principle of ‘might is right’, but it is certainly not tolerable within the framework of humanitarian goals.
Coming now to condition (d), it is well-recognized that even though perfectly competitive markets31 are a theoretical construct of great analytical value, they constitute an unrealized dream in the real world, and are likely to remain so in the future. The innumerable imperfections that exist in the market thwart the efficient operation of market forces and produce deviations from ideally competitive marginal cost pricing, thus leading to prices that do not reflect real costs or benefits. Hence, while prices may not, by themselves, be capable of bringing about a socially-desired allocation and distribution of resources, they may be less capable of doing so if they do not even reflect real costs and benefits.
Since no real world market is likely to satisfy the background conditions even approximately,32 there is a considerable distortion in the expression of priorities in the market place.33 This introduces a built-in bias against the realization of both efficiency and equity, as defined earlier in terms of normative goals, if reliance is placed primarily on prices for the allocation and distribution of resources.
THE INCOMPLETE SCIENTIFIC REVOLUTION
One may argue that there must be something wrong in the above logic of built-in bias because the normative goals have been actualized, at least partially, in a number of societies where conventional economics rules the roost. This for a number of reasons. Firstly, disillusionment with the Church in Western societies did not necessarily lead to the abandonment of moral values. These have survived, as indicated earlier, and ensured a certain degree of moral integrity. Without such integrity the market system may well not have worked – property rights may not have been enforced, justice may not have been realized, and cooperation and mutually profitable exchange between members of society could have been adversely affected, thus frustrating development.34 Secondly, conventional economics has, in reality, never been truly positive. It has also been normative. Economists have made value judgements as well as policy recommendations in spite of the supposedly value-neutral stance of their discipline. This possibly because, as Koopmans has put it, “scratch an economist and you will find a moralist underneath”.35 In other words, it is not possible for economists to uphold humanitarian values in their personal lives while being unaffected by them in their professional lives. Thirdly, individuals have not always resorted to self-interested behaviour, they have also been altruistic. Even though Western societies have gradually moved towards greater hedonism, the transformation has not been complete. Moral values and social taboos have continued to some extent to temper the hedonistic drive and may perhaps continue to do so even in the future. Fourthly, because of democracy, there has been pressure on governments to remove inequities and to promote social interest. They have, therefore, formulated laws to protect property rights, to ensure justice and fair play, to provide a social security net, and to improve labour conditions. Such laws and policies could not have been possible without a concept of what is right and, therefore, what is desirable.
Conventional economics has, nevertheless, continued to cling to its value-neutral stance. This has, besides exposing economists to a position of conflict between their personal and professional paradigms, introduced an inconsistency between its two major branches – microeconomics and macroeconomics. There is, on the one hand, excessive emphasis in microeconomics on the maximization of wealth, bodily gratifications and sensual pleasures, individual freedom, and value neutrality, in keeping with its secularist worldview. While this emphasis has led to the treatment of choice through the market as the only acceptable strategy for the allocation and distribution of resources, it has also led to the assumption that the market invariably acts to harmonize the interests of all human beings. Hence, every competitive equilibrium is considered to be a Pareto optimum and is accepted as both ‘efficient’ and ‘equitable’. There is, on the other hand, discussion of the humanitarian goals, the acceptance of which automatically establishes social priorities. Goals may not be realized unless scarce resources are used in harmony with these priorities. The microeconomic principles of the unhindered pursuit of self-interest, unlimited individual freedom of choice, and value neutrality may not necessarily be consistent with such priorities.
This implies that the “scientific revolution”, using Kuhn’s terminology,36 brought about by the shift from a religious to a secularist paradigm was not complete. While the shift was attained in microeconomics through the assertion of value-neutrality and unlimited individual freedom to pursue material self-interest, the shift did not take place in macroeconomics. It was not possible to give up allegiance to the humanitarian goals of the religious paradigm in favour of the social Darwinist goals of the secularist paradigm in a Christian or any other religious society committed to moral values and the well-being of all. This conflict did not become clear until the development of macroeconomics took place as a result of the Keynesian revolution.
This incomplete scientific revolution has led to the absence of a clear link between microeconomics and macroeconomics. Howitt has, therefore, rightly remarked that “the lack of a clear link between macroeconomics and microeconomics has long been a source of discontent among economists ... Countless students and practitioners alike have complained of the schizophrenic nature of a discipline whose two major branches project such radically different views of the world.”37 Lucas and Sargent have likewise pointed out that “since its inception, macroeconomics has been criticized for its lack of foundations in microeconomic and general equilibrium theory.”38 Arrow also considers the absence of this link as “one of the major scandals of current price theory”.39 In other words, if microeconomics is now rightly conceived, then macroeconomics should not be concerned with policy issues like full employment, need-fulfilment, and equitable distribution. The neoclassical approach of government non-intervention would then be correct. However, if humanitarian goals are to be served, then microeconomics is not built on a proper foundation. In a market economy, where the government’s role is expected to be limited, the goals hang in the air without any logistic support if microeconomic analysis fails to address the question of goal-realization.
Microeconomic analysis based on excessive individual freedom is concerned with efficiency in the Pareto sense but not in the realization of the macroeconomic goals of the humanitarian religious worldview, which requires the reining in of self-interest. Moral values are capable of helping in this task. They are tuned to the creation of social harmony by reducing the gulf between private interest and social interest and promoting the use of scarce resources in conformity with the needs of goal realization. The market is by itself unable to do this in a value-neutral environment, particularly in situations where there is a conflict between self-interest and social interest. The market cannot discriminate between the various uses of resources on the basis of their contribution to normative goals. It needs to be complemented by moral values which help orient individual preferences in harmony with humanitarian goals. Such an orientation may be difficult to attain without individual and social reform in conformity with moral values.
Keynes concentrated only on government fiscal policy. The rational expectations theory is perhaps right in drawing the conclusion that the reaction of individuals to government fiscal policy in anticipation of inflation may go a long way in generating the expected inflation and frustrating the realization of full employment. This conclusion would, however, be true only if primary reliance is placed on increased government spending, and individual behaviour continues to be in conflict with social goals. The enlarged budgetary deficit would then join hands with the consumer culture in the private sector to contribute to excessive claims on resources and stagflation.40 Fiscal policy appeared as the only solution to Keynes because change in individual behaviour and tastes and preferences in conformity with social goals, which moral values help bring about, had to be ruled out in a secularist paradigm.
Hobbes rightly argued in his famous Leviathan (1651) that self-interest knew no bounds and could push man into the greatest of excess if he strove to satisfy it. The only way to prevent him from doing so would be to make
