Neoclassical microeconomic models often include the assumption the actors in those models obtain utility only from the consumption of specific manufactured physical goods as well as the assumption their desire to consume those goods is insatiable. Taken together one may fairly describe the assumptions as suggesting the actors in those models behave like greedy, self-obsessed, materialistic, amoral, jerks obsessed with fulfilling their base material desires for the goods in question with no evident concern for higher ethical values or really any higher values of any kind. However, when one sets aside those particular and essentially arbitrarily defined models and instead looks at the rudimentary ethical argument presented in economic theory meant to identify ostensibly optimal social structures, that is, the system of factual postulates, value propositions, and the logic that ties them together to produce a conclusion, there seems to be no such restriction on acceptable sources of utility. For example, under this more general theoretical perspective, if someone freely chooses to follow some course of action A rather than B, revealed preference in conjunction with the de gustibus non est disputandum principle suggests we can infer that person derives more utility from A than B, no matter his or her motivation and in particular no matter if his or her motivation involves ethics, a concern for others, etc. In other words, the ethical or value arguments presented in neoclassical economic theory seem to neither require nor imply people are greedy, materialistic, amoral, jerks.
So what exactly is the status of the greedy jerk assumption in economic theory? Well, clearly in a scientific context we can view it as a non-essential simplifying assumption one can pull out of the bag or put back in the bag depending on how well one’s model is performing on the basis of predicting and explaining human behavior and whether one’s model contains actors with characteristics and behaviors that any other actor in that model might reasonably have ethical beliefs about. In this context, we’re not necessarily saying people are greedy jerks or should be greedy jerks, we’re just saying maybe we can model their behavior to some degree of accuracy by presenting them as acting that way for purposes of our predictive or explanatory model. But what about in terms of the factual postulates, value propositions, and logic of the rudimentary ethical argument meant to establish optimal social arrangements and market structures? Is the greedy jerk assumption necessary in that context? Does the logical argument about how we can maximize total utility across society by setting up certain market structures stop working if we allow that people may derive utility from following ethical principles and other higher level motivations and not just from selfishly interacting with physical goods? Or are we doing something funny with utility that contradicts how we’ve defined utility in economic theory? Does revealed preference not apply in that context? Does the de gustibus non est disputandum principle not apply in that context? Do we really need to get in there and assess people’s motivations before we can determine if they’re really maximizing their own utility when they make consumption decisions? Do we need people to act like that to get to our socially optimal results? If they don’t, should economists play ethical philosopher and try to persuade them to act that way for the good of society? If people just don’t get it or won’t play along and instead insist upon acting ethically should economists support constraining their choices and forcing them to maximize their utility properly so we can get to a socially optimal result? Maybe hold them down and shove pie down their pie holes? And since being or behaving like greedy jerks would seem to preclude holding any particular ethical belief relating to distributions, what are we to make in this case of the famous indifference within economic theory to distributional concerns? We’re saying we’re indifferent to distributional concerns but as a matter of fact no one has any or perhaps as a matter of ethics no one should have any?
I’ve argued before and in print that the rudimentary ethical argument neoclassical economic theory uses to establish ostensibly optimal market arrangements doesn’t really require the assumption that people are greedy, materialistic, amoral, jerks and indeed that assuming it does require that assumption amounts to an error of interpretation that serves to shut down conversation about distributional issues. Indeed, aside from the obvious fact that people do clearly have ethical beliefs and clearly do act upon them, the proposition no one has any ethical beliefs would seem to put economists, with all their talk of maximizing total utility and social optimality and so on, in the awkward position of being the exception to their own rule. Very special people who do in fact have ethical beliefs, ostensibly utilitarian ethical beliefs, and are interested in acting accordingly. If they’re not very special, if they’re the same as everyone else, then they shouldn’t be contemplating social optimality and should be thinking instead about what works out best for themselves in a distributive sense, perhaps how economists can establish a monopoly of everything or pull the wool over people’s eyes or something along those lines. I’ve also argued the ethical proposition that people ought to behave like greedy, materialistic, amoral, jerks is not a logically necessary part of the ethical argument in economic theory about what we need to do to reach a social optimum. At least, if it were, then there could be no sense in which economists or economic theory could be indifferent with respect to distributional issues. We would say be saying that as a matter of ethics no one should have any distributional beliefs, including supporting any particular system of property rights or the existence of markets themselves, and if they do they should stop it right away. So confusing when one tries to do science and ethics at the same time, isn’t it? But the conclusion I think must be that for the purposes of the ethical argument put forward in neoclassical welfare economics about what we need to do to create socially optimal market structures, people acting like greedy, materialistic, amoral, jerks is not a necessary condition.
