Ethics and Economics

Author: [India] Sen / Wang Yu / Wang Wenyu
Publisher:
Publish Date: 2001-06-01
Features: This book is based on the manuscript of the Royer Lectures I delivered at the University of California, Berkeley, from April 4 to 6, 1986. I am deeply grateful to the Economics, Philosophy, and Political Science Departments of the university for inviting me to give these lectures. During my visit to Berkeley, I was warmly hosted, and the vibrant academic atmosphere of the campus left a profound impression on me. In the process of preparing this book, I discussed with Jack Letiche, Martha Nussbaum, Derek Parfit, and Bernard Williams. Elma Adelman, George Akerlof, Pranab Bardhan, Donald Davidson, John Harsanyi, Joslin Kincaid, Samuel Scheffler, and Benjamin Ward provided comments on some parts of the book. There were also some lively discussions during the lectures, which greatly helped in its preparation. At the end, I would also like to thank Carol Weiss for quickly typing my manuscript and Emma Darlès for her excellent editorial work. This book is one of the representative works of Amartya Sen, the 1998 Nobel laureate in Economics. In this book, the author explains human economic behavior through an analysis of human instincts and rationality; he elucidates the moral norms of society through economics, thereby revealing the relationship between ethics, economics, and their social welfare. [Preface] Preface: For economists, philosophers, and political scientists who are concerned with the relationship between contemporary economics and moral philosophy, this book is indeed a treasure trove of ideas. Professor Amartya Sen's clear, accessible, lively, and passionate writing far exceeds a simple synthesis of the literature on ethics and economics. In a new sense, he explains the contributions that general equilibrium economics can make to moral philosophy analysis, and how moral philosophy and welfare economics can contribute to mainstream economics. He also points out that the abuse of the assumption of self-interested behavior has severely damaged the nature of economic analysis. Amartya Sen argues for the serious separation between economics and ethics, and how this separation has contributed to a major flaw in contemporary economics. He convincingly points out that since ethical considerations affect actual human behavior, and the main task of ethics is to influence human behavior, welfare-economic considerations must also affect actual human behavior. Therefore, it follows that welfare economics is connected to modern logical economics (modern logiceconomics). However, as Amartya Sen points out, logical economics has had a significant impact on welfare economics, while welfare economics has had no practical impact on logical economics. Amartya Sen explains the respective merits of the ethical and logical roots of economics, and emphasizes that the logical methods used in modern economics are often very efficient. It is precisely because of the widespread use of this method that modern economics has better explained the nature of social interdependence and more clearly illustrated some practical issues. The development and evolution of "general equilibrium theory" is an example. Amartya Sen explains its practical application in studying important issues such as hunger and famine. The basic argument of Amartya Sen is that economics, as it has demonstrated, can become more explanatory by paying more attention, more explicitly, to the ethical thinking that constitutes human behavior and judgment. Through concise explanations, he analyzes several different ethical considerations that may lead to deviations from the standard behavioral assumptions in economic theory. These considerations may arise from different intrinsic evaluations and instrumental evaluations, which can be individual or collective. Amartya Sen draws our attention to the different reasons that cause these deviations, i.e., the reasons that make the instrumental role of contemporary social behavior reliable. Such behavior may clearly violate an individual's dominant strategy, because even if people have no knowledge defects, specific types of group-rationality conditions often influence actual human behavior. Next, Amartya Sen explains how focusing more on ethics can enrich welfare economics; how leaving more room for the determination of individual and collective behavior in welfare economics can improve the description, prediction, and policy of economics; and how a closer connection with economics can benefit the study of ethics. It is understandable that although Amartya Sen holds a critical view of economics, he does not believe that all these issues have been well resolved in the literature on ethics. Therefore, the issue is not simply transplanting some conclusions from the literature on ethics into economics. He believes that some ethical thinking can be analyzed more deeply using the various methods currently used in economics (p. 71). With the help of modern literature on rights and results, he confirms this point. He points out that if rights are not merely seen as basic legal entities with instrumental value, but as basic legal