Economics and freedom

What exactly is the link between economics and freedom? I’m prompted to ask by my gut reaction to the idea of banning drinking on trains and buses – that this is yet another numbskull New Labour assault on our freedoms.

Then I thought; is my instinctive revulsion the typical reaction of an economist? I suspect it is. There are good reasons why economists are more libertarian than others. It surely can be no coincidence that so many great economists, from Smith, Ricardo and Mill to (yes, Anthony) Hayek and Buchanan have been strong supporters of individual freedom. Even the statist Keynes was a social liberal by the standards of his time. (We’ll leave Pareto out of it, and discuss Marx some other time).

The most obvious reason for the link is that economics is the study of the gains from trading. This shows us that freedom to do what we want is not (just) valuable in itself, but also instrumentally valuable.

But there’s more to it than this. There are other reasons why economists are instinctively libertarian:

1. Public choice. Economists believe “public servants” are, like the rest of us, lazy and cowardly. So we don’t trust them to uphold laws in the way law-makers intend. If drinking is banned on trains, policemen and ticket-collectors won’t bother to confront a dozen lairy yobs who are intimidating passengers – that’ll be too much trouble. They'll pick on the weary commuter having a quiet can.

2. People are the best judges of their own actions. This view has of course been strongly challenged recently by behavioral economics – though I’ve yet to see a cognitive bias that the general public has but government doesn’t – but it’s still economists’ default view. So, when we see someone drinking, we don’t see someone about to become a violent menace. Instead, we see someone who can hold his drink, as most people (and all true Englishmen*) can.

3. Behaviourism. Economists believe behaviour matters, not character. We believe drunkenness – insofar as it troubles others – is a problem. But the disposition leading to drunkenness doesn’t trouble us. Economics is about finding ways to internalize externalities – not about peering into the human soul.

4. Limited ambition. Economics takes human nature as it is. When we think about how to improve society, we ask: what institutions (like the price mechanism) can harness human venality – greed and laziness – for beneficial purposes? We don’t wonder how to straighten the crooked timber of human nature.

It’s here, I suspect, that the big difference lies between us and New Labour’s managerialism. Economics recognizes that there are limits to what governments can do – let alone to what they should do. Managerialists don’t see such limits.

* This is true by definition - even of Oliver Reed.

Comments

[Peter]

I think the reasons you give are very plausible and interesting. I've certainly taken the view for some time that people who come at political questions from backgrounds in modern economics have a strong tendency towards just assuming that social interactions can essentially follow the same rules as economic interactions. That because the best economies are those with the least intervention, the best societies will likewise be those in which traditional morality and government pressure do not have much bearing on individual autonomy.

But the model of the free marketplace is not a good basis for judging the rights and wrongs of all other areas. Adam Smith showed how economic transactions can be mutually and generally beneficial even if one is only pursuing one's own self-interest, and that is the right way to look at the rules of an economy. But there is no equivalent mechanism to the 'invisible hand' in social interactions. If people use self-interest to guide their economic transactions, that can mean a prosperous and thriving economy that is generally beneficial. But if they use self-interest as their sole guide when it comes to the question of their duty to others, such as the woman they promised to stay with through thick and thin, and the children that relationship has produced, society is certainly *not* going to be thriving or generally very pleasant. That's why some social, moral or legal barriers are needed to be weighed against individual self-interest in such matters.

[AJE]

Peter, read The Theory of Moral Sentiments.

[Peter]

Thanks - I do indeed plan to. Why do you suggest it in this context, may I ask? Are you saying Adam Smith *did* discover a social equivalent of the economic hidden hand, that ensures unrestrained self-interest promotes the social good the way it can promote the economic good?

[Emmy]

To my knowledge, Smith made a distinction between market value and moral value indicating that individual self interested behaviour was socially beneficial in a transactional context, but not when it came to social interactions. The marginalists conveniently glossed over Smith's distinction a century later when neoclassical 'economics as we know it' began to cohere. Self interest therefore became the principle dogma of the dismal science.

As a feminist, I have a (some!) problem(s) with the economics/self-interest(freedom) nexus. Firstly, as economics is the study of the gains from trade, like you say Chris, then in this respect we can legitimately think of it as the study (science?) of choice under conditions of constraint. A precondition of choice is, of course, freedom. Human liberties are defined against a male behavioural norm; women are not free to choose in the same way as men because their behaviour is curtailed by institutionally regulated gender roles, such as motherhood and marginality in the labour market. Men's choices are affected too but not in the same way.

I also think that the assumed venality of human nature is a masculinist construct. If we consider the core values of libertarian economics as individualism, detachment and self interest then consider the 'flip-side' of these concepts; interventionism, affiliation and concern for others, the gender associations are obvious. Economics is men studying the behaviour of men. In a very masculine way!

And to throw an institutionalist perspective into the mix - could it be true that the way we construct economic decision making (individual process, individual gains) actually influences people into *becoming* more individualist? Maybe? :)