The Economics of Morality

The Economics of Morality, and the emergence of culture

The tragedy of modern economics is the popular belief that it is a subject primarily concerned with money, as opposed to its full nature as the science of choice. This fuller view, covered in detail by writers such as Ludwig von Mises, understood that choice is driven by value, and further that value can be measured in many terms, not just money. Later writers, such as Jorg Guido Hulsman in his work The Ethics of Money Production, demonstrate that this complete view of value allows a complete economist to understand how money, morality, institutions, and culture are all connected, as all are concerned with determining value.

While modern economics struggles with the challenge of the “rational actor” who is trying to maximize value, this more complete view of economics does not have such a struggle. We can quickly see, from the Misesian subjective theory of value, that all people are in fact maximizing value at all times, according to their personal and subjective definition of value. One’s true values can be determined by observing the actual choices a person makes. In other words,

What you choose is who you are.

If economics is the study of human action, and the study of morality and ethics concern the human actions that ought to be taken, we can see, then, that economics and morality are both related, and both parts of the search for value. If they are related, we can then ask the question of how one can affect the other, and what this means as a part of the Art of Culture War.

What is value?

Each person has a will, and that will includes the way they want the world to work, and for other people and the world around them to relate in a certain way. When other people and the whole world align with this will, in other words “everything’s going my way,” we can call this state happiness. The opposite, when others and the world are doing everything that one doesn’t want, that state is suffering. There are other words people use to describe the same idea, such as gain and loss, or pleasure and pain, but for our purposes the words are suffering and happiness. Value, in its simplest sense, can be measured by the degree to which suffering is reduced (negative to zero), or happiness is increased (zero to positive). We learned from Mises that value is subjective, so the same events may have different values to different people. For example, if a man gets a terminal cancer, then for him and his family, it is suffering. But if that man was a dictator or corrupt official, and his death means the loss of his regime, that may in fact be happiness to those under his oppression.

Value and Choice

Who someone is can be defined by the choices they make, and the choices they make are defined by the values they have. In the simplest sense, if I spend 1 dollar to purchase cola, then by doing so, I decided that the dollar was less valuable than the cola. If I buy another drink, then the money is less valuable than the drink I purchased, but the one I chose was more valuable than the others. If I buy no drink, then my dollar was more valuable to me than the things I could have purchased. No matter what decision I make, I am always making a value judgment, to do one thing or another, or to do nothing at all. Everyone has heard someone say “I have been doing this wrong thing over and over, but deep down I want to change.” And after some time, they never change. We use phrases like “deep down” to say that we really, truly are better natured than our current action, but the economics of morality illustrates the truth. By not doing the thing they wanted to do “deep down,” what they are doing right now is more valuable, because they are choosing to do it first. This is where the saying “Do not listen to what someone says, watch what they do.” comes from. Given enough opportunities to make a choice, we will also see the emergence of a value hierarchy within a person. A value hierarchy is a kind of internal ranking of value judgments. To use the cola example, I may decide that health is more valuable than taste, and therefore not pick a sugar rich soda. But, if I am in very good health, I may decide that the “health” requirement is satisfied, and therefore may indulge this time. In this case, the satisfaction of drinking cola would be below health on the value hierarchy, but not so low that it is never chosen.

Intangible Value

In conventional economics, one will look at tangible value, such as goods, services, and money, and try to understand how people make judgments about tangible value. In the economics of morality, we also observe intangible value. In this case, things such as relationships, moral values, reputation, and personal happiness, which cannot be directly observed but can only be observed through the choices people make, also drive decisions, and therefore are also a part of the value judgments made when people are engaging in economic calculation. What I will propose here, is that intangible and tangible value are both a part of economics, and therefore certain economic concepts can be used to understand moral choices. Further, I am proposing that in the same way that one can create, exchange, and destroy tangible value, one can also create, exchange, and destroy intangible value. Further, exchange also means exchange between tangible and intangible value.

