The normative foundations of scarcity

Published on Real World Economics Review, issue no 61, by Asad Zaman [International Islamic University, Islamabad, Pakistan], Sptember 2012.

Abstract: The elevation of scarcity to the fundamental economic problem rests on some unstated normative assumptions. These include a political commitment to private property, a methodological commitment to not inquire about taste formation, and the idea that human welfare is roughly equivalent to preference satisfaction. The problem arises because current methodology is based on certain positivist principles, and needs revision in light of subsequent collapse of positivism.   

1. Introduction: … //

… 6. Conclusions:

Carnap (cited in Putnam, 2002, p. 18) writes that “All statements belonging to… Ethics… are unverifiable… and unscientific. …we describe such statements as nonsense”. The positivist attitude of respect for science, and open contempt for the ‘unscientific’ was absorbed by the vast majority of the community of scholars in the twentieth century. Strangely enough, the philosophers subsequent rejection of positivism has not been equally influential. Positivism is sufficiently deep that efforts to prove its central propositions engaged some of the best minds of the twentieth century. Its rejection required even deeper considerations, the full implications of which have not yet been absorbed.

For economists brought up on positivism – and this is the majority, according to Hands (2009, quoted in introduction) – the idea that values underlie economic theories is threatening. It is an accusation that economists are irrational, ideological and emotional.

In a post positivist world, to say that values are entangled with facts is a description, not an insult. This is the case for all scientific theories, not just economics. Instead of burying values into the framework of our theories and in the selection of relevant facts, methodological progress requires an open expression and discussion of these values. Weston (1994) enumerates four reasons why economics cannot be value free, and argues that, as a first step, we bring these ethical issues into the open air. Once this is done, it will be necessary for economists to learn ethical philosophy of a specialized sort.

Economist now generally agree that positivists were wrong about values; these exist, and can be meaningfully and rationally discussed, and even that this is useful and important. However, they feel that by focusing on observables alone, they can avoid wading into these murky waters. Forceful articulations of this argument and responses to it are available in Caplin and Schotter (2008). As we have argued at length in the present article, facts and values are inextricably entangled and we cannot discuss one without implicitly involving the other.

A second common argument is that mathematical optimization problems are crisp and clear, while ethical arguments are deep and murky, and have been discussed for centuries without resolution. Furthermore, economists are not equipped with relevant skills to solve them. This argument is the analog of looking for the key under the lamppost instead of where it was dropped in the dark. Sen has said that “it is better to be vaguely right than precisely wrong.” Once the inevitability of dealing with ethical issues is recognized, economists will acquire the relevant training. This should be considered as a challenge and an opportunity to explore new realms of intellectual possibilities. As Weston (1994) has noted, precisely the same process occurred when mathematical skills were seen to be necessary by the profession: requisite mathematical skills became part of the standard syllabus in economics. Substantial progress has already been made, and there exists sufficient material and in-depth treatments of ethics and economics for several courses at both undergraduate and graduate levels. We need to organize this material into courses, and make such courses part of the standard curriculum in economics.
(full long text – pages 22 to 39 of RWER/no 61 – and References).

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