Introduction for Kantian Ethics and Economics

Introduction

I love economics, I really do. And I always have, ever since my sixth-grade teacher Mr. Dalton drew a supply-and-demand diagram on the chalkboard. After he explained how it works, I thought he had revealed to me The Answer to Everything. But while I love economics, we definitely have a love/hate relationship. One way in which this book can be seen is as an exploration of that relationship, mediated ultimately by philosophy (and an unlikely choice for a marriage counselor).

As we typically teach our undergraduate students, economics has a positive side and a normative side. The former attempts to explain why the world is how it is, how it got there, and how it will be if things change; the latter tries to tell us how the world ought to be, and what should be done to get us there. Economics tries to do both in a “scientifically” or “value-free” way, which is absurd. The absurdity is most obvious in reference to normative economics, which claims to make “ought” statements with no value to support the ought (which, naturally, is all for naught). But the absurdity is also present, though less apparent, when we talk about positive economics, because economic explanations and predictions—especially in microeconomics—are ultimately based on human behavior, which is driven by an ersatz mixture of moral, amoral, and immoral reasons and desires, all processed very imperfectly (as behavioral economists keep telling us).¹

It was this realization that introduced a crack into my relationship with economics that has only grown over the years. At the same time as I was trying to master technical mainstream economics in graduate school, I started reading philosophy on the side—picture me crouched in the back of the classroom, a dog-eared tome of contraband wisdom hidden in the dustcover of Hal Varian’s micro text—in an attempt to answer some of my questions and flesh out my reservations and intuitions. And when I lit upon the moral philosophy of Immanuel Kant, I knew I had found what I was searching for. Finally, after a very prominent and respected economist told me, “you’re either an economist or you’re a Kantian—you can’t be both,” my course was set—I would be both.

Why Kant?

Of all the moral philosophers in this big world, I had to choose Kant. As many a frustrated PHIL 101 student would ask, “Why?” (This is only appropriate, since the universal response to hearing that I teach economics is, “Oh, economics was the most confusing course I took in college!” To which I say, “Go ask for your money back, then—it shouldn’t have been that tough.”) Let me try to explain why Kant “spoke to me,” and in the process, I will also explain a little about how this book will proceed.

As usually taught and practiced, modern economics is essentially utilitarian. Normally traced to Jeremy Bentham and John Stuart Mill, utilitarianism is a system of ethics that judges the morality of actions by the goodness (or “utility”) of their consequences, and is therefore a type of consequentialism. Variants of utilitarianism define utility or the good in different ways: some utilitarians hold happiness to be the good, others use a broader sense of well-being (often including income, wealth, or health), while yet others use utility more formally as a numerical index of preference satisfaction. It is this last type of utilitarianism that most closely resembles economic models of choice, in which agents act to maximize their preferences within their constraints (usually based on money or time). Originally defined over consumption goods which serve to increase one’s own self-interest, preferences have since been generalized to include altruistic or interdependent impulses or drives, which led to the earliest models of altruistic economic behavior.

However, the structure of preferences in economic choice models implies trade-offs between the options over which preferences are defined. If a consumer plans to buy a certain combination of soda and juice, and then discovers that the price of soda has risen, we would expect her to buy less soda and more juice. By the same token, if an agent is deciding how to allocate her income between consumption and charitable giving, and then the tax deduction on charity is reduced (making it more costly), we would expect her to donate less to charity and spend more on herself (or her family or friends). A similar picture can be painted in terms of time: as a worker’s wage rises, she would likely spend more time at her paid work and less time donating her time to a local charity. Trade-offs are everywhere in economic models of choice, and analyzing these trade-offs, made necessary by scarcity of resources, is what I consider economics’ most important contribution to the world. (It may even make up for Paul Krugman.)

Nonetheless, surely there are some things we do (or devote resources to) that would not be affected by changes in their cost, and choices regarding these things would not involve trade-offs. To continue the examples of charity, we can imagine a person who promises to donate $50 to a local animal shelter every month. Even if the opportunity costs of that monthly donation go up (due to higher bills one month), it is possible that she will not change her donation, because she made a promise. Another person dedicates three hours of her time a week to the same animal shelter, and may not reduce her time even as it grows more valuable in another way (for instance, due to a higher wage or a new romantic relationship). We could say, of course, that these kind persons just have very strong preferences for helping this animal shelter. But this would imply that if the opportunity cost of their charity rose enough, they would reduce it. And this is reasonable to imagine in some cases, but it is not universally true; for some people, a promise is a promise, simple as that.² And the model of preference-satisfaction cannot explain keeping a promise just because it is a promise, except by assuming an ad hoc preference for keeping promises (which can itself be traded off for other things, and so on).

