Economics Can't Prove You Right:
An examination of the use of economic ethics

Note: The opinions expressed herein are solely those of the author and may not necessarily represent the official opinion of the LPPA. This article was originally published in the LPPA newsletter, of which the author is the sole editor, at https://lppa.org/index.php/home-alt/newsletters/april-2018/261-economics-can-t-prove-you-right.

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What is the goal of economic policy?

If anyone can successfully provide a truly objective answer to that query, let me know. Because as far as I can tell, there isn’t one. And therein lies the problem with using economic arguments alone to advance liberty: coming to agreement on what our policy goals ought to be is problematic, to say the least.

Fundamentally, there are two kinds of economics: positive and normative. Positive economics simply examines the world and draws scientific, entirely objective conclusions, but does not suggest specific policy proposals. Normative economics determines policy implementation -- striving toward a concrete goal, seeking to actually mold the world into what we believe it ought to be. Normative approaches are often determined by assessments of morality and ethics.

Many libertarian economists, such as Murray Rothbard and, to an extent, Friedrich Hayek, have argued that there is a single “correct” moral standard by which we may gauge any government policy, including economic policy, on some objective but also normative basis. This standard usually takes the form of either self-ownership or non-aggression, and often both, as both are considered key tenets of libertarian thought. Based on such analysis, any government policy which violates individual rights is seen as inherently undesirable. Such “moral absolutists” operate on a lucid moral premise: the objective of economic policy is to maximize the freedom of each individual to forge their own path. Anarchists, through various means, conclude that government cannot make a positive net contribution to this end, elucidating the pragmatic imperative for its abolition; minarchists conclude that the great moral compromise must be made, namely that government must be allowed to exist, in order to best promote the very same end.

But there are many different systems of morality which people may hold. Some classical liberal or libertarian economists rejected the concept of objective morality altogether, such as Ludwig von Mises. Though philosophically a classical liberal, he was a moral relativist and believed that ultimately, there was no objectively correct moral system. He argued that the only way economic policies can be objectively labeled as “good” or “bad” was if they could be objectively shown, through positive means, to be counterproductive to the ends which its advocates desired. He wrote (emphasis added):

“[Suppose] an economist investigates whether a measure a can bring about the result p for the attainment of which it is recommended, and finds that a does not result in p but in g, an effect which even the supporters of the measure a consider undesirable. If the economist states the outcome of his investigation by saying that a is a bad measure, he does not pronounce a judgment of value. He merely says that from the point of view of those aiming at the goal p, the measure a is inappropriate.”

There are other metrics to use, of course. Typical Republicans might implicitly set their goal as maximizing the general prosperity and stability of the nation, and to maximize individual opportunity within that framework; typical Democrats might set their goal as maximizing the general happiness, health and living standards of the population. To a moral relativist, all of these goals are both equally valid and equally invalid, as they would appear all equally arbitrary.

Now for some controversy: even the libertarian system of ethics is arbitrary and subjective. It is all too easy to commit, and even unknowingly disguise, the leap of illogic we commit in the derivation of a system of natural rights from the empirical truth of self-ownership. It comes back to positive and normative interpretations of the world.

We begin with the objectively true assertion that we own ourselves, in that we have sole control over our bodies and minds. We then own our labor, and thus also the property we mix it with. But somewhere in this line of thinking, the word “should” quietly slips in: we should own our labor, we should own property with which we mix our labor. Where did this should come from? I have never heard anyone give a satisfactory answer to this question. Rights cannot spring from the mere fact that it is, for the moment, physically possible for one to acquire property and control one’s body. Rights stem from moral imperatives, which are all normative interpretations. We must justify the normative element of all of these assertions to justify natural rights.

