The Moral Dimension: Towards a New Economics

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9780029099001: The Moral Dimension: Towards a New Economics

Author Bio Amitai Etzioni, University Professor at George Washington University and Visiting Professor at the Harvard Business School, 1987-89, is the author of numerous books, including The Active Society.

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About the Author:

Amitai Etzioni, University Professor at George Washington University and Visiting Professor at the Harvard Business School, 1987-89, is the author of numerous books, including The Active Society.

Excerpt. Reprinted by permission. All rights reserved.:

Chapter 1
The New Paradigm: Underlying Themes
TOWARD A NEW SYNTHESIS
Both social scientists and intellectuals draw on overarching sets of assumptions -- or paradigms -- to organize their efforts to understand our world, the goals we pursue, the ways we choose means to advance our goals, and the ways we relate to one another as we proceed as individuals or in unison. When these paradigms are used to formulate theories and policies that are limited in their empirical and ethical scope, the study of our world suffers, and so do efforts to administer to its ills. This book argues that the neoclassical paradigm -- that of a utilitarian-based version of radical individualism -- needs to be integrated into one that is more encompassing. After outlining the differences in the core assumption between the prevailing neoclassical paradigm (most noted, in the groundwork for neoclassical economics) and an emerging deontological paradigm (that of the I&We charted here), the differences between the two paradigms are explored from social philosophic, ethical, epistological, historical, and methodological viewpoints. Finally, ways to synthesize the two paradigms are indicated.
The neoclassical paradigm is a utilitarian, rationalist, and individualist paradigm. It sees individuals as seeking to maximize their utility, rationally choosing the best means to serve their goals. They are the decision-making units; that is, they render their own decisions. The coming together of these individuals in the competitive marketplace, far from resulting in all-out conflict, is said to generate maximum efficiency and well-being. The notion of a community, to the extent that it is included in this paradigm, is often seen as the result of the aggregation of individual rational decisions.
These utilitarian assumptions are found at the roots of neoclassical economics (for additional discussion, see p. 46). However, they play a key role in major theories in all contemporary social sciences. Since there is much more to neoclassical economic theory than these assumptions, and since the assumptions serve to form social science theories other than neoclassical economics, it seems useful to refer to them as a neoclassical paradigm. This paradigm plays a key role in contemporary political science (e.g., in the Public Choice school); in psychology (e.g., in the balance theory, which sees group members as continuously calculating the merit of membership rather than that of being "involved" or "committed"); in sociology (e.g., exchange theory); and even in anthropology (in works that argue that preliterate tribes conform to the laws of neoclassical economics, e.g., Schneider, 1974), history (e.g., North, 1981), and law (e.g., Posner, 1977). Moreover, the neoclassical paradigm plays a major role in our public policy, dialogues, intellectual life, and the social and political philosophies that the public embraces. While outside the social sciences, the terms used in public discourse to refer to the neoclassical paradigm have changed over the decades, currently the terms laissez-faire conservative and libertarian are most often used to refer to it.
The neoclassical paradigm, and the theories formulated by drawing on its assumptions and core concepts, have been criticized as unrealistic, unproductive, and amoral (Malinowski, 1922; Parsons, 1937; Thurow, 1983; Allvine and Tarpley, 1977; Wilber and Jameson, 1983). However, the defenders of the neoclassical paradigm and theories can offer a strong response to these criticisms: They can challenge their critics to point to theories of behavior that are more productive than the prevailing one. "You cannot beat a theory with nothing," is more than a clever rejoinder -- it is a somewhat overstated but far from unfair comment on the state-of-the-art.
Where do we go from here? The question concerns the way scientific and intellectual progress is attained. In this area we build on Thomas Kuhn's insight on the role and dynamics of paradigms. They provide an orderly way of organizing our thinking about a disorderly world. Developing a paradigm involves large investments that encompass many hundreds of thousands of human work-years, the expenditure of billions of dollars on data collection and analysis and elaboration of models, and the considerable effort entailed in reaching consensus, among those who share a given paradigm, about what one should assume the world is like. The magnitude of these investments provides a reason for holding on to vested paradigms. In addition, there are matters of ego-involvement and prestige pecking order that need not concern us here, and matters of ideological commitments to which we turn below.
