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CHAPTER 2

Morality in Economics

I. Introduction

Economic behaviour since Adam Smith has been assumed to be characterised by the ubiquity of self-interest, selfishness and greed. The “butcher”, the “baker” and the “brewer” are seen as motivated only by their self-interest (“self-love”) in the mutually beneficial exchange that follows the production of the goods which consumers demand. Any benevolence they may entertain towards their consumer is not a relevant element in consummating such exchanges to the benefit of both parties.¹ An influential modern (mis)interpretation of the Smithian creed is to go a step further and proclaim self-interest to be an empirical reality: “self-interest dominates the majority of men” [Stigler (1975); p. 237].² A direct implication of this dominance of self-interest or self-love is a cheerless economics that refuses to include ethical values and moral concerns in the list of explanatory variables of human motivation and behaviour. Yet another is to equate self-interest with rationality: it is entirely rational to be self-interested even in the sense of being self-denying – i.e., “I will never do what I believe will be worse for me” [Parfit (1984)]. Indeed, so overwhelming has been this dominance of the self-interest creed that rationality and rational behaviour have come to be regarded as synonyms for self-interest maximisation; and, any motivation other than profit-maximisation is condemned as irrational!

II. Competing Moral Perspectives

An exaggerated trust in universal cupidity as the ‘invisible’ deliverer has been strengthened both on ‘positivist’ and normative grounds. In the former category, the economic universe is kept efficient by profit-seekers with ambition, vanity and hubris; and any concern for the social good contemptuously shunned as redundant, inefficient and counterproductive. These beliefs have been formalised with tantalising elegance by the (two) fundamental theorems of welfare economics; which show that a state of the economy in competitive market equilibrium (i.e., that which is Pareto optimal) is “unimprovable” by public-policy, or through moral manoeuvring. In the latter category, which is the domain of non-market decision-making and where ‘market failures’ are explicitly admitted, considerable theoretical effort has been expended on matters relating to allocative efficiency (to points on the Pareto-efficiency frontier and those off it). In this area of public enquiry, christened as positive public-choice theory, the central assumptions are that “man is an egoistic, rational, utility maximiser” [Mueller (1979); p. 1]. Not only that; even a significant part of what is known as normative public-choice theory, supposed to tackle distributional issues, remains exclusively focused on proving the centrality of the Pareto-optimality principle, guided by self-interest behaviour and amoral rationality (see Chapter 1, note 1).

Fortunately, the progeny of Adam Smith has not been completely lacking in imagination. To make the world an interesting place to live, it is increasingly realised (though not always understood) that the vast desert of self-interestedness needs to be flooded with humanity. Thus, Harsanyi (1991) pointedly remarks: “there was a time when many economists wanted to ensure the objectivity of economic analysis by excluding value judgments, and even the study of value judgments from economics…Luckily, they have not succeeded; and we now know that economics would have been that much poorer if they had” (p. 704).³ The fact is that, beyond the domain of unalloyed selfinterest, “valuation and obligations” intermingle with “ascertainable facts” to produce morally acceptable solutions of the vital problems of economic growth, a just distribution of income and wealth, and human development. This is because “a capacity for a sense of justice and for a conception of social good” is required to be able to ask the type of questions just mentioned and seek probable answers to them [Rawls (1999); p. xii]. Thus, to fix the direction of a social transformation that commands popular support the basic structure of society must be so changed that the rights and duties of the people and the distribution of social and economic advantages among them are fair and just.

