Review of Social Economy

ISSN: 0034-6764 (Print) 1470-1162 (Online) Journal homepage: https://www.tandfonline.com/loi/rrse20

Economics within a Pluralist Ethical Tradition

Jonathan B. Wight

To cite this article: Jonathan B. Wight (2014) Economics within a Pluralist Ethical Tradition,
Review of Social Economy, 72:4, 417-435, DOI: 10.1080/00346764.2014.960661

To link to this article: https://doi.org/10.1080/00346764.2014.960661

Published online: 17 Sep 2014.

Submit your article to this journal

Article views: 2729

View related articles

View Crossmark data

Citing articles: 5 View citing articles

Full Terms & Conditions of access and use can be found at

https://www.tandfonline.com/action/journalInformation?journalCode=rrse20
Review of Social Economy, 2014
Vol. 72, No. 4, 417–435, http://dx.doi.org/10.1080/00346764.2014.960661

Presidential Address
Economics within a Pluralist Ethical Tradition
Jonathan B. Wight
Department of Economics, University of Richmond, Richmond,
VA 23173, USA

Abstract Ethical pluralism is the recognition that multiple ethical frameworks

operate in social settings to solve problems of moral hazard. In particular, non-
consequentialist considerations of duty and virtue operate to restrain self-interest and
lower transaction costs in exchange, such as when asymmetric information exists.
Positive economics has tended to rely exclusively on a behavioral model that
assumes utility maximization, but this approach fails to give credit to the neglected
foundations of duty and virtue. Consequences, duties, and virtues all play a role in
sustaining businesses, for example, and in promoting the search for truth within the
economic research community. Normative welfare economics can also benefit from
understanding vertical and horizontal pluralism.
Keywords: ethics, pluralism, social values, Adam Smith, instincts
JEL Classifications: A13, A11

INTRODUCTION
The premise for this address comes from Amartya Sen, who a generation ago noted
that “Consequential analysis may be taken to be necessary, but not sufficient, for
many moral decisions” (1988: 76). Stated differently, making decisions generally
requires a pluralist conception of ethics—that is, one situated within the framework
of moral norms that conform actions to duties, principles, and virtues. Norms are
often driven by sentiments or feelings in addition to rational calculations. This is
illustrated in a cartoon that appeared a few years ago in The Australian, the largest

Presidential address to the Association for Social Economics, Philadelphia, PA, 4 January 2014. An early version of
this article was presented at the National Business and Economics Society annual meeting, March 2012. The author
wishes to thank Wilfred Dolfsma, Robert McMaster, Mark White, John Davis, and three anonymous referees for
helpful comments. Any errors remain the author’s.

q 2014 The Association for Social Economics

 REVIEW OF SOCIAL ECONOMY

Figure 1: Economist as the Tin Man. Source: Wight (2003). Illustration by Tom Jellett,
The Australian, September 24, 2003, reprinted with permission.

selling newspaper in that country (Figure 1). It portrays an economist as the Tin
Man from The Wizard of Oz, who opens up a panel on his metal suit and suddenly
realizes he has a beating heart. The joke comes from the juxtaposition of two
seemingly contradictory items—economics and emotions.
This depiction is not novel, however. Alan Blinder wrote a wonderful book called
Hard Heads, Soft Hearts: Tough-minded Economics for a Just Society (1988). Long
before that, Adam Smith wrote The Theory of Moral Sentiments and contended that
“Wise and judicious conduct, when directed to greater and nobler purposes than the
care of the health, the fortune, the rank and reputation of the individual” constitutes
“superior” prudence: it is “the best head joined to the best heart” (1982a [1759]:
216). The thesis of this article is that economic actors—including economists—often
approach positive and normative questions from such a pluralist ethical position.
Indeed, the article shows why economists regularly use implicit concepts of duty and
virtue in carrying out their own investigations, as a mechanism for addressing moral
hazard in truth-seeking. Moreover, this article argues that such a pluralist account is
justified on normative grounds because no one ethical approach is complete (as
demonstrated later when discussing the ethics of efficiency). The key point is that a
single ethical approach is inadequate for resolving coordination and cooperation
problems; ethical pluralism allows for synergies, complementarities, and necessary
back-ups. Each ethical system acts as a potential check on the others, and each may
provide valuable insights (Hinman 1999; Muresan 2012).

418
 ECONOMICS WITHIN A PLURALIST

One ethical tradition familiar to neoclassical economists is welfare economics.

This is an outcome-based ethic, relying on the head calculation of rational
economic actors and assuming the goal of maximizing preference satisfactions. But
human choice is complex, and Sen and Adam Smith find compelling reasons to add
duty- and virtue-ethic approaches to complement the consequentialist analysis.
In Smith’s view, feelings about benevolence and justice—derived from instincts
needed for survival—may explain a variety of economic behaviors, for example,
the trust vital for exchange and the care-giving in families and health care markets
(Dolfsma et al. 2005). Real markets, as opposed to idealized markets, have
dimensions of “provisioning, relationships, and incomplete commodification” that
open the door for a wider ethical analysis (Folbre and Nelson 2000: 138).
An historical approach to pluralist ethics would demonstrate that throughout
history economists have used different ethical frameworks for understanding
economic choices and for analyzing public policies. My article today is only
partially historical, and instead focuses on how economists currently—whether
they realize it or not—are pluralist in their practical ethical orientations. I contend
that neoclassical economists use pluralist ethics in the conduct of positive
economics, and that a pluralistic account does a better job of explaining some
market behavior than a neoclassical account alone. While parsimony might
suggest adopting a neoclassical account, there is a problem of sustainability if
duties and virtues are repressed in favor of outcomes alone. Further, pluralism is
normatively justified by considering the limitations of each moral framework
standing alone.
Let me begin by stating my indebtedness to many other economists and
philosophers who have written eloquently about aspects of pluralism. These
include Rob Garnett, Erik Olsen, and Martha Starr, who edited the 2009 book,
Economic Pluralism; Jack Reardon’s International Journal of Pluralism and
Economics Education; George DeMartino’s The Economist’s Oath: On the Need
for and Content of Professional Economic Ethics (2011); Irene van Staveren’s
work (2007) as a professor and researcher of pluralist development economics;
and Deirdre McCloskey’s, The Bourgeois Virtues: Ethics for an Age of Commerce
(2006). There are many others whose approach is influential but I do not have
space to mention.

