Economics and determinism


Tibor R. Machan


Free Market News Network

Friday, December 09, 2005

At the beginning of each term I mention an apparent problem for
students taking my business ethics course in our school of business and
economics: While economists tend to approach their discipline with the
understanding that human beings are relentless utility maximizers, in business
ethics that idea would be very odd. The reason is that business ethics assume
economic agents to be free to choose what they will do and holds them
responsible to do the right thing.

The late
Nobel Laureate George Stigler of the University
of Chicago put the widely
embraced economists’ stance quite succinctly when he said, “. . .
Man is eternally a utility-maximizer—in his home, in his office (be it
public or private), in his church, in his scientific work—in short,
everywhere.” In contrast, the position of business ethics teachers could
best be expressed as Professor M. van Swaay of Kansas State
University puts it:
“Because ethical behavior implies free choice, it cannot be captured in
rule. The standard of reference for what is ethical has to exist ‘outside human
definition’, and therefore cannot be open to human negotiation. Some may know
that standard as Human Rights, some may know it as the Seven Virtues, some may
know it as the Ten Commandments, and some may know it by yet another name. It
is impossible to force adherence to that standard: the notion of coercion
itself is foreign to it. But individually we can make a promise to abide by
it…” Ethics and, in particular, business ethics assumes that human
beings can choose what they will do, what they will pursue in life, how they
will conduct themselves.

So there
appears to be a conflict of assumptions about human life under the same roof in
most business schools: Economics seems to be deterministic, business ethics
rejects determinism. But there is a way out.

human beings have free will and thus can choose between different courses of
conduct, they are also able to—and often do—commit themselves to
engage in long-term behavior. Just think, when people marry, they promise to do
what (as a result) be can be expected of them (remain loyal, help raise the
kids, provide for the family, etc.). When the enroll in school or take up a
job, they intend, most of the time, to embark on a planned course of conduct.

this into the realm of economics, people also commit to seek economic security
and prosperity. They are, in other words, prudent. Because of this, economists,
in turn, can expect them to follow through with their commitment. The general
idea is that when people commit to go into the market, they will ordinarily
seek to make good deals. This is why economists can expect us all, often, to be
economic agents, or to use Stigler’s words, utility maximizers. They can,
as a result, also and often enough, make predictions about what we all will do,
and their predictions are likely to be confirmed. From this way of
understanding people, the discipline or science of economics can emerge, with
all its (probabilistic) laws and theorems.

On the
other hand, the above doesn’t assume that people cannot make free
choices. Indeed, they not only often choose some plan of conduct but also often
enough choose to abandon their plans or commitments, change course. Even when
they commit to go to market, sometimes they get sidetracked and stop being in
the economic mode (say, if in the course of business they meet a friend and
instead of making deals, they focus on indulging in the pleasantries of
friendship). When this is multiplied throughout an economic system, it
introduces much uncertainty and unpredictability in the midst of the opposite,
reasonable certainty and predictability.

regards ethics, because they are able to choose, people can also choose well or
badly, including in the course of doing business. In terms of this
understanding of people, they can be viewed as having the responsibility to act
ethically in all realms of their lives, including commerce and business. Accordingly,
both the economist and the business ethics specialist can continue to work with
similar but slightly different assumptions about human behavior: people commit
to market activities enough so as to forget the social science of economics.
Yet they are also free to make choices for which they are responsible, thus
giving rise to ethics and business ethics.

This is
important because as the world goes, contradictory theories cannot both be
correct—that would violate the law of non-contradiction. It cannot be
true both that people are determined to act as they do and also not so
determined but free to make choices (despite some torturous efforts to defend
this possibility). But with the above proposed resolution, there need be no
contradiction between the economic and the business ethics understanding of
human nature.