On knowing the price of everything and the value of nothing

The essay by Edward Glaeser to which Matt Kahn points is, in my view, astoundingly wrong-headed. And, as Glaeser notes but doesn’t reflect on, the Adam Smith of The Theory of Moral Sentiments would have agreed with me, and not with Glaeser. The fact that selfishness constrained by law and the market can generate socially useful outcomes doesn’t make selfishness, or the freedom to pursue selfish ends, good things in themselves.

But what’s most disturbing about Glaeser’s essay is not its conclusion, but its reasoning: in particular, the attempt to put a preference for freedom at the heart of economics. That’s a category mistake: freedom as a moral or political principle is neither an assumption nor a conclusion of economic reasoning.

Economic analysis tells us that, under certain conditions, free choice will lead to greater preference satisfaction than constrained choice, or no choice. It also tells us – via the principle of diminishing returns – that, other things equal, a more equal distribution of income generates more preference satisfaction than a less equal distribution. Neither of those observations constitutes a moral principle. And neither is more fundamental, more “economic,” than the other.

If an economist wants to believe in freedom, or for that matter equality, as a fundamental principle, he should do so on his own time. Neither commitment follows from the science of economics. If it’s really true that “most economists” acknowledge no duty to others beyond what is legally mandated, that reflects a flaw in their character or their understanding, not a logical entailment of anything about their discipline. But I doubt that it is true in fact,

The commitment to “efficiency” in its economic sense – not forgoing the opportunity to secure more of one good, or more benefit for one person, unless doing so provides at least a compensating gain in terms of some other good or the well-being of some other person – may fairly be called a moral commitment, and also an entailment of the economic way of thinking.

That commitment is, it should be noted, contrary – in its insistence that more of a good thing is always better, in contrast with the view that enough is enough – to most of the world’s received philosophic and spiritual wisdom, going back at least as far as Aristotle. When I teach economics, I point both to the power of its analysis and the dubious assumption on which it rests. But at least the principle of efficiency is properly a part of economic reasoning. That is not the case for freedom, or for selfishness.