PLURALISM DEFINED
According to Edward Fullbrook (2012), pluralism is “some degree of acceptance
of two or more mutually inconsistent theoretical frameworks, which pertain to the
same or overlapping domains of reality.” For the purpose of this article, pluralism
has two meanings: the divergence of theories across ethical domains (which is

419
 REVIEW OF SOCIAL ECONOMY

Virtues

Duties and Rules (Norms)

Outcomes

Figure 2: Vertical ethical pluralism. Source: Wight (2014).

called vertical pluralism) and the divergence of theories within ethical domains (or
horizontal pluralism). Note that philosophers use slightly different terms.1
Vertical ethical pluralism is illustrated in Figure 2. The three main ethical
frameworks in Western thought focus on different aspects of human behavior and
choice: one relates to the person’s character and virtue; another relates to the
action itself, and explores the rules and duties for action that could be derived from
God or rational thought; and the last one relates to the evaluation of outcomes.
As I show, these are interconnected and overlapping concepts in economic life.
Consider this quandary: a minimum wage worker called Margaret works in a
dry cleaning company. One day when sorting in the back room she finds a $100
bill left in a pair of pants. What will she do, when there is absolutely no chance of
anyone observing her? The answer provided by neoclassical economics is that she
will take that action that maximizes her utility based on expected outcomes. She
could keep the money, producing good results for her own financial balance sheet.
Or, if Margaret is altruistic, or has a preference for honesty, or if she thinks she can
gain more through social recognition or monetary reward in the long run, she
could turn the money over to the owner of the store. The owner could record the
$100 as profit, or could call up the customer to return the money. In the latter case,
a desirable outcome for the company is increased good will and enhanced
reputation. This is the extent of the standard economic analysis of the
consequences of rational maximizing behavior, yet there is still much more to be
discerned.
The first downward arrow in Figure 2 suggests that an economic agent who is
honest by virtue of her character will have the self-control to obey rules and duties
of proper behavior. Long-term habits of honesty become ingrained and in many
people honesty is revered for its own sake, or more precisely for the sake of justice

1 See: “Value Pluralism” in the Stanford Encyclopedia of Philosophy. Available at: http://plato.stanford.edu/entries/
value-pluralism/

420
 ECONOMICS WITHIN A PLURALIST

that lies behind it. Norms of honesty do produce desirable outcomes (as shown in
the second downward arrow), but desired outcomes are not the motive for virtuous
behavior and the calculation of outcomes is not the adopted method of ethical
discernment. As a theologian noted, “Honesty is the best policy, but he who is
governed by that maxim is not an honest man” (cited in Kay 2013).
The socialization of children, moreover, involves a pluralistic ethical process.
Honesty may be practiced initially because a child caught cheating is reprimanded
and punished (the child experiences a bad outcome for lying). A child later learns
to follow rules to be honest, even when adults are not watching (rule utilitarianism
becomes the best policy). Eventually, a child may come to internalize the norms of
justice so that they are followed unquestioningly. It is only after the habits
of honesty are thoroughly ingrained that virtue has a chance of becoming a feature
of character. Yet few people are saints and most people can be tempted. In the
case of Margaret and the dry-cleaning money, she may be torn between her
instincts and principles. Nevertheless, the equating of choice (to steal or not) with
only one behavioral approach of rational maximization seems to be out of step
with science. Even infants seem to understand the difference between social and
antisocial behaviors (Bloom 2010). Vernon Smith (2013) reports that
opportunistic behaviors occur far less than would be predicted by the neoclassical
model, and that moral sentiments or feelings, rather than rational maximization,
lie behind many social and antisocial behaviors observed in the laboratory.
In Figure 2, the upward dotted arrow posits a positive feedback loop between
outcomes and virtues. Virtue enhances trade by lowering risk, and the resulting
higher living standards can promote travel and trade that expands moral
imaginations. While the evidence is mixed, it suggests that being part of a well-
developed market makes people more inclined toward positive, other-regarding
behaviors (Henrich et al. 2004). A virtue cycle can result in which good character
generates good outcomes that in turn generate more virtuous behaviors. John
Stuart Mill thus argued that the economic gains from trade are “surpassed in
importance by those of its effects which are intellectual and moral” (Mill 1895:
135). Indeed, according to Adam Smith, the origin of trade arises from fellow-
feelings rather than the desire for profit (Smith 1982b: 493). Moral sentiments
about fairness and trust—rather than simply a calculation of personal gain or
loss—undergird many exchange relationships. Trade can thus be defended on
pluralist grounds of both good outcomes and promotion of virtue ethics (Friedman
2005; Gintis et al. 2005; Hirschman 1977; McCloskey 2006).
Vertical pluralism offers researchers the insight that multiple ethical
frameworks are at work in market processes and public policies. Ethical
frameworks may conflict or may work in tandem, such as in the dry cleaning
example just provided. In an actual case, a cab driver in Las Vegas in December

