Economics and Ethics

Had a discussion with a friend who is a staunch libertarian that caused a few things to click for me that have been rattling around for a while.

I studied economic and political philosophy for a bit before I began studying theology. Something that interested me about both economic and political philosophy is that they have at least at some level an underlying question that is about ethics. Both are, in some foundational sense, concerned with the question "how can society best provide for all its members?" We can see this historically in political philosophy in the development of feudalism in the middle ages: a society that was falling apart and facing great danger developed a system designed around the idea of protection for its members.

In economic terms, this question is explicitly in the mind of many of the founders of modern economic thought. Adam Smith, for instance, when he wrote The Wealth of Nations was certainly trying to answer this question. And he believed that answer lay in human self-interest. He believed that self-interested humans will always make economic decisions that are "in their best interest" and that allowing this process to freely play out would result in the most efficient economy, which to him meant the one that best provided for the needs of society's members. In other words, he felt that a free market was the most ethical system not because of concerns about property rights or about the authority of the government but because he felt that the end result of a free market was the best provision of peoples' needs.

So in my discussion with my libertarian friend, he argued that the free market was the best system. So far, we are in agreement. He then argued that government action like "The New Deal" were bad and were messing up the marketplace. This is where I begin to disagree. I think that a free market is ideal not as an ends but as a means to an outcome that is best for society. But because the free market is a means and not an ends in itself, I do not believe that when the market fails we are required to sit and wait on the market to fix itself (in the name of preserving a free market). Lets take the historical example of the Great Depression. Initially, preserving a free market was the policy of choice. However, three years later when unemployment was at a record 35% with no sign of getting any better, it seems fairly apparent that the preservation of a free market is no longer in societies best interest. Letting people starve for the sake of preserving the free market is of dubious morality, I think. So I think that the government was obligated at that point (and maybe should have reached this conclusion earlier) to step in and act in a way that relieved the strain on the country to provide for its own peoples' needs. In that case, the New Deal was economically and ethically an advisable strategy.

In a nutshell, this is what I'm arguing. Economic philosophy is not about making efficient markets or making the most profit. Sure, those things are products of good economic philosophy. However, the real motivation behind economic philosophy is an ethical one- the greatest good for society as a whole, the greatest provision of the needs and wants of societies' members. As such, I would argue with the general consensus of economists in the western tradition that free markets are usually the best way to accomplish this goal. However, I would strongly differ from libertarians in that I think the market is only a tool, a means to an ends. So when the tool doesn't work, you fix it or scrap it for a new one. Likewise, when the market fails, I believe it is acceptable for the government to intervene and attempt a solution that better provides for society.