Ethics in happiness economics

First insertion on Heterodox Gazette Sam de Wolff: 4 september 2014

E.A. Bakkum is a blogger for the Sociaal Consultatiekantoor. He loves to reflect on the labour movement.

Ultimately human life is a search for meaning. The common economics believes unjustly that the solution is found in the accumulation of wealth. This column presents several new insights from the happiness economics. They are taken from the books Economics, ethics and the market by Johan Graafland and Happiness by Richard Layard. An early predecessor of happiness economics is the ethics of the historical materialism, which is elaborated in Ethik und materialistische Geschichtsauffassung by Karl Kautsky. This book is the subject of the first paragraph.

The ethics of the historical materalism

Karl Kautsky is a famous German author with sympathy for the social-democracy, who lived around 1900. He has written, among others, the famous political program of Erfurt, together with Eduard Bernstein. For many decades he was one of the leading party-ideologists of the social-democrats. As a policitian, he became a minister of state, in 1918, in the government led by the social-democrat Friedrich Ebert. In 1906 Kaustky has described his ideas about ethics and the historical materialism in the book Ethik und materialistische Geschichtsauffassung1. In that book he elaborates on the philosophical ideas of Karl Marx. His view has strongly influenced the social-democratic thinkers of his time. This paragraph gives a summary.

In Europe, the human morals have for many centuries been dictated by the christian religion. The churches had a strong influence on the social norms and values. The ethics of this time wants to claim a universal and above-worldy validity. During the nineteenth century various philosophical currents criticize the christian ethics, and notably doubt its above-worldy origin. One such philosophy is the dialectic materialism, which in its economic form is called the historical materialism. Karl Marx is the first to develop and defend this philosophy. He has got many followers, and Kautsky belongs to his most intimate disciples. In his youth he even collaborated with Marx and Engels, and he was also on friendly terms with the party leader August Bebel.

Photo of relief Friedrich Ebert
Figure 1: relief Friedrich Ebert

Kautsky builds his philosophy on the evolution theory of Charles Darwin, perhaps even more than Marx. Kautsky observes in all living species two innate thrifts, namely the desire for survival and for propagation. They are indispensable for all creatures, that succeed in surviving durably. When creatures are durably living together in groups with congeners, then they develop in their genes social virtues (in the German language soziale Triebe). On p.62 Kautsky counts among these virtues the unselfishness, braveness, loyalty, disciplin, honesty and ambition. In other words, the virtues originate from the necessity to survive in the group or society. Their origin does neither lie in some higher calling of humanity, nor in experience and wisdom. In particular, each human being carries the virtues already with him at birth.

The need for virtues is strengthened, because the groups commonly prefer a division of the various tasks over their members. Humans focus particularly on this division of labour, according as they discover the use of tools. Therefore the individual dependency increases, and this fosters the willingness of personal sacrifice, say, virtue. Next the various virtues develop into morals or ethics2. However, the contents of the morals can be very different, depending on the society, that develops them. The social situation and the resulting needs determine the ethics. Apparently the social virtues do hold universally and more or less eternally, but not the morals.

The preceding discussion leads to surprising consequences. Namely it often happens, that in the society various classes emerge, that are mutually isolated and hardly have a social intercourse and interaction. Such classes each have their own needs and interests. Each class will develop her own morals, because her situation differs from the other ones3. The classes with conflicting interests and morals will obviously and inevitably collide. This is called the class struggle. The struggle forces all classes to defend their interests with the utmost vigour, which results in an extra stimulus of the social virtues. Each individual withdraws into his own class, so that eventually a class conscience emerges. This process occurs especially in the repressed classes, because they hardly have access to the state power, and can develop power only by means of their collective action4.

Some individuals will naturally back out of their natural class conscience, and invent their own ethics. But for lack of a sound-board their influence remains small. A special case occurs, when the social progress affects the ruling order. The ruling class can become less important for society, or even superfluous. The class has dug her own grave, as it were, and now her withdrawal is desirable. Usually she is not willing to voluntarily do that, and she clings to power by means of violence. This perverts en corrupts her morals. This view is naturally exactly the judgement of the social-democracy in the nineteenth century with regard to the upper class (in French the bourgeoisie). Since then the social-democracy has tried to adapt the social norms and values5.