421
 REVIEW OF SOCIAL ECONOMY

2013 found $300,000 in a brown paper bag left in his cab. He turned it over to his
company, which subsequently located the owner. The driver received a reward
from both the owner and the company, but his honest behavior was avowedly not
motivated by an expected reward. The driver stated: “I’m not waiting for any kind
of return. I just wanted to do the right thing” (Associated Press 2013). Anecdotes
like this abound, and can be dismissed as self-serving modesty or an attempt to
depict one’s behavior as altruistic after the fact. Or, they can be portrayed as
situational anomalies. According to critics of virtue ethics, “there is no evidence
that people have character traits (virtues, vices, etc.) in the relevant sense . . . [the]
attribution of character traits [like honesty] leads to much evil” (Harman 1999:
315). Yet laboratory tests confirm that a large proportion of participants in
anonymous, single game experiments are likely to cooperate with others, as long
as they perceive that the other person has the right motive, that is, that the other
person demonstrates trusting behavior (Smith 2013). While the issue of virtue
ethics is to some scholars controversial, it remains an important conceptual
framework in Western thought and in the economic foundations of Adam Smith.
At the same time, within each different ethical framework there are multiple
possible modes of analysis. This gives rise to horizontal (or lateral) pluralism,
shown in Figure 3. Honesty, for example, could be explained in virtue ethics from
the perspective of Adam Smith, Aristotle, Confucius, Buddha, or others. Concepts
of duty can likewise derive from Divine Command Theory (such as the Ten
Commandments), from Kantian rationality, or from natural rights theory.
Likewise, there are multiple outcomes to consider in evaluating pubic policies in
addition to static efficiency. These could include the lives saved or alternatively
the quality-adjusted life years saved, national security, freedom, fairness, justice,
or dynamic efficiency.
Policy-makers would not need to consider horizontal pluralism if a mega-value
could encapsulate all outcomes under a common metric—like the “net pleasure”
espoused by Utilitarians or by the “utility maximization” endorsed by neoclassical
economists. But such a claim of supremacy for a supreme value seems fanciful.
Not everything valued in life is compatible with the arithmetic summation
required. John Stuart Mill, for example, struggled to define a more complex

Virtue ethics: Adam Smith ↔ Aristotle ↔ Confucius ↔ Buddha

Duty ethics: Divine Command ↔ Kantian ↔ Natural Rights

Outcome ethics: Utilitarian ↔ Neoclassical Economic ↔ Saving Lives ↔ National

Security ↔ Freedom ↔ Fairness ↔ Dynamic Efficiency

Figure 3: Horizontal (lateral) ethical pluralism. Source: Wight (2014).

422
 ECONOMICS WITHIN A PLURALIST

Utilitarian measure of pleasure that included a qualitative assessment of higher as

well as lower mental states. This approach led him to rely on concepts drawn from
virtue and duty that lie outside consequentialist analysis, thus demonstrating both
vertical and horizontal ethical pluralism.

EFFICIENCY IN A PLURALIST SYSTEM

Economists often rely on pluralist ethics, even if this nomenclature is not used. For
example, multiple goals are analyzed alongside efficiency in the Casebook of
Economic Problems and Policies: Practice in Thinking (Fels and Buckles 1981).
The authors assert that critical thinking requires that economists in each and every
case should explore alternative goals (horizontal pluralism) and ultimately make a
qualitative ethical judgment about the value of efficiency compared with other
worthy goals. A similar approach is that of “prudent pragmatism,” found in
William Bluhm and Robert Heineman’s, Ethics and Public Policy: Methods and
Cases (2007). The pluralist solution to public policies considers multiple angles
and frameworks through a rhetorical process. Such an approach is more
exploratory and less definitive, but better approximates an honest consideration of
what is at stake in public policy analyses.
Economists may also come to recognize the need for making interpersonal utility
comparisons, which is allowed in some ethical frameworks but not in standard
welfare theory. Neoclassical economists already do something akin to interpersonal
judgments when they implicitly or explicitly support aims other than efficiency. Two
examples of goal-switching that rely on the tacit comparison of utilities are as follows.
Static efficiency satisfies the preferences of existing consumers in the
marketplace. But many economists also support the awarding of patent
monopolies that provide incentives for innovation. This requires changing the
consequentialist aim to dynamic efficiency, which promotes the preference
satisfactions of future consumers.2 Current consumers will be hurt through higher
monopoly prices. Textbook writers generally insert the new goal of dynamic
efficiency without any debate about the ethical grounds for elevating the interests
of future human beings over present human beings. Many future consumers are
not yet born and have no moral status in many philosophical systems. The ethical
issues are deep and pervasive when switching goals, precisely because it involves
interpersonal comparisons of gains and losses from such a switch.

2 To simplify, I assume that current consumers and future consumers are different persons. In reality, some current
consumers will also be future consumers. Even if present and future consumers are identical, to advocate for
dynamic efficiency requires that a welfare economist make an interpersonal comparison of utility between
someone consuming today verses that same person consuming in the future. Some paternalism seems apparent in
any such assessment.

423
 REVIEW OF SOCIAL ECONOMY

In a public policy analysis of whether human organs should be bought and sold
in a market, Gary Becker and his co-author endorse the market solution, which
might be expected, but surprisingly not on the grounds of efficiency
maximization. Rather, this defense of markets rests upon saving the most lives
(Becker and Elı́as 2007). Choosing “lives saved” as the goal dramatically changes
public policy debates: wealth maximization through efficiency is suddenly off the
table and a new goal substituted. When is it permissible to switch social goals, and
on what ethical basis should this be done? What consistency should be required
from economists and others?
This is important because economists provide policy advice on more than just
whether to legalize the market for human organs. They also advocate for laws and
regulations in other health care areas. While saving the most lives can sometimes
be achieved through freer markets, that outcome is by no means certain. The vast
sums of money spent on advertising Viagra (a drug for male sexual arousal) could
likely save many more lives if allocated instead to vitamin A enrichment in poor
countries. Would Becker therefore favor curbs on pharmaceutical advertising if
this policy could be shown to save lives? If demoting efficiency and replacing it
with other goals is justified in the cases of monopoly patents and a market for
human organs, why not elevate other goals such as fairness or justice when
considering minimum wage laws and other policies? In short, why do textbooks
often promote a monolithic view of efficiency as the only welfare goal when
multiple outcomes can and should be regularly considered?
Economic policies generally produce multiple consequences that are amenable
to trade-offs (Figure 3). We desire to make the nation safer, but not so safe that
freedom is excessively encroached or that wealth creation through exchange is
unduly impinged. Complex choice situations—which describe most public
policies—are rarely suitable for maximizing solutions, and more often require
choosing the least-worst option from among the mix of outcomes, after
considering the limitations imposed by rules, duties, and virtues (Zolnai 2008).
For such a pluralistic decision-making procedure, see Muresan (2012).
To see how rules, duties, and virtues directly enter the discussion, we turn to
examples of pluralism from the history of welfare economics itself. In the early
1900s, efficiency was based on the Pareto principle—meaning that only voluntary
trades could be justified in arguing that one state of affairs was preferable to
another. But problems with this approach are apparent: all public policies produce
some losers, and since losers do not voluntarily choose to lose, the Pareto criterion
leaves economists “euthanized” on procedural grounds (Hick 1939: 697).
A revised Kaldor/Hicks reformulation in the 1930s posits that as long as the
winners win more than the losers lose, the outcome is efficient even if the winners
do not compensate the losers. The new definition of efficiency maximizes the

