The American vice-president, among others, is no great fan of global trade. He has criticized Margaret Thatcher, Milton Friedman, and the Wall Street Journal editorial board, suggesting that economic prosperity and growth might be overrated if they require America to be deeply enmeshed in global markets.
Postliberals as a group have made no secret of the fact that they view mainstream economics as inhumane with its focus on consumption and GDP growth. Sometimes their arguments are questionable, but it’s true that modern economics has a way of embracing a flat, utilitarian view of the world, sometimes pushing that view into realms where it doesn’t belong.
But should economists incorporate concerns about virtue, ethics, and happiness into their economic theory? Yes, but this question is more difficult than it appears. The issue is not whether ethics matter, but whether ethics should shape economic models themselves or merely how those models are applied.
Modern economics prizes value-neutrality. Economists fear that introducing moral judgments will undermine foundational concepts like the positive-normative distinction, subjective value, and rational choice theory. After all, natural economic laws operate regardless of personal virtue: demand curves slope downward, incentives drive behavior, and binding price ceilings generate shortages. Keynesians, Austrians, and Supply Siders (as well as utilitarians, virtue ethicists, and Kantians) recognize this.
So why should economists attempt to incorporate conceptions of virtue, ethics, and happiness into their work?
Because doing so will make them better economists and extend the applicability and persuasiveness of their work. Adam Smith considered moral questions foundational to economic inquiry. Modern practitioners should too. The Humanomics developed by Vernon Smith, Bart Wilson, and Deirdre McCloskey, among others, attempts to recapture Smith’s approach. And before you pillory me for licensing economists to pontificate on ethics they are ill-equipped to handle, hear me out.
Many economists apply subjectivism too broadly. They treat a preference for vanilla over chocolate identically to a preference for pornography over marriage. But should unconstrained utility maximization serve as our societal north star? Consider the case of homelessness. Does leaving individuals free to systematically destroy themselves with hard drugs on public streets maximize their utility (or anyone else’s who isn’t paid to provide “services” to the homeless)?
While there is obviously complexity to homelessness, the main problem for most homeless people seems not to be a lack of purchasing power, but a broken utility function. Giving homeless people more money to spend on things they desire is unlikely to improve their material, emotional, social, or spiritual wellbeing over time. Nor is this only an issue for the homeless—most people who struggle with relational poverty, depression, and other sources of dissatisfaction will find that improving their financial situation, by itself, does relatively little to improve their flourishing.
But economists’ broad application of subjectivism collapses ethics into moral relativism or a tacit, unexamined utilitarianism. While Adam Smith was surely in favor of increasing people’s productivity, wealth, and opportunities to consume, he was no utilitarian. He anchored economic life in justice and human flourishing.
Philosophical economics seeks to make sense of technical analysis and to determine when and how to use it.
Methodological purists might dismiss these concepts as “unscientific” and therefore outside the bounds of economic theory. Yet while a narrow “technical” economic theory can help us avoid mistakes, it does little to help us achieve human flourishing. As both Alfred Marshall and John Maynard Keynes recognized, pure economic theory offers minimal guidance for policy without ethical judgment.
Still, many excellent economists, from Friedman to Stigler to Becker to Mises, thought narrow, technical economics was more objective, scientific, and powerful. But even as Adam Smith cheered the expansion of wealth, he warned that some types of consumption can lead to unhappiness if they cut against virtue. He would reject the narrowing of economic “science” to value-neutral optimization and trade-offs that ignorebroader moral considerations of how human beings flourish.
Modern technical economics—built on constrained optimization, regression analysis, and parsimonious models—excels at analyzing trade-offs: firms maximize profits, price increases reduce quantity demanded, and taxes generate deadweight loss. These mechanics require no theory of virtue. As Mises wrote, “economics deal[s] with the means for the attainment of ends chosen by the acting individuals. [It does] not express any opinion with regard to such problems as whether or not sybaritism is better than asceticism. … Any examination of ultimate ends turns out to be purely subjective and therefore arbitrary.”
