Economic Reasoning, Lecture 6 with David Gordon - Mises Academy
Economic Reasoning, Lecture
Economics and Ethics
Economics Is a Descriptive
●Economics differs from the physical sciences,
but there is one respect in which it is like
them. It tries to discover regularities in the
world. The descriptive sciences try to find out
the nature of the world. Whether the results
are good or bad is not part of science.
●E.g., “money has diminishing marginal utility”
is a judgment about the nature of money. This
doesn’t imply either that it is good or bad that
money has this feature.
Why Should Economics Be a
●One reason some economists want to make
sure that economics is a descriptive science
is that they think that all value judgments are
subjective. By “subjective”, I mean just
dependent on personal opinion.
●Economics is not committed to this opinion
●Economics is descriptive because that’s the
way the science works.
Can an “Ought” Be Derived
From an “Is”?
●There is a famous passage in Hume’s
Treatise that is usually interpreted to mean
that you cannot derive a judgment of what
ought to be the case from what is the case.
●Economics is not committed to this position.
●If Hume’s Law is true, this does not rule out
an objective ethics. An objective ethics
means that ethical judgments are true or
false, not dependent on subjective opinions.
●If Hume’s Law is false, then isn’t it
possible that some descriptive
statements of economics do imply
judgments about what ought to be the
case? If they do, how can we say that
economics is a purely descriptive
A Point on Terms
●In some contexts, it’s important to
distinguish between judgments about
what ought to be the case and
judgments about what is good and bad,
but I’m not going to do that here. I’m
calling both “value judgments”.
●There are two answers to the objection.
Even if some factual judgments do
imply “ought” judgments, many at least
of the propositions of economics do not.
“Price is determined by supply and
demand” doesn’t appear to generate
any judgments about what we ought to
A New Objection
●But aren’t there some statements of
economics that do imply judgments
about what ought to done? How about
“minimum wage laws cause
●Doesn’t this, if true, give us a reason to
oppose minimum wage laws?
New Objection Answered
●We could respond that in order to have a
reason to oppose minimum wage laws, we
have to accept the premise “unemployment is
bad” and that this doesn’t follow from the
premise “minimum wage laws cause
●If we take this line, we are accepting Hume’s
Law. But what happens if we don’t?
●We can admit that certain economic
judgments may imply judgments about what
should be done. However, economics doesn’t
make such judgments. They are part of other
disciplines. (Remember, this is true only if we
reject Hume’s Law.)
●It’s more important to keep value judgments
out of economics if we think that such
judgments are subjective.
●Economics is a value-free science. This
is true whether we accept Hume’s Law
or reject it.
●But is it possible to achieve this? One
objection is that some economic laws
concern values. E.g., “A person will
choose his most highly valued
alternative.” If so, how can economics
Value Freedom Continued
●Note that this objection does not assume that
Hume’s Law is false. The objection starts with
certain statements that appear to be value-
●But these statements are not value
judgments. They are factual statements about
value judgments. When I say that you will
choose your highest-ranking alternative, I’m
not making a value judgment myself.
Judgments About Economic
●Even though economics is a value-free
science, almost everybody cares about
particular economic policies.
●We have ethical views, and we can use these
to help decide about what economic policies
●It’s very important to be aware of what ethical
views we hold. (This isn’t a proposition of
economics, so it doesn’t violate value-
Implicit Value Judgments
●Murray Rothbard pointed out that many
economists take for granted controversial
●Neoclassical economists will often take
perfect competition to be the aim of antitrust
policy, even though it is just a analytical
model. (There is a possible counter here, but
I won’t go into it because I think it’s wrong.)
●Another example is the “efficiency-equity”
tradeoff. Arthur Okun popularized this phrase.
●“Equity” here means movements toward
equality. E.g., a situation where corporate
CEOs earn several hundred times as much
as ordinary workers is said to violate equity.
But what is the argument that equality is
●Sometimes there are complaints that wages
and prices are “sticky”. How fast should they
What About the Broken
●In a number of lectures, we have
discussed examples of the broken
window fallacy. E.g., defenders of
government spending to stimulate the
economy ignore the fact that money
taken in taxes would also be spent.
●But in talking about this, are we making
the value judgment that we should take
●Mises said that economists who stress the
long run consequences of policy measures
are not assuming that the long run is more
important than the short run.
●Rather, economists are just saying that we
should be aware of all the consequences of a
●Is this a value judgment? It appears to be a
precept of rational action. (Are there others?)
Mises and Value-Free
●Mises says that economics is value-free.
●The economist can still criticize policy
proposals by asking, can they achieve the
ends of their own advocates? His criticism of
price control is an example.
●Those who favor a maximum price for milk, e.
g., wants to make it easier for poor people to
but milk. But price control reduces the amount
of milk for sale.
The Point of the Example
●Thus, price control won’t achieve the
aim of those who support it. This is not
a value judgment, “price control is a bad
idea”, but a factual claim that a certain
means—price control--- will not achieve
a certain end---making the good
available to those who want it at
Blurring the Line
●Sometimes the results of economics strongly
suggest value judgments.
●Once we know that price control won’t
achieve what its advocates want, it’s hard to
avoid the value judgment “price control is a
●Someone determined to avoid value
judgments might say that it’s just a principle
of rationality to adopt suitable means to
achieve your ends.
A Clearer Case
●In a famous argument, Mises shows that in a
developed modern economy, socialism leads
to calculational chaos.
●If this is right, supporters of socialism have a
choice: they must give up socialism or accept
●It’s difficult to imagine that people would
accept chaos. We seem driven to the value
judgment “socialism is a bad thing.”
Mises on Ethics and
●Mises developed an important theory of
ethics that made use of examples like the
ones on price control and socialist calculation.
●He thought that all value judgments are
subjective; there is no objective ethics.
●Almost all people wants peace and
prosperity; and given this fact, we can say
that they should favor the free market. The
“should” tells them how to achieve their goals.