The fact is that the role of values in human affairs is too extensive to be ignored; and no science of any kind can be divorced from ethical considerations because doing that would limit the scope of human rationality [Boulding (1966)]. An obsession with self-interest is, therefore, artificial and arbitrary. Adam Smith, who is mistakenly credited with having fathered only the self-interest principle, had the foresight to emphasise the great importance of altruism in economic activity, which comprises a lot more than simple acts of exchange. The production and distribution of goods that enter the exchange arena are not necessarily governed by the same motivations. In his Theory of Moral Sentiments (1790), he notes that while “prudence” (read, self-interest) remains “of all virtues that which is most helpful to the individual”, yet “humanity, generosity and public spirit, are the qualities most useful to others” (p. 191). Would it not be a gross exaggeration, then, to regard self-interest as solely responsible for the success of capitalism?⁴ Many empirical studies, like those for Japan, show that a punctilious observance of values like honesty, fulfilling contracts, avoiding (excessive) corruption has contributed nearly as much, if not more, to Adam Smith’s “Natural Progress of Opulence”. But even common sense suggests that a significant hold of complementary moral values on the human mind is necessary to shape an efficient society that vibrates with justice and fair play, positively values a sharp reduction in the inequities of human condition, and ensures an abundant provisioning of public goods – all issues at the resolution of which capitalism has been singularly inept.

In what follows both the positivistic and normative aspects of economics are presented. It is shown that a purely positivist view (in which self-interest is the oriflamme of economic forces) must be balanced by an ethics-related view (where considerations of social justice, and a commitment to the welfare of the “voiceless millions” guide human endeavour) to produce a creative synergy of the essential plurality of human motivation and conduct. Only thus can the equality of the human condition be ensured, and those adrift in a sea of powerlessness and poverty brought ‘on board’.

To set the stage for a fuller discussion of the moral issues in economic matters, let us first recapitulate the case for giving a starring role to the self-interest principle as the defender of the economic universe.

III. The ‘Universality’ of the Self-Interest Principle

The assumption of universal ‘selfishness’, regarded as a sure sign of rationality, is the regnant idea in much of modern economics. The point of emphasis of neo-classical economics (of which Benthamite Utilitarianism and Pareto-optimality are the central components) as well as of the positive public-choice theory (which admits ‘market failure’ but still accepts Pareto-optimality as a standard of reference for public policy) is a unifocal quest for efficiency. The moral-economic issues, like distributive justice and helping the poor, wither on the vine of scientific neglect. Even some ‘normative’ public-choice theories tell much the same story: they highlight such moral values as neutrality, unanimity and the priority of liberty to the exclusion of all other worthwhile social goals of what is generally accepted as good life. Yet another feature of this framework of thought is that, in it, a (minimalist) government is not expected to do anything positive to maximise social good; instead, it should be confined to safeguarding “negative freedoms”. Its only task is, therefore, to set rules of conduct that let self-interested individuals pursue freely the ends they value most.

The discussion in this section revolves around: (a) Pareto-optimality, (b) Libertarianism, and (c) Benthamite Utilitarianism; and it shows the moral vacuity of each of these theories. Thus, for instance, Pareto-optimality claims to be totally ‘value free’ and not concerned at all with issues of social justice; libertarianism advocates policy inaction in defence of a special kind of individualistic morality; and utilitarianism manages to maximise social welfare without getting any closer to a just society in which the thought of doing good to others would freely insinuate itself into the minds of men (and women).

