whereby people strive for the well-being of others even when it hurts their immediate self-interest, were totally ignored. Thus, what the secularist trapping of economics did was to essentially make the serving of self-interest through the maximization of wealth and consumption the primary device for filtering, motivation and restructuring.
The individual can also serve his self-interest within the constraints of a number of humanitarian goals, the realization of which is considered to be crucial for human well-being. This being the case, then both present and future generations as well as other earthly creatures that coexist with humans, together with material and non-material aspects of life may have to be given due attention. The freedom of the individual would, in this context, be only one of the goals. Once all the desired goals are recognized, then the most rational way to measure positivism may be to look at the progress made in the realization of not just one, but rather all these goals in accordance with their priority in human well-being. All factors that affect individual behaviour and have the potential to contribute to the well-being of all, may have to be taken into account, irrespective of whether they are economic or non-economic, public or private, moral or mundane. Moral and institutional factors complement the material factors that are taken into account by the market mechanism, and thus help in the realization of goals.
Positivism does not, however, accept either the equal importance of other goals or the significance of non-material factors in the realization of these goals. It gives the utmost weight to rational economic man’s freedom to pursue his material self-interest. It argues that every individual is the best judge of his self-interest and should be left free to choose any of the various alternatives that he considers to be in his best interest. He should not be subjected to any constraints, moral or otherwise. This does not, however, take into account the fact that while the individual may be the best judge of his own self-interest, he is not necessarily the best judge of social interest.
Such excessive emphasis on individual freedom led to an anathema regarding value judgements and to the insistence on value-neutrality. Economics was declared to be “entirely neutral between ends”10 and “independent of any particular ethical position or normative judgements”.11 The preferences or subjective valuations of individual members of society were to be taken as given. No judgement could be passed on these in terms of their consistency with normative goals. Consequently, it has become the primary task of economists to describe and analyze ‘what is’ so as to be able to predict what may happen in the future.12 They cannot pass any judgement on ‘what is’, or suggest ‘what ought to be’. They can only discuss the possibility function and not the preference function.
Positivism has become such an integral part of the economics paradigm that it has been treated as non-controversial and generally accepted by the rank and file of the economics profession since the seventeenth century, despite the Neoclassical and Keynesian revolutions.13 This, in turn, has led to a disregard of the role of moral values as a filtering device in the allocation and distribution of resources and to the treatment of tastes, preferences, and socio-economic institutions as exogenous variables. All these, it was argued, required value judgements, which were a matter of subjective choice and therefore untestable. Hence prices and incomes determined by market forces became the primary instruments for determining the allocation and distribution of resources, and have played a predominant role in the descriptive, analytical and predictive functions of economics. It also contributed to the concept of Pareto optimality, which asserts that only that policy is acceptable which makes at least one person better off without making anyone worse off. According to John Rawls, one must never act solely to increase general happiness, if in doing so one makes any person unhappy.14 Since there is hardly any policy which does not make anyone worse off, what, in fact, the absence of value judgements and the concept of Pareto optimality have accomplished is perhaps the paralysis of policy making by leading, in the words of Solo, “to inaction, to non-choice, to drifting”.15
Positivism also became “associated with the belief that any question asked by economics must have an empirically determinable right or wrong answer”.16 If the answer is not empirically determinable, economics should not consider the question. This automatically led to an emphasis on concepts which are measurable in pecuniary or material terms. The Social Science Research Building at the University of Chicago reads: “If you cannot measure, your knowledge is meagre and unsatisfactory.”17 Such an attitude deprived economics of the task of analyzing the impact of social values and institutions on the allocation and distribution of resources18 and of suggesting a programme of social steering to actualize the social vision.
Government Non-Intervention: The Symmetry Between Public and Private Interests
If socially-agreed values were denied any role in filtering, motivation and restructuring, the government could be assigned an important role in the realization of social goals. However Say’s Law,19 which is an important by-product of the application of the laws of Newtonian physics to economics, and which constitutes one of the cornerstones of classical economics, would not allow this. It asserted that, just like the universe, the economy will run perfectly if left to itself. Production will create its own demand and there will be no overproduction or unemployment. Any tendency on the part of the economy to create overproduction or unemployment will be corrected automatically. In this respect ‘Economic laws’ were all powerful and brooked no interference.
This led to the concept of laissez faire, which stands for government non-intervention in the operation of the market. The government could do nothing and had no other option but to abstain from intervention. Market forces would themselves create an ‘order’ and ‘harmony’, and any effort on the part of the government to intervene in the self-adjusting market could not but lead to distortion and inefficiency. The mechanical concept of the universe and of man thus gave rise to a blind faith in the efficacy of market forces.
The seeds for Say’s Law had been laid earlier by Adam Smith’s claim that there was a symmetry between private and public interests. If everyone pursued his or her self-interest, the ‘invisible hand’ of market forces would, through the restraint imposed by competition, promote the interests of the whole of society, thus bringing about a harmony between private and social interests.20 Hence there was no need for the government or anyone else to intervene in the operation of the market. The general equilibrium theory further reinforced this logic by showing mathematically “how the unintended consequences of uncoordinated selfishness result in the most efficient exploitation of scarce resources in the satisfaction of wants.”21
To prove that the market would if left to itself lead to maximum efficiency, it was argued that individuals in their capacity as sovereign consumers, act rationally and try to maximize their utility by buying at the lowest price the goods and services that occupy a higher place on their preference scales. Their preferences are reflected in the market place through their demand or willingness to pay the market price. Individuals, in their capacity as producers, also act rationally and respond ‘passively’ to this demand by producing at the lowest cost whatever will help them maximize their profits. The free interaction of utility-maximizing consumers and profit-maximizing producers under perfectly competitive market conditions determines the market clearing prices for goods and services. These prices (and costs, which are also prices) serve as an impartial, value-neutral filter mechanism and lead to the transfer of resources from one use to another. Thus, without anyone’s conscious effort or intervention, there is the production of that configuration of goods and services which is in maximum harmony with consumer preferences. This configuration is called the Pareto efficient. It is the most ‘efficient’ because it is not possible to improve upon it without making someone worse off. There is perhaps no other concept which has acquired as firm a place in the paradigm of conventional economics as Pareto
