8/15/2003, Vol. 49 Issue 49
Teaching the Ethical Foundations of Economics.
By Jonathan B. Wight
It is time for moral inquiry to be included as part of economics education--or,
more accurately, to be introduced.
SOME ECONOMISTS consider their discipline a science, and thereby
divorced from messy ethical details, the normative passions of right and
wrong. They teach in a moral vacuum, perhaps even advocating economic
agents' operating independently and avariciously, asserting that this
magically produces the greatest good for society.
Never mind that such a view woefully misinterprets Adam Smith's
"invisible hand"; it also belies economists' own instinctive experience,
even if we do not often preach it, of the role of morals and virtue in
our scholarly endeavors. We abhor plagiarism and data fabrication, for
example, but why? Those practices, after all, yield short-term gains for
an individual scholar. Of course, such gains are more than offset by
scandal when the fraud is uncovered, and they also leave the university
and society poorer. Given what our disciplinary jargon would label the
high transaction costs in monitoring and finding cheaters, virtuous
behavior nurtures the efficient advancement of knowledge.
Likewise in business, the trustworthy conduct of many professions
improves the efficiency of industries and the economy as a whole. So
when accountants fudge a company's books, and the stock price balloons,
we know that bubble must eventually pop, and that innocent third parties
will bear the brunt of cleanup. Aside from the unfairness, that
situation discourages capital flow to promising ventures later because
of investors' mistrust.
If immoral, or sometimes amoral, behavior has long-term external costs
for business (think of the East Asian capital crises of the late '90s,
or Enron, or Arthur Andersen, or WorldCom), if the role of virtue in
fostering long-run efficiency is important, then why have economists
long disavowed ethics as a legitimate topic for discussion in the
discipline? Beyond the obvious instrumental benefits, ethics also forms
the intrinsic core of a liberal-arts experience. It is time for moral
inquiry to be included as part of economics education -- or, more
accurately, to be reintroduced.
THE ROLE of virtue in economics has been extolled since Aristotle. Adam
Smith, in the 18th century, made the analogy of human society as an
"immense machine," and celebrated virtue as the "fine polish"
wheels. He excoriated vice as the "rust" that causes the wheels to "jar
and grate upon one another." Ethical considerations are central to life,
Smith said, and "keen and earnest attention to the propriety of our own
conduct ... constitutes the real essence of virtue."
Indeed, modern economics began as a moral science taught by professors
trained in the analysis of ethical contexts and conflicts. Smith's The
Wealth of Nations (1776) is both a scientific treatise on economic
development and a forceful statement about the ethics of markets and the
resulting distribution of income. In the 19th century, however, to
disengage the field from the grip of church theology, positivists sought
to gain factual understanding by eliminating normative considerations.
That produced a century-long near-dominance of positivist analysis.
Yet the normative voice never completely lost its place. The Association
for Social Economics formed in 1941 to advance economic research into
areas of ethics and philosophy. In 1968, Kenneth Boulding devoted his
American Economic Association presidential address to the theme
"Economics as a Moral Science." From across the philosophical spectrum,
the 1974 Nobel Prize winner Friedrich von Hayek, a critic of the welfare
state, wrote "The Origins and Effects of Our Morals: A Problem for
Science." And Amartya Sen, the Nobel winner in 1998, argued in On Ethics
and Economics (1987) that the perceived dichotomy between positive and
normative analysis is false at its heart. Whether we realize it or not,
value judgments pervade positivist analysis. While not disparaging
positivism, Sen argues that considerations of moral agency present a
fruitful line of inquiry for understanding human motivation and action
-- in essence, revitalizing Adam Smith's more holistic model. Sen
concludes, "welfare economics can be substantially enriched by paying
more attention to ethics." In other words, appealing to the view of
economics as a science, he suggests that ethics doesn't subvert that
science, but is rather part of it.
My own interest in the ethical dimensions of economics arose while
coming of age in Brazil in the 1960s. Those were the economic "miracle"
years. They were presided over by self-selected military generals under
conditions of martial law, and produced an impressive industrial
takeoff. But the surge in wealth was concentrated at the top through a
variety of means including market manipulation, the repression of
organized labor, and the suppression of dissent through torture and
death squads. This tragedy was replicated throughout much of Latin
America and elsewhere. It brought home to me the essential point that
those who push for "markets" as the answer for social ills -- without
any conception of the required foundations in institutions of justice
and social capital -- will most likely meet with disappointing results.
