Craig Vincent Mitchell
Ethics and Public Policy
Metaphysics and Ethics
Metaphysical Realism
 Both types of realism are
teleological
 Platonic- two world ontology
 There is a world of abstract
forms, which are universals
 This is the world of concrete
particulars which participate in
the forms
 Aristotelian- one world ontology
 Forms are instantiated in the
concrete particular
 4 Causes- Formal (form),
material, efficient, final
(teleological)
Metaphysical Nominalism
 Both types of nominalism
lead to deontology
 Moderate nominalism Only concrete particulars
 Causal- admits the material
and efficient cause, similar
to teleology
 Extreme nominalism Only concrete particulars
 Rejects causes altogether
Ethics is inherent in Economics
 Ethics is the science of character
and is focused on the individual
 Politics is about man as a
community
 Economics is about the way that
the community allocates its
scarce resources
 Your metaphysics determines
how these disciplines relate to
each other
Action
Ethics
Politics
Economics
Metaphysical Realism
Teleology
 If you are a metaphysical
realist these disciplines
are the parts of a greater
whole
 A metaphysical realist
approach is teleological
 The whole comes before
the parts
 Action is the whole, the
other disciplines are the
parts
Ethics
Politics
Economics
Types of Political/
Economic Systems
Resource
Allocation
Private
Public
Resource
Ownership
Private
Market
Capitalism
Command
Capitalism
Public
Market
Socialism
Command
Socialism
Types of Political/
Economic Systems
Liberty
Security
Efficiency
Market
Capitalism
Command
Capitalism
Equity
Market
Socialism
Command Socialism
Types of Political/
Economic Systems
 Market Capitalism- Free Market economics ( teleological,
provides economic growth)
 Command Capitalism- (The Third Way) seeks a path between
free market and socialist approaches to economic governance,
but chiefly stresses technological development, education, and
competitive mechanisms to pursue economic. ( deontological,
China?)
 Market Socialism- economic systems where the means of
production are publicly owned, managed and operated for a
profit in a market economy. The profit generated in a market
socialist system would be used to remunerate employees or go
toward public finance. (deontological, France, Sweden)
 Command Socialism- Communism (deontological, provides
no economic growth)
Pre-modernity, Realism
and Teleology
 Aristotle was the student of
Plato and a metaphysical realist
 He believed that man is a
rational creature, who acts
according to an end.
 Aristotle wrote a number of
works from a teleological
viewpoint.
 Nicomachean Ethics
 The Politics
 The Economics
Pre-modernity, Realism
and Teleology
 St Thomas Aquinas
combined the theology
of Augustine and the
philosophy of Aristotle
 He wrote commentaries
on all of Aristotle’s
work’s, including:
 Nicomachean Ethics
 The Politics
 The Economics
Pre-modernity, Realism
and Teleology
 The Salamanca School of
Economics began in the
15th century with
Dominican Monks who
relied upon the works of
Thomas Aquinas
 They were followed by the
Francisan and Jesuit orders
 The laid the foundation for
much of modern political
economy
Modernity
 Francis Hutcheson was a
metaphysical realist who
subscribed to moral sense
theory
 His two most prominent
students were not
 They were sentimentalists. They
believed that there are no
objective moral facts. They also
believed that the moral sense is
nothing more than the emotions
Francis
Hutchinson
David
Hume
Adam
Smith
Modernity, Nominalism
and Deontology
 Frances Hutchinson was
a Presbyterian minister
and a professor of moral
philosophy at the
University of Glasgow.
 He developed a number
of important ideas:
 Moral sense theory
 Division of Labor
 Utilitarianism
Modernity, Nominalism
and Deontology
 David Hume was an
empiricist and a
metaphysical nominalist.
 He was a sentimentalist
who inherited his
utilitarianism from
Francis Hutcheson
 His political economy
resulted from
Hutcheson’s division of
labor
Modernity, Nominalism
and Deontology
 David Hume is noted for his fact/value dichotomy,
which is based on his nominalism.
 Hume believed that “reason is and ought always be a
slave of the passions.
 Reason is good only for comparing and contrasting.
 Morality is based on the passions
 As a result of his ideas, positivism (the separation of
values, or ethics from disciplines like law, politics and
economics) began to flower
Modernity, Nominalism
and Deontology
 Adam Smith was an empiricist
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and a metaphysical nominalist.
