A Reevaluation of Values in Economics, Society and Economy

A Reevaluation of Values in Economics

by Arjo Klamer
Society and Economy, v. 21 n. 4, 2003
cat: culture, practice, moral

What if moral, social and cultural values were to play a critical role in economic processes? And what if we, economists, would pay them serious attention? What would follow? Would we be able to stick to the customary road of rational choice or is there another road to travel, like a road of evaluation? What obstacles, vistas and insights might we expect to run into if we were to choose that latter road?

That values play a critical role in economic processes appears to make sense, common sense even. Look around and values seem to be everywhere. The value of justice guides social policy as well as the willingness of individuals to pay progressive taxes. The value of good citizenship moves people to sacrifice their free time and donate hard-earned income to charities. Some people even buy a particular brand of ice-cream not only because they value its taste but also because they appreciate the engagement of the makers in socially responsible projects. We value the honest car mechanic and the good mother. Promising lawyers forsake high incomes at corporate law firms to accept jobs with relatively low pay at the ACLU and other organizations with purportedly good causes. Do I need to go on?

Go on and valuation appears to influence all our decisions from the buying of ice-cream to the choice for having children. It shows in the endless deliberations with others and within oneself on what to do, how to value one option over another. Usually, the values expressed are implicit in what people say. When the 45 year old woman sighs "Oh, would another child not be wonderful?" she might think in general of the value of new life, of the meaning of having progeny, or more in particular, of the values of all those special moments she associates with childbirth, baby and growing up. The sigh indicates that other concerns are on her mind as she realizes that having another child conflicts with the values of having a job and having responsibilities outside the home. She may consider the social disapproval of large families or of an older mother ("you are crazy having a child at your age") or she may think of sleepless nights and the pain of adolescent rebellion. All these values may enter her mind when she reflects on the significance of being pregnant at her age. She most likely will end up talking with her partner, confiding with friends, and endlessly deliberating with herself. Such an evaluation, that is, the judging of a situation in light of all kinds of values that a person, or a group, holds, is a murky and fuzzy process.

Even the purchase of an ice-cream may involve a negotiation among many different little and big values. Because I like to follow my senses I might indulge yet because I also value being healthy (and know that the combination of sugar and heavy cream does not support that value) I may refrain. Or I may have an agreement with my partner to reduce my weight and so have to factor the value of being trustworthy. Then again, short term enjoyment may win over the values of self-command and trustworthiness. And if I have decided to enjoy myself that very moment, will I care about whom to give my business? How much do I value the values of a socially minded and therefore high-cost company that I will pay extra for its product? Do I care about the esthetics of the place? Does it matter who the other customers are? Who said something about given preferences? No algorithm will do justice to the complicated process that constitutes the purchase of an ice-cream.

Values inform our scientific deliberations, too. Some economists value rigor of analysis while others value empirical relevance above all. We all campaign for more funds arguing the value of academic research as such and our own research in particular. That these values of ours are not self-evident we have to realize when fellow scientists denigrate our proposals or, more poignantly, when our partners let it be known that there are other, more important things in life than the writing of papers. "The truth, the truth" we cry, to which they respond "How about the laundry, a little bit more intimacy and some vacation together?"

The conflicts show up in our internal deliberations, too. Should I share my richness with the beggar I am passing on the street or do I continue spoiling my already privileged kids with more goodies that they are in need of? One value, that of justice, clashes with another value that I hold, which is the responsibility towards those dependent on me. The value of justice dictates that I treat all people equally yet my sense of responsibility tells me to discriminate against the beggar even though she is in much more need of my money than my kids are. If I stress the value of justice (as true Christians and socialists are wont to do) I could judge myself a hypocrite for privileging "my own" unless I believe that by paying taxes I have acquitted myself of my responsibility towards the poor.

In short, values appear to permeate economic life in all kinds of ways in all kinds of shades. Should that not a reason for us, economists, to take them into account in our analysis of economic life?