Adam Smith was not so naive. Justice is central to his concerns, and
when Smith elaborates in The Wealth of Nations how global markets can
yield greater efficiency, the issue of "justice" arises about once every
seven pages. In an earlier work, The Theory of Moral Sentiments (1759),
Smith depicts justice as a moral concept of right and wrong that goes
beyond legality. To Smith, "Justice ... is the main pillar that upholds
the whole edifice. If it is removed, the great, the immense fabric of
human society ... must in a moment crumble into atoms." Smith
accordingly develops a model by which moral conscience is developed and
can be further enhanced, creating social capital in the form of trust
and personal responsibility. This is the much-neglected ethical
framework for the famous "invisible hand."
BY CONTRAST, the American Economic Association lamented the state of
graduate programs producing "too many idiot savants, skilled in
technique but innocent of real economic issues." William Letwin, in The
Origins of Scientific Economics (1963), sums up this point nicely:
"Every economic act, being the action of a human being, is necessarily
also a moral act."
Ethical inquiry is an essential component of my economics courses, and
it doesn't take much class time because it is integrated into other
work. I use a variety of methods, including a scarcity game,
public-policy essays, and novels and movies; some of my colleagues add
service learning. On the first day of Econ 101, I break the class into
groups of four or five students. I ask each group to spend a minute
introducing themselves and to select a group leader. Then I toss each
group a candy bar. I tell them: "You are stranded on a desert island.
One morning, you find a candy bar on the beach. You have five minutes to
determine what to do with it." After students get over their initial
surprise, a spirited discussion follows. Virtually all groups eventually
decide to divide the candy bar evenly. When I press students on why they
chose that allocation over others, they look at me as if I were from
Mars. They respond as a chorus: "Because it's only fair."
That is a fruitful starting place from which to examine processes of
allocation with which students are already quite familiar -- for
example, egalitarian systems within their nuclear families, dorm-room
selections by lottery, and course registrations filled
first-come/first-served, or by favoritism. It is an easy step to relate
those experiences to the development of socialist economies and the
values such non-market systems theoretically serve. We then progress to
discussing the costs of egalitarian systems, such as the loss of
incentives and efficiency, and the possible curtailment of freedom.
That first class highlights the importance that values play in deciding
distribution. Students can readily understand that social relations
(here, group identity and social harmony) play an important role in many
such decisions. By contrast, teachers who begin their "Principles of
Economics" class by unquestioningly preaching the standard model of
egoistic individualism (Homo economicus) may either (as empirical
studies suggest) unconsciously alter the values of their students, or
irretrievably alienate some students from the discipline when they
experience dissonance with that one-dimensional portrayal.
Short public-policy essays can also bring ethical values into focus. For
one essay, I have students respond to a newspaper article about a boy of
3 who is denied surgery by the family's HMO. The experimental procedure
would cost $250,000, but it has only a tiny probability of saving the
boy's life. Without it he will surely die. Students are asked to put
themselves in the shoes of the HMO director and make their own decision.
They are explicitly told that they must examine the issue of efficiency
(defined as saving the most lives per dollar spent) but that their essay
should also discuss fairness, public health, and other concerns. Their
final decision must entail a clear and careful weighing of their own
values under conditions of scarcity (e.g., all decisions entail lost
Students respond to this assignment with great angst. More than one has
been tearfully torn, knowing that denying the operation would make a
quarter-million dollars available for other more easily treated
patients, yet morally unable to deny the boy's operation. It is
important in such critical-thinking exercises that students understand
that their grade is based on the quality of their analysis of the
trade-offs, not their final conclusion. The exercise plants firmly in
students' minds that economics is a means to understand our choices, not
an end in itself. Still, I have had students over the years confess that
they chose the "efficient" solution simply because they thought that
the "right" answer in an economics class. Teachers need to be vigilant
about creating such strong unconscious biases. Students must feel free
to examine and advocate sets of choices in which efficiency is not the
only, or even the most important, game in town.