The argument is interesting. Kautsky calls Ethik und materialistische Geschichtsauffassung an essay, because the scientific proof of his sketch is rather meager. This would not be a problem, if he had remained modest, and for instance had merely demanded the universal suffrage. However, he does not shrink from several firm conclusions, and this must be regretted. For instance, on p.100 he complains that the morals of the bourgeoisie stimulate competition, and even that the private property would further wars. Indeed he does not substantiate this claim, but later it did incite the justification of violent revolutions.

And on p.119 Kautsky states that due to the class struggle the social virtues are merely valid for the own class. That does not square with his previous hypothesis, that social virtues are universal. These radical statements by Kautsky have rightly been rejected, because they affect the universal humanism. Unfortunately these nasty misconceptions of Kautsky have also obtained a hearing, even in the Netherlands, where among others Herman Gorter has become a fervent adherent of the ethics of the class struggle6. Lack of knowledge can degenerate into a lack of conscience. Sometimes she is funny, for instance when Kautsky couples the honest, ambitious and brave spirit to a gene. Modern scientists descry at most the empathy, the mirror-gene.

Ethics and the market

Fortunately science has moderated its tone in the past century. An excellent modern introductory textbook about the ethics of economics is Economics, ethics and the market by the Dutch economist J.J. Graafland7. The present paragraph consults this book. Graafland points out, that economists prefer to keep out ethics from economics, because norms and values are subjective. Thus economics merely refers to the human rationality, the self-interest and the individual preferences. Man is supposed to be a homo economicus. Competition can push out the social virtues, and erode the human relations. Graafland disapproves of this, and believes that the morals are indispensable for the formulation of the economic policy goals, such as the conservation of employment. The state must regulate private markets in order to correct their deficiencies. In this process the state applies its own morals.

Nevertheless, Graafland rejects the historical materialism. Namely, the class society of the nineteenth century has been dissolved by the emergence of the managers in the enterprises. The managers are hired for the daily management of the enterprises, but they are themselves not owners. They actually obtain the power, and use it to equilibrate the interests of the factors labour and capital. Thus the class conflict is softened. These new rulers are themselves not a class, because they originate from all sections of society. Moreover, the factor labour has been organized by the trade unions. The managers in the trade unions can bargain on an equal footing with their colleagues in the boards of the enterprises. Therefore the class model of the historical materialism is outdated, at least in the developed western states.

Photo of pin NKV
Figure 2: pin NKV

According to the presently common science the moral grounds of the market are formed by the Pareto criterion. This criterion would guarantee the efficiency of the markets, because the individual needs are satisfied maximally with the available scarce means of production. The property rights are a stimulus for the production, because the owner always wants to realize the highest yields with his capital goods. However, in practice the conditions, which allow for Pareto optimal markets, never occur. Therefore the model is utopical. Important factors, that are absent in the model, are the market power of oligopolies, the manipulation of market-information, and the shifting of the production costs on to society. At least as important is the selfish and egoistic image of man in the model, which does not correspond to the true human nature. It has all been discussed before in this Gazette.

In fact the private market creates various transaction costs, because the entrepreneurs are forced to take into account the deficiencies of the market. This is even a cause of increasing scales in the enterprises. For, thanks to the hierarchy they can dictate within their organization various activities without a preceding negotiation. No market exists within the enterprise. Management by means of the hierarchical orders is preferred, as long as the costs of the organization are lower than the transaction costs of markets. Here it can be seen, that the enterprise balances the thrifts of self-preservation and the virtue of loyalty to the group. Similarly, the state must continuously choose between a public production and private markets.

However, for this column about human needs these themes are less important than the analysis of the true human nature. Graafland teaches at a catholic university, but yet he does not explain the human nature by means of an above-human God. The independent spirit in the philosophies of for instance Kant and Hegel are a human abstraction. Their basis is formed by material processes within humans, which incite certain needs and preferences. The Darwinist aspect of the ethics of Kautsky makes sense.