The road of evaluation versus the road of rational choice

Those who travel the road of rational choice will usually not have the notion of value in their vocabulary. Values to them are subjective and pertain to the realm of preferences and those they have learned to assume given. When asked to ponder the subject of value Thomas Schelling, a sophisticated and otherwise resourceful economist, can not say much more than that economists respond by pondering price (Schelling 1997). He himself may wish to say more but his discipline prevents him from doing so. A few of his fellow travelers have tested the disciplinary boundaries by considering values specifically. Among them are the likes of Amartya Sen, Robert Frank, Albert Hirschman, and Robert Akerlof. Within the constraints of a rational choice framework such venturesome spirits have two options: either insert some value or another in the utility function or to identify values as constraints. In either case they can do no more than identify those values and assume them to be given. The algorithm that they built into their model subsequently has to show what rational agents will choose to do given their utility function cum values and the constraints cum values. Sen, for example, calls attentions to values in the utility function that may overrule normal preferences. Metapreferences he names such values and that says it all. /1/ In the analysis of someone like Binmore values appear in the form of norms among the constraints. Frank suggests that the acting out of certain values can be selfserving. Being honest can be good for business, for example, and good people have a better chance of attracting other good people. Here values are like assets generating (economic) return. In all these cases values are assumed given and handed down to the rational agents. There is no question of the need of deliberation and judgment, features that will prove to be characteristic for the road of evaluation. Ken Binmore and Larry Samuels (1994) seem to take exception with a evolutionary game-theoretic setup that allows for the generation of the need for norms but their model, too, has nothing to say about evaluation processes. There is no need to dismiss all their work straight away. I only want to allow for the question the possibility of another road, one that will urge us to take the musings, confusions and deliberations about values into account and name the values where possible?

For economists the road of values seems to be an odd option. A first scouting report indicates only a few potential travelers, if any at all. Much of the traffic is crowded with popular writers who have pointed at values in the economy, like Francis Fukuyama who stressed the importance of trust for the functioning of market economies (1995). During the last ten years or so business and political leaders have picked up the theme of values and exploited it to the point that it threatens to become inflated and then meaningless. Corporations are busy defining their values (customer relations, integrity, reliability and social responsibility among the favorites) and so do political leaders (when they do so, they usually think family values as if efficiency and economic growth are no values). Watching these activities makes the academic traveler wary. It is therefore advisable to look back and to discern the giants of our past as travelers of this road of value.

Adam Smith, for example, was a moral philosopher who pondered the values that would be required for the functioning of commercial society (prudence being the most important) and Karl Marx preoccupied himself with the consequences of the capitalist mode of production for the dignity of each individual. Then there was Max Weber (1930) who considered the relationship between economic systems and systems of values like calvinism and confucianism. Go further back and the moral thinking of Aristotle and Aquinas dooms up. Aristotle's work in particular will prove to be a critical source for anyone choosing to travel the road of value. Read Aristotle and everything humans do turns out to have a moral significance. In their striving to do good people try to realize the excellent virtues, like learnedness (for a professor) and courage (for a soldier). Virtue ethics is one of the themes that the traveler may get interested in (where virtue is that what we value in the actions of someone). There are many more, of which I would emphasize the interaction between economics and culture.

Thus far I have used "value" in the sense of moral, social and cultural values. Such values are qualities that are appreciated for contributing to or constituting what is good, right, beautiful or worthy of praise and admiration. Think of values such as honesty, integrity, dignity, compassion, courage, beauty, distinction and truth. But in origin value had above all an economic meaning and meant nothing more and nothing less than the worth of a thing. Classical economics was all about the problem of value in that sense (cf Heilbroner 1988, Dolfsma 1997). In their attempt to account for the value of things, classical economists felt compelled to distinguish exchange from use value. Smith, Ricardo and Marx sought an objective measure of value of a good in the amount of labor that was required for its production. Use value was secondary for them but not for the marginalists who proposed that the value that individuals attached to goods was decisive. The marginalists were called subjectivists because they pointed at the human subject as the creator of value. In their view value was a subjective matter, something like preference. Marshall took the discussion a step further and made it seem as if value came about in an interplay between demand and supply. And so the determination of economic value became to be viewed as a mechanical process devoid of moral, social or cultural connotation.