Smith’s first book was The
Theory of Moral Sentiments
Smith was a sentimentalist who
inherited his utilitarianism from
Francis Hutcheson
His political economy resulted
from Hutcheson’s division of
labor.
His second book was The
Wealth of Nations
Modernity, Nominalism
and Deontology
 Adam Smith (1723-1790)
 Wrote the Wealth of Nations ( published 1776)
 He was a moral philosopher who argued that a free market
economy with a laissez faire government was the system
that ensured the greatest amount of virtue
 Those who are virtuous become wealthy
 Those who are vicious experience poverty
Modernity, Nominalism
and Deontology
 August Comte was the first
modern philosopher of
science. He was the first to
distinguish the physical
sciences from the social
sciences.
 Comte believed that the
physical sciences had to come
before the "Queen science" of
human society itself.
 Comte’s concept of positivism
is a rejection of theology and
philosophy so that science
can be effective.
Modernity, Nominalism
and Deontology
 John Stuart Mill was an
empiricist and a
metaphysical nominalist.
 He was a close friend of
Auguste Compte and an
advocate of positivism.
 He developed rule
utilitarianism.
 He wrote against
progressive taxation and
for a free market
Modernity, Nominalism
and Deontology
 John Neville Keynes was a
professor of political
economy at Cambridge
University
 Humean positivism
caused him to separate
economics from political
economy.
 It also caused him to divide
economics into three
different types: positive,
normative and applied.
Old Classical Economics
Main Ideas
 Free markets require
rationality (teleological)
 Walrasian autioneer
 Markets clear instantaneously
 Classical Business
Dichotmy- an increase in
nominal factors, like wages,
prices and hove no impact on
real factors like employment,
economic growth and the
interest rate.
Perfect Competititon Model
 Everyone is a price taker
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
(responds to price)
Ease of entry and exit into
marketplace (there are many
firms)
Perfect information (market
failure results from
assymmetrical information)
No transaction costs
No externalities (market failure
caused by spillover effect)
Modernity Nominalism
and Deontology
 Metaphysical
nominalism emphasizes
the parts rather than the
whole.
 Metaphysical
nominalism is
deontological
 There is no order, but
separate disciplines
because of positivism.
Law
Economics
Politics
Ethics
Free Markets and Virtue
 Free markets are teleological
 Free markets are consistent with natural law and virtue

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
ethics
Free markets emphasize property rights
Free markets are most consistent with democratic
republics
Free markets are against government intervention
Free markets are against inflation
Free markets maximize freedom
Free markets maximize economic growth
The Austrian School of Economics
 Carl Menger started the Austrian
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school of Economics
Most of its members assumed a
causal /realist approach to
economics
To the degree that it is realist it
is also a teleological approach to
economics
It places little importance on
mathematics because economics
is a social science
It combines law, politics, and
economic theory
Austrian School of Economics: Praxeology
 In the late nineteenth century, the praxeological
approach to economics and social science was
embraced by Carl Menger.
 The term praxeology was first applied to this approach
by the later Austrian economist Ludwig von Mises.
 Von Mises and his followers employed praxeological
principles to show that much existing economic and
social theory was conceptually incoherent.
Austrian School of Economics: Praxeology
 Ludvig Von Mises
(pronounced meesess) was
a leader of the Austrian
school of economics.
 He argued that
government control of the
economy is always vicious
 He was an enemy of all
forms of socialism and
communism
Friedrich
August von Hayek
F.A. von Hayek
(1899-1992) was a
student of Ludwig
von Mises. A
member of the
Austrian school, he
also taught at the
Chicago school of
economics. He won
the Nobel prize in
economics 1974. He
wrote The Road to
Serfdom
Austrian School of Economics:
Friedrich Von Hayek
 He argued that free markets require freedom from
government control. Free markets are compatible with
democratic republics
 He argued that inflation is vicious behavior of governments
 Hayek emphasized spontaneous order as opposed to
planned (or imposed) order, which minimizes human
freedom
 He taught his ideas to Milton Friedman and others while a
faculty member at the University of Chicago school of
economics
Milton Friedman
and Markets
Milton Friedman (19122006) was the leader of
the Chicago school of
Economics. He was
heavily influenced by
Friedirch von Hayek
He won the Nobel prize
in economics in 1977.
He was an advisor to
Richard Nixon and to
Ronald Reagan.
