This post is the third in a series about ethics, theology, and critiques of economic methodology. Each post is a portion of an early draft of a paper that is forthcoming in the Journal of Interdisciplinary Studies. Here is a table of contents for the full series:
- Introduction
- The Separation of Facts and Values
- Rationality, Greed, and Reductionism (this post)
- Normative Rationality and Economic Culture
- A Faithful Practice of Economics
A PDF of an early draft of the full essay is available here.
Many of economists “positive” descriptions of human action are especially difficult for theologians to accept because they make use of a framework that is at odds with a Christian theological anthropology. Most economic descriptions of human behavior rest on the belief that people will respond in a predictable fashion to changes in material incentives. This model assumes that people work to best satisfy their preferences about the world subject to material or temporal constraints. “Rationality,” in this view, just means that people make choices that are consistent with a stable set of preferences about the world, so that as their opportunities and constraints change, their behavior will respond predictably. In most cases, economists use this not as an exhaustive description of human anthropology, but as a standard thought experiment. We examine the kinds of incentives created by a policy or institution by formally modeling the behavior of this type of representative agent.
While this vision of the world draws much of its language from the utilitarian ethical tradition, as already discussed, economists are keen to separate the description of rational human action from any endorsement of particular choices. Economists believe this kind of basic framework is a useful tool for predicting and understanding human behavior, even if the motives and/or choices are bad ones. Moreover, rational choice models have proven indispensable for understanding the kind of commercial activity that is at the heart of economics. This descriptive success raises a broad set of questions. Is it reasonable to believe that people actually behave as rational utility maximizers? Is this kind of behavior good or bad? Is it natural or unnatural?
The first economists to think this way likely imagined such behavior to be natural. Adam Smith, David Ricardo, Robert Malthus, and John Stuart Mill imagined that they were investigating the kind of natural laws of commerce that would constitute an objective scientific account of human behavior. While these early thinkers did not separate ethics from economic thinking like their successors, they do set the stage for that move. Smith and Ricardo provide the logic of a market system in which many individuals behave according to local information and interests, and Mill sought to examine such a system by hypothesizing a simplified rational utilitarian representative agent. In this framework, then, the operation of markets is a natural, almost organic phenomenon, while the laws and policies that limit such activity are “unnatural” interventions that “distort” economic choices. While economists rarely use the term “natural” in any strong sense, this basic worldview remains common in the discipline. In this vein of thought, some economists are willing to point to the basic workings of markets as an example of divine providence (Claar, 2012; Lunn & Klay, 2012).
Critiques of this paradigm are common. Some recent theological critiques have, in particular, argued that the utility-maximizing agent commonly employed in economics is problematic for two reasons: first, it creates a virtue out of avarice, and second, it overly reduces human decision-making.
Self Interest and Greed
Many have observed that the rational agent that economists employ in our models seems to be a personification of greed (Bell, 2012, pp. 94–103). If greed is an excessive desire for wealth, then this observation is partially correct. Hirschfeld (2014) notes that the standard economic agents appear to exemplify greed because we employ a methodological individualism in which agents are usually assumed to have simple material interests without the possibility of satiation. It is, at minimum, difficult to distinguish between the utility-maximization usually assumed in economic models and greed. The kind of distinctions we would need to make to tell the difference between a virtuous or prudent self-interest and a vicious greed are all missing. Altruism, for example, is perfectly consistent within economic modeling, but is rarely included in economic theory. Similarly, since preferences are subjective, no distinctions are made between needs and wants, or between fundamental interests and luxuries.
In fact, the accusation that economic modeling promotes greed is actually too narrow. All vices and virtues are lost on economic agents, except possibly a bleak version of prudence. Economists make no distinctions between good and bad desires, and we rarely claim to know what actually motivates human actions. This inability to differentiate between good and evil, unfortunately, means that our conceptions of progress and efficiency, similarly, treat all human desires equally and thus make prudence and greed formally equivalent. For this reason, when Husbands (2012) challenged economists to make room for the kind of radical self-giving love called for in the New Testament the response was, likely, a kind of chastened confusion.
Formalism and Reductionism
Because we economists don’t use our models to describe what humans ought to do, distinctions between greed and charity seem unnecessary. Economists see no problem with modeling human behavior in this amoral manner while also believing that life would improve if human behavior was modeled after Christ. In fact, economists, in their professional life, never get to imagine Christ-like behavior. Because rational human action is considered natural, human behavior is, as a whole, accepted as a given. As economists, we pursue progress not in terms of individual virtue, but by altering those parts of the system which can steer self-interested actions toward the goals that we seek.
Some social scientists have criticized this narrow economic anthropology as “reductionist.” Compared to other social sciences, economists have a very limited set of explanations to make use of when describing human action. Recent advances in “behavioral economics,” integrate some psychological insights into some “non-rational” behavioral patterns, but even here “rational” behavior is used as a comparative standard, and moral language is left out of the conversation. If humans are actually social creatures, inescapably moral, and motivated by non-utilitarian concerns, it might seem obvious that we should incorporate all these insights into our economic models (Halteman & Noell, 2012, Chapters 7–9).
It is important to note, however, that the methodological formalism of economics does not require an excessive reductionism. Modern economic relations are complex, leaving comprehensive explanations of economic behavior impossible. Economists simplify the kinds of human choices and motivations considered in order to pursue mathematical precision where it is warranted. The result is that economists can make arguments about risk and insurance, inflation, and the impact of a minimum wage policy that would be impossible without formal mathematical treatment of the question and careful statistical analysis. These methods of investigation are helpful and good.
The reduced scope of economic explanation means that most of the questions that are interesting to theologians are not part of modern economics. We do not ask questions about virtue or vice. We do not make distinctions between consumption that enhances dignity and consumption that corrupts. Economists are not well-equipped to evaluate the kinds of human relations that make up a system. This does not mean that these questions are not important, but it does mean that economics is not well-equipped, currently, to draw certain types of conclusions. The charge of excessive reductionism, then, is only warranted if economics make the leap from their “rational actor” thought experiment to believing that this kind of rational behavior is inevitable or good. Economists rarely make this leap, instead a more likely failing is that we simply ignore non-rational explanations for human action, and ignore these theological questions, because we do not have the vocabulary to talk about them.
References
Bell, D. (2012). The Economy of Desire: Christianity and Capitalism in a Postmodern World. Grand Rapids, MI: Baker Academic.
Claar, V. V. (2012). What I Wish Theologians Understood About Markets and the Economists Who Study Them. Faith & Economics, 60, 32–39.
Halteman, J., & Noell, E. S. (2012). Reckoning with Markets:The Role of Moral Reflection in Economics. Oxford University Press.
Hirschfeld, M. (2014). A Brief Extract from the Keynote Address at the Lumen Christi Conference on “The Human Person, Economics, and Catholic Social Thought.” On the Margin, 1(2). Retrieved from https://www.credo-economists.org/wp-content/uploads/2014/12/OnTheMarginVol1Iss2Fall2014.pdf
Husbands, M. (2012). A Reconsideration of “Fact” and “Value” and the Moral Space within which Theologians and Economists may share Common Objects of Love. Faith & Economics, 60, 24–31.
Lunn, J., & Klay, R. (2012). The Relationship of God’s Providence to Market Economics and Economic Theory. Journal of Markets & Morality, 6(2). Retrieved from https://www.marketsandmorality.com/index.php/mandm/article/view/462