Part Two: The Problems of Economics as a Science

The job of an economist should be to help gauge overall societal benefit and efficiency, quantitative measurements are just one small part. It is important to consider the subjective measures of wealth when aiming to create maximum good for the highest level of people. By subjective measures of wealth I simply suggest that not every dollar spent has a similar return. A poor family will have a greater consumer surplus on a paltry health-care plan than a ultra-wealthy family will have from a yacht. In general health care is considered the field with the highest consumer surplus. This simply means $50 spent on blood pressure medicine yields a greater wealth surplus than $50 spent on movie tickets. Since prices set and quantities demanded are set at supply and demand intersections, not the subjective value of a price, it can be difficult to measure how much of a surplus a consumer will recognize.

Economists who study these policies and economic phenomenon base their research on maximizing utility, but due to their differing personal beliefs, come to different answers on efficiency. The notion of ‘maximizing happiness’ is exceptionally vague. However, they are still within the bounds of legality and rules for our economy. While their personal beliefs may seem to differ widely, they are still required to optimize within the narrow confines of the law. My argument on the field is that economics provides a scientific shell. However, it is empty and useless if it does not have a set of rules (moral, ethical, or other) by which to measure efficiency and assumptions on human nature. It would be similar to playing soccer on a field, only there are no rules. You can still kick the ball around and run around, but it doesn’t lead to victory. An economist could still measure statistics of an economy, but without rules and moral assumptions, there is no narrative to understand and interpret the numbers. Some of the assumptions such as “humans prefer more to less” hold true so consistently that we forget that they are assumptions. However, there are many other assumptions that are a function of culture and time.

For basic liberties, such as those that exist in the constitution to be created, people at one point had to congregate and make a decision. In this context a constitution has always arisen from the will of the people, as at some point, they were formulated. However, deconstructing what ‘the will of the people’ means is a frightening task. For the purposes of this paper, however, I will not search down that rabbit hole. A cynical view of our history might find that constitutional liberties are often interpreted to fit the current zeitgeist of a population. Some scholars who argue for the ‘living document’ theory believe it was made to be this way. “Cruel and unusual punishment” did not always include lynchings and tar-and-feathering. Now neither is legal.

However, trying to decide if a constitution improves or hinders efficiency is a flawed question; regardless of your belief on how it ought to be interpreted. There could be an argument that if it protects each individual from society ‘ganging up’ on any demographic he is a part of, and then it improves efficiency. It could also be said that since utilitarianism is strictly what is the greatest good for the greatest amount of people, if 90% of the population wants 10% dead—then it is for the greatest good. This is of course absurd, but it is a result of the question being absurd. Trying to measure individual liberties and morality as ‘efficient’ or not is not possible. Generally individuals will come together and decide on liberties because they realize there is benefit in creating law that cannot (easily) be superseded. It is possible some individuals, economists or not, will or won’t agree with these liberties. But it is more of a question of how it fits a demographic or individuals sense of morality and values rather than any quantifiable or measurable form of efficiency.    Our population seems to generally agree, as a broad statement, that personal liberties must be protected. This form of governmental functioning is grounded in social-responsibilities to one another and values of ‘right and wrong.’ In a sense this helps create the rule-book to creating laws and policies that economists can help use to maximize efficiency. If we agree that we all have the ‘right to life, liberty, and the pursuit of happiness,’ and there are deaths in our population due to drunk drivers. Than an economist can roughly measure the cost on a policy that increase drunk driving deaths by 10%.

Having economists measure foundational laws for efficiency, such as constitutional laws, must presuppose another set of moral-responsibilities to adequately address the efficiency. However, if a country is not representative of its population the prior logic does not hold. I am not attempting to deeply examine the assumptions of democracy and ideas such as the will of the people. Rather I am assuming a binary example, for simplicity, where government constructions of liberty and law are either willful of the people or by a tyranny. The reality of the matter is more likely on a spectrum with countries that are ‘more’ or ‘less’ representative of the will of the people. Imagine a dictator that outlaws private property, it is possible to make judgment on how it might be destroying efficiency and utility by assuming the population is similar to the US in its desire for private property. Consider that some communes do not see a need for private property, and would not suffer from being disallowed the right, whereas most other societies desire the ability to own land. A result of this logic suggests that without a set of social-responsibility or morality, economic analysis is moot. This is not empirically feasible to test. Some assumptions on human behavior that economics has internalized are less relevant. Since there has been no meaningful discovery of a group of humans who want less, rather than more, exists (not including peculiar outliers) this is not a relevant or difficult to agree with assumption. The end result ends up with economics having small changes as it jumps society to society.

Now that I have argued the need for a set of rules or morality for economic analysis to work, revisiting the argument for there being a dichotomy between labor and capital is interesting.  There are many different arguments in political-economics and the idea of labor and capital is at the top. It epitomizes the most core issue in the debate of how to properly pursue economic efficiency. It has been a fiercely argued and debated topic since its inception. I will explain the rich history behind the debate and articulate the points of view from some economists. My core argument is that the the debate originated as a difference in the scientific aspect of economics. In fact the debate seemed to be largely quantitative and argued for different logical basis for how capital and labor interacted. I believe the core difference to instead hinge on a different understanding of human nature assumptions and different values. The economists I will most strongly draw on for this are Marx, Bastiat and Schumpeter. Marx and Bastiat, while both brilliant men, were both extreme in their arguments. Marx contributed vastly to the field of economics, however, his argument misunderstood how capitalism could survive and if properly regulated, help all citizens prosper. Bastiat believed strongly in the free-market, however, he assumed human nature to be hyper-rational. His argument against Marx and other pro-labor socialists focused entirely on the quantitative models, without considering sociological or class considerations. Schumpeter brought both economists together. His book “Capitalism, Socialism, and Democracy” is a brilliant analysis and recognition of Marx’s work, while still maintaining his own position and pointing out Marx’s errors.

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