Chapter 53: Ethics vs. Efficiency
Updated: 1/13/20
Christian Economics: Teacher's Edition
“And if you faithfully obey the voice of the Lord your God, being careful to do all his commandments that I command you today, the Lord your God will set you high above all the nations of the earth. And all these blessings shall come upon you and overtake you, if you obey the voice of the Lord your God. Blessed shall you be in the city, and blessed shall you be in the field. Blessed shall be the fruit of your womb and the fruit of your ground and the fruit of your cattle, the increase of your herds and the young of your flock. Blessed shall be your basket and your kneading bowl. Blessed shall you be when you come in, and blessed shall you be when you go out (Deuteronomy 28:1–6).The various ways in which the knowledge on which people base their plans is communicated to them is the crucial problem for any theory explaining the economic process, and the problem of what is the best way of utilizing knowledge initially dispersed among all the people is at least one of the main problems of economic policy—or of designing an efficient economic system. – F. A. Hayek, “The Use of Knowledge in Society” (1945).
Ethics vs. efficiency: this debate occurs in every social system, every ethical system, and every economic system. It is the debate over the twin meanings of the word “right.” The word has two meanings: one ethical, the other technical. So does the equivalent word, “good.” Here are the two meanings:
Ethics: “Do the right thing.”
Efficiency: “Do the thing right.”
Because of the common grace of God—and only because of it—people want to believe that the ethical system they were taught as children, and which they now teach to their children, is both accurate and reliable. They were taught that doing the right thing leads to greater wealth in the long run. They believe the words of Benjamin Franklin: “Honesty is the best policy.” People want to believe this because they like to think of themselves as honest, and they also do not want to end their lives impoverished.
The Bible teaches this moral outlook: righteousness produces wealth. “I have been young, and now am old, yet I have not seen the righteous forsaken or his children begging for bread” (Psalm 37:25). It specifies the criterion of honesty: biblical law. The Old Testament clearly teaches this ethics-wealth connection with respect to households. “Blessed is the man who fears the Lord, who greatly delights in his commandments! His offspring will be mighty in the land; the generation of the upright will be blessed. Wealth and riches are in his house, and his righteousness endures forever” (Psalm 112: 1–3). It also teaches this with respect to nations. We see this most clearly in Deuteronomy 28 and Leviticus 26, which are parallel passages. These are the central passages in the Bible regarding the predictable connection between covenant-keeping and economic success in history. The affirmation in Leviticus 26 is this: “If you walk in my statutes and observe my commandments and do them, then I will give you your rains in their season, and the land shall yield its increase, and the trees of the field shall yield their fruit. Your threshing shall last to the time of the grape harvest, and the grape harvest shall last to the time for sowing. And you shall eat your bread to the full and dwell in your land securely” (vv. 3–5). Both passages have long sections on the predictable relationship between covenant-breaking and economic failure. In both passages, the section on covenant-breaking is four times longer than the section on covenant-keeping. These two passages provide the methodological foundation of Christian economics. They are the detailed working out of this, the most important passage on economic theory in the Bible: “Beware lest you say in your heart, ‘My power and the might of my hand have gotten me this wealth.’ You shall remember the Lord your God, for it is he who gives you power to get wealth, that he may confirm his covenant that he swore to your fathers, as it is this day” (Deuteronomy 8:17–18).
What about efficiency as an autonomous criterion of success, one in no formal way connected to ethics? Hayek’s statement appears in the most important thing he ever wrote on economics, an essay on decentralized knowledge and the market process. In 1974, he was co-winner of the Nobel Prize in economics, along with the socialist, Gunnar Myrdal. In his acceptance speech, Hayek returned to the theme of his 1945 essay. To defend the market order, he appealed to efficiency, not ethics. In the next-to-last paragraph, he said this: “We are only beginning to understand on how subtle a communication system the functioning of an advanced industrial society is based—a communications system which we call the market and which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed.” The statement is true. It deals with this issue: “Do the thing right.”
Hayek spent his long career arguing against economic central planning. He believed that central planning leads to massive coercion by the state. This was the theme of his most popular work, The Road To Serfdom (1944). The next year, he published his essay on decentralized knowledge, which he said is put to efficient use by means of the free market. As a social philosopher, he defended the free market as a means of establishing liberty. In contrast, as an economist, he appealed to the ideal of economic efficiency: the free market’s customer-satisfying use of valuable scarce knowledge. Among economists, his technical argument has had more influence than his book. He won the Nobel Prize, not for his famous book, but for his technical articles on the market process. The Nobel committee wrote: “From the 1930s, he highlighted the problems of central economic planning. His conclusion was that knowledge and information held by various actors can only be utilized fully in a decentralized market system with free competition and pricing.”
