Manual The Rules of the Game: Cross-disciplinary essays on models in scholarly thought: Volume 86

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The Rules of the Game; Cross-Disciplinary Essays on Models in Scholarly Thought. Tavistock, London, SHAPIRO, J. (i). 'Freezing-out, a Safe Technique.
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For though he was an intimate friend of each of us, he much preferred to debate the latest or perennial issues we disagreed upon than to talk or write about himself. Paul Heyne, we now see, was a man with a prophetic mission—something he naturally conceived as a calling. This vocation was not to be a Lutheran pastor, or a working economist, or even just a university teacher—though he sometimes spoke as though the last were the case.

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It was, rather, to explain to a society ignorant of the principles of economics, and sentimentally attached to a half-remembered Christian ethic of interpersonal relations, that the seemingly immoral prescriptions of economists are often the best way to achieve ethical goals that all would approve. When they consider the question at all, most decent, right-minded people still instinctively think so. Paul Heyne believed otherwise, and devoted his life to helping others to acknowledge and understand the arguments that he held to be conclusive.

This is a high calling, not only in Eastern Europe where for some years he was an apostle of the economic way of thinking, but also in his own country.

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Paul had a capacity to pursue it in ways that were exceptionally engaging and compellingly presented, in his writing no less than in other contexts. For these reasons, a selection of those papers that most effectively capture his message should be placed in as many hands as possible.

In making our selection, we began by eliminating book reviews, printed works of one or two pages in little-known publications, and short, unpublished typescripts of unknown provenance. Next we eliminated all essays based on arguments more fully worked out or better expressed elsewhere. We think we have been able to bring our collection down to the twenty-six printed Edition: current; Page: [ xxiv ] here, roughly one-third of the University of Washington material, without missing too much.

Part 4 contains two scholarly essays of a historical character, the second commissioned for a Liberty Fund symposium directed by the Fraser Institute in at which we and Paul met together as a trio for the first time. We think it especially fitting that this book is to appear under the imprint of Liberty Fund. For one thing, four of the essays in the collection chapters 4, 9, 11, 13, 21 were first written for Liberty Fund conferences between and But there are other, more fundamental reasons.

If there be any such person, Paul Heyne was the quintessential Liberty Fund man. In the last two decades of his life, he attended on average each year more than four Liberty Fund colloquia, symposia, or seminars, many as director or discussion leader. Paul was a remarkable man. We think these essays show something of that remarkableness.

We feel honored to have had a small part in bringing them to the attention of a wider public. Whenever my wife and I have economists and their spouses over for dinner, I try to keep the conversation away from politics, because otherwise it almost always ends up in a somewhat rancorous dispute, not about candidates or policies, but about the democratic political process itself. The division is always the same: all the economists insist that voters have no incentive to cast an informed ballot, while the non-economists protest that this is a cynical and immoral view of the world.

I found that some of the students were appalled at my claim that stolen food was more likely to get to hungry people than food that had not been stolen. I hastened to add, I said, that I do not approve of theft. But the damage was done; the students were very upset. It was wrong to argue that thieves are usually more effective in getting food to hungry people than Red Cross officials are. But thieves have a more effective incentive: no sale, no profit.

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What do you think of the following statement? But economists not only discuss such questions; they try to get other people to take their discussions seriously. How much is too much to save a life? Is that an immoral question? Lawrence Summers, the chief economist of the World Bank, got himself in serious trouble last December when he sent a memo to some bank colleagues arguing that polluting activities ought to be shifted from developed to less developed countries. He argued that the demand for a clean environment has a very high income elasticity: which means that people become keener on it as their incomes rise.

He said that wealthier people are ordinarily willing to sacrifice more for aesthetically pleasing environments than are poor people. Moreover—and I suspect this is what really got him into trouble—he claimed that the health effects of pollution are less in a poor country than in a rich country because the forgone earnings of people whose health is adversely affected by pollution are so much lower in poor countries, because of both lower incomes and shorter life expectancies.

Someone leaked that memorandum to an environmental group and a hail of criticism descended on the World Bank and Lawrence Summers. He was too faithful an economist to retreat completely, and he insisted that it was a legitimate question whether environmental standards should be the same worldwide. These are the kinds of incidents that make me raise my question: are economists basically immoral? Gizmoes are very useful devices that make people comfortable, happy and healthy.

But IC can produce gizmoes profitably in Malaysia, where employees are willing to accept the risk of working in a gizmo factory for relatively low wages. Is IC behaving immorally when it opens a gizmo factory in Malaysia? As a baptized and confirmed economist I would say that if the Malaysian workers know what the risks are, then IC is not behaving unfairly to anyone. It is providing gizmoes to people who value them, providing profits to the shareholders of IC, and providing income to the Malaysian workers; everyone wins, or at least everyone with the right to be consulted.

