Both books argue that morality is integral to economics, but do so in very different ways. Tomas Sedlacek surveys how diverse cultures throughout history have understood economic life; he then uses this history in a freewheeling critique of modern economics. Conversely, David C. Rose develops a very tightly argued, narrow case showing that a certain kind of non-utilitarian morality is crucial to economic outcomes; yet, he tries to fit this principles-based morality into a neoclassical, utility-maximization framework anyway.
Chronologically, Sedlacek covers the epic of Gilgamesh, the Hebrew Scriptures, ancient Greek philosophy, early Christian thought, and the Enlightenment. A small sample gives a sense of the diverse ideas: the habit of tyrants (first seen in Gilgamesh) to reduce human behavior to robot-like efficiency; ancient Israel’s Jubilee year, which periodically abolished inequalities of wealth and status; Christianity’s affirmation that the most important relationships are rooted in grace, a pure gift, rather than in economic transactions.
Sedlacek accuses modern economics of incorporating some bad historical ideas. His critique of Rene Descartes’ rationalism, by extension, critiques modern economics: “From his time, man is defined not by emotion but by logical reasoning. A perceptive individuality falls and is lost in the generality of an objective rationality identical for all. What cannot be calculated … is treated as if it were not real…. Man and reality are reduced to mechanical-mathematical calculus” (Sedlacek, p. 180). In addition to his critique of Descartes, he traces what is wrong in economics to Bernard Mandeville, while exonerating Adam Smith. His case for Smith relies heavily on the Theory of Moral Sentiments (TMS), although he acknowledges “Das Adam Smith problem.” (Sedlacek also glosses over other problems: for instance, even in TMS, Smith dismisses the significance of wealth and income inequality, a central issue for normative economics.)
Perhaps too tolerant of Smith, Sedlacek berates Paul Samuelson’s introductory text for, presumably, enshrining hyper-rational “economic man” (p. 14), worshipping material “progress” (p. 49), and other errors (pp. 178, 257). This is strange because Samuelson’s text hardly reflected hard-core neoclassical orthodoxy, Sedlacek’s apparent target. Samuelson’s humans (late 1950s edition) were hardly hyper-rational, for they succumbed to advertising, irrational spending, and the fallacy of composition. And Samuelson’s macroeconomics did not invoke individualistic maximization, which practically defines neoclassical economics. Although his tone was optimistic, Samuelson advocated avoiding preventable ills, which is hardly the same as worshipping “progress.” Democracy was the final arbiter of policy, thus empowering people with moral choice, something Sedlacek presumably would favor. The mischaracterization of Samuelson points to a larger problem: other enthusiastic overstatements sometime undermine Sedlacek’s case.
Sedlacek’s book has at least one glaring omission, particularly for a Czech author. Apart from scattered comments, Sedlacek ignores the Protestant Reformation, which, arguably, started with the Czech John Hus. Protestant ideas would seem germane to any historic survey. They include, for example: 1) religious individualism that plausibly evolved into economic individualism; 2) an empirical outlook opposed to rationalism (e.g., experiential education proposed by John Amos Comenius, another Czech Protestant, and the early expansion of empirical science in Protestant areas); and, 3) Friedrich Schleiermacher’s “historical-critical” approach to ancient texts, which he showed to bear marks of their histories. Ancient texts no longer need be seen as Unchanging Truths, to be used to freeze out new insights. The German Historical School in economics evolved from Schleiermacher’s approach, and it could have been one of the alternatives (called for by Sedlacek) to what has become modern economics.
Sedlacek protests the mathematical rationalism of neoclassical economics and its associated morality (“MaxU,” or egoistic utilitarianism). He also protests manifestations of this in popular culture: for example, the insatiable desire for more and more material things, resulting in overwork and excessive debt. Sedlacek’s antidote is “Sabbath economics”—regularly laying aside mere production and consumption to appreciate life and the abundance already achieved. Much like John Maynard Keynes, he advocates that productivity be taken as more leisure rather than more material stuff. But prescriptions for economic practice do not tell what reformed economic theory would look like. Sedlacek’s only alternative to orthodoxy seems to be eclecticism: “Let us use economic schools according to how they fit given matters…. [And] let us order them according to their usefulness for a particular reality” (p. 318). Even an example might have helped.
Rose’s book fills the void left by Sedlacek. He demonstrates how a specific type of ethic may solve a problem that is otherwise intractable for neoclassical economics. Rose holds that, due to scale economies, large economic institutions are crucial to a prosperous society. But, he continues, largeness requires trustworthy employees. In a purely utilitarian framework, the cost of deterring dishonesty (monitoring, rigid rules, punishing, etc.) rises exponentially with increased firm size, so largeness becomes cost-prohibitive. Perhaps the most important cost of deterrence is denying discretion to employees for fear they will abuse it. Rose defines the “golden opportunity” as a chance to exploit the firm with zero probability of detection (most likely in large firms). Deterrence breaks down entirely because the “golden opportunity,” by definition, offers only benefits, and no costs.