i) The “Unimprovability” of Pareto-optimality

A situation is regarded as Pareto-optimal if there is no alternative situation in which at least one person is better-off while none other is worse-off. In other words, it depicts a situation in which the welfare (utility) of someone cannot be increased without reducing the welfare of others. More simply, Pareto-optimality reigns supreme if there is no other state in which everyone can be made better off.⁵ When there are no ultimate consumers in the model, Pareto-optimality, in a pure production framework, portrays a situation when there is no alternative state of the economy in which there is a greater production of outputs, or a lesser use of inputs [Allen Buchanan (1985)]. A Pareto-optimal state is deemed to be efficient, distributionally neutral, value free, fair and liberal. The central assumption here is that of a well-ordered society – namely, one in which a just distribution of income and wealth has already been accomplished, and where no outstanding socially gnawing interpersonal conflicts of interest strain the rather delicate structure of the free markets. Given this vital assumption, the two fundamental theorems of welfare economics, referred to above, establish a two-way link between Pareto-optimality and competitive equilibrium: assume that all individuals and firms are selfish price-takers. Then every competitive equilibrium is Pareto optimum. Assume, again, that all individuals and firms are selfish price-takers, and that the initial endowments have been suitably redistributed by lump-sum transfers, then Pareto optimum can be achieved by competitive equilibrium [Feldman (1991)]. These theorems, subject to the following restrictive assumptions, prove the above-noted nice properties of Pareto-optimality.⁶ (i) Market arrangements are the most efficient because all points on the Pareto-efficiency frontier denote an ‘unimprovable’ arrangement of scarce economic resources. But such efficiency guarantees, for whatever they are worth, hold only in the space of utility. (ii) By the same token, these arrangements are the most liberal in the narrow sense that there is no room here for government interference. (iii) Since the very best state of the economy must at least be Pareto-optimal, and in competitive equilibrium, market arrangements must be mutually advantageous and fair. (iv) The Pareto-optimality principle could even be regarded as morally non-controversial, because no one can rationally complain about a move from a Pareto-inferior state (in which someone can be made better off without making anyone worse off) to a Pareto-superior state (in which no one can be made better off without making someone worse off); and because such a move would be in everyone’s self-interest.

On closer examination, however, the story looks too good to be true. The rule will not guarantee efficiency if only a little bit of reality is allowed into the watertight set of assumptions that sustain it. Thus, if public goods (characterised by the jointness of supply, non-excludability, and non-rivalrous consumption) of various kinds must be produced and consumed, the ‘free-rider’ problem (i.e., I do not contribute because others most probably will) and the assurance problem (i.e., when I, though not a freerider, will contribute only if assured that others will also do the same) will not let the market produce these goods. In such situations, appropriate state intervention can almost always improve competitive market (and Pareto optimal) solutions [Stiglitz (1991)]. Similar results will follow if such real-life phenomena as asymmetric information, moral hazard, principal-agency syndrome, multiple equilibria are (as they should be) admitted into the analysis; or if markets are missing or incomplete, or if they are liable to complete breakdown. These problems do not go away even when extended to situations of uncertainty and which involve an inter-temporal resource allocation. This is because such extensions require making some additional heroic assumptions – namely, that (i) all economic agents are identically uncertain; (ii) a complete set of contingent markets exists; (iii) transaction costs are zero. True, with these assumptions the Pareto-optimality rule becomes dynamically valid; but it would amount to little else. In particular, this dynamic version too will still fail to deliver if many key contingent markets (e.g., those for sharing risks) do not exist, the information available to economic agents is not symmetric, etc. To add to the rule’s woes, the second theorem does not settle the issue of distributional equity because Hicksian lump-sum transfers from winners to losers, which must be made to prove the second theorem, are not meant to be actually made. Furthermore, even common sense suggests that “there simply is no way to judge the changes that affect distributions while remaining neutral on distribution questions” [Hausman and McPherson (1993); p. 703].

Indeed, the way Pareto-optimality is defined offers no solution to problems of distributive justice. For instance, this rule is perfectly consistent with a famine-like situation in which some have none or very little while others get all or most, so long as the agony of the starving multitude cannot be relieved without cutting into the ecstasy of the few rich rolling in luxury! Thus, “a society can be Pareto-optimal and still be perfectly disgusting” [Sen (1970); p. 22]. In other words, Pareto-optimality and competitive markets are immiscible with mutually advantageous production, consumption, and distribution arrangements – which is a particularly damning criticism since the gap between the rich and the poor is much too large to be socially, politically and morally acceptable. And, as if to rub salt into the neo-classical’s wounds, Pareto-optimality may even coexist with inefficiency – especially in the non-utilitarian space [Stiglitz (1988)]. Nor is it a big deal that Pareto-optimality depicts unanimity. This is because if unanimity is for the preservation of an unjust status quo, then it would be a recipe for social disaster. Thus, the moral content of the Pareto-optimality principle is next to nil – especially because observing moral principles need not always be (it seldom is) a pleasurable experience for self-seeking individuals. To be able to move towards a reasonably civilised society, a real-life economy had better be delivered from the fetters of the Pareto rule.

