Sunday, April 19, 2009

Ethical Crisis - What Crisis?

MURRAY WHYTE write in Toronto Star (The HERE)

Closed due to the recession’

“U of T's Lind, whose central field of study is economic ethics, points out that this is a relatively new quandary. Until the industrial revolution, ethics and economics were a unified field. Adam Smith, who described the advent of market economics as being guided by "an invisible hand," is often misconstrued as the early progenitor of the Milton Friedman-spawned, market-knows-all Chicago School. "But really, he was making a moral argument, because to him, there was no distinction."
As the 20th century dawned and economics turned away from the philosophical and more toward hard math, the separation grew. "The field of ethics went into crisis just as economics turned to mathematics," Lind says. "Economics became a hard science, whereas ethics became a confusion."

From where do they get these muddled ideas? Economics as a subject did not exist in the 18th century, certainly not as Adam Smith wrote about what was called ‘police’ (ensuring subsistence for a society).

Political economy was a title coming into vogue when Smith wrote Wealth Of Nations, which lasted a century until the 1870s when mathematical analysis began to appear. That title too declined in the 20th century.

Smith wrote about ‘commercial society’ and market, but did not mention The Metaphor of an ‘invisible hand’ in his analysis of how markets functioned (Books I and II of Wealth Of Nations). He certainly never said ‘the advent of market economics as being guided by "an invisible hand" ’.

It is, however, true that The Metaphor is ‘often misconstrued as the early progenitor of the Milton Friedman-spawned, market-knows-all Chicago School’.

Indeed, the modern myth of The Metaphor was virtually invented by ‘Chicago’ in the environs of 59th street (see Oscar Lange, 1946 and Paul Samuelson, 1948) and has become universally misconstrued as ‘markets always produce socially beneficial outcomes’, despite the presence of monopolistic practices, protectionist policies, tariffs and non-tariff barriers, pollution, and other negative externalities.

Economics didn’t turn ‘to mathematics’; scholars calling themselves economists ‘turned to mathematics’. Economics did not become ‘a hard science’; its proponents confused ‘hard science’ with economic models that were bereft of the presence of human beings.

And ‘ethics’ did not become ‘a confusion’ – the basic ideas of ethics (partly summarized by Adam Smith in his Moral Sentiments) remain valid.

The absence of people in mathematical modeling of the kind dependent on 19th-century calculus eliminates ethics from the equations. People are given objectives that lead to determinate solutions; the ‘solutions’ have little operational value.

I am not sure that ethics is in ‘crisis’; people without ethics are in crisis. The ‘U of T[oronto]’ should be teaching its students to think about the differences in the tone of this article and the reality of the dead-end where economics has come to rest.

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