The definite breakaway from the road of evaluation came with the formalist revolution of the thirties and forties, as exemplified by the first part of Hicks's Value and Capital (1939), Samuelson's Foundations of Economic Analysis (1947), and Debreu's Theory of Value (1959). The inclusion of "value" in two of these titles might be considered a gesture to the former road traveled but the analysis in these texts showed that the practice of economics was firmly set on the road of choice.

Yet, the concern with values is making a comeback, slowly but surely. Recall that Keynes labeled economics a moral science because he wanted it to contribute to the good. In his economics he allowed himself to be guided by his values which were typical of the English gentleman - wisdom, integrity, aesthetics, intellectualism. In contrast, the American James Buchanan (1992) identifies with the values of the rugged American farmer - diligence, thriftiness, modesty. To name another example, Boulding insisted on the values that he shared with the Quakers - peacefulness, compassion, faithfulness, modesty. This goes to show that the insistence on positive, or value-free economics have not prevented values from playing a role in the lives and work of prominent economists. This does not mean, however, that these economists have considered values as a serious subject for economic research. They speak of them, allude to their influence, name a value here and there, and that's it.

Deirdre McCloskey (1996) goes further than that. In her earlier work she proved herself to be a committed traveler of the road of choice showing first how sixteenth century english farmers were rational in their management of risk and then why economists were rational in their adherence to the metaphor of rational choice (1976). Her work on the rhetoric of economics, however, already, signaled her opposition to the formalist direction in which Samuelson, Arrow and Debreu had steered economic discourse (1984). And in her conclusion of her rhetorical analysis she impinged on the value theme concluding that sound communication among economists depends on their having proper values such as honesty, tolerance and the willingness to listen and pay attention. She continues this value theme in her recent writings (e.g. 1996, 1997). If she has not abandoned the road of rational choice, she surely is now exploring the road of evaluation with her forays into the world of virtues. "I have gradually come to understand," she writes, "that culture matters for economics and for the economy. I believe now that an economics that wants to get the economy right has to know about ethics. And an economy that wants to get its business right has to practice ethics" (McCloskey, 1996, p. 187-188). Her argument is a plea to recognize the virtues of the bourgeoisie as they become manifest in the market, virtues such as prudence, being entrepreneurial, thriftiness, modesty. With these issues she enters a discussion that belongs much more to the road of evaluation than that of rational choice. She objects to the inclination of the customary travelers of the road of evaluation to highlight the pagan, or christian virtues of solidarity, charity, dignity and duty, or, alternatively, the aristocratic virtues of distinction, beauty, truth and courage while disparaging the world of commerce. Even if markets may ignore or devalue these touted christian and aristocratic virtues, they generate other virtues which are worthy of our admiration, so she argues. Much good comes about because of entrepreneurial people who are modest enough not to spend their earned income on luxury items but reinvest in productive capital instead. Thus McCloskey shows how economics, i.e. the world of commerce and markets, can affect the culture, i.e. the sphere of values, and turns Weber on his head.

Lonely she is not in her explorations. Robert E Lane, too, argues that markets contribute to human well-being. In his thoroughly researched book The Market Experience (1991) he turns the usual assumptions about the good and the bad of markets on their head, arguing that work is not a disutility but rather is the main reason for satisfaction that markets can generate whereas the accumulation of money adds little to a sense of well being. He points to a variety of positive values that market processes generate and accordingly sides with McCloskey in her opposition to all those who perceive the market as an antithesis to anything valuable.

So far I have observed mainly economists (Lane is not), but most of the company on the road of value consists of anthropologists (Clifford Geertz, Mary Douglas), sociologists (Amitai Etzioni, Max Weber, Geert Hofsteede, Robert Inglehart), economic sociologists (Mark Granovetter) and philosophers (Karen Anderson, Alasdair Macintyre, David Schmidtz). This should not be surprising as first philosophers and later anthropologists and sociologists appropriated the value concept, giving it its general meaning in the process. These non-economists provide us many of the reasons to go on, explore new territory and try out new concepts, that is, new for those of us who are accustomed to traveling along the road of rational choice.