No one is exploited or treated unjustly. My question is: Why do so many people, at least in my country and I trust in yours too, believe otherwise? Why would so many people insist that IC is behaving unjustly in a case like that? Now there are all kinds of risky jobs. Certain kinds of construction work are risky; fishing in the Gulf of Alaska is very risky. Racing hydro-planes is risky, guiding climbers up the Himalayan mountains is risky.

I would not work at any of these, but other people do; and is anyone asserting that their lives are less valuable than mine? Less valuable to whom? What this seems to mean is that some people are more willing than others to accept certain kinds of risk. Perhaps because they enjoy challenge and risk. Or perhaps because they are so poor that they prefer the small risk of an industrial accident to the certainty of poverty. The Malaysian workers accept these dangerous jobs only because they have such poor alternative opportunities.

IC is taking advantage of their poverty, of the scarcity of good jobs in Malaysia, of the underdeveloped state of the Malaysian economy. Edition: current; Page: [ 4 ] The weakness in this response is that all of us regularly in our exchange transactions take advantage of the limited opportunities available to others. A couple of weeks ago I hired a man to fix my front porch at what some people would say is an outrageous price; but I took advantage of the fact that no one else was willing to hire him for an even more outrageous price that week. Not offer them somewhat better opportunities?

What are the options for IC in this case? Should IC not produce gizmoes at all? The Malaysian worker who takes a job in the risky gizmo factory increases his life expectancy.


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He will eat better and get better health care as a result. Some people would say that IC should just not produce gizmoes in Malaysia.

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If Australians or other rich westerners want gizmoes then they should shoulder the risks inherent in gizmo production and not put the risk on people in other countries. But the trouble with this is that since the gizmo consumers in Australia are likely to be different people from the gizmo producers, the argument has little moral force. No doubt IC should adopt safe ways to produce gizmoes. The trouble is that any productive process can always be made safer but only at some cost. In my hypothetical example, the cost of improved safety conditions is too high to make safe gizmo production profitable.

Airline travel could always be made safer if we required planes to taxi from one city to another. But travel would become less safe because people would drive their cars, which is far more risky. The US Federal Aviation Administration is thinking about requiring that all children under two years old have their own seats so that they can be strapped in.

That might save one life every ten years, but we might kill about ten babies every year as mummy and daddy drive to see grandma instead of taking the plane.

1. Introduction: What is Economics?

The critics of International Conglomerate in my hypothetical case are calling for different decisions because they assume a different world from the Edition: current; Page: [ 5 ] one in which we live. The widespread moral suspicion, if not outright disapproval, of economists and economic analysis is rooted, I believe, in the fact that economists specialize in the analysis of social systems that no one controls and that produce results that no one intended.

What many people find dubious about such systems was memorably expressed by Adam Smith in his famous passage on the invisible hand in The Wealth of Nations. Those who participate in such systems, Smith said, promote the public interest most effectively by pursuing their own interest. Most people seem to believe that is just not the moral way to promote the public interest. Morality has to do with intentions more than with results; so the person who tried to run you down with his car but missed is morally more culpable than the person who actually ran you down but while trying to get to church.


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Most of us assess the morality of other people by judging or attempting to judge their intentions and their motives. We were praised or blamed when we were young not for what we did but for what we tried to do. Our intentions reveal our character, and moral training is a matter of nurturing the right motivations.

But the fact remains that we live in social systems that, while they emerge from human intentions, nonetheless produce results that no one intended.

Market systems which is what I am talking about simply would not work if the results had to be foreseen and intended. They are directed and coordinated not by achieving agreement on the goals to be pursued, but by achieving agreement on the rules of the game and then letting people exchange as their interests dictate. It seems clear to me that we all of us live simultaneously in two kinds of societies, each with its own quite distinct morality.

But we also live in large, necessarily impersonal societies in which we cooperate to our mutual advantage with thousands, even millions, of people whom we usually do not even see, but whose welfare we promote most effectively by diligently pursuing our own welfare. Economists have acquired their bad reputation largely by defending commercial society. Commercial society simply does not function in accordance with the moral principles that most people learned in their youth and now take for granted as the only possible principles of morality.

Now, I think most of these critics are deeply confused. In a family, or another face-to-face society, the members know one another well. But in a large society this is impossible. And therefore unjustly. I should not be expected to distribute grades to my students on the basis of need.