So what exactly is the status of the greedy jerk assumption in economic theory? Well, clearly in a scientific context we can view it as a non-essential simplifying assumption one can pull out of the bag or put back in the bag depending on how well one’s model is performing on the basis of predicting and explaining human behavior and whether one’s model contains actors with characteristics and behaviors that any other actor in that model might reasonably have ethical beliefs about. In this context, we’re not necessarily saying people are greedy jerks or should be greedy jerks, we’re just saying maybe we can model their behavior to some degree of accuracy by presenting them as acting that way for purposes of our predictive or explanatory model. But what about in terms of the factual postulates, value propositions, and logic of the rudimentary ethical argument meant to establish optimal social arrangements and market structures? Is the greedy jerk assumption necessary in that context? Does the logical argument about how we can maximize total utility across society by setting up certain market structures stop working if we allow that people may derive utility from following ethical principles and other higher level motivations and not just from selfishly interacting with physical goods? Or are we doing something funny with utility that contradicts how we’ve defined utility in economic theory? Does revealed preference not apply in that context? Does the de gustibus non est disputandum principle not apply in that context? Do we really need to get in there and assess people’s motivations before we can determine if they’re really maximizing their own utility when they make consumption decisions? Do we need people to act like that to get to our socially optimal results? If they don’t, should economists play ethical philosopher and try to persuade them to act that way for the good of society? If people just don’t get it or won’t play along and instead insist upon acting ethically should economists support constraining their choices and forcing them to maximize their utility properly so we can get to a socially optimal result? Maybe hold them down and shove pie down their pie holes? And since being or behaving like greedy jerks would seem to preclude holding any particular ethical belief relating to distributions, what are we to make in this case of the famous indifference within economic theory to distributional concerns? We’re saying we’re indifferent to distributional concerns but as a matter of fact no one has any or perhaps as a matter of ethics no one should have any?
I’ve argued before and in print that the rudimentary ethical argument neoclassical economic theory uses to establish ostensibly optimal market arrangements doesn’t really require the assumption that people are greedy, materialistic, amoral, jerks and indeed that assuming it does require that assumption amounts to an error of interpretation that serves to shut down conversation about distributional issues. Indeed, aside from the obvious fact that people do clearly have ethical beliefs and clearly do act upon them, the proposition no one has any ethical beliefs would seem to put economists, with all their talk of maximizing total utility and social optimality and so on, in the awkward position of being the exception to their own rule. Very special people who do in fact have ethical beliefs, ostensibly utilitarian ethical beliefs, and are interested in acting accordingly. If they’re not very special, if they’re the same as everyone else, then they shouldn’t be contemplating social optimality and should be thinking instead about what works out best for themselves in a distributive sense, perhaps how economists can establish a monopoly of everything or pull the wool over people’s eyes or something along those lines. I’ve also argued the ethical proposition that people ought to behave like greedy, materialistic, amoral, jerks is not a logically necessary part of the ethical argument in economic theory about what we need to do to reach a social optimum. At least, if it were, then there could be no sense in which economists or economic theory could be indifferent with respect to distributional issues. We would say be saying that as a matter of ethics no one should have any distributional beliefs, including supporting any particular system of property rights or the existence of markets themselves, and if they do they should stop it right away. So confusing when one tries to do science and ethics at the same time, isn’t it? But the conclusion I think must be that for the purposes of the ethical argument put forward in neoclassical welfare economics about what we need to do to create socially optimal market structures, people acting like greedy, materialistic, amoral, jerks is not a necessary condition.
Addendum
I eventually decided the best way to describe what’s going on here is to think of neoclassical welfare economics as an ethical half-theory in which some relevant normative or ethical issues are purposefully excluded, and to draw a distinction between what I begin calling at some point the Fairy Land of Economic Theory on the one hand and real life on the other, in which those issues cannot be so excluded. The restriction on preferences relating to distributional ethics applies to the subjects of economic theory in the Fairy Land as a precondition to deriving results predicated on Pareto improvements defined with respect to “utility,” which won’t work in the presence of distributional beliefs relation to relative “utility,” but it doesn’t translate to restrictions in real life. Rather, applying an ethical half-theory to real life require exogenous ethical content. Neoclassical welfare economics on its own is inapplicable to real life. For example, see the post on Methodological Individualism from May 19, 2021.