Value and human action

Values exist by virtue of evaluation. In their wanderings people value things, other people, institutions, ideas, and act accordingly. They may surrender some of their money to acquire what they consider valuable, they will invest time and energy to appropriate some valuable knowledge, or do whatever they can to associate with the people they value. From the vantage point of the road of evaluation people seem immersed in a world of values and whatever they do involves evaluation of some sort of another. Surely, travelers of the road of rational choice might say the same, yet the range of values here is wider.

Along the road of value, economic values, or exchange values, continue to be of interest but the attention goes first of all to values in general, with economic values being a small subset of those. Consider the case that I am working hard on a paper that needs to be sent in for a conference and my son wants to talk. He clearly is in distress. What do I do? Do I have some algorithm in my drawers that tells me what to do? Of course not. Will I realize some friction between demand and supply and hence search for an equilibrium (shadow) price? Of course not. The question compels me to ponder and weigh my values: do I value my professional career in this instance over my responsibility as a father? In reality multiple other values and judgments can come into play (nobody may care if the paper is not finished or talking with my son at this point of time will not do any good) but let us keep the matter simple and stick to the weighing of these values. Say I choose for the paper. "Aha, he reveals his preference", the choice theorist will conclude, but the value theorist may want to go further to observe that in the act of choosing I have reaffirmed the value of careerism and reproduced my 'character' as an academic professional (cf MacIntyre). Accordingly I have added to my self-understanding (cf Anderson) and contributed to an attitude that may very well influence other decisions that I will take in the near future (like turning down the offer of a non-academic job).

What if I had decided to talk with my son instead? The event will escape the attention of statisticians and will not get assigned an economic value by any means. Yet, the interaction with my son might very well contribute to or sustain a value that is much more important to me than most of the other transactions of mine that do get recorded, which is the value of a good relationship with my son and, beyond that, the value of fatherhood in general. My interaction with my son can have a personal value as well as a more general value over and beyond whatever economic value gets measured.

The choice theorist will want to see in my choice to talk with my son a self-serving act. The value of fatherhood that I generate in the process is presumably instrumental towards my sense of happiness. Maybe so, but the value theorist considers this interpretation to be besides the point. Apart from the fact that my motives may be murky-who knows whether I will be happiest after the talk with my son and after the realization has set in that I will face professional embarrassment, I expect not to think of myself when choosing to talk with my son. At that moment his well being is my concern and all depends on that. Motives are of secondary interest from a value point of view which focuses rather on the social or cultural setting in which individual actions take place. A culture that stimulates fathers to talk with sons in distress even if they pay a professional price for doing so (I am reminded of the Cramer versus Cramer movie here), stands for the value of fatherhood (at the expense of careerism). Every father who acts accordingly, sustains or maybe even strengthens that value.

In short, think values and the study human action requires additional dimensions and broader interests than the traveler of the road of rational choice is accustomed to. There are other changes of perspectives as we shall see shortly.

Further explorations

I have been using a variety of terms, made some distinctions and introduced concepts without much explanation. The moment has arrived to make up for a few of these omissions.

Values are neither here nor there. They are hard to nail down. People do not have their values written on their forehead and if asked for them, they usually will not be able to tell them. If people can list their values, every value mentioned is liable for many different interpretations. 'Honesty' can mean for the other the duty not to tell a lie ever whereas for another the attempt to be honest suffices. And what is the truth anyway?

Another complication enters when we try to locate values. Are they in the head of people or inherent to the goods to be valued? Or do values come about in the interactions among people? I am inclined to vote for the latter position but realize that heads and things may carriers just as well.

Values in the general sense are qualities of goodness, rightness, beauty, virtue, truth and holiness (cf Encyclopedia of Philosophy). These are the moral, cultural or social values to which I referred earlier. They need to be distinguished from personal or use values such as the value I attach to having an ice-cream store around the corner. These general values can not be reduced to or expressed in exchange value, in contrast to personal values (cf Klamer 1996 and Zelizer, 1985).