The human needs and preferences are more chaotic than has been stated by economics in the recent past. The theoretical rationality of the economists turns out to deviate from the real human rationality. For instance, the society has an enormous influence on the human needs and preferences. Namely, individuals always compare their situation with those of others. And people turn out to exhibit risk-averse behaviour. Besides, individuals are not willing to exchange any need for another, in other words, needs are sometimes incommensurable, incomparable with others. There is a hierarchy of values. The human utility, well-being and happiness do depend on social processes, which are based partly on ethics.

That social aspect is actually self-evident, but until recently science was unable to grip it. Therefore in the past half century the paradigm of the economical efficiency has conveniently ignored it - with far-reaching consequences. The preferences would be purely individual, and a social component would be absent. Nowadays this standpoint seems incredible, and on truly tries to measure collective preferences. An important instrument is the distribution of questionnaires in an opinion poll. Ask the people themselves.

If desired the influence of ethics can be explained by means of the transaction costs. The human mind is not capable to always make rational choices. In most situations man decides by means of primitive rules of thumb. The avoidance of pain is preferred over the true enjoyment. In decisions the human emotions are often more important than the economic "rationality". This is sometimes expressed in the term bounded rationality. Nowadays this thema is very popular. Some scientists try to describe the human preferences, others develop models, and still others try to dictate them in their own ethics. Among this latter category are famous philosophers like Locke, Kant, Sen, Rawls and Nozick. There is then yet again a search for an independent universal human spirit, for a new religion. In the next paragraph your columnist will present the alternative of the utilitarianism.

It can naturally not be denied, that humans often behave in an altruistic manner. Then it seems as though they include the utility, well-being or happiness of others in their decisions. That has been explained as a conscious investment in the other with an uncertain yield. The benefactor hopes for reciprocity. The Dutch economist Paul Frijters applies that assumption in his theory of happiness, so that love (dedication) may be unconscious. In that latter case it is apparently innate. He describes this behaviour as irrationally rational. Frijters believes that groups formation is a thrift. According to Graafland the relation of the individual with the group is two-edged. On the one hand the individual will adapt and imitate the behaviour of the other members. But on the other hand he likes to distinguish himself, in order to express his own identity. This two-edged influence can be observed everywhere, for instance also in the consumption.

Photo of sticker Industriebond FNV
Figure 3: sticker IB FNV

Graafland also refers to the curious phenomenon of the preference drift. This means that people expect too much happiness or utility from the possession of a certain good. As soon as they truly receive the good, for instance a raise in salary, they become accostumed to it. After some time the posssession of the good is seen as self-evident. So the euphoria peaks in the period immediately after the receipt. That is to say, each individual applies his actual standard of living as the norm, and in a sense as a minimum. Its loss is a painful experience. This is an important insight, that during the past half of a century has been acknowledged insufficiently by the common economics. For instance, the preference drift has the consequence, that people always want to work too much. That is to say, people are bad at seeing beyond their present utility field.

The reader may agree from the preceding text that the economic ethics has made progress since the time of Kautsky. One can only pity the Leninist scientists, who due to the political dictature had to restrict their research within the miserable boundaries of the historical materialism. In the present column the many links to other columns give an impression of the work, that your columnist has performed during the past year. This work is essential, because nowadays an above-wordly ethics does not suffice any more. Rights and duties must not be proclaimed from above, because they must fit with the daily experiences of the people. The human identity can collide with the principles of an imposed and prescribed ethics of rights.

The validity of the fundamental rights of man is naturally accepted reasonably universally. But the situation is more complex for the social rights. For instance, do people indeed have the right of a paid job? How important is the intrinsic motivation of craftsmanship? And can people be forced to work for their living? Under what circumstances is the stress of labour too high? And when is competition so fierce, that the enterpreneurs secretly begin to cheat? Here an ethics of rights can become arbitrary. Therefore such questions can merely be answered, when the human nature is known. And measuring is knowing. That is shown by happiness economics.