ii) Libertarian Morality

The priority of individual liberty, unanimity and impartiality in the specific context of constitution-making are the central moral values espoused by libertarians. Yet here morality misguides human endeavours into the ‘wrong’ channel: it promotes distributive inequity and fails to help the poor.

a) The Priority of Liberty

The central proposition here is that individual liberties must be protected regardless of the consequences of exercising them for individual well-being and social welfare. The idea here is that individual liberty is intrinsically valuable, to be pursued for its own sake. Thus, for instance, unfettered markets are preferred because these are supposed to be the best protection against the dilution of individual liberty. Indeed, capitalism is the most preferred economic arrangement because it means minimising government interference and coercion; it is not just because it most efficiently adds to national wealth [Hayek (1960); Friedman (1962)]. James Buchanan (1985) further shows that unfettered markets are morally superior as well because only these voluntary arrangements can preserve individual liberty while the involuntary arrangement reached through the government cannot. The job of the government is, therefore, to produce a legal infrastructure within which the liberty-preserving markets can function freely. The distributional issues are best settled at the time of making the constitution. At this stage, the individuals responsible for framing the constitution, being uncertain and disinterested about their chances in life, would most likely make rules and procedures which promote a juster distribution of income and wealth and safeguard the interests of the poor in society [Buchanan and Tullock (1962)]. This objective is best achieved by ensuring the unanimity and impartiality of the rules and procedures agreed upon by these “impartial spectators”. However, once the constitution-making activity, done in silence and obscurity, is passed, self-interested individuals go about their economic pursuits, unperturbed by the inevitable trade-offs between individual liberty and other worthwhile social objectives. It really amounts to laying down the rules of a savage justice whereby the “right to life is the right not to be killed, it is not the right to be given sustenance” [Hausman and McPherson (1993); p. 703].

How good are these arguments? Briefly, they do not add up to much. Firstly, Buchanan’s assertions, as well as those of Buchanan and Tullock noted above, in support of the free markets suffer from a fatal logical flaw. They define specific economic arrangements as voluntary or involuntary according to whether these are made by the market or by the government; and then proceed to establish the superiority of market arrangements to those made by the government. But this is not a logical result at all; only a restatement of a definition! Secondly, it is not empirically a fact that (political) individual liberties are better taken care of in societies where markets are freer and government intervention minimal than where they are less free and government intervention is large. Thus, in free-market economies (e.g., the United States) the civil and political rights of the blacks have been freely trampled on; while in Scandinavian countries, with ‘nanny’ governments, political liberties are much better safeguarded together with a stellar economic performance record [Allen Buchanan (1985); pp. 78-79]. While this piece of empirical evidence does not prove that ‘nanny’ governments and suppressed markets are always better, it does prove that markets need not be altogether unfettered to produce better economic results and a superior record of political and civil freedoms. Thirdly, guaranteeing individual economic and political freedoms may produce efficient results in the Paretian sense (that, no one’s substantive freedom can be enhanced without reducing the freedom of someone else), and yet this fact (of giving absolute priority to liberty) does not say anything about the equally important issue of equity in the distribution of freedoms. Indeed, the efficiency outcome positively complicates the distribution problem: “the problem of inequality gets magnified as the attention is shifted from income inequality to the inequality in the distribution of substantive freedoms and capabilities” [Sen (1999b); p. 119; italics in the original].