This value-neutral optimization represents a sharp break from older traditions. Modern economic theory routinely strips behavior of its moral context, treating preferences as neutral data: “Gary Becker and George Stigler (1977) argue that people’s preferences should be taken as given so that the economist can focus on evaluating their means, not their ends. Normative judgments have no place in the ‘science’ of economics and explanations of economic phenomena by preferences are no explanations at all.”
These economists would suggest that, given value-neutral utility functions, people can be made better off by increasing their income and thereby their consumption choices. But as Hayek said, while “the physicist who is only a physicist can still be a first-class physicist and a most valuable member of society[,] … nobody can be a great economist who is only an economist—and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.”
“Philosophical” economics situates human behavior within the broader reality of social life and human flourishing. Rather than taking preferences for granted, it examines how institutions, narratives, and moral commitments shape what individuals actually value. Where technical economics shows how agents allocate means to achieve given ends, philosophical economics asks whether those ends promote genuine well-being. Philosophical economics seeks to make sense of technical analysis and to determine when and how to use it.
A novel like The Great Gatsby illustrates why relaxing budget constraints does not guarantee greater happiness. It describes how desperately unhappy incredibly wealthy people can be. It seems clear that their situation will not improve by increasing their wealth (and thereby their consumption). Their unhappiness does not stem from overly tight budget constraints, but from something deeper—a problem of dissatisfaction and lack of joy—disconnected from their consumption or wealth.
The Great Gatsby Problem exposes the structural limits of a utility-maximization framework. Gatsby and his friends do not suffer from a budget constraint problem; they suffer from a utility function problem which is connected to deficiencies in their character. In fact, inasmuch as wealth extends our capacity to act in the world, it can amplify disordered passions and pursuits. Can economists offer anything of value to these folks?
Smith warns that those who blindly pursue wealth and success, only to discover that: “wealth and greatness are mere trinkets of frivolous utility …. enormous and operose machines contrived to produce a few trifling conveniencies to the body … ready every moment to burst into pieces, and to crush in their ruins their unfortunate possessor.”
They do not realize that: “Happiness consists in tranquillity and enjoyment. Without tranquillity there can be no enjoyment; and where there is perfect tranquillity there is scarce any thing which is not capable of amusing …. the pleasures of vanity and superiority are seldom consistent with perfect tranquillity, the principle and foundation of all real satisfactory enjoyment.”
The Great Gatsby Problem is not merely some esoteric literary metaphor. It diagnoses a core pathology of modernity—widespread discontent in the face of unprecedented material abundance. Granted, material life has become more convenient: smartphones summon delivery drivers to our doors, global travel is accessible, food is abundant, and modern homes are larger than ever. But a casual survey of the wealthiest humans in history reporting record levels of loneliness and depression suggests that Fitzgerald put his finger on a very real phenomenon.
Life is clearly better now according to indicators of material wealth like GDP growth, record stock market highs, increasing per capita income, and increasing per capita wealth. Yet those arguments generally fail to resonate when people struggle with the content of their utility functions more than the limits of their wallets. Wealth does not provide meaning. As Joseph Schumpeter put it: “the stock exchange is a poor substitute for the Holy Grail.”
Colloquially speaking, we suffer from lifestyle inflation. Despite being objectively wealthier than most people in history, and even most people living just 50 years ago, many today feel poorer when it comes to their life: not having a house or being married or having children. But these are the result of people’s shifting priorities and changing cultural dynamics rather than economic constraints. I’m suggesting that people would get married earlier and have children earlier if they had different priorities, not if they had higher pay or a better job.
Gatsby’s problem was never his budget constraint. He had already solved that. His problem was that no amount of green light, glittering parties, nor even a reinvented self, could give him what he actually wanted, because he never stopped to ask whether the object of his desire was worth having. Economists can explain how markets and trade made Gatsby. They have far less to say about why he was unhappy.