The happiness economics

The remainder of this column will discuss the utilitarian ethics8. The utilitarianism became popular in the beginning of the nineteenth century thanks to the works of the English philosopher Jeremy Bentham. His ethics is brilliant in its simplicity: the good is synonym with happiness, and therefore that situation must be realized, which leads to the largest sum of happiness. Besides, according to Bentham each individual tries to realize his own subjective happiness. Only the principle of utility can be the criterion for the morals and laws. That principle must be the foundation for the social sciences. In a democracy the voters will choose the governement, that best serves the general interest. This ethics does not contain imposed duties. Thus the ethics becomes a matter of policy, because the individuals do good while hoping for reciprocity. Incidentally, this is merely the rational component. It can be imagined, that individuals also do good merely to satisfy their mirror gene.

The utilitarianism seems to be a brilliant find. But its application is more complex than is expected on the face of it. Graafland is indeed critical, and mentions in his book several objections. The English economist R. Layard shows in his book Happiness, that these objections can be remedied9. The present paragraph discusses the remarks of Graafland and Layard in the form of a debate. First, Graafland states, that the utilitarianism leads to consequentialism. This means, that in the utilitarianism the policy aims merely to produce results. The only goal of the state is the highest possible welfare. The procedure, that realizes the welfare, is irrelevant. Think for instance about the fairness of the procedure. Layard objects, that the consequences are also a part of the experienced welfare. Graafland acknowledges this, en calls this view the rule utilitarianism.

A concomittant point is the commensurability of various types of pleasure. According to Bentham all pleasures have the same nature, and are mutually comparable. Graafland calls this the monistic happiness. Therefore all happiness can be summed in order to obtain the total happiness. This version of utilitarianism is called hedonism. But the economist John Stuart Mill, a contemporary of Bentham, states that the spiritual happiness (say, a good book) has a higher order than the physical happiness (say, a cup of tea). This version of utilitarianism is called pluralism. Layard is not enthusiastic about the pluralism. Indeed someone may perhaps become a better human being by reading, and thus contribute to a better world. But the extra happiness can simply be summed, and thus express the total happiness of the reading of a book.

Your columnist likes to add, that such considerations also occur in the labour sociology. An individual can be satisfied with a job, for many decades. But it is a convenient and undesirable kind of happiness, because apparently the individual is not motivated to invest in his own skills. The largest possible happiness emerges only in a fruitful environment. Therefore the individual must be stimulated in and by his position to develop himself, even though the stimuls may cause some inconvenience in the short term. Graafland gives on p.82 another example of this dilemma, namely the compulsory education. Pupils are sometimes unhappy about the compulsory education. However, the law contributes to a larger happiness later on, both for the pupil and the society. Indeed this is a rule utilitarianism. Hedonism must not degenerate into an unbounded pleasure. There is an obligation to labour for the highest possible happiness, that is ingrained in the human nature.

Photo of pamphlet Vredescentrum
Figure 4: fragment pamphlet humanism
   (Vredescentrum Antwerpen)

Apparently the future expected happiness must be taken into account in all decisions. Graafland on p.166 rightly considers it problematic to take into account the happiness of future generations. A sort of rate of interest for happiness would be required, which couples the present and future happiness. Unfortunately Layard does not address this aspect. On the other hand the government policy is forced to continuously make such comparisons, so that apparently it is still possible in practice. And people evidently enjoy challenges and mutual competition, where the outcome is uncertain. They are naturally inclined to invest in themselves. Here the activity itself is a source of satisfaction.

All these complications occur, because in utilitarianism rules are still needed, and thus ethics. Those rules are merely universal and eternal to such an extent, that they belong to the human nature - like the historical materialism rightly states. This explains probably why Graafland is not enthusiastic about the utilitarianism. Layard makes an interesting attempt to solve the dilemma. He proposes on p.117 to base the ethics on the Golden Rule of the New Testament of the Bible: Value your neighbour like yourself, and act like you want to be treated yourself. This rule prevents that individuals search their happiness in perverse and criminal activities. Layard gives several arguments, why people are inclined towards the good. For instance, on p.71 and further he argues that people get happier from meaning, such as in religions. And on p.116 he points to the mirror behaviour of people. Yet this remains an unresolved issue in the rule utilitarianism10.