entities with intrinsic value, then these works could be greatly enriched and improved. Furthermore, he proposes systematic suggestions for how to apply the typical result reasoning used in economics to study interdependence to the formal analysis of rights and results. In the initial discussion, Amartya Sen points out that the content of modern ethical literature is far richer than what has been incorporated into economics, and it is the extremely narrow assumption of self-interested behavior in economics that has hindered its attention to some very meaningful economic relationships. Mainstream economics equates rational human behavior with the internal consistency of choice, and further equates it with self-interest maximization. However, as Amartya Sen points out, there is no evidence that self-interest maximization is the best approximation of actual human behavior, nor is there evidence that self-interest maximization necessarily leads to optimal economic conditions. He takes the free market economy as an example to illustrate this point. For instance, in Japan, rule-based behavior systematically deviates from self-interested behavior—responsibility, honor, and reputation—are all extremely important factors in achieving individual and collective success. He points out that if we correctly understand Adam Smith, then neither in ethics nor in economics would there be a narrow interpretation of self-interested behavior, nor would there be support and advocacy for this interpretation. As Amartya Sen demonstrates, technically, welfare economics will only recognize that it is ethically right to act completely in accordance with the assumption of self-interest under extremely flawed conditions. However, so far, the practical significance of this theory remains highly questionable. He raises the limitations of the "welfarist" concept on which this analysis is based. By distinguishing between the "well-being aspect" (with respect to individual interests, a person's achievements and opportunities) and the "agency aspect" (with respect to broader goals, a person's achievements and opportunities), Amartya Sen's analysis goes beyond a person's pursuit of mere self-welfare and reaches more explanatory conclusions. Amartya Sen distinguishes between the fairness of income distribution and broader individual or collective value judgments, which leads to discussions on "plurality and evaluation," "commensurability," "completeness and consistency," "impossibility theorem," and the empirical possibility of results and structural characteristics. Applying the recent philosophical literature on consequentialism to economic research, Amartya Sen argues that this reasoning— including interdependence and instrumental value calculation—can not only be combined with intrinsic value, but also with the relativity of stance in moral evaluation and the sensitivity of the agent. He demonstrates that under realistic assumptions, a broad logical consistency analysis can provide a sensitive and robust framework for describing fundamental issues such as rights and freedom. Amartya Sen believes that deviations from the standard behavioral assumptions in economic theory—combined with the main components of self-interested behavior—may arise from intrinsic evaluations and instrumental value considerations of individuals or collectives. This view is very insightful and can be applied to solving efficiency failure (failure of efficiency) problems in standard economics caused by factors such as externalities, non-market interdependence, and lack of trust in government economic policies. Amartya Sen argues that if deviations from self-interested behavior are allowed into economic analysis, then the incentives to solve these problems should be redefined or reformulated. He insists that whether an individual or a group can be considered to be maximizing a certain goal is relative, depending on what the individual agent or group considers to be controllable variables and what variables are considered to be practical means. When the instrumental value of specific social behavioral norms is accepted to pursue personal goals, it creates ambiguity between the goals that individuals appear to pursue and their true goals. In this case, reciprocity must necessarily acquire instrumental importance, otherwise, it would be difficult to explain that people's "true goals" are not the pursuit of reciprocity. By emphasizing the closer integration of behavioral norms and behavior in economics, and by proposing a systematic approach to achieving this goal, Amartya Sen points out the way to a deeper analysis of different welfare economic criteria. This book is based on the manuscript of Amartya Sen's Royer Lectures delivered at the University of California, Berkeley in 1986. The faculty and students of the Economics and Philosophy Departments at the university were delighted to have such a truly internationally renowned economist and philosopher as Amartya Sen deliver these lectures for them. We believe that readers will share our gratitude for Amartya Sen's groundbreaking contributions and the privilege of sharing in the publication of this book by Basil Blackwell. John Letiche