21 January 2008

Welfare Efficiency and Morality (2)

(Part 1)

In concluding my thoughts on Reckoning with Slavery, I turn to a passage from that book that I thought was especially excellent. It's by economists Paul A. David and Peter Temin, and it's a chapter entitled, "Slavery: the Progressive Institution?"
What is one to make of this effort to separate "economics" from "morality"? A dichotomy works two ways: the authors' insistence that economic matters should not be permitted to becloud issues of "pure morality" also suggest that no prior ethical judgments have contaminated the "purely economic" findings upon which Time on the Cross is based. But do the methods of welfare economics enable one to carry through an ethically neutral re-examination of the comparative social efficiency of the system of slavery? Is it possible to conduct the sort of "value-free" inquiry which Fogel and Engerman appear to envisage as establishing the economic facts concerning the consequences of this particular institutional arrangement, the objective historical truths about which moral judgments subsequently may be made?

The brief answer is that modern welfare theory is quite incapable of supporting such an undertaking. Not only does the central analytical concept of the "welfare efficiency" of a specific pattern of resource allocation have a distinct ethical content, but the ethical premises upon which it rests makes this a peculiarly inappropriate framework within which to comprehend systems based on varying degrees of personal involition.

The notion that questions concerning the allocative efficiency of alternative economic arrangements usefully can be separated from concerns with other aspects of those arrangements, such as the distribution of wealth, income, and ultimately of the human happiness that may be derived from them, is fundamental in modern economic welfare theory. But this notion rests on the idea that maximization is good-that a state of the world in which more of an inherently desired thing is available to be (potentially) shared by all is "better," in some widely shared sense of the word, than states in which there is less. For by moving to such a state at least some individual could be given more of what he desired (made "better off") without necessarily rendering anyone worse off. To such a change reasonable men freely would assent. Economists describe states where any individual's further gain must come at someone else's expense to be welfare-efficient, or Pareto-efficient; and a move toward such a position is said to be "Pareto-safe."

Pareto efficiency, then, is not an ethically neutral concept. It rests on the premise that each individual's desires (preferences among goods, and between goods and leisure, and goods today versus goods tomorrow) should be allowed to count. Thus Pareto-safe moves are ethically safe for the "scientific" economist to recommend only because maintaining the new position I:' presumably would require no coercion. Indeed, it is because one presumes that all commodities "consumed" are- voluntarily chosen, and all efforts and sacrifices made for the production of commodities are freely rendered, that the commodities ethically can be called "goods." But, once the presupposition of autonomous individual preferences is seriously questioned, it becomes unclear how truly voluntary "choice" is. The serious possibility that what individuals seem to want may be systematically shaped by what they have been allowed to have therefore undermines the ethical foundations of normative welfare analysis. If people who had been long enslaved eventually "chose" to continue in the security of their chains, should we unhesitatingly say that this test revealed bondage to be a "better" condition than freedom?

Welfare analysis based on the search for Pareto optimality not only subscribes to the complex ethical character of that criterion, but "counts" individual preferences only as these can be expressed through market behavior. Recommendations of Pareto-safe changes in the pattern of resource allocation therefore must implicitly accept the past and the existing distribution of income and wealth, the institutional working rules, and the larger social and political power structure. The criterion applies to consensual, "no injury" changes from whatever status quo has come to prevail as a result of the past economic and non- economic processes.

But because the prior specification of property rights can, and usually does exercise a powerful role in determining whether a particular change is deemed Pareto-safe, the rule of unanimity itself carries a strong bias in favor of the status quo. A slave set free might not be able, given his prior lack of training, to earn sufficient income both to compensate his master for the loss of his services and improve his own economic welfare. The two parties could not agree on manumission. Yet if a prospective master were obliged fully to compensate a free man for the welfare loss entailed in entering perpetual bondage, it is unlikely that the two could agree to that change either. So in determining which, between slavery and freedom, is the more welfare-efficient economic system, the thing that may well matter most is whether the new economic historian will start from an ethical resumption of the human right to freedom, or accept a factual status quo which finds a people already "stolen" and held in bondage.

Modern welfare economics is grounded on the supposition that '" all market and non-market transactions of interest between -individual actors are voluntary. Involuntary transactions, in which goods are wrested from unwilling "sellers" or forced upon unwilling "buyers," amount to theft and extortion, respectively. Such a theory is not helpful for deriving precise statements about the welfare consequences of changes which entail the introduction or further extension of involuntary transactions of the sort essential to slavery. As the ethical premise that each individual's preferences must count underlies the notion that the only "Pareto-safe" (welfare-efficiency justified) changes are those to which there would be unanimous assent, it is difficult to use this apparatus to assess the comparative economic welfare efficiency of slave and free societies. For in imagining the -change from one to the other you must acknowledge that the entailed redistribution of property rights violates the ethical premises for making formally justifiable statements about the resulting change in social welfare. When people are enslaved, welfare necessarily is transferred to their masters, and there is no ethically neutral way to compare the welfare-efficiency of the resulting institution with the set of outcomes characterizing an alternative institution, under which that particular interpersonal welfare transfer need not take place. Any such comparison would require weighing the slaves' losses against the masters' gains.

"Slavery: the Progressive Institution?" p.228
It is my view that economics has failed to assimilate this lesson, and become a theodicy of coercive capital.

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