Another problem for a narrow technical economics is that human beings do not have a simple, clearly defined set of tastes and preferences. Their desires are sometimes kaleidoscopic—seemingly changing, not based on diminishing marginal utility, but on their mood. Unstable preferences make a mess of our models of constrained optimization. They also raise vital questions about how external environments shape internal appetites.
We also have preferences about our preferences—metapreferences. You might wish to be different than you are. Most of us would like to be more physically fit. We wish we liked exercising more and enjoyed eating unhealthy food less. Yet we may also choose to eat a bunch of potato chips or donuts in a given moment, then wish we hadn’t. So, people can dislike their preferences—that is, they dislike what they like. Several difficulties arise for technical economics when it comes to metapreference theory.
Economics remains indispensable for checking misguided, utopian policies.
One difficulty is that metapreferences quickly become recursive. Not only do we have preferences about what we like (our first-order preferences), but we can also have preferences about our preferences regarding our first-order preferences. You might prefer to be the kind of person who valued exercise highly and unhealthy food little, but you might also wish you were the kind of person who had that preference about your exercise and eating preferences. You wish that you cared enough about getting healthy to change your habits.
But where do these metapreferences come from? And how deep do they go? Many philosophers and religious traditions have grappled with these kinds of questions. For Adam Smith and most economists of the nineteenth and early twentieth century, Christianity was the established intellectual tradition.
And Christian theology posits that human beings are complex creatures with body, mind, and soul. In this framework, it makes perfect sense that people have different levels or kinds of preferences that may conflict. In a famous passage, the Apostle Paul describes his own deeply conflicting desires: “For I do not do what I want, but I do the very thing I hate. … For I have the desire to do what is right, but not the ability to carry it out. For I do not do the good I want, but the evil I do not want is what I keep on doing” (Romans 7).
This passage describes deep conflict between different levels of desire. Why would one do what one hates or not be able to do what one wants? This is the metapreference problem in its starkest form—a first-order desire (evil) overriding a reflectively endorsed desire (good), with the agent as a spectator of his own choices. Indeed, much of the New Testament describes salvation in terms of transforming people’s desires, that is, the substance of their “utility function.”
Insisting that economists grapple with human nature is not the academic equivalent of splitting hairs. Before morality and ethics were exiled from economic departments, political economists regularly addressed non-material issues of human flourishing—such as virtue, contentment, joy, and meaning—and how they related to a world of scarcity and tradeoffs. Political economists recognized that public policy had complex dynamics and should be assessed from different angles and approached with humility. They engaged in philosophic economic inquiry.
The recognition that human beings can make poor consumption choices according to deficiencies in their utility functions—seeking utility in ways that make them unhappy and discontented—undergirded economics before it split from political economy and moral philosophy. Anthropology, ethics, and flourishing have big implications for public policy, from welfare programs to tax systems to regulatory regimes.
Debates over policies like surrogacy, prostitution, and abortion should include more than simple consent or utility maximization considerations. Many welfare policies appear to have simple “solutions” on the whiteboard when it comes to maximizing utility or increasing efficiency, but such policies often fail when deployed in real life because they overlook key elements of happiness and contentment that come through work, achievement, and success.
Economics remains indispensable for checking misguided, utopian policies. It is the discipline for connecting intentions with outcomes and means with ends. Dismissing economic theory and economic findings as postliberals do, will create a lot of unintended consequences—including stagnation, corruption, and greater inequality.
But it would be naive to pretend the economist can remain totally detached from whether those outcomes are good or bad. We need qualitative judgments, not simply quantitative calculations. Evaluating metapreferences—our choices about what we want to value—is a good starting point for taking that seriously. Humans are ethical beings, not simply utility maximizers or rational decision-makers.
Incorporating ethics back into economic theory is the only way to make the dismal science truly humane again.