As long as there is no other productive paradigm, it is difficult to object to efforts to maintain the neoclassical paradigm, even if it encounters some so-called "stubborn facts" (facts incompatible with the theory), or other limited challenges (for instance, discovery of some internal inconsistencies). In fact, it is proper to attempt to shore up, augment, or modify the paradigm, and the theories that build on it, to absorb challenges, in the hope of avoiding a paradigm shift; it is also proper to preserve the mainframe of the prevailing paradigm -- as long as there is no successful alternative, even if these efforts cannot be successfully completed (or can only be completed by introducing far-fetched assumptions, or at the price of rendering tautological parts of the theory). So far, no such alternative seems to have arisen. As Ulen wrote (1983, p. 576): "...many of the most recent presidential addresses to the American Economic Association have been highly critical of received micro- and macro-economic theory. However, there has not yet been an offering of a new paradigm." If by a new paradigm he means one that is successful, able to provide a context to a wide array of evidence, and gain consensus, he is surely right. He goes on to recognize "the profession's quite natural attempt to plaster over the current paradigm's cracks with such ingenious fillers as transaction costs and rational expectations." (Ulen, 1983, p. 576.) While more than cracks have appeared in the facade, the procedure, to reiterate, is not merely "natural" but legitimate.
Indeed, Ulen's own work further illustrates the point. After referring to a review of the literature by Nelson and Winter (1983, p. 577) that shows "the limited abilities of organizations and individuals to optimize," Ulen wonders if this is sufficient reason to replace orthodox theory rather than "merely patching it." Another student of the same challenge (Rubin, 1983, p. 719) wonders if this means that the neoclassical paradigm must be "scrapped," or that the new approach (in this case, evolutionary economics) can be absorbed into neoclassical economics, a procedure which he strongly prefers. Others try to evolve new paradigms.
If and when such efforts are successful, it does not mean that the neoclassical paradigm will crumble. There have been several sciences in which two paradigms co-existed simultaneously in open competition for long periods of time. Marxism, after all, is a paradigm that does seek, among other things, to explain economic behavior. It long co-existed with the neoclassical paradigm, neither driving it out, nor being driven out by it.
The thesis developed in this volume suggests a different interparadigmatic pattern: The self-oriented, rational behavior "modeled" by neoclassicists is assumed to occur within the context of personality structure and society. These, in turn, are perceived not merely as reflections of the aggregation of individual acts but as being formed to a significant extent by forces and dynamics that are fundamentally different, in ways to be specified, from those assumed by the neoclassical paradigm. That is, rather than abandon neoclassical concepts and findings, they are viewed here as dealing with subsystems within society (markets) and personality (in which rational decision-making is circumscribed, substituted and, on occasion, supported by emotions and values). In other words, the approach followed here is one of codetermination: It encompasses factors that form society and personality, as well as neoclassical factors that form markets and rational decision-making. Moreover, we can go beyond suggesting that both approaches need to be synthesized; we can specify to some extent how they are related to one another: The paradigm advanced here seeks to characterize the context within which the forces that the neoclassical approach focuses on are played out, a context that sets limits and provides direction to those forces. (For additional discussion re personalities, see Part II, especially Chapter 6; for society, see Part III, especially Chapter 12.)
CORE ASSUMPTIONS
A major virtue of the prevailing neoclassical paradigm is that it states its core assumptions very clearly. This work progresses by changing these core assumptions and by exploring the consequences of such a change. Three basic changes are made concerning what people are after, how they choose their ways, and who is doing the choosing.
Where the neoclassical assumption is that people seek to maximize one utility (whether it is pleasure, happiness, consumption, or merely a formal notion of a unitary goal), we assume that people pursue at least two irreducible "utilities," and have two sources of valuation: pleasure and morality (the subject of Part I).
The neoclassical assumption that people render decisions rationally (by a definition to be clarified) is replaced by the assumption that people typically select means, not just goals, first and foremost on the basis of their values and emotions. Far from always "intruding on" or "twisting" rational deliberations, values and emotions render some decision-making more effective. This holds not just for social behavior, such as courtship, but also for economic behavior, say relationships with one's employees or superiors. The circumstances under which people do act the way neoclassicists assume they generally behave -- rationally (to one extent or another) -- are accounted for in the paradigm evolved here (the subject of Part II).