424
 ECONOMICS WITHIN A PLURALIST

capacity to satisfy preferences, and according to Hicks “it is extremely desirable

that [policies] should be freed from distributive complications as much as
possible” (Hick 1939: 712). But Hicks noted in his 1939 welfare reformulation
article, however, that many economists do, in fact, care about economic justice.
Therefore, he argued that in most cases policy reform recommendations should be
in “close conjunction with some measure of compensation”—in other words,
Hicks argues for horizontal pluralism—for the dual primacy of efficiency and
justice when considering changes to policy (Hick 1939: 712).
Many economists truncate Hicks’ approach and think they are doing good
economics when they focus exclusively on efficiency and wealth maximization
(Posner 1979). Abstracting from any institutional context, this approach could in
theory justify thievery. If Joe values Frank’s painting at $1,600, which is a
higher value than Frank himself places on it, efficiency could be enhanced if Joe
buys it. But Joe would not have to buy it for redistribution to be “efficient”:
Joe could steal the painting and net wealth creation would still rise. Recall
that compensation is not required in order for Kaldor/Hicks efficiency to be
realized.
Posner would object to this line of argument, noting that Joe the thief could
not value the art at $1,600 since in economic terms he has not demonstrated that
value through market bidding: “Even if the hypothetical-market approach were
used, it still would not result in an award of the [art] to the thief since it is not
worth more to him than to the owner in a willingness-to-pay sense” (1979: 121).
But Posner’s account is contrived: Joe could indeed be willing and able to pay
$1,600 if he had to; but when an opportune moment arises to steal, he maximizes
his consumer surplus by in essence paying $0. Posner himself suggests this when
he imagines a scenario in which someone of financial means breaks into an
unoccupied cabin to steal food to avert starvation. The thief in this case (the rich
person) has both wealth and willingness to pay, but the transaction costs for
locating the cabin’s owner are high, and Posner argues that efficiency is
enhanced in this case when food is stolen. Posner demonstrates a bias in
assuming that only poor people steal, and seems to endorse a double standard
that theft is welfare-enhancing when done by rich people. He also confounds
three different ethical systems: one is consequentialist (wealth maximizing), the
other is duty bound (not to harm others), and the third is virtue based (to be
honest).
An immediate objection to thievery (even if it does enhance efficiency) is that
we live in a society of property rights working behind the scenes. When this
claim of background circumstances is invoked, one is relying upon duty-based
ethics. Frank’s property right imposes a duty upon others to respect that right.
This is a different type of ethical analysis: we are now arguing that it is not only

425
 REVIEW OF SOCIAL ECONOMY

the wealth outcome that matters, but it is also the process by which we arrive at
the outcome that matters. Property rights vary widely across countries and times
and may be highly inefficient, as Adam Smith noted when discussing medieval
practices of primogeniture and engrossing (1981: 377). When analyzing public
policies, we are always talking about inflicting involuntary harm on some people
so that other people can enjoy some benefits. In order to justify this “coercion”
we rely on the idea that people belong to a society in which basic human and
property rights are enjoyed and the right to exit exists if conditions become
intolerable.
It is thus difficult to justify the neoclassical Kaldor/Hicks formulation of
efficiency without relying on vertical pluralism, by drawing on a different type of
ethical argument having to do with rules, duties, and rights. One of the problems
with ignoring this can be seen in the infamous memo that Larry Summers
distributed when he was chief economist at the World Bank. In that memo,
Summers argued for moving polluting industries to Africa because that continent
was under-polluted. Citizens there would rather have jobs even if the factories
were dispensing toxic waste. This claim relies upon the Kaldor/Hicks model in
which the winners from job creation could in theory compensate the losers—those
peoples whose livelihoods and lives would be lost because of water and soil
contamination. These costs in theory would be minimal because life expectancies
in these countries are already lower because of poor health; and lost earnings from
pollution would be low because of pre-existing poverty. But in order to argue that
this pollution migration would be efficient, we have to assume that the people who
are injured have access to fair and inexpensive systems of justice and can seek
redress for their injuries. We must also assume that the costs and benefits of
pollution (and any pollution regulations) can be determined in a democratic way,
with full disclosure of risks through a free press, free speech, and an impartial
judicial system that enforces property rights. Does anybody actually think this is a
typical situation in Africa?
Earlier economists, steeped in political economy and ethics, were well aware
of these important qualifications. Lionel Robbins noted in 1938 that

All economists recognised that their prescriptions regarding policy were conditional
upon the acceptance of norms lying outside economics . . . . [And] it would surely leap
to the eye how necessary it was, if [economic] findings were to be applied to
human improvement, that they should be supplemented by political philosophy.
(638 –639)

