The level of economic literacy among Americans is low in large
part because we college and university teachers do an ineffective
job of presenting the introductory courses in our subject. Far too
few students leave our courses with a genuine understanding of how
commercial societies work, societies in which everyone specializes
and lives by exchanging. Even at the end of the course students
find the processes of supply and demand that coordinate activities
in such a society baffling or boring or both.
It isn't entirely our fault. We deserve sympathy, not blame, for
having to teach a subject that is by its very nature extremely abstract.
Economic theory generalizes about activities and relationships,
such as economizing and exchange, that can't be shown in pictures.
That's why we lean so heavily on graphs. It's also why no one has
yet been able to make a good film to teach economics and why the
best of the ones that have been made are filled with "talking heads."
On the other hand, it is our fault that we persist in teaching
the first course as if everyone enrolled were headed for a Ph.D.
in economics. That's not an effective way to introduce students
to any subject and it's a particularly poor way to introduce someone
to a subject as abstract as economic theory.
But I want to use my space to discuss another reason why economic
theory may be so difficult to teach effectively, a reason less often
commented on. Really learning economics requires "getting into"
the economist's way of thinking about social phenomena. I suggest
that many of our students, including some of our most thoughtful
ones, are reluctant to let themselves be captured by the economic
way of thinking because they see economic theory as at bottom an
elaborate justification for an immoral society.
The Defense of Commercial Society
Most economists will insist that anyone who views economic theory
in this way is totally mistaken. Economic theory merely describes;
it does not justify or defend anything at all. Economists who teach
economics as a defense of commercial society, they will claim, are
not scientists but ideologues. While I agree that those who perceive
economic theory as a system of thought that defends an immoral society
are mistaken, I maintain that their mistake is only in supposing
that the society it defends is immoral.
Economic theory is in large part an elaborate justification of
commercial society. To say that it merely describes, it does not
justify, is to ignore what it's describing. It's describing the
cooperative and positive-sum aspects of the supply and demand process
to people inclined to see the process as zero-sum at best and more
often as a negative-sum game. Copernicus' description of the heliocentric
system was a description, not a defense, of that system because
the system required no defense. People may have thought it was impious
or immoral to believe that the earth revolved around the
sun; but no one thought that Copernicus was suggesting wicked behavior
on the part of the earth and the other planets. Many people today
do believe, however, that the activity of pursuing one's own interests,
which generates supply and demand functions and through them the
prices that coordinate production, is, if not wicked, at least somewhat
immoral, and if not immoral then at least morally inferior.
Inferior to what? Inferior to activity that aims at promoting
the interests of others rather than one's own interests. We in the
Western world have inherited a religious tradition that tells us
we should do for others what we would like them to do for us and
that we should give without expecting anything in return. That's
not how commercial society functions. In commercial society the
rule is: "I'll do this for you if and only if you do that for me."
Maybe that's the way it has to be in an imperfect world, say the
critics. But it's not good. It would be far better morally
if people produced to satisfy the needs of others than to enrich
themselves. In a commercial society, everyone uses others as means
to their own ends. And that is basically immoral.
The abject failure of the socialist vision that became so obvious
with the collapse of the Soviet Union has turned a lot of people
into realists. The critics of capitalism admit that socialism does
not work—unfortunately, they add. People are basically selfish.
They won't live by the Golden Rule. And so we must, regrettably,
turn to capitalism. Capitalism works. It may stunt the spirit and
corrupt the soul; but it does feed the body. We must go on living
in a world of self-seeking and competition, at least until a New
Age appears in which human nature will be transformed and all swords
and spears will be reshaped into plows and pruning saws. My language
is deliberately religious because I believe that religious misunderstanding
has greatly contributed to the depth and pervasiveness of the error
I want to criticize.
Commercial Society and the Golden Rule
The fundamental error lies in supposing that the reason the Golden
Rule won't work is that human beings are basically selfish. I submit
that the Golden Rule won't work as an organizing principle for
a commercial society because human beings are not omniscient.
We simply do not know enough and could never know enough to organize
social life in a commercial society on the basis of the Golden Rule.
Running a society by the Golden Rule requires comprehensive social
planning, and that just cannot be made to work except in very small
societies, societies not much bigger than a family.
I am not denying that some human beings are selfish most of the
time or that all of us are selfish some of the time. I am making
a different kind of assertion altogether, namely, that the Golden
Rule could not effectively organize a commercial society even if
every single individual in the society were like St. Francis of
Assisi. It is possible, even probable I suppose, that in a society
made up entirely of people like St. Francis, a commercial society
would never have developed. People everywhere would have remained
poor, at least by our standards, living always on the edge of subsistence,
though presumably in peace and contentment. There would also be
far fewer of them, even if these St. Francis-like people differed
from him in preferring marriage and procreation to celibacy, because
the economic systems that prevailed prior to the evolution of commercial
society could not have maintained one-tenth the number of people
that inhabit the earth today.
However much some people may suppose (do they really believe
it?) that a poorer and simpler world of far fewer people would be
a better world, we do not have the option of going back. If all
those who now grow the food that feeds the nearly 6 billion people
in today's world decided to begin producing for people rather than
for profit, so that each one of them planted their crops only after
determining which particular people wanted the product, most of
the world's population would die of starvation within a few years.
Contrary to the slogan that long filled the window of local Communist
Party headquarters in my neighborhood, production for profit is
production for people.