Hayek was not alone in defending efficiency as the premier contribution of the free market to society. It is the continuing theme of economics textbooks. Here is the assessment of the meaning of efficiency in a textbook written by my former graduate school advisor (for one session), William Allen, and Armen Alchian, who once wrote a job recommendation for me. I regard their textbook as by far the most rigorous introductory college-level textbook, academically speaking: University Economics (3rd ed, 1973). It reflects the outlook of the Chicago School of economics.
“Efficiency in production” is desirable in the sense that more economic goods are preferred to less. But are you sure the demanded good is a “good” economic good? For example, the authors do not allow their minor children unrestricted access to the market, because children buy goods we believe they should not. We don't accept their judgment of what is a “good.” If someone believes other people do not know what is good for themselves—as evidenced by differences of opinion about the use of tobacco, alcohol, opium, heroin, gambling, low-brow television programs, comic books, lewd literature—he may seek to prohibit their production. Many highly educated, socially conscious people do. To them, the standard of efficiency is useful only in so far as the “right” goods are wanted by others. However, doing the wrong thing efficiently is not necessarily undesirable, because whatever the amount of the bad produced, it permits more “goods” to be produced. Economics is neutral or amoral; it does not say what is “good” or “bad” (p. 213).
Notice that they were careful to place ethical terms “good” and “right” in quotation marks, which was their way of dismissing the idea of the relevance of ethics to economic theory. This is a common outlook among almost all academic economists. They preach value-free economic theory, as if economic theory were as value-free as physics. (This assumes that humanistic physics is value-free, which is an illusion if it assumes that there is no Creator God.) They insist that economics is a science, and all sciences are ethically neutral. Jesus dismissed this assertion as follows: “Whoever is not with me is against me, and whoever does not gather with me scatters” (Matthew 12:30). There is no neutrality anywhere in the universe. Every fact is a God-created fact. It is therefore a God-interpreted fact. Economic science is not value-free. Efficiency cannot be separated from ethics.
Let me provide an example. The German government used IBM tabulating machines to identify and locate Jews in Germany in the mid-1930's. Then the government used the tabulating machines in the mass arrests and transfer of these Jews to ghettos in the late 1930's. There is no question that this was an efficient system from the point view of Hitler and his followers. The government could not possibly have rounded up Jews rapidly and inexpensively had it not been for the IBM machines and the system of civil government imposed by the National Socialist German Worker’s Party, also known as the Nazi Party. But to discuss the efficiency of the demographic uses of these computers without also discussing the negative sanctions brought by God against Nazi Germany in World War II would be to separate economic logic from history. Modern economists prefer to make this separation for theological purposes: the separation of God from history. This is consistent with the separation of ethics from economic theory. The Bible warns us not to do this.
People believe that they can achieve their purposes in life by proper planning. They believe that they live in an ethically coherent world in which ethically based causes have predictable effects. They believe that their purposes are the result of their specific ethical beliefs. They believe that there is a predictable connection between their ethical principles and their goals. In other words, they believe that historical causation is inherently ethical. They believe that ethically bad principles produce economically bad results in a society that is based on the correct ethical system.
Few people wish to commit their lives to a philosophy that openly declares that the world is purposeless, so there is no coherence linking ethics, actions, and results. There are few philosophies that openly proclaim such an outlook. In the competitive world of evangelism, a philosophy of ultimate purposelessness is not regarded as good news, which is the meaning of the Greek word for evangelism.
Purpose is always associated with what we call a mission statement. Mission statements are inescapable. People have them, whether they articulate them or not. These statements are either consistent with God’s mission statement for man or not.
1. Ethics
A fundamental principle of economics is this one: increasing an item’s price will increase the supply offered for sale. Conclusion: sanctions produce predictable results. If this were not true, there could be no science of economics. Economics is about sanctions and predictable behavior. People do not knowingly sacrifice present benefits in order to achieve fewer rewards in the future.
God has established a purpose for mankind: to multiply biologically and to subdue the earth (Genesis 1:26–28). This purpose defines mankind. The original setting for obeying this command was a garden. This imagery still prevails.