I soon discovered that other economists shared this concern, the most prominent of them being Amartya Sen, whose seminal work integrating economics and philosophy—particularly his succinct book On Ethics and Economics—was a great inspiration to me and many others in the field. Specifically, in his classic paper “Rational Fools,” he wrote of commitment, which cuts across and often against preferences, severing the connection between preferences and choice which was considered ironclad before then (and still is, sadly, by most economists today). As I began to read Kant in anticipation of working his insights into economics, I discovered that others had done similar work in a Kantian vein. Amitai Etzioni wrote of a “Kantian socio-economics” in which agents balanced moral preferences with self-interested ones.³ Lanse Minkler had incorporated commitment into a simple mathematical model of choice, and even cited Kant’s ethics as one possible source for it (among others).⁴ So I knew I wasn’t crazy—and even if I were, at least I wasn’t alone.

To be sure, Kant has a very particular way of conceptualizing commitment: duty. We will see how he explains and defends the concept of duty by reference to his famous categorical imperative in the first chapter of this book, but for now, suffice it to say that the strictest duties do not bend to opportunity cost, and they are not traded off or compromised when circumstances change. (Sometimes, perhaps more often than we think, a strict duty has to bend to another duty, which we will discuss later, but never to the particular consequences of an action.) This was one element of what drew me to Kant, this steadfast notion of doing one’s duty, doing what’s right, no matter what the cost. More generally, Kant maintained that when a duty applies to a situation, it is the right thing to do, regardless of contingent factors or circumstances. This is not to say that determining one’s duty in any given circumstance is easy, but once you solve that puzzle, you know the right thing to do—your duty.

Aside from the limited conception of individual choice, which makes no room for concepts like duty or right, a more obvious implication of the utilitarian basis of economics is found in welfare economics. Welfare economics evaluates states of the world based on the total utility or welfare accruing to the parties involved, and actions or policies are likewise judged by their effects on aggregate utility. If everyone was made better off by a change, then there would seem to be no problem (but, as we will see in Chapter 5, things are actually not that simple). While such improvements are possible with changes in rules or institutions, they are far less common when resources have to be allocated—or, to be more precise, reallocated. When dealing with scarce resources (such as in a budgetary process), usually one group of persons can benefit only if another group loses; a municipal planner can also increase funding to the parks department by taking funds from another department or the taxpayers. Welfare economics therefore typically looks at the net effect of a change, accepting a certain amount or degree of harm to some as a means to the end of benefiting others by a larger amount or degree. Usually no effort is made (or even considered) to rectify or compensate for the harm done, much less secure the consent of the harmed persons; these are considered bureaucratic technicalities to be dealt with by politicians after the economists have finished their part of the job.⁵

This recalls a signature problem with utilitarianism, which treats persons as mere receptacles of utility to be summed up to arrive at an aggregate number which can—indeed, must—be maximized at any cost.⁶ If this were true, then there would be nothing wrong with reducing the utility of one person to some degree in order to increase the utility of another by more. But if we are going to respect these persons as persons and not as objects or mere things, we cannot simply use them like this. What did the first person do to deserve being harmed? What did the second one do to deserve benefit, especially at a cost to the first? Why are economists fine with these redistributions of benefit and harm with no consideration of why persons deserve one or the other? These questions were particularly frustrating to me as I was studying economics as an undergraduate and a graduate student—and they still are.

But Kant again provides us with an alternative way of thinking about such matters, writing that every rational being—which is to say, every person—is endowed with dignity, an incalculable and incomparable worth, by virtue of her autonomy, the capacity to follow laws of her own design without undue influence from external pressures and internal desires. The dignity of a person demands respect from both other persons and herself, and provides a substantive basis for Kant’s ethics, reflected most clearly in his prohibition against using persons as mere means to an end. This has obvious and potentially disastrous implications for welfare economics as it is currently practiced, since it typically endorses policies as efficient when they benefit one party to a greater extent or degree than they harm another, even though the harmed party has done nothing to deserve such treatment and is usually not compensated for her harm. And even if she were so compensated, but did not consent to the change in the first place, then the change was forced upon her, which can be considered an insult to her dignity more fundamental than a failure to rectify her harm. Welfare economics, as with utilitarianism in general, has no room for concepts of desert, rights, justice, or dignity—at least without making them contingent on, or constitutive of, utility—which is its fundamental weakness in the face of a Kantian approach.