Fourthly, the ‘unanimity’ and ‘impartiality’ achieved at the constitution-making stage do not make a society any better from the egalitarian point of view. Also, the constitution-makers cannot always ensure compliance with what they prescribe; nor can they foresee all the distributional issues in the post-constitution making stage, especially those which result from the working of the capitalist system itself. Fifthly, the unanimity achieved at the constitution-making stage can be extraordinarily conservative: it need never permit any social change which benefits all but one person, who can block it no matter what the rest of society wants. True, unanimity about a change in the status-quo can somehow be achieved through public discussion and debate and by a trading of compromises among themselves (which is equivalent to a log-rolling process), yet vested interests would not voluntarily endorse it. Finally, Buchanan and Tullock’s theory is essentially positivist: what it aims to show is that the unanimity principle can be achieved entirely by self-interested individuals: “the uncertainty that is required in order for [the] individual to be led by his own interest to support constitutional provisions that are generally advantageous to all individuals and to all groups seems likely to be present at any constitutional stage of discussion” (p. 78). It is not meant to resolve any ethical or distributional issues. The fact is that all this is no more than a smart sleight of hand. It may deepen the neo-classical’s unbounded admiration of the state of self-interestedness; but it will not satisfy the curiosity of those concerned about the larger issues of human existence.

b) Non-Consequentialist “Moral Rights”

Nozick’s (1974) theory of ‘entitlement’ and ‘historical justice’ goes a step further – beyond the standard libertarian’s (e.g., Hayek’s (1960)) position that individual liberty is instrumental in preventing coercion. He deems liberty to be intrinsically valuable. In other words, individuals have some inalienable moral rights, which are regarded as deontological ‘side-constraints’ on action that must be satisfied regardless of any (adverse) social, economic or other consequences of doing this duty.⁷ But this is a particularly restrictive (indeed, perverse) view of moral rights because it in effect instructs the potential rights violators: “Do not violate the moral rights of others no matter what – not even to stop others from an imperfect compliance of these instructions (that is, when some violate the rights of others)”. It is not for individuals to minimise the incidence of moral-rights violations but rather to act within the bounds of given moral rights; which, if voluntarily observed by all individuals, will not be violated in the first place. The reward of this state of studied inaction is some kind of ‘political egalitarianism’: no one has a greater right to liberty than anyone else. In this framework of thought, selfishness is itself a moral right, to be defended no matter what and markets must remain unfettered even though the outcome of such ‘unfetteredness’ is mutually disadvantageous. This extremist view of the innate morality of the (moral) right to private property, including that in the means of production, rests on the sufficiency of observing legitimate procedures in acquiring it: “The general outlines of the theory of justice in [property] holdings are that the holdings of a person are just if he is entitled to them by the principles of justice in acquisition and transfer, or by the principle of rectification of justice (as specified by the first two principles). If each person’s holdings are just then the total set is just” [Nozick (1974); p. 153]. He recognises that “past injustices” may shape “present holdings in various ways”, but fails to pursue the allimportant question of the “rectification” of past injustices, nor does he suggest any principle of redress, even in a mild form. On the contrary, he specifically rules out any “patterning” of the existing structure of property (by the government) because “from the point of view of an entitlement theory, redistribution is a serious matter, indeed; involving, as it does, the violation of people’s rights” (p. 168). Nozick recognises that past injustices may directly contribute to significant inter-generational inequities, a socially undesirable inequitable distribution of income and wealth, and great poverty. Yet, while all this is “morally unfortunate” or merely unfair – a state of affairs which rich people should be encouraged to remedy by voluntary charity – it is not morally unjust because no one (even the starving poor) has a moral right to aid!⁸ Hence, people cannot be forced to be charitable by any coercive government action.

