it should not be a matter of concern for economists if observing the Pareto-optimality rule means breaking a few moral principles because the broken moral rules must have been “irrational” by definition. Obviously, there is little room in this rarefied world of rationality for maximising social good on logical or moral grounds – except to the extent of holding out the possibility of “distortion-free” compensation that is never carried out in practice.
This unifocal concentration on efficiency has been bolstered by libertarian moral-right theories [Hayek (1960); Nozick (1974); J. Buchanan (1975; 1985); and many others], which assign priority to individual liberty with such intensity as to exclude any reasonable trade-off between individual liberty and all other socially desirable objectives (e.g., narrowing inequities, reducing poverty and human deprivation) in which normally sane people believe. The reason: state intervention, even to help the poor, invites totalitarianism: “A society in which the position of the individuals was made to correspond to human ideas of moral merit would … be the opposite of a free society” [Hayek (1960); p. 97]. Nozick goes further and lays down that any redistribution (“patterning”) of income and wealth is an unacceptable encroachment on the individual’s virtually unlimited right to private property including those in the means of production, i.e., the property which is acquired by observing the principles of justice in “initial acquisition” and in “transfer”. Even for the government to aid the poor (by coercing the rich to do so) would be a violation of moral rights because the poor do not have a moral right to aid!2 Hence, the prescription for a minimal government, i.e., that which does no more than safeguard the “negative freedoms” of individuals from encroachment on their right to hold legally acquired private property. In the same vein is Buchanan’s valorisation of unfettered markets as providing the best guarantees against the violation of individual liberty because only these (run on the self-interest principle) can diffuse concentration of economic power in any form. Whence follows, that any interference with the working of the free markets is undesirable on moral, political and economic grounds. However, some redistributive activity is allowed at the constitution-making stage in a manner that ensures the impartiality of the decisions made at this stage to win unanimity about these decisions [Buchanan and Tullock (1962)]. But, on this view, once this deed is done people can go about their business of selfish profit maximisation undisturbed by the distant rumblings of egalitarian reform.
ii) Uniting Ethics with Economics
However, notwithstanding the above-mentioned arguments, a strong sentiment for reuniting ethics with economics has now become mainstream. Firstly, there is the plain question of human survival in a society devoid of social and personal morality. As Russell (1954) states: “Without civic morality communities perish; without personal morality life has no value” (p. 28). Secondly, treating self-interest and “rational” behaviour as synonymous is hard to defend, even logically. Thirdly, there are two major problems with the view that individuals acting in their self-interest also maximise social welfare. (a) In a large number of real-life cases, e.g., public goods must be provided, or markets are missing or collapse completely [Naqvi (2002)]. (b) This view does not hold in the context of large groups within a society. Thus, “even if all members in a large group are rational and self-interested, and would gain if, as a group, they acted to achieve their common interest or objective, they will still not voluntarily act to achieve that common or group interest” [Olson (1971); p. 2].
Fourthly, the superiority (indeed, invincibility) of the selfinterest principle cannot be established just by the demonstration that observing moral principles does not maximise individual welfare. For instance, even though it may be in somebody’s interest to break one’s promises, keeping one’s promises will still be regarded by most reasonable people as both moral and rational. Whence follows that while it may not “be at all absurd that maximization of self-interest is not irrational, at least not necessarily so, but to argue that anything other than maximizing self-interest must be irrational seems altogether extra-ordinary” [Sen (1987); p. 15]. In particular, it is illegitimate to dismiss a moral concern for others as irrational behaviour on the ground that only universal selfishness is a sure sign of rationality. In the real world, “the plurality of motivations is the rule rather than the exception, and one would be hard put to prove that either mere self-interest or pure altruism explains a large enough segment of social or individual action” [Naqvi (2002); p. 180]. Indeed, even historically, linking the spectacular success of capitalism in modern times only to the unrestrained working of the self-interest principle would be a vast underestimation of the role of the so-called capitalistic ethic. The fact is that it has always been a symbiosis of self-interest and morality that moved the world. Many empirical studies show that, for instance, in the case of Japan – the most illustrious example of economic success in the post-War era based on a freeenterprise system – qualities like group loyalty, good will, sympathy, respect for others have played at least as much a decisive role as self-interest maximisation may have done [Morishima (1982)].
Fifthly, beyond the libertarian’s ubiquitous selfishness, there is a whole world of sane people who recognise that ethical influences do shape human behaviour. Thus, for instance, Harsanyi’s (1977) “equiprobability model for moral value judgment”, requires individuals to possess not only personal preferences but moral preferences as well. These moral preferences “guide his thinking in those – possibly very rare – moments when he forces a special impersonal and impartial attitude, that is, a moral attitude, upon himself” (p. 635). Rawls (1971; 1999) argues for a wider informational base to measure human happiness than the self-interest principle would demand. The Justice-as-Fairness and the Difference principles emphasise the need to select those institutions which maximise the supply of “social primary goods” which every individual wants whatever else he/she may want (i.e., “rights and liberties, and opportunities, income and wealth, and bases of self respect”) to carry out his/her plans in life, subject to the principle that the needs of the least-privileged in the society are met first” (pp. 78-81). Sen (1992) regards Rawlsian social primary goods as instruments of achieving economic well-being. The real aim is to attain valuable “functionings” (being educated, being healthy, being free, etc.) and the “capability” to achieve them freely. The latter relates to the individual’s freedom to convert primary goods and resources into personal happiness, which is the proper “end” of economic activity. The capability approach is capacious enough “to take note of, inter alia, utilitarianism’s interest in human wellbeing, the libertarianism’s involvement with the processes of choice and the freedom to act and the Rawlsian theory’s focus on the individual liberty and on resources needed for substantive freedoms” [Sen (1999b); p. 86]. Sen’s approach forms the basis of the UNDP’s Human Development Research Programme. The basic moral insight here is that material plenitude need not always translate into human happiness, certainly not to the same extent. To this end, the search for human happiness does not stop when incomes have risen enough; rather, it takes reorganising the structure of property rights on the basis of justice, and making adequate provisions for greater education, healthcare and public goods of various kinds. In a more fundamental sense, the UNDP’s research programme goes beyond Pareto-optimality rule’s insistence on only distributionally-neutral efficient solutions and the Nozickian exclusive focus on the individual’s (unlimited) moral right to private property etc. [see Naqvi (2002)]. It does not need extended ethical lecturing to convince normal people that only a society in which the major social institutions are based on justice and where the needs of the poor and the needy are adequately met is worth supporting. A state of bliss is not reached without sympathy for others (which may be referred to as enlightened self-interest) as well as a moral commitment to help others (which is beyond the reach of self-interest) even if that means accepting a cut in one’s own welfare.
Finally, an unyielding insistence on self-interest (which implies an unbounded admiration for unfettered markets) is an extraordinary limitation on the economists’ moral vision because that means excluding from it a whole range of ethical values – i.e., justice, fair play, and the quest for equality – that have, historically, moved people to action. Also, it prevents the government from doing