In a second essay, students write about the shortage of human organs for
transplant, caused by a federal law preventing the sale of organs. Only
donated (free) organs are permitted, and these are allocated based on
the severity of a patient's illness rather than ability to pay. I ask
students to determine whether a private market should be legalized so as
to yield more organs. Each human has two kidneys, and a rise in price
could induce the poor (particularly in developing countries) to part
with one of them. Given the current shortage, the increase in organ
supply could potentially save thousands of lives. Students are again
asked to weigh efficiency concerns against other values such as equity,
freedom, public safety, human dignity, and moral rules. By this point in
the course, students begin to feel comfortable using their economics
training in conjunction with their ethics to reach an answer.
ADAM SMITH was a devoted fan of the arts as an instrument for arousing
moral understanding. To Smith, "the poets and romance writers" were
"much better instructors" than philosophers. I wrote a short novel,
Saving Adam Smith: A Tale of Wealth, Transformation, and Virtue, to
engage students in such a debate about the moral foundations of
capitalism. The story, about Smith's tortured soul returning to our
world as an immigrant mechanic in Virginia, brings to life the role of
moral agency in economics. Contrary to popular misperception, Smith
studied not only self-interest but social interests broadly conceived --
including altruism, loyalty, trust, and, most important, self-restraint,
based on ethical considerations and commitments. Smith's own writing
serves as the basis for much of the dialogue in my book.
I ask students to read the book, then respond with a short essay in
which they analyze the "greed is good" beliefs of the 18th-century
philosopher Bernard de Mandeville and others, comparing and contrasting
their views with Smith's. Students apply this debate to the recent
corporate financial scandals, and are asked to identify the role of
moral agency in economic efficiency.
In addition to books, films such as The Grapes of Wrath, Wall Street,
Erin Brockovich, and Mr. Smith Goes to Washington are engaging classics
that deal with economic concepts while questioning "right" and "wrong"
Some of my colleagues use community-service learning to achieve the same
sort of "grounding" of economics and policy within the broader ethical
context. Students tutor incarcerated juveniles, assist arriving
refugees, work in homeless shelters, and sell products made by
indigenous communities recently opened to global trade. Initially, these
settings often provoke discomfort, and students' moral "imaginations"
(to use Smith's term) become stretched. Students are asked to read and
reflect on the moral questions associated with the service. The purpose
of this exposure is not to indoctrinate students as to what a correct
ethical response is, but to stimulate their critical thinking and
personal development in ways that enrich their understanding of economic
THESE TECHNIQUES for introducing ethics into the classroom have, as we
economists say, a low opportunity cost in terms of taking time from
existing course work. At an advanced level, a more intensive examination
of ethics and economics would be desirable, both for reviewing the
growing literature about the impact of ethics on outcomes (e.g.,
negotiation), as well as for affirming the inherent function of ethical
inquiry in a liberal-arts education. A few programs (such as Notre
Dame's) have offered such an advanced class, yet for ethics to be widely
reintroduced, it would probably have to be integrated into existing
All business students do it; all law students do it; all medical
students do it. Why shouldn't all budding economists also study ethics?
Many of my colleagues would respond that economists have a comparative
advantage at understanding efficiency, and are mere amateurs at
understanding ethics. Surely it misallocates resources for economists to
devote scarce class time to ethics.
Yet, a hundred years ago, economists were "forced," by virtue of
changing methodology of the field, to apply the language of mathematics
to their teaching and research. Later they were "forced" to become
proficient at computers and econometrics in order to carry out
quantitative research. I contend that today's economists are compelled,
by world events and the demands of a liberal-arts education, to
rediscover and extend the discipline's roots. As R.D. Collison Black,
the noted historian of economic thought, so eloquently put it, Adam
Smith's economics is a "system of thought which [places] economic
problems firmly in the context of ethics ... informed throughout by a
concept of justice." How long will it take for economics teachers to
realize that discussions beyond self-interest are in their students'
Jonathan B. Wight is an associate professor of economics at the
University of Richmond. His most recent book is Saving Adam Smith: A
Tale of Wealth, Transformation, and Virtue (Financial Times/Prentice