Abstract
In his book Economics as a Moral Science, Bernard Hodgson argues that economics is not value neutral as is often claimed, but is a value-laden discipline. In the long argument for this in his book, Hodgson never discusses or even mentions corporations. This article explains that corporations are absent from Hodgson’s discussion because he considers only the consumption side of general equilibrium theory (GET), and it shows that if Hodgson had included corporations and the production side, his overall argument would have been more complete and convincing. This article shows that Hodgson’s methodology, when applied to the production side of GET, has value implications for CEOs of large corporations, for shareholders and members of Boards of Directors, and for legislators and regulators of business. Hodgson’s claim that economics must consider the ability of economic agents to create or change the institutional, cultural, and organizational conditions of their own economic actions is supported and expanded.
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Notes
I refer to ‘homo economicus’ as ‘him’ (and not the gender neutral ‘him or her’) because I accept the arguments of Nelson that gender bias is built into the concept (Nelson 2000).
All further references to Hodgson (2001) will just give Hodgson and a page number, e.g. Hodgson 7.
Firms are rational in that they use rational means to maximise profits, but they are not fully rational in the sense implied by rational choice theory (and that CCT views consumers as rational) because firms do not have preferences and utility curves (Drèze 1985).
For a further discussion of this distinction between abstraction and idealization, see O’Neill (1996).
The claim that corporations cannot be rational agents (independent of the way they are designed and run) does not entail the claim that they are not moral agents in the sense that French (1979), Arnold (2006) and others try to establish. That is a separate question. Here we make the restricted claim that, given the assumptions of GET, corporations are not rational in the sense that consumers are because corporations do not have indifference curves (Drèze 1985).
For further information on the effect of supervisory boards on employee working conditions, see Steger (2011).
The actual impact of vacation policies on shareholder wealth would be a topic for empirical investigation. Longer vacations make labour more expensive, but expensive labour tends to increase capital investment, which increases labour productivity. Longer vacations may also increase labour productivity with the more direct effect of having more relaxed and/or dedicated employees. The ultimate impact of vacation policies on shareholder wealth cannot be established without empirical research. However, since we are here using the example only to illustrate and clarify, it can serve that purpose without empirical verification.
On prediction as a test of GET and other economic models, see Friedman (1953).
For Frank et al.’s response to criticisms of this article, see Frank et al. (1996).
Wingenbach (2003) says, referring to an earlier conference version of the Clements and Hauptmann paper: ‘Laboratory tests attempting to generate and observe rational behaviour have been almost completely unsuccessful. In fact, according to Hauptmann and Clements’ (1999) excellent review of lab tests in economics and political science since the 1950s, the only experiment to yield genuinely rational outcomes was one using graduate students in a PhD program in economics. We might conclude that rational behaviour is observed in the lab only among those already trained in rational choice theory’ (Wingenbach 2003, p. 134).
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Bishop, J.D. The Elephant in the Room: On the Absence of Corporations in Bernard Hodgson’s Economics as a Moral Science . J Bus Ethics 108, 27–35 (2012). https://doi.org/10.1007/s10551-011-1084-6
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DOI: https://doi.org/10.1007/s10551-011-1084-6