In fairness to Summers, the environmental memo was actually written by his aide,
Lant Pritchett, and was meant to be an ironic and a sarcastic critique of welfare

426
 ECONOMICS WITHIN A PLURALIST

theory. Many people failed to appreciate the humor because the writing
exemplifies the conceit of the economic way of thinking when it is used in
isolation from broader ethical and institutional norms. Summers later admitted:
“The basic sentiment . . . is obviously all wrong . . . the way those thoughts were
expressed wasn’t constructive in any sense . . . ”. (Rosenberg 2001)

PLURALISM IN BUSINESS ETHICS

By this point, I hope I have convinced you that although outcomes matter, and in
particular the outcome of efficiency can be defended rigorously, it is not a concept
that can stand on its own. Vertical pluralism is required to buttress the concept
with rights and duties. But we can go further to show that virtue ethics also has a
role to play. You are probably familiar with Friedman’s (1970) famous dictum
that maximizing profits is the only moral obligation of a corporation. In a
competitive market, maximizing profits produces desirable outcomes for
consumers by producing the kinds and qualities of products desired at the lowest
possible prices. But in order for this to work, Friedman has to deal with the
principle-agent problem: namely, that managers have different interests from the
owners of the corporation. It is expensive for shareholders to monitor managers
and to design compensation packages that cannot be manipulated, such as
earnings or stock prices.
Friedman tackles this problem by abandoning the behavioral model of utility
maximization. Instead, he advocates the need for agents who abide by deontological
ethics. He argues that that managers have a “responsibility”—meaning a “duty”—to
put shareholder interests ahead of their own personal interests. But why would—or
should—a manager follow duty-based ethics in a world dominated by
consequentialist selfish maximizing? Adam Smith’s answer, based on moral
sentiments, is that feelings about right and wrong become habituated through rules
and norms, leading to the development of self-control as we attempt to come into
emotional equilibrium with others. Smith did not have much confidence in the
rational powers of humans, but he did have great confidence in the strength of our
instincts and social norms arising from them. The fellow-feeling that provides the
foundation for Smith’s trust is genuine and not calculated to win favor through
reputation (although it certainly might have that effect). Smith wrote:

[N]othing pleases us more than to observe in other men a fellow-feeling with all the
emotions of our own breast; nor are we ever so much shocked as by the appearance of the
contrary . . . . But both the pleasure and the pain are always felt so instantaneously, and
often upon such frivolous occasions, that it seems evident that neither of them can be
derived from any such self – interested consideration. (1982a [1759]: 13)

427
 REVIEW OF SOCIAL ECONOMY

The ultimate moral standard is not the determination of others that our conduct is
praiseworthy, it is the approbation of ourselves. Smith’s moral sentiments model
is not that of a rational actor attempting to maximize utility. Vernon Smith reflects
that:

. . . far from championing the individual’s pursuit of self-love, [Adam] Smith saw the
individual as not even defined except in a social context. There is no cognitive individual
psychology except as it is born of a person’s social circumstances, out of the “social
psychology” of his environs . . . . (2013: 288)
For a market to produce the best outcomes, it needs to have managers that are
duty-bound to respect the rights of owners. And to produce well-socialized
individuals, who have both the desire and the self-control to obey their duties to
others, requires an attention to the cultivation of virtue. The cultivation of virtue
builds upon feelings (not rational arguments as in Kant) to develop self-control, the
foremost virtue. This process is multi-tiered, happening in the social contexts of
families, schools, religious communities, and so on. Hence, as Paul Heyne noted,
“[T]he market requires moral foundations which cannot be created by market
transactions themselves” (Heyne 1995). Vertical pluralism unites virtues, duties,
and outcomes as a holistic account of the complexity of human organization and
cooperation. Paradoxically, Friedman’s account of the need for a duty ethic also
justifies a stakeholder theory of the firm, since a manager of virtue who exhibits a
duty to treat shareholders right will also have a duty to treat workers, customers,
and suppliers with appropriate respect.
Along these lines The Review of Social Economy devoted a special issue in 2013
to “Oaths and Codes in Economics and Business,” which draws attention to the
need for multiple approaches to fixing the recurrent problem of moral hazard in
business. As the world economy reeled from the 2008 financial meltdown, the
Dutch Bankers Association asserted the need for external and internal peer pressure
in the form of a public “Banker’s Oath,” part of a greater strategy to improve market
accountability (De Bruin and Dolfsma 2013: 136). By contrast, focusing only on
economic outcomes and incentives, to the exclusion of other ethical approaches,
can possibly corrupt those norms, as argued by Anderson (1990), Sandel (2012),
and others. While virtue ethics can be defended on consequentialist grounds, it
requires a different mindset and approach to sustain it in each new generation.
If human organizations in practice actually do rely on multiple ethical
frameworks, then it is critical for economists to build positive models of how this
interaction works. This is what Nobel Laureates like Amartya Sen, Vernon Smith,
Elinor Ostrom, and others have been attempting. As a final example, I would like
to explore the ways in which the scientific process in economics itself relies upon
a pluralistic ethical framework.