I have not yet heard a successful attempt to empirically justify the insertion of “should” into the self-ownership principle. It is just as arbitrary as any other moral system. Thus, while libertarians may personally believe it, just as von Mises believed in utilitarianism, and it may be entirely internally consistent due to its intentional derivation from a single simple phrase, it cannot be used as any kind of definitive justification for the ideals of liberty. We cannot prove we are right, nor that the public is wrong, for both of us are neither right nor wrong. Libertarians are simply more knowledgeable about exactly what their system entails; but that does not make it objectively better.

If morality cannot be derived from anywhere, and normative economic policy must derive from morality, economic policy is also therefore derived from nowhere but the overall public opinion. There can be no objective determination of whether certain policies are good or bad; only effectual and ineffectual.

We return to the dilemma established at the beginning: since we all have at least slightly different moral and ethical beliefs, the economic systems we will propose will be different, even if by the Misesian definition of economic “correctness” they are absolutely valid. Does that mean every economic debate is a hopeless exercise in futility? Not quite.

For instance, Republicans might push for high tariffs to protect American industry from foreign competition. As long as it is applied equally to all items, not just a handful, this endeavor may very well be successful. But the question is, who are these tariffs supposed to benefit? The poor will almost certainly be hurt by higher prices; foreign countries and foreign peoples will suffer from reduced access to one of the world’s freest, largest and most accessible markets. American firms and the American middle-to-upper class almost certainly benefit, but who is to say that is not a good goal? It ensures that America can immediately be on good wartime production footing should conflict break out, for example, and it most likely will slightly reduce unemployment. Is that a valid priority? Is that a valid goal? Who knows? But as long as the policy’s proponents are actually aiming for these outcomes with intent, tariffs are a sound policy by the Misesian definition.

Unequal or selective tariffs, on the other hand, would most likely be considered a bad policy by the same Misesian definition. Tariffs on one item but not related items, nor on items manufactured using that input, will almost certainly accelerate the movement of American firms overseas, as we are seeing now with steel tariffs: industries which are steel-dependent are leaving even faster now, since they can manufacture their products abroad for less, and import the final product tariff-free, thus reducing costs overall. Although there can be no moral objection raised to selective or unequal tariffs, the policy can be said to be a bad one because it fails to accomplish the aims of its proponents.

But note, with the former proposal -- a flat tariff rate on everything -- that if our objective is different, it may also be a bad policy by the Misesian definition. If we are aiming to make goods more affordable for the poor, for instance, it would be counterproductive to impose tariffs of any sort, rendering the proposal a bad one, for it was ill-advised for its purposes. But again, note that we cannot actually draw definitive moral conclusions of any kind. There is no way to tell for sure if our aims themselves are valid; all we can know is whether the policies we intend to employ will be successful in achieving those aims. Determining this is a matter of economic fact and theory, and does not require moral assessment. This is ultimately all economics is good for: assessing the validity of economic proposals based on their intended purposes.

Austrian economics is, at its core, just an economic theory. No morality whatsoever must be involved. It posits quantitative, objective theories on economic phenomena and behavior. It has no essential link to libertarianism, nor to laissez-faire capitalism. It may seem to imply that laissez-faire capitalism would be extremely effective -- at achieving the ends desired by libertarians. But socialist, communist, or even otherwise statist theories may well be justified to meet different objectives, based on the exact same set of theories. It is a matter of satisfying the Misesian definition of economic policy success, not satisfying some kind of objective standard of what constitutes “good policy” -- because such a standard simply does not exist.

But at the same time, since morality is at the root of all economic arguments, it is the best tool to use for libertarian outreach. We cannot and should not ever declare that our system of morals is superior, because there cannot be any evidence of that, but we can most certainly try to spread our moral philosophy around the world, and see if it sticks. Humans naturally gravitate to at least somewhat similar moral systems to self-ownership, largely because of biological, evolutionary, physiological and psychological factors which are common among most of us. All we can do is attempt to help people rationalize, ground, and intellectually develop the moral principles they, for the most part, already hold. To paraphrase Ken Krawchuk, “We’re all libertarian! We just don't know it yet.”