This seemingly impenetrable defence of moral rights has, however, several holes in it. Firstly, as Hayek (1960) maintains, not all distributive patterns or end-states are disruptive of moral rights – e.g., providing minimum sustenance to the poor and the implementation (for redistributive purposes) of long-standing publicised laws specifying tax obligations. Nor are these end-states incompatible with the existence of a stable pattern of expectations which is the essence of the “rule of law”. He explicitly states that “coercion, however, cannot be altogether avoided because the only way to prevent it is by the threat of coercion” (p. 21). Secondly, Nozick neglects the need for a balance between charity and efficiency that is necessary for greater social cohesion. The point is that, as Arrow (1974) notes, the act of giving is an “expression of individual volition” based on “an implicit social contract such that each performs duties for the other in a way calculated to enhance the satisfaction of all” (p. 348). More generally, “ethical behaviour is a socially desirable institution which facilitates the achievement of economic efficiency” (p. 354). In other words, downplaying the ethical aspects of social life – e.g., distributive justice, charitable giving, etc., – would erode the efficiency of Nozick’s liberty-preserving free markets. Thirdly, it is idle to expect that extreme poverty or distributive inequity can be remedied by uncoordinated voluntary acts of charity on the part of the rich, even assuming that they are morally upright people of altruistic disposition: “the laudable desire [on the part of the rich] to be effectively beneficent may be self-defeating where coercion is absent” [Allen Buchanan (1985); p. 73]. The reason is that the free-rider and assurance problems, noted above, are likely to block the generation of a large enough flow of resources by voluntary and uncoordinated beneficence alone. It may, therefore, be necessary to make acts of non-contribution subject to penal action, even if it is accepted that, as Nozick asserts, the poor have no moral right to aid. In this connection a distinction can be made between people who may desire to be charitable and those who desire that the poor should be provided for. In the latter case, free-rider and assurance problems will apply with even greater force because knowledge that the poor have been provided for by someone may satisfy their rather shallow concern for the poor. What may not be so obvious is that the outcome will be no different in the former case as well. The need for government action, therefore, remains vital in both cases. The point is that foundational issues such as poverty alleviation cannot be addressed just by appealing to moral intuition and voluntary beneficence, and leaving it at that.

Fourthly, Nozick’s defence of the nearly unlimited right to private property, on the ground that inequities in income and wealth mostly flow from the differential abilities of the people and their use of these abilities, is also weak. It neglects the cumulative adverse effect of the morally unexceptionable individual cases in which merit is rewarded. But “to assume that the cumulative result of a series of just actions must itself be just is to commit the fallacy of composition” [Allen Buchanan (1985); p. 68].⁹ In fact, wealthy individuals, even those who earn their wealth legitimately, come to exercise a disproportionate amount of political, social and economic influence, which is then used to deny (poor) people their legitimate political and economic rights. Finally, Nozick’s insistence that the state confine itself only to preventing the violations of “negative freedoms” (i.e., the freedoms from…., rather than the freedoms to...) is altogether extraordinary because having some freedoms does not by itself guarantee that the same will also be exercised effectively. Thus, for instance, large inequalities of income and wealth preclude poor people’s exercise of their political rights (say, to free speech and to free political participation). Sen (1999b) observes: “Economic unfreedom can breed social unfreedom, just as social or political unfreedom can also foster economic unfreedom” (p. 8). Whence follows that some coercion (state intervention) is required even to achieve the libertarian’s apparently well-meaning aim that no one should have a greater moral right than any other. This is granted even by Hayek (1960), who recognises that a free society has conferred on the state a “monopoly of coercion” to protect “known private spheres of the individual against interference by others...” (p. 21). It is really common sense to assert that the worth of most rights lies in people’s ability to use them rather than in the mere knowledge that they have them. For these reasons, Nagel (1975) has derided Nozick’s entitlement theory as “libertarianism without foundations”.

c) The ‘Morality’ of Utilitarianism

Nineteenth century utilitarian philosophy (due to Jeremy Bentham), which has dominated economic thought, has been regarded as a theory of distributive justice. The maximisation rule says: “seek the greatest good for the greatest number”. ‘Good’ here has been synonymously used with (mental state) subjectively experienced individual happiness; and it is measured exclusively in terms of the metric of utility. Thus, those aspects of life which cannot be translated into a utility number (e.g., the fulfilment/violation of rights, duties, etc.) are excluded from the utilitarian calculus of human happiness.¹⁰ Sen (1987; 1999a; 1999b) points out that utilitarianism has three irreducible components: (i) ‘welfarism’, that which reflects the goodness of the human condition in a given state as a function of only the utility information about that state; (ii) ‘sum-ranking’, that which instructs that the utility information about a given state be measured only by the sum-total of utilities in that state, paying no regard to the distribution of this total among the individuals; and (iii) ‘consequentialism’, that which weighs the worth of any action and institution by their consequences, as measured by the utilities they generate. The aim of public policy should, therefore, be to maximise social welfare, which is defined as the sum-total of utilities generated by it. It is not always clear whether the maximisation of utility is secured through the market or brought about by the government; but that should not matter. All that utilitarianism requires is maximising the sum-total, regardless of how it is distributed.¹¹