Those who find commercial society morally repugnant are capable
of conceding that production for profit delivers the goods without
granting that this describes a moral society. Selfishness may work,
they say, but it's still wrong. But it is not selfishness that motivates
people in a commercial society, although some undoubtedly are in
fact selfish. Participants in the supply and demand processes that
animate modern society are motivated by love for family, the desire
to do a good job, anxiety about the opinions of others, the satisfaction
of overcoming challenge, a wish to avoid boredom, a determination
to act always so that they can respect themselves, sadistic urges,
masochistic urges, or lust for sex, drugs, domination, or more toys
than owned by anyone else in their acquaintance—just to give
a sampling of what motivates people.
Selfishness and Self-Interest
Economists have done a great deal of damage by failing to make clear
the distinction between selfishness and self-interest. Some economists,
even some who have earned Nobel prizes, mistakenly claim that economic
theory presupposes selfishness and greed. That just isn't so. It
presupposes that people act in their self-interest. But whether
pursuing one's self-interest is selfish depends entirely on what
one's interests are. Adam Smith never made this mistake. He never
once claimed that selfishness motivates activity in a commercial
society, but rather self-interest, self-love, concern for one's
own advantage. And as his book on moral philosophy makes clear,
he did not identify self-love with selfishness and held open the
possibility that self-love would inspire some people to acts of
courageous sacrifice for others. A major source of misunderstanding
and moral confusion might be removed if economists simply stopped
saying that economic theory describes a society running on greed
and selfishness. I would prefer that we even stop saying that it
presupposes the pursuit of self-interest, because this still lends
itself to misunderstanding. Economic theory assumes only that people
pursue the projects that interest them. That was true of Mother
Teresa, Jack the Ripper, Henry VIII and Augustine of Hippo.
"I have never known much good done," Adam Smith observed, "by
those who affected to trade for the publick good." He thought that
people usually promoted the interest of society most effectively
when they tried to promote their own interests. This paradoxical
result was the work of the invisible hand, by which Smith did not
mean any magical or supernatural intervention but simply the process
he attempted to describe throughout The Wealth of Nations
and that we teachers should be trying to explain in the introductory
economics course: Market interactions in a well-governed society,
a society in which government protects people against theft and
robbery, provides a system for the peaceable adjudication of disputes,
and assures its citizens that government itself will not engage
in predatory behavior.
The Golden Rule is irrelevant or even mischievous in its effects
when people attempt to apply it in the context of market transactions.
The reason, once again, is that we usually do not know enough. A
city bus driver who waits in the morning commute for a late passenger
whom he sees running to catch the bus cannot know whether the good
he does for this one passenger outweighs the harm he does to all
others on the bus by delaying their trip. He delays each of them
just a little; but that little might be enough to make some miss
a transfer connection. The passenger for whom he waits might be
on an urgent mission of mercy; or he might be meeting an accomplice
in order to rob a liquor store. The point is that the driver does
not know, and because he does not know, he has a moral obligation
to follow the rules that have been established by the bus company
with the aim of maximizing the general welfare. The driver who waits,
in violation of company rules, is not so much virtuous as arrogant.
The ethical rules of the marketplace are different and must be different
from the ethical rules that can guide action in a family or another
small, face-to-face society. Because the Golden Rule tells us to
do to others what we would like them to do for us, it presupposes
a condition of personal knowledge and directness or immediacy of
action that is typically missing in market transactions. In market
transactions something like the Silver Rule ought to reign: "Do
not do to others what you would consider unfair or unjust if they
did it to you."
The Silver Rule is not a rule of expediency or a watering down
of ethics or a double standard. It is a difficult and demanding
rule. It does indeed demand too little if we take it to express
what parents owe to their children or what members of a religious
community owe to one another. It is not a rule, however, for the
governance of relations among family members and friends, but a
rule for the governance of relations among strangers. Once that
is recognized, the truly noble and challenging character of the
imperative contained in the Silver Rule becomes much clearer.
The transactions that economic theory explains are almost entirely
transactions among strangers. Would it be better in some sense if
fewer of our transactions were with strangers, if we lived our lives
more than we do in the company of friends, if we specialized less
narrowly so that we could trade primarily with people whom we know
personally? It might be better in some sense. But in what sense?
It would also surely be worse in many ways. Extensive specialization
and anonymous trading has created for us all sorts of trivial goods.
But are classical CDs, antibiotic medicines, high-speed dentist
drills, fresh fruits and vegetables in all seasons of the year—are
these all trivial goods? They would not be available in the absence
of very extensive specialization and its corollary, numerous transactions
with anonymous others.
I have no simple advice to offer here at the end to teachers of
economics. If my hypothesis is correct, that some good students
do not learn economics from us because they are never captured by
its perspective, and they are never captured because they perceive
economic theory as an elaborate justification for an immoral society—if
this is correct, then we will certainly not remedy the situation
by talking about the positive-normative distinction or by insisting
that ethical considerations are irrelevant in scientific inquiry.
We can begin to overcome this obstacle only by being more attentive
to the questions and convictions that our students bring with them
when they come into our classrooms. But in order to respond effectively
to the misgivings and misunderstandings that I have attempted to
analyze, we will ourselves have to reflect more carefully on the
nature of economic theory and of the society whose workings it explains.
Heyne is senior lecturer in economics at the University
of Washington in Seattle. He came to economics as a divinity student interested
in questions of social ethics and gradually became an economist with an
interest in ethics, rather than an ethicist with an interest in economics.
Heyne is currently revising his textbook, The Economic Way of Thinking,
for a ninth edition.
Heyne has a master's of divinity from Concordia Seminary, a master's
degree from Washington University and a doctorate from the University