428
 ECONOMICS WITHIN A PLURALIST

ETHICAL PLURALISM IN SCIENCE

Academic economists sell their scientific theories and research outputs to other
economists and to the public. The science market provides considerable incentives
in the forms of money and status for making discoveries that one’s peers find to be
important. The reward for successful high-quality journal publication is lifetime
tenure at a prestigious university. The rational economic actor model certainly
helps us understand why so many people invest so many hours in research and
publication. But there are substantial market failures to be reckoned with.
First, there is the ubiquitous and serious problem of asymmetric information:
researchers know more about their data and research methods than do customers
(the journal editors and readers) (Dow 2013: 23). And a publication bias exists in
which journals generally only report research with statistically significant
findings. A moral hazard thus arises because researchers have an incentive to
fudge, falsify, or even plagiarize their outputs. Investigators can nudge their
results to produce statistically significant findings by omitting outliers, selecting
starting and ending dates, and altering model specifications. These techniques are
justifiable with the right motives, but can also be deplorable if done simply to
squeeze out a publishable paper.
In the standard economic view, people calculate their enlightened self-interest
and tell the truth when the benefits for doing so exceed the costs. Getting caught
falsifying research means a substantial loss of reputation, and for junior faculty,
the potential loss of tenure and future income. According to this view, researchers
are honest because of incentives that align self-interest with social interests. But is
that all there is, or more precisely, is this narrow foundation for trust able to
sustain the health of science in the long run? I would argue it is not, because it
neglects—and by neglecting undermines and corrupts—two other powerful
foundations, namely, duty and virtue.
In a separate article (Wight 2015), I review the evidence and find that the
incentives are often misaligned: the benefits of cheating in research can be large
and the costs of cheating can often be small. The probability that fraud will be
detected in empirical economic work is low because of the paucity of replication
studies. Even when fraud is discovered, the penalties are slight. No national or
international clearinghouse exists for exposing unethical conduct, and journal
editors generally wish to remain mute so as to avoid libel lawsuits. A rational
economic actor faces a moral hazard—the strong incentive to cheat in research.
What the neoclassical model misses is that societies historically have
attempted to control moral hazard through the use of duties, rules, and virtues in
addition to incentives. The practice of medicine creates well-known problems of
moral hazard. Since the days of Hippocrates, doctors have pledged to put patient

429
 REVIEW OF SOCIAL ECONOMY

interests ahead of personal interests. Certified public accountants likewise take an

oath to profess an “unswerving commitment to honorable behavior, even at the
sacrifice of personal advantage” (AICP 2012). Similar duties are required in
engineering, architecture, law, and many other professions. These commands do
not work all the time to restrain unethical behavior, but they do remind us of a very
different standard for ethical choice. Although a host of factors play a part in
honest actions, honor pledges and moral reminders do tend to reduce cheating
(Ariely 2012). Moral commitments should thus be explicitly studied and
promoted as part of a pluralist understanding of what makes economic interaction
work, as argued by David Rose: “Nonconsequentialist moral restraint, coupled
with consequentialist moral advocacy, is the moral foundation of economic
behavior” (2011: 205).
By contrast, the American Economic Association (AEA) specifies no code of
ethical conduct for continued membership, nor does it have any mechanism for
punishing transgressors. After the popularity of the movie Inside Job and the
publication of George DeMartino’s, The Economist’s Oath: On the Need for and
Content of Professional Economic Ethics (2011), the AEA did require financial
disclosure and data transparency for authors in its journals. Dow (2013: 28) notes
that an ethical code can unintentionally erode the norm of professionalism by
calling attention to, and thereby elevating, the competing norm of opportunism.
The unspoken gorilla in the story about ethics within the economics research
community is the key role played by professor as mentors. Teachers must
inculcate in students the norms of duty- and virtue-based ethics as a counter-
weight to the pull of enlightened self-interest. Model or exemplar individuals
demonstrate through their actions and sacrifices that they have an internal moral
compass directed toward absolute moral norms of right and wrong. Frank Knight
thus argued that scientific inquiry relies on a “moral code” that should be adopted
as a “religion” by its followers: “The basic tenet of scientific research—truth or
objectivity—is essentially a moral principle, in opposition to any form of self-
interest” (1947: 244). In the presence of moral hazards, Frank says economists are
called on to develop virtues of “integrity, competence, and humility.” These
qualities should be identified and nurtured, not only because they may lead to
personal success, but also because they are valued intrinsically as ideals. Honesty
is more than a preference in one’s utility function, to be traded-off against other
goals in pursuit of gain; honesty is a sacrosanct duty to others and constitutes a
measure of one’s character development.
Kenneth Boulding’s Presidential address to the AEA in 1968 likewise
advances the idea that many economic institutions operate on the basis of non-
consequentialist traditions and motives:

430
 ECONOMICS WITHIN A PLURALIST

In facing decisions, especially those which involve other people, as virtually all decisions
do, we are faced with two very different frameworks of judgment. The first of these is the
economic ethic of total cost-benefit analysis . . . . It is an ethic of calculation . . . . This
type of decision-making, however, does not exhaust the immense complexities of the
human organism, and we have to recognize that there is in the world another type of
decision-making, in which the decision-maker elects something, not because of the
effects that it will have, but because of what he “is,” that is, how he perceives his own
identity. (1969: 8– 9)

The “heroic” ethic of many individuals—the volunteer soldier, the monk in a

religious order, and even the economist toiling long hours in her laboratory—
reflects the ideal of not counting the dollars and cents. A pluralist account of how
and why scientists are honest recognizes and bolsters the institutions that promote
trustworthiness. As Kenneth J. Arrow noted, “The multiplicity of control systems
in the real world is probably no accident” (1997: 765).
By ignoring duty and virtue, or by attempting to shoehorn these concepts into
enlightened self-interest, the standard economic model misses the role that non-
consequentialist ethics plays in economic life; worse, it potentially degrades those
frameworks in the minds of students, whose characters are amenable to manipulation
(Frank et al. 1993). Academic mentors transmit moral norms about duty and virtue
through informal mechanism that are sometimes instinctual and unconscious. Along
these lines, McMaster and Fischbacher-Smith (2014) argue for a concept of “duty of
care” in economics: training is more than imparting technical knowledge, it is also
about considerations of wisdom. Irene van Staveren (2007: 33–34) perceptively
observes that “Paradoxically, the economic theory that has completely absorbed
morality (neoclassical economics) through moral preferences in utility functions
seems least able to do justice to the diverse expressions of morality in economic life.”

