Values and Institutions in Economic Analysis

The subject of values was once considered to lie beyond the purview of economic science. Preferences, taken as given to the agent and society, were seen as being about goods, dates of consumption, and states of the world, not about means (how to behave), or about beneficiaries other than the self. But as industrial civilization ends a turbulent century with rising anxiety over its social health and cohesion, the subject of values has begun seeping into economic discourse. That neoclassical economics viewed values as an alien issue may have been natural given the positivistic spirit of its proponents. Robbins (1932) defined economics as a science of means-ends relationships, with the choice of ends (preferences) being of no account. And when Adam Smith's "Invisible Hand" revealed itself in the theory of general equilibrium, its manifestation was that of a vector of prices supporting an optimal allocation of resources, with preferences, technologies, endowments, and even the structure of property rights and institutions taken as givens. "De gustibus non disputandum est" and, a fortiori, "de moribus," since economics was becoming a science of prediction and testing, whereas value statements are inherently not amenable to falsification. Assuming behavior based on self-interest, exploring where that led using deductive reasoning and mathematics, and