Exchange between tangible and intangible

To understand the exchange between tangible and intangible, an illustrations might help. Imagine for a moment that I tell you I need a box. I need to give it to my wife. Those statements alone doesn’t really tell you much, because the next questions would be “What kind of box? What is it for?” Is it for carrying a few object for a short time? Is it supposed to protect the contents from the weather? Could it be a jewelry box that will be placed in one’s bedroom? Each of these have different costs, different materials, and different levels of craftsmanship. Further, Which one you choose is going to have an intangible value tied to it. If I am moving, then cardboard is usually fine. Other, nicer boxes may be out there, but since the only purpose of the box is to hold objects for a period of time, the cheapest effective option is the most appropriate. But if this box is a gift, perhaps an anniversary gift, then the box becomes more than an object for holding things. The materials and craftsmanship communicate your intentions, the level of appreciation you have for the marriage, and therefore have an impact on your relationship. In this case, the purchasing decision goes beyond mere utility, and the intangible value of the relationship also factors into decisions about the box. Now that we are looking at a jewelry box, let’s imagine we found a box with the right materials and workmanship, something truly made to last. Lets imagine that the box costs 1,000 dollars, half an ounce of gold at today’s prices. That is quite expensive. The physical transaction looks like this:

1,000 dollars –> jewelry box

And the intangible like this:

Suffering the loss of what you could have done with 1,000 dollars —> The joy of giving an excellent gift and making the wife feel valued

It turns out, however, that I have a friend who builds specialty boxes like this, and he would agree to build the same box for 100 dollars if I can convince him to do it for me as a friend. Now we have a new transaction:

100 dollars + friends’ favor –> jewelry box

Which in intangible terms becomes:

Suffering the loss of what you could have done with 100 dollars + The happiness of keeping 900 dollars + Suffering the strain on one’s friendship by asking for a substantial favor –> The joy of giving an excellent gift and making the wife feel valued

In this case, by asking my friend for a favor, I have exchanged some amount of our friendship for a savings of 900 dollars. Anyone who has asked for such favors knows, of course, that you cannot ask for favors repeatedly without consequence. Because of this, the economic decision must include whether the reduced suffering of a lower price (and the happiness of spending $900 on something else) is really worth the strain on a friendship when asking for a favor. Maybe this friend is a good friend and the favor is nothing, or maybe it is too much to ask. Let’s say this favor is a little too much to ask, and would in fact hurt the friendship. Now we have to look at the value hierarchy. If someone values friendship and being on good terms highly, then we may choose to pay the extra money while we work on strengthening the friendship. But what if we don’t actually care about the friend, and are fine with a friendship broken so long as we get the nice box? In this case, either the wife’s happiness, or just the extra money, is higher on the value hierarchy. The decisions we make, therefore, are a function of not only tangible value, but also intangible. And further, this complex array of values can only be acted upon with the help of a value hierarchy, telling us what is right and wrong, what should be saved and what should be spent. And spending, it turns out, is in terms of more than just money.

Time Value

At this point we see that value exists in both a tangible and intangible sense, and people make decisions in which they combine both tangible and intangible elements into actions, which in turn yield new tangible and intangible products. Time value is a unique and important intangible value. Value judgments not only matter for what will happen right now, but also, value judgments and decisions must include impacts in the future. In the economics of tangible goods and services, we already have words for this, such as interest and return on investment. What I am proposing in the economics of morality is that time value is also included in value judgments around intangible value as well, and that moral decisions involve a time dimension. On the surface, the time component of morality is somewhat obvious. Major religions deal in the question of eternity, which can be seen as an ultimate time value. It is also known that those with a high time preference, or “I want what I want right now,” tend to make worse decisions, in the form of a decision that gives a benefit now and a bad consequence later. These, again, are observations that are fairly obvious to anyone. What is more interesting, however, is the thesis that any economic driver that pushes a tangible increase in time preference, i.e. something that economically forces people out of “future” and into “now,” will also have intangible, moral effects. This thesis was recently explored by Jörg Guido Hulsman, in which he looked at how inflation affects moral decisions.

Economics of Culture

The implication of this thesis is that tangible economics – money and goods, is in fact a subset of a larger set of value judgments that people make in terms of how they relate to each other. When someone starts a business, they see themselves in a relational, moral sense as relating to their community in the role given by their business. If someone gives charitably, or as a tithe, they are likewise acting to build a relationship between giver and receiver. When economic policy changes the tangible relationships of buying, selling, and giving, they are also changing the relationships and morality around the same. The forcible change of economic relationships necessarily means producing a different society. Such a change is not trivial, and not without risk.