So, to answer the question “why Kant,” his approach to ethics appeals to me because of two basic ideas: that a person should, can, and sometimes does do the “right” thing even at the expense of his own self-interest, and that respect for the dignity of the individual can sometimes trump matters of aggregate utility. (The “trump” language comes from legal and political philosopher Ronald Dworkin, from whom we will also hear in the chapters to follow.) Furthermore, I have come to believe strongly that dignity is the heart of Kantian ethics; his is a very humanistic ethics, one concerned with both the right that persons do and the good that comes to them because of it. It reaffirms the majesty of the individual as an autonomous, free person, and also the responsibility of each person not just to look out for herself, but also to maintain constant respect for other persons, both negatively and positively, so we can also live together in harmony and prosperity. I hope all of this comes out in the pages that follow.

Why Not Virtue Ethics?

One frequent criticism of Kant’s moral theory is that it is excessively cold, unfeeling, and harsh, a judgment which many Kant scholars (including me) feel is an exaggeration. This perception often results from a familiarity with just the first of his three books on ethics, 1785’s Groundwork for the Metaphysics of Morals. This short book serves as an excellent introduction to the concept of duty, the categorical imperative, and the nature of the good will, but leaves out much of the richness of Kant’s system. The Groundwork alone leaves the reader with the impression that Kant was solely concerned with duty and morality, and very little with happiness, pleasure, or well-being, much less virtue or character. His second book on ethics, 1788’s Critique of Practical Reason, primarily justifies the theory presented in the Groundwork, but in the third, 1797’s The Metaphysics of Morals, Kant makes clear that he cares intensely for happiness, if only secondarily to duty; persons are worthy of happiness in proportion to their virtue. He also emphasizes that many duties, such as that of helping others, are quite flexible in their execution, and may be moderated even to pursue even one’s own interests. Furthermore, he discusses his conception of virtue as strength of character, as well as factors that can support or impede the development of that strength (a theme elaborated upon in 1793’s Religion within the Boundaries of Mere Reason).

Recently, I have come to know and debate with, in person and in print, brilliant economists and philosophers, such as Deirdre McCloskey and Irene van Staveren, who argue the case for virtue ethics as a preferable moral foundation for economics.⁷ Not to put too dramatic a point on it, but I prefer to think of virtue ethicists and Kantians as allies in the eternal battle with utilitarians for the heart and soul of economics. (See, no drama.) But naturally I am asked, “Why aren’t you a virtue ethicist instead of a Kantian?” So allow me to address this briefly, without trying to make a Grand Definitive Statement on the issue (as I hope to explore virtue ethics and Kant in relation to economics further in the future).

The easiest way to answer the question, somewhat of a dodge but nonetheless correct, is to argue that Kant and virtue ethics have much more in common than usually supposed.⁸ So by promoting a Kantian approach to economics, by implication I am advocating the relevant parts of virtue ethics as well. But that naturally leads to the question, “What do Kant and the virtue ethicists have in common?” And I would answer, simply: character. Kant and virtue ethicists hold moral character to be of significant concern, though in different ways. Virtue ethics is notoriously difficult to define, as Aristotle, David Hume, Adam Smith, and Confucius have all been called virtue ethicists of one sort or another, despite the many differences in their moral philosophies. Nonetheless, virtue ethics is most commonly associated with Aristotle, and in his version moral judgment applies primarily to persons themselves, not to their actions or the consequences thereof. It is the person who is virtuous, and an act is morally good if it is what a virtuous person would do in similar circumstances. As such, virtue ethics is often contrasted with ethical systems which focus on acts, whether in regards to their intrinsic properties (such as Kant does) or their outcomes (such as utilitarians do).

But it is not so simple to characterize Kant in this way. He famously asserts, at the very beginning of the Groundwork, that “there is no possibility of thinking of anything at all in the world, or even out of it, which can be regarded as good without qualification, except a good will.”⁹ But a good will is not defined by the acts it performs; rather, a good will is one which is autonomous and therefore follows the moral law, and that is why it is good (and therefore performs moral acts). Acts can certainly be judged morally good or bad without asking if a person’s will is good without qualification, but at bottom, a good will is the most important thing when evaluating a person’s own morality, and this essential focus on moral character on the part of Kant parallels virtue ethics. At the same time, both Kant and the virtue ethicists are very realistic about the fallibility of human reason and morality, and they have written rich accounts of weakness of will and succumbing to impulses that compromise one’s character or virtue. (In fact, Kant referred to strength of will as “virtue.”) Utilitarians, on the other hand, have no such accounts; as we shall see in Chapter 2, despite much mathematical and analytic elegance, economists have not developed an account of weakness of will rich enough to explain how persons can resist temptation and persist in their virtue. Also, unlike utilitarians, Kant and most virtue ethicists give critical importance to the motivation behind an act. To be truly ethical, one has to do the right thing for the right reason; for Kant, this means performing one’s duty for the sake of duty, and for Aristotle, this means fully internalizing a virtue, not just simulating it.