Rose’s answer is that only a culturally transmitted, principles-based (non-utilitarian) morality can create genuine, universal, trustworthiness. A principles-based morality eliminates the need for costly deterrence and makes the “golden opportunity” irrelevant. With a principled morality, the utilitarian cost-benefit calculation, as the only norm for deciding one’s actions, is ruled out, along with the chance of doing a dishonest deed. When people look to moral principles, some kinds of deeds are simply outside the domain of what will be considered at all. Moral duty replaces the cost-benefit calculation (and the potential untrustworthiness it implies), high-trust society emerges, and scale economies take hold.
Rose is very sensitive to neurological and experimental evidence suggesting how humans are “hardwired” by evolution to behave morally (another non-utilitarian ethic). However, he says evolutionary norms against harming others emerged in the context of small tribes and clans, and would fail in larger groups because losses from opportunistic deeds would be averaged over so many people that no perceptible harm is visible. Thus, evolutionary ethics would fail.
Rose also requires a certain kind of principles-based morality. An acceptable morality must give priority to the duty not to commit harm over any mandate for benevolence to others. If doing good and foregoing bad are viewed as moral “substitutes,” Rose worries, then people would be tempted to substitute one for the other. The trade-off means that people might cease being trustworthy even while holding a principled morality. Thus, moral priority must be given to prohibitions against bad actions over mandates to do good.
Rose works all this into an overarching neoclassical-utilitarian framework, despite the apparent incompatibility of principled morality and utilitarianism. This may be an attempt on Rose’s part to communicate in a way neoclassical economists are most likely to understand. However, it raises problems of its own. An example of this strategy is that Rose chooses to model moral principles as though they were fixed “tastes” in a utility function. I see this as potentially confusing, for tastes are subjective and relativistic (i.e., who can say my favorite dessert is better than yours?), but generally these are the last attributes religions or philosophies would assign to their moral principles.
Continuing with this strategy, Rose argues that principled morality stops bad actions by creating unpleasant guilt feelings for transgressors. This imposes a utilitarian pleasure-pain calculus on non-utilitarian ethics! Why not avoid bad simply because one truly believes it to be bad? Once this road is taken, one must ask: what if guilt turned out to be too weak to deter unprincipled behavior? In that case, even principled moralities would fail to create trustworthiness (thus, Rose refutes his own position by injecting a utilitarian construct).
The trade-off idea, mentioned above, is also an imposition of utilitarian logic where it seems out of place. After all, trading off good and bad behavior makes sense only if one is trying to maximize something akin to a utility function, perhaps a personal “morality index” of some sort (though this idea is alien to principled moralities that I can think of). This means that a subjective index (though somewhat shaped by moral “tastes”) replaces principles as the final determinant of one’s actions.
Rose largely avoids an extended discussion of any culture’s particular principled ethic. Yet, one would expect that successful economies should rest upon morals congruent with his requirements. Therefore, his shrugging-off of this test of his thesis seems ill-placed: “moral beliefs that comport with the moral foundation [his name for what we have discussed] might not actually exist…. But I do not find this possibility to be troublesome …” (p. 147). However, if his thesis is to be credible, the failure of a prosperous economy to have the prescribed ethic ought to be very troublesome.
Lacking an extended discussion of cultural ethics, the book settles, first, for a brief comment on biblical ethics (p. 143). Rose’s commentary on Jesus’ teachings is, in my view, largely accurate, yet unconvincing as to prohibitions against bad deeds taking priority over mandates to do good. Jesus identified himself with the weakest members of society, and divided the “sheep and the goats” according to who acted positively for the weakest (a mandate to do good). This clearly seems inconsistent with the priority of prohibitions. All in all, the priority of prohibitions is the solution to a problem that might not exist, except in utilitarian modes of thought.
What makes Rose’s moral thesis important—not just interesting—is that scale economies (the basis of prosperity) can occur only in high-trust societies. But it seems to me that in certain industries, a particular technology may be sufficient for scale economies to emerge, even lacking a high-trust culture. Firms requiring vast amounts of capital equipment and very few employees might well grow large, even outside a high-trust culture. Costs of deterring so few employees from doing bad deeds would be small, relative to large-scale production. Thus, the impact of trust on scale economies may require further study. One might also care to disentangle the effects of scale, as such, from those of advances in science and technology in creating prosperity.
My overall summation is that Sedlacek’s wide-ranging, freewheeling history of economic morality is enlightening and provocative in its own right. And his proposals for modern economic practice will be appealing to some and thought-provoking for others. Despite my qualifications, previously noted, his book is a much-needed introduction for economists to the liberal arts. Rose’s book, by contrast, is closely argued around a tightly defined thesis. It shows that a utilitarian morality is flawed in dealing with the problem of trust. Yet, Rose surprisingly forces his discussion of principled morality to fit the form of utilitarian logic, and, thereby, may hurt his case. Despite this, Rose is impressive in his ability to expound a highly logical case, many parts of which are a model of exposition.