Another complication of hedonism is that the happiness of separate individuals must be aggregated (summed) into a total, into a social welfare function. This implies that an interpersonal comparison of utility is possible. Certainly among economists this suggestion is highly controversial. Layard assumes that happiness can be measured, for instance by means of opinion polls. Nowadays, measurements of satisfaction are indeed common in psychology and sociology. Then the question remains how the situation must be judged, where one individual gains some happiness, whereas simultaneously the other individual loses some happiness. Bentham simply wants to count the happiness of all individuals on an equal footing. It may be that he wants to keep his ethics simple, but this solution is evidently unstatisfactory. For, a certain degree of equality is essential for happiness. Thus especially the unhappy people must receive more happiness.

Layard attributes on p.122 the desire for equality to the mirror behaviour. From this he concludes that the society as a whole can become happier, when especially the unhappy individuals can improve their situation. The increase of their happiness must get more weight than the increase for satisfied people (naturally within the bounds of reason). So, the change in utility of each individual must be coupled to a weighing factor. Or the individual utility functions could be modelled in such a way, that it contains the utility of others. These methods (weighing factor or complex utility functions) are theoretically both conceivable. But it is clear that in practice they are difficult to apply. On the other hand politics now already applies both methods, albeit intuitively and erratic.

Happiness economics and related sciences such as psychology and sociology have already gathered much empirical data about the individual feelings of happiness in various situations and in various times. To be precise, the enormous amount of new knowledge is the reason for Layard to publish his book. A survey of the most importants discoveries must wait until a later column. But one find deserves mentioning now, namely that the neoliberal capitalism tends to reduce the social happiness. On p.128 and further Layard points to the negative effect of the increasing income inequality. Also radical changes, such as the migration of labour and reorganizations, create discontent. And on p.158 he remarks, that excessive pressures for results can undermine the motivation of labour. Graafland gives on p.99, p.246 and actually in his whole book a similar judgement about neoliberalism. Thus in modern ethics the criticism on capitalism of the historical materialism returns.