Despite their similarities, Kant has nonetheless been criticized by virtue ethicists (and others) on several grounds, two of which I will address here (as well as later in the book). One is that he is excessively formalistic and analytical. For instance, we will soon see that one version of Kant’s categorical imperative, the Formula of Universal Law, reads: “act only according to that maxim whereby you can at the same time will that it should become a universal law.”¹⁰ It is both understandable and unfortunate that the universalization aspect of this formula has come to signify Kantian ethics to the exclusion of its deeper, richer elements (and Kant himself promoted the use of this formula over the others). But as I said above, I regard dignity to be the true heart of Kantian ethics, and this heart is reflected more explicitly in another version of the categorical imperative, the Formula of Respect of the Dignity of Persons: “act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means.”¹¹ From this formula, we learn that each person must recognize the equal dignity and autonomy of every other person, which generates the strong sense of reciprocity that motivates, and is inherent in, the universalization requirement (and therefore unites these two versions of the categorical imperative). So while more directly useful as a test for maxims, universalization is merely an inferior reflection of dignity, which is the true meaning of Kantian ethics, although it is often obscured and distorted by near-exclusive emphasis on the Formula of Universal Law.

Another common criticism is that Kantian ethics is too rule-oriented, and as a result is divorced from context and circumstances; certainly the terms “categorical imperative” and “duty,” so prevalent in the Groundwork, make one sympathetic to this view. For instance, van Staveren argues that virtue ethics, as opposed to utilitarianism and Kantian ethics, “acknowledges that in the real world, agents are concerned with both consequences and duties, but subject to social relations and context.”¹² But Kantian ethics also takes both of these things into consideration. For instance, as we will see in Chapter 3, the importance of social relations is embodied in our perfect and imperfect duties toward other persons, based on their inherent autonomy and dignity, and the respect owed to them thereby. In fact, a third version of the categorical imperative, the Formula of the Kingdom of Ends—“every rational being must so act as if he were through his maxim always a legislating member of the universal kingdom of ends”¹³—makes clear that the overall goal of morality is to bring about a world in which every person can pursue his or her ends, consistently with everyone else doing the same, achieving a social equilibrium representing maximal freedom for all. Given this respect for personhood (in oneself and others), I maintain that Kant can be considered one of the most humanistic and socially oriented moral philosophers.

The role of context, which I take to mean the realities of human existence, social or not, is another often misunderstood component of Kant’s ethics. The categorical imperative, and the duties resulting from it, are too general to apply directly to our actual lives in all of their complexity; as philosopher Barbara Herman writes, “the categorical imperative is not itself a moral rule—it is an abstract formal principle.”¹⁴ As such, the categorical imperative itself is not contextual, and cannot itself be applied directly to any real-world moral dilemma. It can help a person see what her various obligations are in any given situation, but in order to decide on a course of action, she needs to use her judgment. As Kant wrote, “to be sure, these laws require . . . a power of judgment sharpened by experience, partly in order to distinguish in what cases they are applicable, and partly to gain for them access to the human will as well as influence for putting them into practice.”¹⁵ Kant does derive general rules or duties from the formal moral law, but these are not to be applied mechanistically to real-life dilemmas; they merely provide guidelines for right action. To decide what we should actually do in any situation, we make choices guided by our “moral compass” and informed crucially by the context of the situation itself. And Kant gave us no rules for how to do this—not as an oversight, but in recognition that any rule that tells us how to apply another rule would in turn require a rule telling us to apply it, and so forth. Instead, he trusted in our judgment, crafted over time by recognition and appreciation of the moral law.

So if they’re so similar, as I’ve argued, then why do I prefer Kantian ethics to virtue ethics? I would have to say because of its grounding in autonomy and dignity, which confirms the endless potential and intrinsic worth of every human being, as well as our responsibilities toward each other. Kantian ethics maintains a firm basis in character, and derives specific duties and obligations from that, in a more systematic way than most systems of virtue ethics. Most generally, I find Kantian ethics to be empowering, inspiring, and humbling at the same time. Consider, for instance, one of my favorite passages from the Groundwork:

For the pure thought of duty and of the moral law generally, unmixed with any extraneous addition of empirical inducements, has by the way of reason alone . . . an influence on the human heart so much more powerful than all other incentives which may be derived from the empirical field that reason in the consciousness of its dignity despises such incentives and is able gradually to become their master.¹⁶

Once you get past all the talk of duty, there is a tremendously positive message in Kant’s ethics. When a person realizes what she is truly capable of, she can do anything. And if all of us do the morally right things (according to respect and concern for all persons), we can do anything. Through the ideal of the kingdom of ends, morality provides the foundation for prosperity, flourishing, and happiness. Kant reveals to us our limitless potential by virtue of our autonomy, which at the same time implies responsibilities to ourselves and each other. (And I think that’s wonderful, in the most literal sense of the word.)

