What’s wrong with poverty
- On Ethics and Economics by Amartya Sen
Blackwell, 131 pp, £14.95, May 1987, ISBN 0 631 15494 9
- The Standard of Living by Amartya Sen, edited by Geoffrey Hawthorn
Cambridge, 125 pp, £15.00, September 1987, ISBN 0 521 32101 8
Welfare economics is concerned with what economic arrangements we should have, and what governments should do in economic matters. It is about right and good in economics. So it is a branch of ethics, the study of right and good in general. There is no dividing line between theoretical welfare economics and practical ethics.
Economists, however, have generally tried to avoid the kind of philosophical argument that ethics requires. Nevertheless, some of the wildest philosophical opinions circulate among them. In 1871, one of the pioneers of modern economics, W.S. Jevons, wrote in The Theory of Political Economy: ‘The susceptibility [to pleasure] of one mind may, for what we know, be a thousand times greater than that of another. But, provided that the susceptibility was different in a like ratio in all directions, we should never be able to discover the difference. Every mind is thus inscrutable to every other mind.’ For several decades starting in the 1930s, particularly after the publication in 1932 of Lionel Robbins’s An Essay on the Nature and Significance of Economic Science, it was dogma among economists that one cannot in principle compare one person’s good with another’s. At any rate – this was Robbins’s own view – statements that depend on comparisons like this must be excluded from ‘economic science’. Robbins thought that interpersonal comparisons of good were ethical and therefore unscientific.
This idea gave rise to a style of welfare economics that still lingers. In the United States, indeed, it still predominates. Virtually everything that happens in an economy is good for some people and bad for others. The dogma says economics cannot compare the benefit to some with the loss to others. So it cannot judge whether a change is good or bad on balance. Economics, then, is unable to judge the merits of virtually any economic event. It is even deprived of one of its favourite doctrines. ‘It was not possible to say that economic science showed that free trade was justifiable,’ Robbins said in 1938. Welfare economics was left feeling the cold.
It recovered by taking up the study of efficiency. A state of affairs is technically known as ‘efficient’ if there is no other state of affairs that is better for someone and no worse for anyone. You can say whether or not a state is efficient without making any comparison between the good of different people. So this is something that welfare economics was allowed to do. Concentrating on efficiency was seen by welfare economics as a way of purging their subject of unscientific ethical commitments.
Under certain (rather improbable) conditions, free trade is efficient. Because of this, there is no shortage of economists who think economic science shows that free trade is justifiable. They even think it shows that restrictions on trade are unjustifiable. They have slipped from identifying efficient states, which can be done without interpersonal comparisons, to claiming that efficient states are better than others, which generally cannot. Robbins was right about this. Without interpersonal comparisons they are not entitled to say, for instance, that free trade is better than a system of tariffs discriminating in favour of poor countries. Free trade is better than discrimination for the inhabitants of rich countries, but worse for the inhabitants of poor.
Welfare economics concentrated on identifying efficiency because, being denied interpersonal comparisons, it had nothing else to do. From that it slipped into pursuing efficiency regardless of other goals. The result of trying to avoid ethics, combined with some muddled thinking, was that economists found themselves making claims with strong and often indefensible ethical implications.
Today welfare economics is once again doing better. It is beginning again to take account of other values besides efficiency. It is interested in distributive justice, for instance. This, clearly, is its responsibility. Economic forces determine how the benefits and harms of economic progress are distributed within each society and around the world. And they do it desperately unfairly. It is shameful that the ethical branch of economics refused for so long to say anything about this injustice.