CONCLUSION
In this article, I hope to establish, by drawing on the work of many scholars in
social economics, that economic actors do, in fact, rely on ethical pluralism for
reducing transaction costs in exchange and for addressing problems of asymmetric
information and moral hazard. Whereas positive economics has tended to rely
exclusively on a behavioral model that assumes utility maximization, this
approach fails to give credit to vertical ethical pluralism—namely, the neglected
foundations of duty and virtue. Consequences, duties, and virtues all play a role in
sustaining businesses, for example, and in promoting the search for truth within
the economic research community. There are many other applications that are ripe
for analysis and case study.

431
 REVIEW OF SOCIAL ECONOMY

Normative welfare economics can also benefit from understanding vertical

pluralism. As shown earlier, the Kaldor/Hicks approach to efficiency implicitly
relies on the existence of institutions for the protections of justice that lie outside
the consequentialist framework. Horizontal pluralism, meanwhile, calls our
attention to the different goals that ought to be considered in public policy
analyses, and the subtle way that economists sometimes switch goals without
adequate notice or justification. The argument here is not to reject the neoclassical
approach; it is to reject the insistence that all approaches can be subsumed under
utility maximization. In the words of Amartya Sen,

An economic analyst ultimately has to juggle many balls, even if a little clumsily, rather
than giving a superb display of virtuosity with one little ball [e.g., efficiency]. (cited in
Klamer 1989: 141)

One anonymous reviewer of this article rightly complains that the “juggling” of
many balls suggested by Sen can be indeterminate, and might devolve into ethical
relativism. If consequences, duties, and virtues all play a role in sustaining the
economic landscape, how do people make final decisions when these ethical
frameworks collide—leading in opposite directions? A simple Smithian answer
is that we muddle through, doing as best we can, learning from our mistakes.
We should not expect perfection from any human endeavor; rather, we should
avoid the overconfidence that comes from perfectly analyzing a small detail but
thereby missing the big picture.
Friedrich Hayek did not like the narrow model of economic thinking.
He thought it was arrogant to suppose that humans know more than they are
capable of knowing. He wrote:

While you may be a very useful member of society if you are a competent chemist or
biologist, but know nothing else . . . if you know only economics and nothing else, you
will be a bane to mankind, good, perhaps, for writing articles for other economists to read,
but for nothing else. (1991: 42)

I think Hayek was too harsh, and that economics as a discipline is moving in a
positive direction. It is likely true that the narrow economic way of thinking can
corrupt young people, making them less able to work cooperatively in groups and
perhaps more likely to free-load (Frank et al. 1993). But students of history also
know that there will be an inevitable backlash to the over-reaching in the
caricature of homo economicus. I look forward to the twenty-first century and the
continued rise of social economics, in which empathetic humans will be modeled
with all their warts and fledgling virtues—both selfish and benevolent, other-

432
 ECONOMICS WITHIN A PLURALIST

regarding, and willing to sacrifice to punish those who violate norms of justice.
Duty and virtue will be rediscovered along with feelings and sympathies.
Realizing one’s identity by being authentic and virtuous will, I believe, be the
quest of many young people alienated from the ethic of rational maximizing. The
world of economics will become more complex, interesting, and relevant.

REFERENCES
American Institute of Certified Public Accountants (AICP) (2012) “Code of Professional
Conduct,” Available at: http://www.aicpa.org/Research/Standards/CodeofConduct/
Pages/et_50.aspx (accessed 5 April 2012).
Anderson, E. (1990) “The Ethical Limitations of the Market,” Economics and Philosophy
6(2): 179– 205.
Ariely, D. (2012) “Why We Lie,” Wall Street Journal, May 26, p. C1.
Arrow, K. J. (1997) “Invaluable Goods,” Journal of Economic Literature 35(2): 757– 765.
Associated Press (2013) “Gambler Rewards Man Who Returned $300K Left in Cab,” ABC
News. Available at: http://abcnews.go.com/Weird/wireStory/gambler-rewards-man-
returned-300k-left-cab-21351480
Becker, G. S. and Elı́as, J. J. (2007) “Introducing Incentives in the Market for Live and
Cadavderic Organ Donations,” Journal of Economic Perspectives 21(3): 3 –24.
Blinder, A. (1988) Hard Heads, Soft Hearts: Tough-minded Economics for a Just Society,
Reading, MA: Addison Wesley Longman.
Bloom, P. (2010) “The Moral Life of Babies,” The New York Times Magazine, May 5, p. 44.
Bluhm, W. and Heineman, R. (2007) Ethics and Public Policy: Methods and Cases, Upper
Saddle River, NJ: Prentice-Hall.
Boulding, K. (1969) “Economics as a Moral Science,” American Economic Review 59(1):
1 – 12.
De Bruin, B. and Dolfsma, W. (2013) “Oaths and Codes in Economics and Business—
Introducing the Special Issue,” Review of Social Economy 71(2): 135– 139.
DeMartino, G. (2011) The Economist’s Oath: On the Need for and Content of Professional
Economic Ethics, Oxford: Oxford University Press.
Dolfsma, W., Finch, J. and McMaster, R. (2005) “Market and Society: How Do They Relate,
and How Do They Contribute to Welfare?” Journal of Economic Issues 39(2): 347–356.
Dow, S. C. (2013) “Codes of Ethics for Economists: A Pluralist View,” Economic Thought
2(1): 20 – 29.
Fels, R. and Buckles, S. (1981) Casebook of Economic Problems and Policies: Practice in
Thinking (5th ed.). St Paul, MN: West Publishing.
Folbre, N. and Nelson, J. A. (2000) “For Love or Money-or Both?” Journal of Economic
Perspectives 14(4): 123– 140.
Frank, R. H., Gilovich, T. and Regan, D. T. (1993) “Does Studying Economics Inhibit
Cooperation?” Journal of Economic Perspectives 7(Spring): 159– 171.
Friedman, B. (2005) The Moral Consequences of Economic Growth, New York: Vintage
Books.