The garden was a place of testing ethically. There was a command: do not eat from a specific tree. There was a positive sanction attached to that tree, according to the serpent: knowing good and evil. There was a negative sanction according to God: death. Adam made a cost-benefit calculation. He decided to test the rival words: God’s vs. the serpent’s. He did so on the assumption that he possessed the autonomous authority to judge between God and the serpent. This incident rested on an assumption: there is ethical cause and effect in history. The outcomes of ethical decisions are predictable. The ethical challenge is two-fold: to identify the most predictable ethical system, and then to adhere to it.
The Bible has a mission statement for mankind: to multiply and subdue the earth. To this has been attached another, which is some version of this: “to glorify God and enjoy Him forever.”
2. Efficiency
There are competing mission statements. There are competing ethical systems. This is why there is no agreement about a common purpose for mankind. But without a common purpose, there can be no workable definition of efficiency. Austrian School economists are adamant about this. This is because they are the most consistent adherents of methodological individualism, which is an outworking of philosophical nominalism.
Consider the words of Israel Kirzner. He was one of four men who wrote a Ph.D. dissertation under Ludwig von Mises. He received his Ph.D. in 1957. He went on to become the most respected Austrian School economist in academia among those who were graduate students under Mises after World War II. His articles have been published in many professional journals. In his upper division-level textbook, which is the only one written by an Austrian School economist, Market Theory and the Price System (1963), he wrote this:
The limitations surrounding this use of the term “economic problem” arise from the fact that society is made up of numerous individuals. Each individual can be viewed as independently selecting his goal program. And in a market economy especially, each individual adopts his own courses of action to achieve his goals. It is therefore unrealistic to speak of society as a single unit seeking to allocate resources in order to faithfully reflect “its” given hierarchy of goals. Society has no single mind where the goals of different individuals can be ranked on a single scale (p. 35).
He then wrote: “Efficiency for a social system means the efficiency with which it permits its individual members to achieve their several goals’ (p. 35). So, there is no such thing as a common social purpose, other than allowing everyone to pursue his own purposes.
If this is true, which it is if methodological individualism is true, then there is no such thing as social efficiency. Put another way, Deuteronomy 28 cannot be true. Dr. Kirzner is an Orthodox Jewish rabbi. He has never commented in print on this contradiction between his economics and his theology.
People seek to attain their personal goals by planning in the present to achieve specific outcomes in the future. Planning is future-oriented. It involves an exchange of present conditions for future conditions.
One of the characteristic features of children is a lack of future-orientation. Until the age of four, they are intensely present-oriented. This is why they are under visible authority. They are under the threat of negative sanctions from parents. As they mature, they become more future-oriented. They remain under judicial authority, but this authority is less immediate and less physical. They are expected to develop the skill of self-government under law, meaning ethics.
This is the issue of hierarchy. Always, people are under a hierarchy. They are responsible upward. They take on greater responsibilities as they mature. This is a crucial mark of maturity.
1. Ethics
Deuteronomy 28 presents the nation of Israel as being under a system of corporate sanctions. God established the nation as His own. He expected the people to obey His laws. This obedience would bring visible blessings. Disobedience would bring visible cursings. Israelites could determine the set of outcomes by planning their lives in terms of His law-order. These sanctions would produce differences in hierarchical authority.
The Lord will open to you his good treasury, the heavens, to give the rain to your land in its season and to bless all the work of your hands. And you shall lend to many nations, but you shall not borrow And the Lord will make you the head and not the tail, and you shall only go up and not down, if you obey the commandments of the Lord your God, which I command you today, being careful to do them, and if you do not turn aside from any of the words that I command you today, to the right hand or to the left, to go after other gods to serve them (vv. 12–14).The sojourner who is among you shall rise higher and higher above you, and you shall come down lower and lower. He shall lend to you, and you shall not lend to him. He shall be the head, and you shall be the tail (vv. 43–44).
We read in Proverbs: “The rich rules over the poor, and the borrower is the slave of the lender” (22:7). This is an extension of the system of economic sanctions in Deuteronomy.
God designed this connection between obedience to God’s laws and positive corporate sanctions to be a testimony to the nations in the region.
Keep them and do them, for that will be your wisdom and your understanding in the sight of the peoples, who, when they hear all these statutes, will say, ‘Surely this great nation is a wise and understanding people.’ For what great nation is there that has a god so near to it as the Lord our God is to us, whenever we call upon him? And what great nation is there, that has statutes and rules so righteous as all this law that I set before you today (Deuteronomy 4:6–8)?
