After it was announced that Mr. Friedman had received the Nobel Prize, one day he was lecturing on his permanent income hypothesis. He was describing the effects of small changes in income on current and future consumption. I commented that I thought I understood the hypothesis for small changes and asked whether the same effects could be expected from large discrete changes â€” like a $160,000 tax free lump sum cash award for example.
The class laughed and Mr. Friedman politely let them laugh and when it died down he looked at me and remarked that I apparently did not understand the hypothesis because, if I had, I would have understood that to the extent the $160,000 increment was expected it would have already been spent!
I tell you this story because after reading your Virtues, Smith's Moral Sentiments, and a small smattering of other works of greater or lesser degrees of relevance, I have a question for you that might reveal my poor understanding of one of your points and, if so, I guess I'll carry another embarrassment around with me. Still, nothing ventured, nothing gained . . .
I gather that you think that Utilitarianism, the moral philosophy that seems to underpin most of modern economic thought, is too narrow for a rich moral philosophy and too weak to well support the discipline of economics.
I agree that as a guide for behavior, Utilitarianism will not do. Kenneth Boulding thought that rational economic man was boring and I think you might fault the model more severely. Even John Stuart Mill in On Liberty seems to abdicate it. I found the moral philosophy that you articulated in Virtues appealing and persuasive but is a rich moral philosophy needed by economics or for that matter any other subject studying human behavior?
Mr. Friedman's "as ifâ€ construction in his Methodology of Positive Economics suggests to me that perhaps useful economic predictions can be generated from a theory based on the behavior of people acting as if they were only boringly rational utility maximizers. If so, does it really matter that Max U is morally deficient and Maxine Ï€ is cold, calculating, and uncaring? Can a fruitful economic theory be constructed using more morally well-rounded actors?
Do you think that by teaching utility maximization we are sanctioning it as a model of moral behavior? If so, it surely must be a good thing that capitalism swamps that influence by creating truly more virtuous folks.