Chicago School of Economics:
Milton Friedman
 Friedman is in some respects a model of contradiction
 Because of Humean positivism, Friedman
subscribed to empiricism (both of which require
metaphysical nominalism)
 He argued that economics as a scientific enterprise
that must not consider normativity
 As he grew older, Friedman wrote about the political
significance of free markets.
 He argued that free markets lead to free
governments
Fresh Water Macroeconomics
Fresh Water School
Examples
 So named because of their proximity
to the Great Lakes
 University of Chicago
 Monetarism-Came about in the 1950s
and advocated monetary (as opposed to
fiscal policy). Ended in the 1970s
 The University of Rochester
 New Classical Macroeconomics(1970s) Assumes a perfect competition
model, instantaneous market clearing,
and dynamic modeling
 Real Business Cycles- (1980s) Assumes
a perfect competition model,
instantaneous market clearing, and
dynamic modeling. Emphasizes the
concept that government intervention
should be avoided
 Carnegie Mellon University
 The University of Minnesota
Free Markets
and Virtue
John Forbes Nash (1928-)
earned his doctorate in
mathematics at Princeton
University in 1950. His
dissertation title
Equilibrium Points in NPerson Games
A mathematician at
Princeton University. He
was the winner of the 1994
Nobel Prize in economics
which he shared with
Reinhard Selten and John
Harsanyi
Nash Equilibrium and Markets
 Adam Smith argued that the economy works when
everyone acts out of his own self interest
 John Forbes Nash argued that Smith was wrong
 Nash employed game theory to prove that we must act
in our own self interest, but with concern for the
common good to produce the best outcome
 In other words, both entrepreneurs and governments
have every reason to be virtuous and to act justly.
 Only when virtue and justice are exercised can the
economy be successful
Free Markets and Cycles
 The Austrian school rejects the idea that economic
cycles are an inherent part of an unregulated market.
 The Austrian school also argued that economic cycles
result from government intervention in the money
supply
 Milton Friedman and the Chicago school reject the
idea of economic cycles altogether.
 The Chicago school believes that economic declines
are more of a monetary phenomenon
 Economic cycles are nothing more than fluctuations
Free Markets
and Cycles
Louis Jean-Baptiste
Alphonse Bachelier (18701946) wrote his PhD
dissertation on The
Theory of Speculation
(1900). This work served
as the basis of the Black
Scholes formula.
He argued that
fluctuations in the market
are not the results of
regular cycles
Fluctuations in the market
follow random walks
Social Welfare Theorems
Theorems
 1. Market equilibrium is the Social
Optimum
 Market equilibrium- the point at
which demand is equal to supply
 2. Market equilibrium is Pareto Efficient
 Pareto Efficient- Given an initial
allocation of goods among a set of
individuals, a change to a different
allocation that makes at least one
individual better off without making
any other individual worse off is
called a Pareto improvement. An
allocation is defined as "Pareto
efficient" or "Pareto optimal" when
no further Pareto improvements can
be made.
Significance
 Aristotle, Augustine and Thomas
Aquinas argue that justice is the
common good.
 At market equilibrium both buyers
and sellers have sufficient reason
to exchange, thereby achieving their
own ends.
 The social optimum accomplishes
justice as the common good
 Free markets are consistent with
virtue ethics rather than
utilitarianism.
Deontological
Economic Theory
Socialism
CommunismWorldwide
Socialism
FascismNational
Socialism
Karl Marx
Karl Heinrich Marx ( 18181883) was the father of
communism. Along with
Friedrich Engels, he wrote Das
Kapital and A Comunist
Manifesto
He was an atheistic
metaphysical materialist, who
defined religion as “the opiate
of the masses.”
He was convinced that
entrepreneurs or capitalists
were immoral because they
enslaved the worker. He
endorsed a violent overthrow
of all governments urged their
replacement with
communism.
Deontological
Economic Theory
 Socialism- the middle ground between capitalism and
communism
 The state controls the means of production
 State planning leads to the common good.
 Divides the world between the owners of capital and
workers
 Fascism- national socialism is wrong because it is
limited and can only fail because of other nations.
 Communism- worldwide socialism is the best type of
socialism because there is nowhere for capital to flee
to.
