, and I would judge the major, aim of the chapter is to
demonstrate that the Stoic version of virtue ethics 'can
accommodate Sen on commitment without requiring the alteration of the
methodological assumptions [of neoclassical RCT]' (p. 67, italics
in the original).This is done by utilising a distinction in Stoic
thought between indifferents, or what McCloskey calls P variables, and
motives based on moral considerations (O and S variables). Baker argues
that a sensible division of labour is for economists to concentrate on
the study of indifferents. 'Let the standards that guide the
development of RCT be those of the field [of economics]' (p. 83).
Ethics is the field concerned with moral issues. When, as is usually the
case, choices concerning indifferents have moral and political
relevance, it should be the ethicists who guide our thought. What is
needed is that 'the ethicists must merely speak up' (p. 84).
It is probably unwise for one who is a professional economist but a
very amateur philosopher to comment on this conclusion. Nevertheless, it
seems to me that Baker denies that there is any need for economists to
be concerned at all with moral issues, contradicting a point central to
Sen's thought. (2) The three articles discussed form a continuum.
Walsh believes entanglement always is necessary, McCloskey believes it
often is necessary and Baker believes it never is necessary. The
continuum covers the whole book. The remaining chapters can be placed
either between Walsh and McCloskey or McCloskey and Baker.
This does not mean that the remaining chapters can be disregarded.
'Communitarism and the market: a paradox' by van Staveren and
'The efficiency of equity' by Klassen are the ones that I
would particularly recommend. However, the remainder of this review is
about the book as a whole, rather than individual chapters. A good place
to start is the importance of the concept of entanglement, which as we
saw is a central theme in the book. In my judgement the neglect of this
concept has not only impoverished economics in general but does it in a
way that was particularly disastrous in the onset of the global
financial crisis and is likely to be equally disastrous as the world
copes with the aftermath of that crisis. (3)
A Special Session of the United Nations was held in 2000 to review
and appraise the implementation of the commitments and program adopted
by the World Summit for Social Development held in 1995 and to
re-invigorate the drive for social development. As part of the
preparation for the meeting, thirty experts from around the world,
including the present writer, were invited to speak at a UN seminar on
how the values underlying social development and those of the market
economy fit together. Although the term entanglement was not used at
that seminar, the concept was. The integration of economic and social
values was considered essential for a healthy society. As one
participant put it 'When the logic of market transactions invades
most spheres of social life, everything becomes a commodity and
ultimately nothing is worthy of respect' (United Nations 2000: 9).
At the seminar I predicted that the lack of regulation in the
global financial system, plus the belief that the market itself was
better able to cure problems as they arose than was any intervention by
Government, was a recipe for a severe crisis in the whole world economy.
This was not a difficult prediction to make. The global financial crisis
that occurred some seven years later had several joint causes, including
excessive greed in the international financial sector, but the low level
of regulation in that sector was important among these causes. The
emphasis on free markets at any cost, which became the mantra of highly
paid participants in the finance sector, was both self-serving and bad
economics. The seminar as a whole agreed with my prediction. Though they
were not debated due to lack of time, a number of recommendations about
international economic institutions were made at the seminar, including
'increasing regulations particularly to hinder deliberately
destabilizing speculation by hedge funds and others ... [and] putting
more of the costs of international financial crises on international
lenders' (United Nations 2000: 14). If these and similar
suggestions are ignored, and the belief that the international financial
sector needs to be subject to no constraints beyond those imposed by the
market again holds sway, the world economy will remain in a perilous
While Baker is an extreme case, other places in the book assume
that, however undesirable it may or may not be, it is possible for
economic analysis to be purely in terms of P variables. This is of
course trivially true in the case of pure theory, though the theory may
also be trivial. But the claim is also made with respect to applied
economics. For example, in a chapter which otherwise has much to commend
it, Klasen claims that 'the empirical case for the relevance of
equity for efficiency can now be made largely staying within the
tradition of positive economics, and does not need to rely on arguments
coming from a normative view point' (p. 229). However, despite the
belief among most economists that it is possible to separate the
positive from the normative this is never possible in applied economics.
(4) In economics, applied work involves an appeal to empirical studies
in some shape or form. Moreover, these empirical studies are not carried
out in carefully controlled conditions in a laboratory. They are facts
thrown up by real world situations and judgement is important in
interpreting the facts. This judgement is usually heavily influenced by
the values of the person making the judgement. A common example is the
desirability of regulation and other forms of government intervention in
an economy. The case for reducing government regulation of, and
intervention in, the economy rests on the empirical judgement that cases
of market failure are uncommon, that is, if left to itself, it is very
unusual for the market not to produce an efficient outcome. Those who
place a high value on political and personal liberty are suspicious of
government intervention and regulation, which they see as reducing
personal liberty. It is perhaps not surprising that such economists
generally make the professional judgement that market failure is rare.