The neoclassical assumption that the individual is the decision-making unit, is changed here to assume that social collectivities (such as ethnic and racial groups, peer groups at work, and neighborhood groups) are the prime decision-making units. Individual decision-making often reflects, to a significant extent, collective attributes and processes. Individual decisions do occur, but largely within the context set by various collectivities.
The same point holds for the relationship between society and the market as a subsystem. The neoclassical assumption that the market economy can be treated as a separate system, a system that is basically self-containing, and whose distinct attributes can be studied by the use of a perfect competition model, is replaced here with the assumption that the economy is a subsystem of a more encompassing society, polity, and culture. It is therefore assumed that the dynamics of the economy, including the extent to which it is competitive, cannot be studied without integrating social, political, and cultural factors into one's paradigm. Moreover, social collectivities are to be viewed, not as aggregates of individuals, but as having structures of their own, structures that place individuals (and other subunits) not according to their individual attributes, but which deeply affect their dealings with one another. (See Chapter 11.)
The significance of structure is highlighted in this volume by the study of one major structural attribute, the political power of select economic actors. Instead of assuming that the economy is basically competitive, and hence that economic actors (mainly firms) are basically subject to "the market," possessing no power over it (monopolies are regarded as exceptions and aberrations), the deontological I&We paradigm evolved here assumes that power differences among the actors are congenital, are built into the structure, and deeply affect their relationships. We shall see that power differentials are gained both by applying economic power (the power that some actors have over others, directly, within the economy) and by exercising political power (the power that some actors have over others, indirectly, by guiding the government to intervene on their behalf within the economy). (See Chapter 12.)
These fundamentally different assumptions make up what is referred to here as the I&We paradigm (one of a larger possible set of deontological paradigms). The term highlights the assumption that individuals act within a social context, that this context is not reducible to individual acts, and, most significantly, that the social context is not necessarily or wholly imposed. Instead, the social context is, to a significant extent, perceived as a legitimate and integral part of one's existence, a We, a whole of which the individuals are constituent elements.
The internalization of the social context, the partial overlap between the I's and the commons, is an essential difference between the neoclassical and the deontological paradigm evolved here. The neoclassical paradigm either does not recognize collectivities at all, or sees them as aggregates of individuals, without causal properties of their own, and as external to the person. The individual is viewed as standing detached from the community and from shared values, calculating whether or not to be a member, whether or not to heed the values' dictates. The deontological paradigm evolved here assumes that people have at least some significant involvement in the community (neoclassicists would say "surrender of sovereignty"), a sense of shared identity, and commitment to values, a sense that "We are members of one another." (Baldwin, 1902, p. 3.) Hence, adhering to shared values is often a matter not of expedient conformity but of internalization of moral values, at least in part (Wrong, 1961, p.186).
In the same way that neoclassical economics is the flagship of the neoclassical paradigm, a theory referred to from here on as socio-economics is an attempt to provide a theory of economic behavior within our deontological, I&We, paradigm.
SOCIAL PHILOSOPHICAL FOUNDATIONS: THE I&WE
Tories and Whigs, Over- and Under-Socialization
The dialogue between the prevailing and the challenging paradigms builds on basic differences in social philosophy: the two positions contain divergent views of human nature (are people basically knaves or nobles?) and of social order (are individuals naturally harmonious -- or is man wolf to man?).
While not every neoclassicist who works on wage differentials or saving rates subscribes to the social philosophy of Adam Smith's invisible hand and to its laissez faire implications, these concepts obviously lie at the base of the prevailing neoclassical paradigm. Sociologists refer to the implied view of the person as "undersocialized" because individuals are assumed to be the effective actors, able to act independently and to be psychologically complete unto themselves. It is a view of the social order as resting on the marketplace, as basically composed of individual transactions (even if those are of households and small firms), and as basically self-regulating. The state has a minimal and negative role. If this view recognizes the role of the community at all, it plays no role ...

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