Why Should Economists Know About Kant?

So now you know why I was drawn to Kant’s ethics, and why I prefer it to utilitarianism and virtue ethics. But why should other economists care? What does an understanding of Kant have to offer to them?

For mainstream economists, exposure to a Kantian approach will do (at least) two things. First, it will expose the utilitarian foundations of what they do. Certainly many economists are aware of this, but just as many—if not more—are not. Once they realize the origins of modern mainstream economics, particularly economic models of choice and welfare economics, and they have been exposed to an alternative, they can choose which one makes more sense to them. As economist John Hicks wrote, “If one is a utilitarian in philosophy, one has a perfect right to be a utilitarian in one’s economics. But if one is not . . . one also has the right to an economics free from utilitarian assumptions.”¹⁷

Let me mention here a dangerous misperception among some economists, that utilitarianism is somehow more “scientific” than Kantian (or virtue) ethics. After all, when applied by economists, it reduces everything to numbers, variables, and functions, which can then be added, multiplied, and maximized—and graphed! What could be more objective? But of course, there are very strong and controversial value judgments underlying those calculations; for instance, everyone’s utility is treated equally regardless of desert, and no rights exist that are not subject themselves to utilitarian justification (and therefore are not true rights at all), except the implicit right of those in authority to execute policy in the interest of aggregate utility. Utilitarianism is neither scientific nor objective—its normative foundations are simply hidden under the veneer of mathematics. Once this fact is appreciated, economists can make a true choice among the values they choose to endorse. If they choose utilitarianism, fine—as long as they do so with eyes open. But I suspect some would choose Kant (or virtue ethics, for that matter), and this book provides one way to incorporate Kantian insights into economics.

Second, incorporating aspects of a Kantian approach into economics will broaden and strengthen the explanatory, predictive, and justificatory powers of economics. I make the case in the first two chapters of this book that the typical model of economic choice is deficient because it does not incorporate duty (Chapter 1) or willpower (Chapter 2). With an expanded perspective on human decision-making, economists can better understand, explain, and predict normal and “anomalous” behavior, which in turn will enhance the efficacy of policymaking. But more importantly, a Kantian approach will shine a critical spotlight on the ethical dimensions of economic policy itself and the utilitarian analysis that supports it. In the last two chapters, I explain that Kantian ethics poses serious problems for the typical evaluative standards of welfare economics, in particular Kaldor-Hicks efficiency (Chapter 4) and Pareto superiority (Chapter 5), by recognizing that the dignity of persons implies rights that can trump considerations of social welfare (total utility). Mainstream economists typically pay no attention to the process by which welfare is maximized, but if this can be done only by violating important rights, this represents a grave offense to human dignity.

But I did not write this book only for mainstream economists. I wrote it also for social economists, who share my concern about the ethical content of economic theory, practice, and education. Naturally, social economists tend to be more conversant in philosophical ethics, and more eager to question the assumptions of mainstream economics. Besides their support of incorporating ethics in economics, social economists, as the name would suggest, also are interested in social aspects of the economy and the connections and interdependences between economic agents. As such, they tend to be very skeptical about individualism, especially of the atomistic variety espoused by mainstream economics (often under the aegis of methodological individualism). Specifically, they often regard this individualism to be at odds with sociality, threatening to weaken the bonds that bring persons together and support a flourishing society. They typically extend this concern to criticisms of the market, which they consider an instrument of separation and isolation through which individualism corrodes those social bonds.

It was largely for social economists that I wrote Chapter 3 of this book, which also serves as a bridge between the discussion of individual ethics in the first two chapters and the discussion of policy in the last two. Through it I hope to assure them that individualism is not inconsistent with sociality and community, especially when the individual is understood in a Kantian context. I argue that the Kantian agent is individual in essence and social in orientation: while as agents, persons are very much individual as a result of their autonomy, the moral law demands a mutual concern that supports a flourishing society. This is made most apparent in Kant’s “kingdom of ends,” the utopian endgoal of his ethical system in which persons live in harmony, pursuing their ends consistently with each other in the support of the moral law.