Today is Hayek’s birthday. Much has been and will continue to written about him. When I look around at much of what passes for economics today, especially in the prestige circles, I cringe. But reading his work always comforts me that something better is possible. And, in fact, there are many economists all over the world who take their inspiration from Hayek and his work. This is their day too!
Hayek, of course, was more than economist. He also had profound things to say about the mind, the rule of law, and ethics. Recently, I saw a stark example of the difference in ethical thinking between Hayek and more conventional moralists. This was in the case of the tragic fire in a Bangladeshi factory making clothes for western companies. The new Pope Francis condemned it as an example of corporations only caring about their bottom-line.
Now there are legitimate issues, from the point of view of the individuals working in this and other such factories. Can they rely on the attestations of a certain degree of safety in their working environment? Before people can voluntary assume the risks associated with certain kinds of work they must have at least a pretty good idea of what those risks are.
And yet there is a more fundamental issue. Workplace safety is a matter of degrees. It is a working condition that is part of the cost of labor. There is an inevitable tradeoff between wages and level of employment, on the one hand, and workplace safety on the other hand. In rich countries workers can afford to sacrifice something for greater workplace safety. This is all part of increasing wealth.
Now major corporations are re-thinking their use of factory labor in Bangladesh. They don’t want the images of large numbers of dead ruining their reputations. Ostensibly, they will argue that since they cannot trust Bangladeshi authorities to keep the factories safe they will not deal with them. Voila, the moral stance.
But what is really going on. Bangladesh is a very poor country. One of the few things it has going for it is inexpensive labor. Let the West pull out. Where are the jobs for those who found working in the factory a better option than the available alternatives? Let the cost of labor rise due to greater safety precautions. Then the comparative labor-cost advantage falls. Will people, especially the poor, in developed countries buy as much at higher prices? Are the corporations willing to lose money? Will individual stockholders, pension funds and other equity holders be indifferent to earnings/price ratios?
I guarantee you that the pope is not considering any of this. He focuses on the seen, but neglects the unseen in economic affairs. He looks only to intentions (Do good!) and knows little about unintended consequences. (However, he is pretty good at the unseen in spiritual life.)
The morality of the extended order that is, the world-wide system of social cooperation, cannot be a morality simply of the seen. We can eliminate fires in factories producing western goods by eliminating the production of western goods in Bangladesh. Not good. We can reduce these by requiring higher safety and this labor costs but then there will be fewer people employed in the best alternatives. Who will examine the health and safety consequences of the employment to which the poor are driven?
Perhaps the pope believes that people should not be concerned with profit and loss signals. We can focus on this one issue in Bangladesh only because it is right before us. But, in general, we do not have the epistemic capacity to investigate all of the circumstances of supply and demand with simple moralisms.
Not all Christians are as confused as this pope. Let us go back to Thomas Aquinas. Aquinas often reminded us that men are not angels. We do not have the psychological or epistemic capacity that they have. So when asked whether a merchant who was carrying grain to an area distressed by a shortage had an obligation to reveal his belief that others were coming later with more grain, Aquinas said that he did not have this obligation in terms of justice. The just price was the market price the merchant could get at the time, absent revealing this information.
Why? Aquinas is not explicit. However, I surmise it is because he knew that what motivated the additional supply to come into the area is the expectation of high profit.
Morality is not equivalent to advocating feel-good courses of action when something bad happens. Sure, we can and should be beneficent. It is good to help fire victims. But it is a good thing in the long run to understand economics. As Jean-Baptiste Say said: A good book on economics should be the first volume of a treatise on ethics.