2. Efficiency
Free market economists point to the price system as the source of economic order. It is through competitive bids in the market that both the ownership and use of scarce economic resources are allocated without central planning by the state, which would otherwise involve political coercion. The market is voluntary.
Efficiency is another way of saying that there is reduced waste in production. This also means reduced waste in distribution, because the market order links production and distribution in a seamless process. This was Hayek’s point in his 1945 essay, “The Uses of Knowledge in Society.” Prices allocate production. There is not much information conveyed in a price, but this is sufficient in a market society. Hayek wrote:
The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.
The market process is efficient, but only in meeting the demand of buyers with money to pay. It is governed by the auction principle of high bid wins. This leaves out all those who bid less. This raises the question of morality. There are no major religions or moral systems that are based on the principle of high bid wins for governing most aspects of life. This has always been the weak link in the economists' case for the free market. People expect economic outcomes to be consistent with morality. But the vast majority of free market economists refuse to invoke morality in their defense of the market process. In the words of Allen and Alchian, “Economics is neutral or amoral; it does not say what is ‘good’ or ‘bad.’” Here, I invoke the logic of conventional economics. This defense of the market is bad marketing, technically speaking. That is because it is bad economics, ethically speaking. Economists deliberately refrain from claiming the high moral ground. They deny that there is any moral ground, at least with respect to the decisions of adults. Almost no one believes them. No one should believe them.
They could invoke the sanctity of private ownership, but they rarely do. It does them no good to do this. It raises this question: “On what basis is private property sanctified?” On what moral basis could the economist defend this? He refuses to invoke any morality. He may invoke efficiency again. He argues that private ownership is more efficient than other forms of ownership. But this only pushes the issue out one step. The free market economist is like the Hindu cosmologist who says that the world rests on the back of a giant elephant. But what does the elephant stand on? “On a giant turtle.” But what does the turtle stand on? “It’s turtles all the way down!” For economists, it is efficiency all the way down.
Most people want to live under a system of coherent, self-consistent rules. They want these rules to lead to positive benefits in their lives. They want these rules to be practical applications of decency: ethics. They want to do well by doing good.
What is the source of such a system? Is it a Creator God? Is it nature, which is purposeless and impersonal? Is it mankind? If so, then which men, exactly? How will they enforce the rules? How should they enforce the rules? How can decent people protect themselves from rulers who are corrupt and tyrannical?
1. Ethics
The prophet Isaiah brought a message to the Southern Kingdom of Judah sometime around 740 B.C. In the opening words of the Book of Isaiah, we read a covenant lawsuit. God used Isaiah to warn the rulers and the people that a great judgment was coming. God would bring negative sanctions against the nation if the people did not repent. In that day, they will cry out to God. This will do no good. “When you spread out your hands, I will hide my eyes from you; even though you make many prayers, I will not listen; your hands are full of blood” (Isaiah 1:15). There is a solution immediately available. “Wash yourselves; make yourselves clean; remove the evil of your deeds from before my eyes; cease to do evil, learn to do good; seek justice, correct oppression; bring justice to the fatherless, plead the widow's cause” (Isaiah 1:16–17).
In the biblical worldview, God’s ethical standards for society are defended by the threat of God’s active intervention in history to impose negative corporate sanctions. We see this in Deuteronomy 28:15–68. We see it in the message of the prophets. This includes the greatest of the Old Covenant prophets, John the Baptist (Matthew 11:11). Any Christian theologian who says that this same system of corporate sanctions no longer operates in the New Covenant era has destroyed all possibility of a uniquely Christian and uniquely biblical social theory. He has thereby placed God’s people under the tender mercies of covenant-breakers for all of history. He announces: “Christians can live under all types of civil government.” To which I ask: “What about biblical law?” To which he answers: “Not biblical law. Anything but biblical law.”
Here is the biblical answer to the question: “From whence comes a system of ethics?” God is absolutely sovereign. He has created a world under His law. He has revealed His law-order in the Bible. His rules and regulations are coherent: a system. He promises to defend this law-order, both endogenously, through human institutions, and exogenously, by intervening in history to bring negative sanctions against comprehensively rebellious societies.