The utilitarian approach to distributive justice has the wisdom to seek information about the consequences entailed by specific policies. The objective is to evaluate the worth of such policies and to redesign them on the basis of such information. Quite properly, it worries about the well-being (welfare) of the people in the design of public policy. But its demerits offset its merits as a basis for public policy. Firstly, its central instruction to the policymaker: “seek the greatest good of the greatest number” is, at best, an ambiguous formula to maximise human economic well-being. Now, if this instruction is taken to mean that, for any given population, “aim at that distribution of resources that maximizes social welfare (measured by the sum total of utilities), and then choose a population size which maximizes this number”, then such a policy will, obviously, give no more than is necessary to keep the largest number of population so chosen at little more than starvation level [Roemer (1996)]! More specific instructions are required. To this end, if it is assumed, as some economists do, that utility functions are the same for all people, then the maximisation of total utility, for a given population size, will give equal distribution. However, if utility functions are not the same across individuals (which is a more sensible assumption to make), then the instruction to maximise total utility will result in extremely unequal distribution levels for individuals. This situation is not significantly changed if the maximisation of utility through the market is backed by decent government-backed safety nets. This is because it does not follow from it that “maximizing total utility would justify a decent minimum for everyone” [Allen Buchanan (1985); p. 59; italics in the original]. Furthermore, utility as a subjective mental state measure does not adequately register the pleasure/pain experiences of different individuals. Thus, a disabled person, or one who is resigned to his/her fallen state (e.g., a slave), may not register the same pleasure/pain as a person enjoying good health and the blessings of freedom. But, on the utilitarian scale, the latter will get more than the former; and some of the former may be altogether excluded from the benefits flowing from public policy. Thus, far from suggesting any progressive egalitarianism, utilitarianism will actually recommend a highly regressive social policy!

Secondly, utilitarianism suffers from a deep dilemma. it works only if interpersonal comparisons of the utilities of different people affected by a change is allowed; but in this case all the unsavoury distributional consequences noted above will follow. But, if interpersonal comparisons of individuals are not allowed, which is what neo-classical economists have invariably come to believe since the 1930s, then utilitarianism will lose all operational significance.¹² It is for this reason that it has been replaced by the Pareto-optimality criterion, which does not make this assumption. In this sense, Pareto-optimality can be regarded as a second-best indicator of human well-being (the first-best indicator being the inoperational utilitarianism). But, as noted above, Pareto-optimality and utilitarianism, are entirely focused on efficiency and not at all on distributive justice; nor do they represent a mutually advantageous arrangement – the former, because it places restrictions on how the sum-total of utility is distributed as long as the net amount of benefits are as high as possible; and the latter, because it does not recognise any conflict of interest between parties to the exchange. Little wonder, then, that utilitarianism has all but been discarded in modern scientific discourse. The irony is that the inter-personal comparisons of utilities are again back in intellectual fashion; and yet utilitarianism remains discredited. The reason is that utilities are not the proper metric to register adequately and correctly any increase/decrease in human happiness, or well-being.

IV. Towards Altruism

The (positive) collective-choice theories reviewed so far assume no trade-offs between rival interests; public choices, therefore, help everyone. We now turn to those (normative) collective-choice theories which postulate a more realistic social setting where ideas and interests and passions clash, sometimes violently. Since the social choices made inevitably generate changes which benefit some and hurt others, there must be a mechanism to redress at least some, if not all, the consequent inequities of the human condition. The problem of social justice is, then, to create a just (democratic) society which puts “all citizens in a position to manage their own affairs and to take part in social cooperation on a footing of mutual respect under appropriately equal conditions” [Rawls (1999); p. xv].¹³ This conception of a just society, which distinguishes itself by procedural impartiality as well, differs radically from that presented by a much narrowly defined utilitarian consequentialism – and is light years away from Nozickian non-consequentialism. Rather than compress all aspects of human well-being into just one object of value, i.e., the metric of utility, it is more realistic to recognise it to be pluralistic in character. This is because the criteria used to evaluate social states are essentially diverse. To this end, normative collective-choice theories (with some notable exceptions) move away from the subjective mental-state experiences to more objectively ‘seen’ evaluators of human happiness – e.g., primary goods, resources, functionings – all of which assign centrality to human freedom and admit the ‘possibility’ of improving social conditions by egalitarian public policy.