433
 REVIEW OF SOCIAL ECONOMY

Friedman, M. (1970) “The Social Responsibility of Business is to Increase its Profits,” The
New York Times Magazine, Vol. CXIX, No. 41, 140, September 13, pp. 122– 126.
Fullbrook, E. (2012) “To Observe or Not to Observe: Complementary Pluralism in Physics
and Economics,” Real World Economics Review 62(4): 20 – 28.
Garnett, R. F., Olsen, E. K and Starr, M. (2009) Economic Pluralism, Abingdon: Routledge.
Gintis, H., Bowles, S., Boyd, R. and Fehr, E. (eds) (2005) Moral Sentiments and Material
Interests: The Foundations of Cooperation in Economic Life, Cambridge: The MIT Press.
Harman, G. (1999) “Moral Philosophy Meets Social Psychology,” Proceedings of the
Aristotelian Society 99(3): 315– 331.
Hayek, F. A. (1991) The Trend of Economic Thinking: Essays on Political Economists and
Economic History, Vol. II, The Collected Works of F.A. Hayek, W. W. Bartley III and
S. Kresge, eds., Chicago, IL: University of Chicago.
Henrich, J., Boyd, R., Bowles, S., Camerer, C., Fehr, E. and Gintis, H. (eds) (2004)
Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence
from Fifteen Small-Scale Societies, Oxford: Oxford University Press.
Heyne, P. (1995) “Moral Criticisms of Markets,” The Senior Economist 10(4): 3 – 8.
Hick, J. R. (1939) “The Foundations of Welfare Economics,” The Economic Journal
49(196): 696– 712.
Hinman, L. (1999) Contemporary Moral Issues, Upper Saddle River, NJ: Prentice Hall.
Hirschman, A. O. (1977) The Passions and the Interests: Political Arguments For
Capitalism Before Its Triumph, Princeton, NJ: Princeton University Press.
Kay, J. (2013) “Being Ethical in Business is not as Simple as ‘Doing the Right Thing’,”
Financial Times, November 6, p. 9.
Klamer, A. (1989) “A Conversation with Amartya Sen,” Journal of Economic Perspectives
3(1): 135– 150.
Knight, F. (1947) Freedom and Reform, New York: Harper and Brothers.
McCloskey, D. (2006) The Bourgeois Virtues: Ethics for an Age of Commerce, Chicago:
University Of Chicago Press.
Mill, J. S. (1895) The Principles of Political Economy with Some of Their Applications to
Social Philosophy, New York: D. Appleton and Co.
McMaster, R. and Fischbacher-Smith, D. (2014) “The ‘Paradigm Blindness’ of Economics:
Ethical Challenges to Economic Thought from the Financial Crisis,” Presented to the
ASSA, Philadelphia, PA, January 4, 2014.
Muresan, V. (2012) “A Pluralist Ethical Decision-making,” Journal of Applied Ethics and
Philosophy 4(8): 11 – 21.
Posner, R. A. (1979) “Utilitarianism, Economics, and Legal Theory,” The Journal of Legal
Studies 8(1): 103– 140.
Robbins, L. (1938) “Interpersonal Comparisons of Utility: A Comment,” The Economic
Journal 48(192): 635– 641.
Rose, D. C. (2011) The Moral Foundation of Economic Behavior, Oxford: Oxford
University Press.
Rosenberg, J. S. (2001) “Toxic Memo,” Harvard Magazine (May – June). Available at:
http://harvardmagazine.com/2001/05/toxic-memo.html
Sandel, M. (2012) What Money Can’t Buy: The Moral Limits of Markets, New York: Farrar,
Straus and Giroux.

434
 ECONOMICS WITHIN A PLURALIST

Sen, A. (1988) On Ethics and Economics, Oxford: Blackwell Publishing.

Smith, A. (1981 [1776]) An Inquiry into the Nature and Causes of the Wealth of Nations.
(Glasgow edition), R. H. Campbell and A. S. Skinner eds. Indianapolis: Liberty Fund.
Smith, A. (1982a [1759]) The Theory of Moral Sentiments, D. D. Raphael and A. L. MacFie
eds., Indianapolis: Liberty Fund.
Smith, A. (1982b) Lectures on Jurisprudence. R. L. Meek, D. D. Raphael, and P. G. Stein,
eds. Indianapolis: Liberty Fund.
Smith, V. (2013) “Adam Smith: From Propriety and Sentiments to Property and Wealth,”
Forum for Social Economics 42(4): 283– 297.
van Staveren, I. (2007) “Beyond Utilitarianism and Deontology: Ethics in Economics,”
Review of Political Economy 19(1): 21 – 35.
Wight, J. B. (2003) “Efficiency Unprofitable without Ethics,” The Australian, September
24, reprinted from “Teaching the Ethical Foundations of Economics,” The Chronicle of
Higher Education, August 15: B7– B9.
Wight, J. B. (2014) “Vertical and Horizontal Pluralism,” Economics and Ethics Blog, July
15. Available at: http://www.economicsandethics.org/2014/07/vertical-and-horizontal-
pluralism.html
Wight, J. B. (2015) “The Ethical Economist: Duty and Virtue in the Scientific Process,” in
George DeMartino and Deirdre McCloskey (eds) The Handbook of Professional
Economic Ethics. Oxford University Press, forthcoming.
Zolnai, L. (2008) Responsible Decision Making, New Brunswick, NJ: Transaction
Publishers.

NOTES ON CONTRIBUTOR
Jonathan B. Wight is Professor of Economics in the Robins School of Business at
the University of Richmond. He is the author of three books, including Saving
Adam Smith: A Tale of Wealth, Transformation and Virtue (2002) and Teaching
the Ethical Foundations of Economics (2007), with John Morton. He received the
In-Character Award from the John Templeton Foundation and the Distinguished
Educator Award at the University of Richmond. He is past-President of the
Association for Social Economics. A new book, Ethics in Economics: An
Introduction to Ethical Frameworks will be released by Stanford University Press
in March 2015.

435