The efficiency of the free market is based on its reliance on private property, which means the right to disown property: exchange. This defense is moral: the legitimate rights of private property. This ethical defense of private property has not come from academic economists.
2. Efficiency
The economists do not invoke ethics to defend the market process. They rarely invoke anything except the ability of the market to produce economic growth. This is correctly seen by Christian critics of the market as implicitly invoking the religion of mammon: “more for me in history.”
The market is the product of a complex system of rules. Hayek devoted his career after 1950 to a study of rules in Western law that have produced the market order. His main books were The Constitution of Liberty (1960) and Law, Legislation, and Liberty, 3 volumes (1973–79). In none of them did he invoke a binding morality. He was a Darwinist. He did not believe in a binding morality with authority over evolution.
The argument of Mises, beginning in 1920, against the irrationality of central planning persuaded Hayek and a small group of young scholars. Hayek extended Mises’ argument on the impossibility of economic calculation under socialism in the 1930's. This argument was resisted vehemently by virtually all academic economists until 1991. The collapse of the Soviet Union buried the critics. They did not admit defeat publicly, except for Robert Heilbroner in a September 1990 article in The New Yorker. He admitted the truth after 70 years: “Mises was right.” As a dedicated socialist and multimillionaire author, he recommended that the socialists adopt the ecology movement to restore public support, despite socialism’s lack of efficiency. This was a little over a year before the USSR officially disappeared. After 1991, the economists stopped arguing for the supposed efficiency of systematic central planning. They had pretended for 70 years that the fake economic statistics issued by the Soviet government justified faith in central planning. After 1991, they stopped. The Soviets’ successful deception of most Western economists for 70 years could no longer go on.
The question remains: Why is efficiency a plausible justification for the market order, with its rule of high bid wins? Economists do not tell the public what the moral basis is for the market’s legitimacy. They instead invoke efficiency. This is surely better than invoking inefficiency, but it does not ring true. In every economic crisis, the voters and the politicians are ready to abandon the free market’s principle of property, especially its fundamental rule: high bid wins.
Mises built his entire economic system on this presupposition: the division of labor is the most efficient system of social organization. Therefore, the moral rules that sustain it are morally binding. In the final chapter in Human Action, he announced this.
From the same point of view praxeology [science of human action] and economics look upon the fundamental principle of human existence and social evolution, viz., that cooperation under the social division of labor is a more efficient way of acting than is the autarkic isolation of individuals. Praxeology and economics do not say that men should peacefully cooperate within the frame of societal bonds; they merely say that men must act this way if they want to make their actions more successful than otherwise. Compliance with the moral rules which the establishment, preservation, and intensification of social cooperation require is not seen as a sacrifice to a mythical entity, but as the recourse to the most efficient methods of action, as a price expended for the attainment of more highly valued returns (Ch. XXXIX:2).
For Mises, it was efficiency all the way down.
This is the issue of rendering judgment. It involves the application of general economic principles to specific real-world events. Specifically, it involves applying subjective economic value to scarce resources, whether consumer goods or production goods.
Ever since the 1870's, economists have argued that economic value is subjective. It is not inherent in economic goods. It is imputed subjectively by consumers. A good example is a waterfall. People impute value to some waterfalls. If a waterfall can be used to generate electrical power, it is valuable. If it is scenic in an accessible location, it is valuable. If it disrupts the flow of a river suitable for commerce, it is not valuable. So, a waterfall’s economic value has nothing to do with any intrinsic economic value inherent in it. This principle of economic analysis applies to all scarce resources.
In any coherent human system, there must be sanctions: positive or negative. The sanctions make the institutional arrangement predictable. They make human behavior predictable. People respond to sanctions in predictable ways. If they did not, we would live in chaos. The division of labor would collapse.
The supreme economic questions are this: What are the sources of economic sanctions? Are they inherent in the economy, i.e., endogenous? Are they imposed by the state, i.e., exogenous? Is it a mixture? Are the sanctions coherent? Do they produce the desired behavior? Who desires the behavior?
1. Ethics
God is omniscient. He is the source of all valid ethical principles. These include economic principles. He has revealed them in the Bible.
God is perfectly just. He judges perfectly. He applies His required ethical principles, moment by moment, to specific human decisions, both individual decisions and collective decisions. He is a Trinity: both one (corporate) and many (individual). He will bring final judgement (Matthew 25).
