Title page book Economics, ethics and the market

Economics, ethics and the market ---- Dawn of a new economics

Publication: Routledge (2007, Oxon)

First insertion on Heterodox Gazette Sam de Wolff: 17 august 2015

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

Economics, ethics and the market of the economist J.J. Graafland is a unique and original book. In his conclusion Graafland tells that he started his career at the Central Planning Bureau. There he was shocked by the brotherly spirit of the researchers, on the one hand, and the egoistic morals of their models, on the other hand. The common theory is based on the neoclassical ethics of the homo economicus. This contradiction has motivated Graafland to specialize in alternative economic theories, which assume a more realistic psychological and sociological image of man. Graafland presents the preliminary outcome of his studies in Economics, ethics and the market, which therefore is a useful and rather complete introduction in happiness economics, behavioural economics, and in the economic ethics. Besides, at the end he adds a number of applications. This all creates a book, that is fairly unique.

Although Economics, ethics and the market with 448 pages has an impressive size, the wide field of the theme makes a succinct approach inevitable. Thus Graafland has more or less merged happiness economics and the behavioural economics. Together they receive about the same attention as the economic ethics, which apparently has yet become the fad of Graafland. In that sense he has found an ideal employer, in the university of Tilburg. The ethics part of the book does not only contain discussions about Kant, Rawls, and Nozick, but also about communitarianism and even about care ethics. In the mentioned applications of the theory, Graafland chooses rather arbitrarily several topical problems, and shows how these can be analyzed methodically. Each case soon leaves the general level, and presents an in-depth analysis of the concerned problem. For those who are interested, this is a goldmine of insights.

What does the contents of Economics, ethics and the market have to offer? Graafland is convinced, that because of the human nature a market failure will be inevitable, unless the state establishes sufficient market institutions and regulations. It is true that the neoclassical theory predicts a spontaneous market equilibrium, but its basic hypotheses ignore essential human properties. It accepts merely rational behaviour, personal interest, and individual preferences. Now that is too simple. The state will have to decide on a case-by-case basis what will be most beneficial, the unbridled operation of markets or an administrative intervention1. After some considerations about external effects and social institutions, Graafland addresses his next theme, namely the rationality in human behaviour. It belongs to the research field of behavioural economics.

Happiness economics is actually a specialization of this field, because it is limited to utilitarianism. Happiness economics assumes, that the utility of persons can simply be measured. The utility is yet characterized by a certain rationality. Behavioural economics has a more wide view than hapiness economics, and includes various psychological peculiarities in its models. Graafland can naturally only discuss this enormous and multi-disciplinary field with a bird's-eye view, and here he focuses his attention on the effects of morals2. He likes the idea of incommensurability, where needs get a varying priority. For instance, people do not want to negotiate about their values. And reciprocity and altruism do form a part of human rationality. This was already stated by Adam Smith, the father of modern economics.

Incidentally, people are also attached to justice. Here emotions creep in, such as envy. An economy functions better, when people can build up a certain mutual level of trust. When this succeeds, perhaps by means of institutions, then this is called a social capital. In fact here politics enters economics. It can only succeed, when there is sufficient knowledge about the psychology and sociology. Economics, ethics and the market is precisely so fascinating, because during the last several decades these research fields have both made much progress. There are indeed protests at the gates of the CPB (p.142). Change is necessary. Graafland even calls economics a cultural science. Nevertheless, this is just the beginning, and unfortunately the recent findings are too fragmented for establishing a new universal economic model on it.

Since Graafland has doubts about the morals of utilitarianism, he also analyzes other forms of ethics. Thus Kant pleads in favour of the categorical imperative3. However, this is useless in economics. Others, like Locke, state that a social contract is established. This idea does appear to be fruitful. Recently, it has been applied, among others, by Rawls and (in a more extreme form, as a kind of anti-Rawls) by Nozick. The social contract restricts the individual utility maximization. The clear merit of Rawls is that he has invented a universal principle of justice. Here the human rights get the highest priority. Besides, there are ideas from specific cultures, such as the ethics of virtue of Aristoteles, and care ethics, originating from feminist circles. Your reviewer is not enthusiastic.

Graafland concludes that the unbridled private markets can crowd out the sense of citizenship (p.246). In the worst case it can result in corruption, which will finally destroy the market itself. It is done. Politicians are advised to take to heart the argument of Graafland, and to be aware of the limitations of CPB-like views. On the other hand, in a well regulated market the trade will discipline the people and force them to cooperate. Thus Graafland advocates a mixture of liberalism and communitarianism. He ends the book with a moral judgement about no less than eight concrete problem fields in the policy formulation: about the job participation of parents, pension systems, cosmetic surgery, Sunday rest, ICT, development aid, and reducing consumption.

Graafland spends ten pages on each application. That is sufficient for summarizing the arguments pro and contra, but unfortunately not enough to support them with facts. Thus it remains unclear whether an argument is truly sound. Subsequently Graafland uses the various schemes of economic ethics to test the importance of the arguments. This contents is interesting, and various political ideologies can draw inspiration from it4. However, here Graafland almost completely ignores the happiness and behavioural economics, which your reviewer regrets. For, when one wants to reform the CPB, these two disciplines are excellent starting points. Perhaps in this way Graafland yet acknowledges, that this ambition is not very realistic. Fortunately, even with this comment Economics, ethics and the market remains highly recommendable.

  1. Psalm 37 verse 11 rejects all egoism: The evil one takes, driven by greed, / with cunning at hand, and feels no guilt. / The sincere one, supportive, mild in giving, / owns this earth, like the yard, that God gave him. / This one tastes blessings and life in rest; / the other one is followed by a curse until his grave. And verse 19: Be alert, and help the pious and sincere ones; / for, their life may end in any way, / but God crowns the end of his servants with contentment. / But, those who dare to break the law of the Lord, / their pride will be punished by God's revenge, / and the evil family will perish, completely. (back)
  2. Those who want, will always find something to complain about. Thus your reviewer regrets, that neither B. van Praag nor R. Layard are mentioned in the book, although they both have contributed essential insights to happiness economics. Therefore it is to be feared, that Graafland has omitted other important reference sources as well. (back)
  3. Apparently Kant is inspired by Psalm 19 verse 4: The Law of the Lord / spreads a perfect light, / and converts the heart. / It is the testimony of the Lord, / that eternity is certain, / and teaches pure wisdom, / what God's command tells us, / shows us the most sacred justice, / and can not accept evil. / His will, which pleases the heart, / demands purity and virtue, / lightens the dark eyes. (back)
  4. Things that are extremely important for one person, can be insignificant for another. A joke can illustrate this. The clergyman reproaches to his wife, that she talks during her sleep. She replies: "When you preach, the converse is true. When you talk, the people sleep". And a clergyman with a sore throat visits his physician. The physician concludes: "You must spare your vocal cords". The clergyman replies: "But when I preach less, I fear that my parishoners will lack sleep". Or a parishoner hates the new clergyman. He complains: "If I must confess with him, then I prefer not to sin". In a village the clergyman asks the local policeman, why he is never present during the church service. The policeman answers: "If I would go to the church, then half of the parishoners would be absent for poaching". In another joke the clergyman has a more positive perspective: "In many villages half of the parishoners no longer visits the church. Fortunately, in our parish it is the other way round". Apparently a clergyman must have good arguments. This leads to an interesting description of the horrors of hell: "Everybody has once seen molten iron in a blast-furnace. Well, that is cream ice in comparison with hell". (back)