By Jonathan Newman
“Additional units of a homogeneous good must go toward less important ends.” Is this an ethical claim? Does it fall under political science? Or is it an economic law?
According to Robert Reich, economics, properly considered, is in a mush with politics and morality. He has started a new ten-week series debunking economic myths, and the first one is “Economics is Objective.” I wouldn’t say he is off to a good start.
Reich asserts that economics ought to be all about one question: “What sort of society do we want?” He says that economics used to be called “political economy” back in the nineteenth century and that Adam Smith referred to himself as a moral philosopher. These two tidbits are the only substance of his video, which is less than three minutes long.
He lists some silly questions like “How much inequality is acceptable?” and “Is it ok for the children of the superwealthy to inherit so much wealth that they never have to work a day in their lives?” and then a cartoon animation declares the myth debunked.
It will be tough to debunk his debunking due to the lack of any coherent argument for his assertion. Perhaps we can construct an argument for him. If he really wanted to contend that economics is inseparable from politics and ethics, he could have made the case that some of the underlying assumptions in economics are value-laden, or that legal institutions like private property often form the basis for markets to exist in the first place.
Indeed, eminent Austrian economists have made such claims. Ludwig von Mises said, “Private ownership of the means of production is the fundamental institution of the market economy.” Similarly, in Dr. Shawn Ritenour’s textbook, students read the following: “All of the benefits of voluntary exchange can be had only if people have the right to private property.”
But then, a few pages later, students read this:
“It is important to note that the correlation between economic freedom and prosperity does not, by itself, imply that economic freedom is ethically good and morally desirable. . . . Economics, by itself, cannot tell us what is good. It can only tell us that if we do a, then b will result.“
Now we’re getting somewhere. Economics gives us if-then, cause-and-effect statements derived from the starting point of human action. To the extent that we want economic theory to apply to the real world, we must incorporate real-world conditions. In the real world, we trade goods that we control—and this control is very often institutionalized via political, legal, and moral codes and norms that we call “private property.”
This doesn’t detract from the objectivity of economics as a science. A physicist may incorporate earth’s gravitational pull and the density of air to explain airplane lift, and this does not detract from the objectivity of physics. These conditions are brought into the scientist’s analysis not only to apply the relevant physical laws but also to explain the phenomenon in question.
For example, we do not apply the laws of supply and demand to Robinson Crusoe. Crusoe does not supply or demand because he does not exchange with other people. We can, however, say all sorts of things about Crusoe’s opportunity costs, his time preference, and his structure of production because these elements of economic theory do not require other people. In fact, thought experiments involving Crusoe are especially helpful in explaining these concepts because they help us isolate necessarily true cause-and-effect statements without other people in the mix, confounding the analysis.
If economics is not an objective science, then we will be at a loss when we step outside the boundaries of economics and try to make policy prescriptions. If we want to answer Reich’s question “What sort of society do we want?,” then we need to know the causes that will bring about our desired effects.
Reich obviously wants more wealth equality. He likes labor unions and minimum wage legislation because he sees them as an effective way to bring about higher wages for workers. He doesn’t want parents to bequeath wealth to their children without the government taking a big cut and spreading it around.
But to propose such things, he must have some understanding (even if he’s hopelessly wrong) about what causes what. He must have some idea about objective cause and effect before he can suggest certain causes to bring about his desired effects. We might as well respond to Reich by saying, “Yes! Let’s eliminate inequality by requiring every plumber in Montana to eat liverwurst at 6:00 a.m. on Tuesday!”
Reich’s political-ethical-economic mush reveals his dishonest modus operandi. He wants to muddy the waters so that he can pretend he’s doing economic analysis by starting with a socialist utopian dream and working backward to big government redistribution schemes.
- About the author: Dr. Jonathan Newman is a Fellow at the Mises Institute. He earned his PhD at Auburn University while a Research Fellow at the Mises Institute. He was the recipient of the 2021 Gary G. Schlarbaum Award to a Promising Young Scholar for Excellence in Research and Teaching. Previously, he was Associate Professor of Economics and Finance at Bryan College. He has published in the Quarterly Journal of Austrian Economics and in volumes edited by Matthew McCaffrey and Per Bylund. His research focuses on Austrian economics, inflation and business cycles, and the history of economic thought. He has taught courses on Macroeconomics and Quantitative Economics: Uses and Limitations in the Mises Graduate School. He is the author of two children’s books: The Broken Window and Ludwig the Builder. His commentary appears regularly in the Mises Wire and Power & Market.
- Source: This article was published by the Mises Institute