People are made in God’s image. Therefore, they can make judgments in a creaturely fashion. God therefore holds them responsible. Responsibility is tied to point one of the biblical covenant: ownership. Man’s ownership is delegated. Hence, it is an aspect of point two of the biblical covenant: hierarchy. Sanctions are part four. Points two and four always go together.
People impute economic value. This is the source of economic value in the marketplace. But this subjective value is not autonomous. It is analogical. God imputes economic value authoritatively, human decision by human decision. His imputation is the objective standard of final judgment. God’s final judgment is predictable. God’s final sanctions are predictable. History reflects these sanctions. There is continuity between history and eternity. These facts are the basis of Jesus’ warning: “For what does it profit a man to gain the whole world and forfeit his soul?” (Mark 8:36).
Covenant-keeping Christians sometimes impute great value to things that are of minor value in eternity and illusionary value in history. Paul warned about this.
Now if anyone builds on the foundation with gold, silver, precious stones, wood, hay, straw—each one's work will become manifest, for the Day will disclose it, because it will be revealed by fire, and the fire will test what sort of work each one has done. If the work that anyone has built on the foundation survives, he will receive a reward. If anyone's work is burned up, he will suffer loss, though he himself will be saved, but only as through fire (I Corinthians 3:12–15).These people do not lose their salvation, but they enter eternity with no capital to show for it. This is considered a liability.
2. Efficiency
Economists elevate efficiency to the second highest position in economic benefits, right below economic growth. Efficiency is the means of economic growth.
There is a major problem with the whole concept of efficiency. There is no way to measure efficiency by means of the assumption of methodological individualism. The economist who saw this most clearly was Murray Rothbard. In his 1979 essay, “The Myth of Efficiency,” he explained his position.
Let us take a given individual. Since his own ends are clearly given and he acts to pursue them, surely at least his actions can be considered efficient. But no, they may not, for in order for him to act efficiently, he would have to possess perfect knowledge—perfect knowledge of the best technology, of future actions and reactions by other people, and of future natural events. But since no one can ever have perfect knowledge of the future, no one’s action can be called “efficient.” We live in a world of uncertainty. Efficiency is therefore a chimera.Put another way, action is a learning process. As the individual acts to achieve his ends, he learns and becomes more proficient about how to pursue them. But in that case, of course, his actions cannot have been efficient from the start—or even from the end—of his actions, since perfect knowledge is never achieved, and there is always more to learn.
Moreover, the individual’s ends are not really given, for there is no reason to assume that they are set in concrete for all time. As the individual learns more about the world, about nature and about other people, his values and goals are bound to change. The individual’s ends will change as he learns from other people; they may also change out of sheer caprice. But if ends change in the course of an action, the concept of efficiency—which can only be defined as the best combination of means in pursuit of given ends—again becomes meaningless.
This criticism applies to the individual. Far more does it apply to the collective. Rothbard understood the criticism of all central planning by the state: there is no way for planners to make interpersonal comparisons of people’s subjective utilities. There is no objective yardstick of subjective value. This means that all utilitarian social theory, including economics, is bogus. This meant the economics of his mentor, Mises, although Rothbard did not mention Mises by name in this essay. But this paragraph is a frontal assault against Mises’ utilitarianism.
The blindness of economic thought to the realities of the world is systematic and is a product of the utilitarian philosophy that has dominated economics for a century and a half. For utilitarianism holds that everyone’s ends are really the same, and that therefore all social conflict is merely technical and pragmatic, and can be resolved once the appropriate means for the common ends are discovered and adopted. It is the myth of the common universal end that allows economists to believe that they can “scientifically” and in a supposedly value-free manner prescribe what political policies should be adopted. By taking this alleged common universal end as an unquestioned given, the economist allows himself the delusion that he is not at all a moralist but only a strictly value-free and professional technician.
Three years later, in his book, The Ethics of Liberty, Rothbard wrote a detailed critique of Mises’ utilitarianism. He devoted most of Chapter 26 to this critique. This marked a major division within the camp of the Misesians, one that had been there from the day that Rothbard wrote Man, Economy, and State.
Any economist who argues in favor of economic efficiency has abandoned the logic of supposedly value-free economics. Rothbard saw this clearly. He has not been followed in this by his peers. Rothbard knew this would be the case. He ended his essay with this.