Other economists are more concerned about the costs of the
government not intervening when to do so will be beneficial to the
economy. If there is market failure, the people who suffer are usually
the economically weak, who may well experience very real poverty.
Economists who put a high value on economic security for all, on
preventing anybody falling below a certain level of income, are more
likely to make the professional judgement that market failure is an
important problem in an unregulated capitalist economy. Not all examples
of applied economic studies involve values held so passionately as is
often the case in the above example. Nevertheless, the principle about
the involvement of values remains the same.
One final point about the book is the readership at which it is
aimed. As discussed at the beginning of this review, the two symposia
that comprise the book are somewhat different in their aims, in that the
Review of Social Economy was designed to give examples of discussion of
ethics and economics which avoid the danger of economists using the
language of moral philosophy to claim authority for their own ethical
positions without any indication of the extent to which these positions
are supported by moral philosophers (White 2009). The chapters from this
symposium in the book, those by Baker, Davis, van Staveren, White and
Wight have no other unifying purpose. This diversity is not in itself
undesirable, but it does mean that these chapters are likely to appeal
mainly to those interested in ethics and economics who have a knowledge
of the literature of moral philosophy.
The other symposium does have a unifying theme. This is provided
both by the attention paid to the work of Sen and the emphasis on the
importance of the concept of entanglement. Given Sen's reputation
both as an economist and a philosopher the book chapters from this
symposium are likely to attract a wider readership. Many economists with
no professional interest in philosophy would probably enjoy, and benefit
from, reading large parts of it. It is to be hoped that a large number
will. But the publisher's claim that the book 'provides a
comprehensive introduction to the cutting edge of interdisciplinary
research between ethics and economics' (p. i) does not help. This
statement, combined with an approach in much of the book summed up in
the words that '[t]he chapters in this book involve a rigorous
emphasis on the work of moral philosophers' (p. 2), may
significantly reduce the number who do read at least parts of the book.
This would be unfortunate to say the least.
Nevile J. (1990) Economics and Ideals: Has the Age of Chivalry
Gone?, The University of New England, Armidale.
Pasinetti L. (2007) Keynes and the Cambridge Keynesians, Cambridge
University Press, Cambridge UK.
Robinson J. (1966) 'Comment on Samuelson and Modigliani,
Review of Economic Studies, 33, pp. 307-308.
Sen A. (2002) Rationality and Freedom, Harvard University Press,
Stigletz J. (2010) Freefall: Free Markets and the Sinking of the
Global Economy, Allen Lane, London.
United Nations (2000) Preparatory Committee for the Special Session
of the General Assembly entitled 'World Summit for Social
Development and Beyond, 17 March, A/AC.253/24, Seminar on values and
market economies, Annex.
van Staveren I. (2008) 'Introduction to the special issue on
Ethics and Economics', Review of Political Economy, 20(2), pp.
Walsh V. (2003) 'Sen after Putnam, Review of Political
Economy, 15(3), pp. 315394.
White M. (2009) 'Introduction to economics and ethics',
Review of Social Economy, 67(1), pp. 1-2.
Reviewed by J. W. Nevile
Centre for Applied Economic Research, UNSW
(1.) Page references with no other reference relate to the book
(2.) Joan Robinson (1966) commented on two Nobel-prize-winning
economists After putting the rabbit into the hat in the full view of the
audience, it does not seem necessary to make so much fuss about drawing
it out again' (p. 308). Baker appears to go one better and after
putting the rabbit into the hat claims that actually rabbits do not
exist. Also Joan Robinson, and many others, would argue that the choice
of P variables itself involves normative issues.
(3.) Stiglitz (2010), with the authority of a Nobel-prize-winning
economist, sets out at length the arguments supporting this judgement
and places them in the context of the complex collection of factors
responsible for the global financial crisis. Stiglitz is an American
writing for Americans and to a lesser extent Western Europeans.
Nevertheless, much of the book is relevant to Australia with chapters 1,
3, 8 and 9 particularly important in this respect.
(4.) The rest of this paragraph and all of the following one are
based on material in Nevile (1990).
A more subtle, methodological emphasis of the book deals with the
entanglement of fact, value and theory. Ethics is not outside
economics, in a separate normative realm, but is part and parcel of
it. Contrary to a common belief held by economists, facts and
values are not mutually exclusive categories. (pp. 1-2) (1)