Abstract
Carl Menger advanced a narrow definition of exact or theoretical economics. Theoretical economics is the study of the self-interested aspect of human efforts made to meet needs. One implication of this definition, Menger argues, is a strict demarcation between ethics and economics. Menger advances this demarcation against what he calls the “ethical orientation” of the German Historical School. A problem with Menger’s demarcation is that one cannot easily define and operationalize the concept of “self-interest” so as to exclude issues reasonably considered “ethical.” Humans are ethical-rule-following beings. Following rules and abiding by social norms is a part of most people’s “interests” as they themselves understand them. From ideas in behavioral and experimental economics, we see that rules can be constitutive of one’s interests, not just constraining. Ethical sensibilities are not only part of the explanadum in economics, but are, in certain instances, an important aspect of the explanation. Insofar as self-interest interrelates with ethical phenomena, economists, even of the theoretical sort, should pay attention (as did a number of early modern political economists and philosophers) to the following: (1) the ways in which contextual norms of propriety and interests interpenetrate; (2) the sociological and psychological mechanisms by which ethical sensibilities and interests are transmitted; and (3) the differences that ethical sensibilities can make for material or economic outcomes.
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Notes
References to Menger’s works: References to the Investigations into the Method of the Social Sciences, hereafter Investigations, are to Menger (2009). References to the Principles of Economics, hereafter Principles, are to Menger (1994). Throughout this essay, italics in quotes are original to the source unless otherwise indicated.
On this point, see Milford (1990, 227).
Daniel Klein (2012, 55–58) explains why “emergent convention” might be a better descriptor of what Menger describes than “spontaneous order.” “Menger studies the organic basis of the conventions by which the catallaxy works, but does not make a fuss over the catallaxy [the spontaneous order] itself…He never marvels at the division of labor and knowledge that makes a woolen coat, nor expounds on the importance of liberty to the felicity and beauty of such concatenations” (57–58).
For an attempt to construct a unified theory of value, along the lines of Austrian economists and philosophers, see Grassl (2017). Drawing especially from Franz Brentano and Menger, Grassl articulates a theory of value rooted at once in Aristotlean ontology and ethics and the insights of marginal economic analysis. The theory has the virtue of overcoming the division between economics and ethics and could, at least in principle, accommodate some of the difficulties in Menger treated in this article.
In Hayek the demarcation seems to be is overcome. For a relevant discussion see Hayek’s (1961) discussion of the non-sequitur of J.K. Galbraith’s notion of the dependence effect. See also Dold and Lewis (2021), especially their analysis of the social psychology of Hayek’s The Sensory Order. See also the comments on Hayek as spanning the two Austrian value theory traditions in Grassl (2017).
See Sen’s (1977) distinction between “commitment” and “sympathy.”
Following Hobbes, one might maintain that knavery is the norm and that we erect Leviathan to prevent and constructively channel knavish behavior. A problem concerns monitoring costs. Perhaps one might conceive of the origins of conventions of property and political authority in terms of strategic knavery. But maintaining those conventions through external enforcement mechanisms would seem, as Hume recognizes, quite difficult. For discussion along these lines see Hargreaves Heap (2021, 107–12).
Menger of course read Smith, although not always carefully. In a remarkably off-target passage he says:
"It is [Adam Smith’s and his followers’] defective understanding of the unintentionally created social institutions and their significance for the economy [that constitutes their failure]. It is the opinion appearing chiefly in their writings that the institutions of economy are always the intended product of the common will of society as such, results of expressed agreement of members of society or of positive legislation" (Investigations, 172).
Especially in his later lectures to Crown Prince Rudolf, Menger was nonetheless quite Smithian. But in his methodology, and in aspects of his analysis of institutions, he would have done well to dwell further in Smith’s ideas, especially his ideas in The Theory of Moral Sentiments.
These examples draw from Sugden (2005, 154–55).
For an argument that Smith misrepresents Hume see Matson et al. (2019). Hume, like Smith, recognizes that individuals do not act, in the first instance, because of estimations of usefulness. Hume sees that individuals are ethical-rule-following beings, who learn to associate a certain agreeableness with rule-following. He doesn’t, however, emphasize the point nearly as much or as well as Smith.
Even knavery in Smith is often governed, or at least channeled, by group-approval dynamics. For discussion see Levy and Peart (2009).
See Hargreave Heap (2021, 111–12) for discussion of Tocqueville in similar context.
McCloskey (2016, 373–374) discusses Taylor’s ideas and affirms their parallel to her own ideas.
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Acknowledgements
For valuable feedback, I thank Dan Klein, Karras Lambert, Marcus Shera, an anonymous referee, and the participants at the 2021 NYU Menger conference. A special word of thanks to the Menger conference organizers, David Harper, Mario Rizzo, and Daniel Nientiedt.
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Matson, E.W. Ethical Economics or Economical Ethics? Considerations out of Carl Menger. Rev Austrian Econ 36, 311–330 (2023). https://doi.org/10.1007/s11138-022-00596-7
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DOI: https://doi.org/10.1007/s11138-022-00596-7