One group of people will inevitably balk at our conclusion; I speak, of course, of the economists. For in this area economists have been long engaged in what George Stigler, in another context, has called “intellectual imperialism.” Economists will have to get used to the idea that not all of life can be encompassed by our own discipline. A painful lesson no doubt, but compensated by the knowledge that it may be good for our souls to realize our own limits—and, just perhaps, to learn about ethics and about justice.
To which I add: Amen!
If the state is invoked as the way to overcome this problem, then the economist who invokes it must explain how his invocation of state planning is consistent with methodological individualism. They never do this. They simply assert that state planners can somehow do this. Also, this will not result in a loss of freedom. Somehow, this intervention will either increase efficiency or at least substitute offsetting benefits. But how can they prove this? Given their official assertion that economics is a value-free science, how can they get from value neutrality to their support for state intervention? They can’t. It’s a gigantic charade. It is self-deception on a massive scale.
Every social system has a theory of legitimate succession. People die. Social systems are replaced. On what basis?
People have faith in the future. Part of this faith is based on ethics. People believe that it is ethically right for the prevailing social system to survive. They believe it is morally superior today. They believe it will be morally superior tomorrow and next year. They are willing to defend it from invasion if necessary.
This raises the issue of the relationship between ethics and the survival of the legal structure that enforces ethics in the courts. How is it that moral principles survive over time? With respect to the operations of the market order, if these operations are morally illegitimate, should they survive? How can they survive?
1. Ethics
I have already discussed the prophet Isaiah. He came to the Kingdom of Judah and announced that the nation would be brought under judgment if it did not repent. It did not repent. It was carried off by Babylon in 586 B.C.
The economic logic of this judgment was based on God’s protection of His property. Just as He defended His property in the garden, so He protects it in history. His people, acting as His trustees, must do the same in His name. This is a judicial requirement.
The dominion covenant of Genesis 1 requires that people extend their dominion across the face of the earth. They are to administer the creation economically on God’s behalf. They are to defend His property judicially and improve it economically. This is a universal task. It applies to every region and every era. This is economic continuity. It culminates with the final judgment (Matthew 25).
This is the ethical foundation of the concept of compound economic growth. God has commanded this. It is not optional. The primary economic goal of life is not consumption. It is production. Production allows men to leave an inheritance. “A good man leaves an inheritance to his children's children, but the sinner's wealth is laid up for the righteous” (Proverbs 13:22).
2. Efficiency
Compound growth is a blessing for the individual owner of resources. This also includes families. The goal of compound economic growth applies to assets owned by individuals, families, and other associations. This is recognized by most economists. Economic growth is the holy grail of most economists: the blessing that they hail as universally valid.
To achieve economic growth requires that owners conserve production goods and make them more productive. This is a matter of efficiency. Efficiency is the crucial technical means of economic growth. The only productive factor more important than efficiency is entrepreneurship: accurate forecasting of the future, i.e., factor pricing and final consumer pricing.
There is an inherent ethical problem with this. Future consumers may become present-oriented. They may become suicidal. They may become addicted to drugs or destructive lifestyles. These are ethical decisions. If this takes place, then profitable planning will involve lowering the cost of self-destructive behavior. If economic analysis is value-free, then economists should have no moral qualms about recommending policies that will make this self-destruction even more efficient. Allen and Alchian refused to speak of their adult children in this way: “For example, the authors do not allow their minor children unrestricted access to the market, because children buy goods we believe they should not. We don't accept their judgment of what is a good.” But when their children reached age 18, all this presumably changed, analytically speaking. Or did it?
Here is my point in this chapter. Ethics cannot be logically separated from efficiency. This chapter is not a denial of efficiency. It is an affirmation of efficiency. It relates efficiency to ethics. Efficiency is not an autonomous concept. Rothbard understood this. Other economists have not and do not.
Rothbard examined the principle of methodological individualism, and he drew a conclusion: efficiency is a myth.
Not only is “efficiency” a myth, then, but so too is any concept of social or additive cost, or even an objectively determinable cost for each individual. But if cost is individual, ephemeral, and purely subjective, then it follows that no policy conclusions, including conclusions about law, can be derived from or even make use of such a concept. There can be no valid or meaningful cost-benefit analysis of political or legal decisions or institutions.I do not draw the same conclusion. This is because I do not begin and end with methodological individualism. I begin and end with methodological covenantalism. God is a Trinity: both one and many. He establishes personal relationships with collective mankind and individuals based on judicial covenants. Each covenant has an ethical component: point three. This is the theological foundation of the concept of economic efficiency.
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