  1. See Ethik und materialistische Geschichtsauffassung (1906, Verlag von J.H.W. Dietz Nachf.). (back)
  2. Concerning this point Kautsky is a bit confusing in Ethik und materialistische Geschichtsauffassung. Namely, on p.62 he writes: "Diese sozialen Triebe sind aber nichts anderes als die erhabenden Tugenden, ihr Inbegriff das Sittengesetz". And on p.63: "Weil das Sittengesetz ein tierischer Trieb ist, deshalb seine Kraft". Yet he does not mean this, because for instance on p.133 he writes: "Leider aber ist jenes Element der menschlichen Moral, daß, wenn auch nicht von Raum und Zeit unabhängig, so doch älter als die wechselnden Verhältnisse ist, die sozialen Triebe, gerade jenes, das die menschliche Moral mit der tierischen Gemein hat. Was aber spezifisch menschlich an der Moral, die sittlichen Normen, ist stetem Wechsel unterworfen". This is the view, that is defended in the main text. (back)
  3. The identification of individuals with their group is empathically described in An economic theory of greed, love, groups and networks (2013, Cambridge University Press) by P. Frijters and G. Foster. See for instance the column about social factors in the economy. Note that Frijters merely distinguishes the virtue from the love. In his view the love is not necessarily caused by calculation, but she can emerge unwittingly, so that she is apparently innate. (back)
  4. This process is central in the power-gap-reduction theory of the psychologist M. Mulder. See for instance his book Omgaan met macht (1977, B.V. Uitgeversmaatschappij Agon Elsevier). The process begins after a failed attempt to reduce the power gap. Perhaps Mulder elaborates on the ideas of the historical materialism. In poetry the German Erich Mühsam has depicted the class struggle in Streit und Kampf: Schlagt zwanzig Freiheitstheorien / euch gegenseitig um die Ohren / und singt nach hundert Melodien. / Doch gilt es in den Kampf zu ziehen / dann sei der gleiche Eid geschworen. / Aktionsprogramm, Parteistatut, / richt Lenin und Verhaltenslehren. / Schöpft nur aus allen Quellen mut. / Ein jedes Kampfsystem ist gut, / daß nicht versagt vor den Gewehren. / Darum solang kein Feind euch droht, / versöhnt einander nicht mit Glossen. / Doch weck euch einst der Ruf der Not, / dann weht das einige Banner rot, / voran den einigen Genossen. It is a favourite song of the Leninist protest singer Ernst Busch, which somewhat antagonizes his later employers. (back)
  5. The loyal reader may have noticed, that since over a year your columnist is engaged in the present theme. In a previous column about the social character of the individual preferences it is still stated, that the Leninist system wants to transform the homo economicus into the homo politicus. According to Kautsky the problem is more subtle, because man is by nature a homo politicus. Therefore the aim is to allow the individual, mutated into the homo economicus, to return to his true nature. (back)
  6. Herman de Liagre Böhl presents on p.295 in his biography Herman Gorter (2000, Uitgeverij Balans) a citation of Gorter: "No love of one's neighbour is felt by the worker with regard to the capitalist". The class struggle is supposed to stifle this social virtue. De Liagre Böhl tells on p.296 that in parliament the christian politician De Savornin Lohman protests against the statement of Gorter, because he creates hatred of the bourgeoisie. The socialist party leader Troelstra reacts in the parliamentary debate with the remark, that Gorter must not be taken seriously, because he belongs to a minor faction in the party. Subsequently, Gorter writes in a publication: "Troelstra has abandoned our cause, and in reality, in the deepest essence of his remark, has taken sides with the bourgeoisie". A party member should not address his chosen leader in this manner. Besides, it does not matter. Apparently the character of Gorter does not befit a politician. Furthermore, it is worth mentioning, that Gorter in 1907 has translated Ethik und materialistische Geschichtsauffassung in Dutch. Your columnist owns a copy of this book, printed by Uitgevers-maatschappij voorheen H.A. Wakker & Co. That copy has previously been owned by the libraries of Veluwe-oord of the Industry union NVV, and of the IISG in Amsterdam. Furthermore, Gorter has written many texts about ethics in De Nieuwe Tijd, a social-democratic monthly magazine. Nowadays, the magazine makes a rather bizarre impression due to its radicalism, but at the time it was avant-garde. In his study about the magazine (2003, Aksant) Henny Buiting dedicates on p.175 and further several paragraphs to the class ethics of Gorter. Other articles about ethics were written by Anton Pannekoek and Henriëtte Roland Holst - van der Schalk. Pannekoek has even elaborated on this theme to such an extent in De Nieuwe Tijd, that Buiting dedicates eight pages to it. Buiting discusses briefly several other authors in De Nieuwe Tijd, that address the theme: Willem van Ravesteyn, Cornelie Huygens, and a certain L. Mastrigt. (back)
  7. See Economics, ethics and the market (2007, Routledge) by J.J. Graafland. (back)
  8. This can be read in Economics, ethics and the market, but your columnist uses as his sourcep.694 and further in Geschiedenis der westerse filosofie (1984, Servire B.V.) by Betrand Russell. It has once been bought as the monthly obligation from a book club, because of its scholarly appearance. Yet it is easy to read, among others thanks to the various anecdotes. Thus Russell tells that Bentham was a friend of the philantropic factory-owner Robert Owen, who is sometimes called the founder of socialism. (back)
  9. See Happiness (2005, The Penguin Press) by R. Layard. The ethical arguments of Layard are presented mainly in chapter 8. The arguments of Graafland can be found in p.149-172 of Economics, ethics and the market. Although the book of Graafland appeared two years after the book of Layard is verschenen, he does not give a reference. Layard, in turn, does never mention Happiness quantified (2004, Oxford University Press) by B.M.S. van Praag and A. Ferrer-i-Carbonell. Somewhat more collaboration might benefit happiness economics. (back)
  10. The Dutch singer Robert Long is not convinced, in his song Soms zou ik best: Yes, of course you can sing about redemption and the word / and of the bible that tells it all, but a word is just a word / and nobody has ever heard of the deeds that matter. / And those who do good, are tortured or murdered / or at least examined with a look like 'he is insane'. / Sometimes I would like to make a song / of the Redeemer at the cross who resurrected also for me. / But then I see the cops again cripple demonstrators / and then I think: 'Do not sing about such subjects'. / Sometimes I would like to sing a song / about the Father in the heavens that rules the people. / But then I think: 'If it is true, then he fails' / and suddenly I have lost all courage. (back)