Socialism
Keynesian Economics
 A deontological approach to economics
 Requires government intervention
 Compatible with socialist governments
 Allows for limited market
 Virtue is not required
 Requires some vice on the part of government
(inflation is necessary)
 Limits economic growth
 Limits freedom
Keynesian
Economics
John Maynard Keynes (18831946) student of Alfred
Marshall, was the father of
macroeconomics. He wrote the
General Theory of
Employment, Interest and
Money
Keynesian economics assumes
that there is no connection
between ethics and economics
He was a socialist who argued
that the government should
spend money to stimulate the
economy
He also believed that a certain
amount of inflation is good for
the economy
Keynesian Model
Keynesian Ideas
Monopolisitic
Competitition
 Markets are irrational- driven
 Many firms
by animal spirits
 Wages and prices are “sticky”
and markets do not clear by
themselves in the short run.
 To make markets clear in the
short run, government must
exercise fiscal policy
 Some inflation is okay
 Ease of entry or exit
 Product differentiation allows
firms to set their prices
 Firms have market power
subject to government
regulation
Keynesian Economics
Salt Water School
 So named because of their
proximity to the oceans.
 Keynesian Economics- came
about in the 1930s and 1940s
Specific Examples
 Harvard University
 Massachusetts Institute of
 Neo- Keynesians- attempted to
combine macro and
microeconomics. Came about in
the 1940-1950s

 New Keynesians- combined ideas

from the New Classical
Macroeconomics with Neo
Keynesians. Came about in the
1980s
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
Technology
University of California at
Berkeley
University of Pennsylvania
Princeton University
Columbia University
Stanford University
Yale University
The Keynesian Rejection
of Nash Equilibrium
 Keynesians note that Nash Equilibriums sometimes
appear irrational
 Keynesians ask “What if there is more than one Nash
Equilibrium for every game?”
 The rejection of Nash Equilibrium allows governments
to do vicious acts like increase inflation and spend
irrationally and irresponsibly
 This rejection is also based on the Keynesian rejection
of rationality in the marketplace
Keynesian Economics
and Cycles
 The Keynesian school accepts the idea of a business
cycle that is inherently part of unregulated markets.
 The economic cycle includes:
 Recovery- a normal expansion in economic growth
 Prosperity- (boom) an expansion that continues past
recovery, a period of extraordinary economic growth
 Recession- a contraction in economic growth
 Depression- (bust) an extraordinary contraction in
economic growth
 Government regulation can slow the economic cycle
and can avoid depressions
Economic Cycles
Economic Cycles
Keynesian
Economics
Alban William Phillips (19141975) was a professor at the
London School of Economics.
He is noted for the Phillips
Curve which supports the
Keynesian view that some
inflation is required for low
unemployment
Both Keynes and Phillips were
proven wrong during the
Carter administration (19771981) when there was double
digit inflation and double digit
unemployment (stagflation)
Communism
 A deontological approach to economics
 This atheistic system is contrary to natural law
 This system of economics requires vice because it
rejects property rights
 It also requires vice because it does not permit
freedom and only offers government control of
everything
 It is a system that is consistent with tyrannies, and
oligarchies. It is employed by dictatorships and fascist
states
Communism and Cycles
 Marxists believe that economic cycles are a problem in
all capitalist societies
 Economic cycles are caused by democratic
governments because they do not want to achieve fullemployment.
 Communist societies do not have economic cycles,
their system only moves downward. There is no upside
because government control leads only to failure
 Marxist governments desire to achieve full
employment, because they want to be a worker’s
paradise
Death by Communism
 65 million in the People’s Republic
of China
20 million in the Soviet Union
2 million in Cambodia
2 million in North Korea
1.7 million in Africa
1.5 million in Afghanistan
1 million in the Communist states of
Eastern Europe
1 million in Vietnam
150,000 in Latin America
10,000 deaths “resulting from
actions of the international
communist movement and
communist parties not in power.”
Death by Communism
 62.9 million in the Soviet Union
32.9 million in the PRC while in
power, plus an additional 3.5
million killed by the communist
Chinese before taking control
2 million in Cambodia
1.7 million in Vietnam
1.5 million post-WWII Poland
1 million in Tito’s Yugoslavia
plus a suspected 1.6 million in
North Korea
Death by Communism
Death by Communism
Conclusion: All Economic
Systems are Inherently Moral
 Free market economics are the most moral because they
demand individual freedom and virtue. Free markets result
in economic growth and political freedom
 Keynesian Economics are less moral because they limit
freedom, and encourage some vice (inflation and
government control). The result is limited economic
growth and less freedom
 Communism is the least moral of all economic systems
because it eliminates individual freedom and requires
complete government control. The result is no economic
growth and no freedom for the individual