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Applying Ethics in Economics – The Importance of Value Judgements

Wilfred Beckerman, author of Economics as Applied Ethics: Fact and Value in Economic Policy, explains how his new book heightens this important debate where welfare economics and economic problems as a whole are concerned.

Should people be allowed to buy medicines without doctors’ prescriptions? Should minimum wages be imposed in order to promote greater equality of income distribution? And, more generally, are there moral limits on the extent to which the market should be allowed to determine the allocation of resources between different people and activities?   Furthermore, should policies be designed primarily to increase people's happiness rather than their incomes?  All such questions raise ethical considerations. For economics is an applied science. In order to understand how economies work it is necessary to have some knowledge of politics, history, sociology, and other disciplines. But in order to know how economies ought to work it is also necessary to have some knowledge of ethics.

My book, Economics as Applied Ethics, is not a general survey of ethics in economics.  It is designed to provide a simple method for analysing practical economic policy choices by distinguishing between questions of fact and questions of ethical value judgements.  For the basic theory of welfare economics, which is supposed to be a guide to optimal economic policies, is permeated by value judgements of an ethical character.

These value judgements enter into welfare economics at three levels. First they enter into the definition of the subject itself. This is because welfare economics provides the basic theoretical guidelines for judging how far the economic system contributes to the welfare of society. But the concept of “welfare” depends on value judgements about which people can often legitimately differ.  Also, value judgements enter into the definition of the "society" the welfare of which we wish to promote. For example, how far should we include welfare of other nations, or of future generations?

Second, the basic structure of welfare economics rests on two assumptions that reflect value judgements. The first of these is the assumption that people's choices as revealed in their market decisions generally reflect their "welfare". But it has always been known that this is not the case, and recent advances in behavioural psychology have confirmed that people's choices are often not in their best interests. Consequently, a value judgement needs to be made between the objective of promoting people's welfare by some form of paternalistic policy - such as restricting the sale of certain medicines - and the objective of respecting consumers’ sovereignty even when we believe that are not in their best interests.

The second general limitation on theoretical welfare economics is that it cannot provide a value-free method for taking account of distributional considerations, such as the equality of incomes or of welfare or of opportunities, and so on.

The above book begins by explaining the concepts involved, namely the distinction between “positive propositions”, which are questions of fact, and value judgements, which are not, and how they both contribute to the formulation of "normative propositions", which are propositions about what policies "ought" to be pursued in order to promote societies welfare. This distinction is not totally watertight but is sufficiently valid for practical purposes. The book continues with a detailed explanation of how this distinction arises in the two basic ingredients of welfare economics identified above.

This is followed by an application of the method set out above to some specific areas of economic policy. These include the discount rate used in the evaluation of policies; the valuation of human life, which enters into the evaluation of numerous policies that affect risk to life; and the constraints on economic policy imposed by the requirements of international justice and intergenerational justice.

Although the book is aimed primarily at third-year and/or graduate students it should be of considerable help to anybody interested in contemporary economic problems. This is because it explains how economic problems can be broken down into questions of fact and questions of value. This not only makes it easier for people to get to grips with contemporary economic problems, it also enables people with different views – either on the values or the facts or both – to reach amicable agreement about their areas of disagreement and, in many cases, how they might be resolved.

Wilfred Beckerman is Emeritus Fellow at Balliol College, Oxford University, England. He received his Ph.D. from Oxford University and D.Phil. from Cambridge University, and he has been Honorary Visiting Professor of Economics at University College London, where he held the Chair in Political Economy. ​​​​​​​

He has been a Member of the Royal Commission on Environmental Pollution; Chair of the United Kingdom’s Department of the Environment’s Advisory Panel of Academic Economists; Research Director and a Member of the Council and the Executive Committee of the National Institute for Economic and Social Research; Economic Advisor to the President of the British Board of Trade; and Head of Division of the Organisation of Economic Cooperation and Development. He has also been a Visiting Professor at various universities in France and the U.S., and a consultant to the World Bank, United Nations, and International Labour Organization.

Economics as Applied Ethics