i) The Many Faces of Social Justice / Welfare

The analysis presented in the preceding section highlights the importance of the ‘right’ moral values – ones that guide individuals to undertake socially desirable activities, and those which enhance social justice.

a) Social Welfare

Social justice, or distributive equity, is generally understood to mean maximising social welfare in an individualistic economy. But this usage is not free from ambiguity because social welfare does not always imply distributive equity. Positive public-choice theories regard Pareto-optimality as an index of social good or welfare; which, however, is a misnomer. Even some normative public-choice theories toy with the idea of maximising social welfare along the Pareto-optimality frontier (i.e., choosing an optimal point on the frontier) with the help of a distortion-free optimal lump-sum taxes and transfer mechanism. This intellectual feat was achieved by Bergson (1938) and Samuelson (1947) who proved that maximising social welfare is equivalent to maximising a Bergson–Samuelson social welfare function.¹⁴ But these efforts have been much ado about nothing! The reason is that the basic components of the Bergson–Samuelson social welfare function do not allow it to address the problem of distributive justice. These are: (a) the distributionally-neutral Pareto-optimality criterion, with its unifocal concentration on efficiency-related issues; (b) a neutral lump-sum transfer of resources, which is no more than a hypocritical neo-classical trick of looking egalitarian without actually having to distribute anything; and (c) the impossibility of making interpersonal comparisons of individual utilities, which are no more than mental-state comparisons of pleasures or desires.¹⁵ The way to cure the neo-classicals’ trained incapacity to handle distributional issues is either to discard utilitarianism, or reject the impossibility of making interpersonal comparisons of individual utilities, or both. Harsanyi (1955) rejects the neo-classical’s consensus about the impossibility of interpersonal comparisons of utility, but retains the utilitarian calculus; while Rawls (1971; 1999) and Sen (1999a) reject both.¹⁶ And, chameleonlike, ‘social welfare’ changes its ‘colour’ and meaning in each of these formulations.

b) Harsanyi’s Just Social Welfare Function

Take interpersonal comparisons of utilities to be a factual proposition, and assume that if x is preferred to y by the individuals in a society, it is also preferred by the society as a whole. Then a remarkable result follows – namely, that social welfare (W) is a sum of the individual utilities.¹⁷ Harsanyi’s originality is to combine self-interested individualism (i.e., no role is assigned to the state even by implication) with the moral quality of caring for others. The deus ex machina is to assume that: (a) individual preferences can be divided into one’s self-interested personal preferences and his/her moral preferences which are an indicator of his/her concern for other persons in society; (b) that every individual has an equal probability of being any other individual; and (c) that each individual has the capacity of being in someone else’s shoes (determined by mental comparisons alone). Here (b) and (c) provide the ethical foundations of Harsanyi’s (1955) formulation.¹⁸ Once these assumptions are made, the impartiality of social decisions is ensured. Here, social decisions are made, not by the state, but by Adam Smith’s “impartial spectator”, who possesses the entirely agreeable qualities (a) to (c), and whose preferences are representable by a social welfare function.

The basic contributions here are the following: (a) light is shed on the processes of making just collective decisions – namely, by ensuring that these are made by the “impartial spectator”, who does not have prior information about his/her chances in life. Such impartial decisions have a high probability of gaining unanimity in a democratic society where individual preferences matter. (b) The additive form of Harsanyi’s social welfare function (i.e., that individual preferences should be added