Some general values will be my own values as well but the set will be smaller than the set of personal values (cf van Heusden 1996). I may value a general good even though I personally do not act upon it. Mother Theresa may rank high on the list of people I respect yet if pressed I may prefer to hold onto my books rather than come to the rescue of someone in need. I may recognize the value of modern art even though I personally do not care for it and would not sacrifice a penny for the right to hang a modern painting on the wall of my living room (yet I may agree to the subsidy for the modern art museum in town).

Some values, the moral ones, aspire to be universal and transcend a personal, social or cultural context. Whether such values exist, is hard to tell. Philosophers have tried to articulate them, but fail time and again (Bok 1995). The interpretation of virtually any general value we know of, is bound by a cultural or social context (Smith 1988).

Values have a hierarchy. Few people will understand the person who values his cup of coffee so much that he is holding onto it when a child right in front of him is about to run into a driving truck. The value of immediate satisfaction is of another nature than the value of a human life. Whether a photo journalist should value a human life over his professional career (that can get a big boost with the picture of a person about to be killed in a fire) is another matter but also here we can expect near consensus.

Values may characterize a group of people. This is the reason that the traveler of the road of evaluation is destined to encounter the notion of culture. Along the road of choice one will look for it in vain but when the discussion turns to values, culture enters. Culture, in its general anthropological sense, is often defined as the values that a group of people share and with which they distinguish themselves from other cultures. Academic economists form a culture insofar they share values that differentiate them from, say, business economists or academic sociologists. The common inclination is to study a culture as such but cultures reveal their meanings best in contrast to other cultures. The notion of culture alludes, therefore, to the existence of distinct realms of values so much so that a person that tries to cross from one culture (that of academic economics, say) to another (that of academic sociologists) has to adapt his or her values. It is the same, so I gather, with the switching from the road of rational choice to the road of evaluation. Whereas the traveler along the road of rational choice is accustomed to think in universals that are immune to cultural context (rational agent, markets), the traveler of the road of choice will have to consider and appreciate differences among people and situation. Whereas the former thinks in terms of economies, in general, the latter will have to acknowledge the need to make cultural differentiations. The cultural economist may, for example, want to distinguish the Dutchness of the economy in the Netherlands as something that is quite different from Frenchness.

The notion of culture indicates that values are interconnected and come in clusters. McCloskey (1996) recognizes as much in her distinction of different value systems even though she does not fit her analysis in a cultural framework, yet. These value systems may operate within one cultural setting, as Michael Waltzer (1983) points out. Irene van Staveren (1999) distinguishes three spheres of value. One sphere is associated with the value of freedom (think markets), the other with justice (think of collective actions by means of political bodies and bureaucratic systems) and the third with care (think of families and networks of personal relations). She argues that each sphere generates distinctive values which are incommensurable with the values of the other two spheres. Justice clashes with freedom and caring with justice.

The traveler of the road of evaluation will have to face a world of transactions and interactions that is immensely larger than the world that the traveler of the road of choice will recognize. Whereas the latter is inclined to focus on the moments of exchange, the former will have to acknowledge that most values are generated, produced and sustained in non-market type of transactions (cf. Anderson 1993, Zelizer 1985, Klamer 1996, van Staveren 1999).

A study of values will force researchers to take their subjects seriously. They will have to be interpreters who will be able to read the complex texts that the subjects generate, in order to be able to identify the distinctive values. A cultural economist will have to learn new skills; many of the learned skills will prove to be quite useless. Whether the method of mathematical modeling is useful along the road of value remains to be seen but it is a sure bet that models will be less of an obsession along this road than they are along the road of choice.

Much work needs to be done on the interaction between various spheres of values, like between the general values and economic values. There is a great deal that we need to understand, such as how values influence consumption patterns (cf Dolfsma, 1997), why so many goods are kept out of the sphere of economic valuation, and why these goods differ across times and cultures. We need to work out whether the value perspective is consistent with the usual economic measures, like GDP per capita, as welfare indicators, and if not, what alternative indicators might be. And in order to be able to differentiate economies we will need to characterize the cultures in which they operate. Al this should produce a deeper and more meaningful understanding of economic processes than is available now.

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