Why Should Social Economics have a Future?: Its Methodology of 1Course!

Before we can discuss its methodological foundations we have to have some agreement on what is social economics. I argue that there is unity within the diversity of what we call social economics. That agreement over fundamentals leads social economists to embrace, explicitly or implicitly, a methodological approach that differs substantially from the mainstream of economics.

In mathematics one must accept certain axioms, certain truths. For example, one must accept the theoretical concepts of a point, a line, and a plane. Their existence cannot be proved or disproved, but they are the beginning of understanding geometry. To put it differently: "you can't prove anything from nothing." Microeconomic theory is based on a set of axioms that are accepted by the bulk of the economics profession. Social economists differ among themselves but are united in rejecting the rational actor model derived from those microeconomic axioms. They insist that individuals are more than economic actors, they are persons who live in community, and that makes a difference..

The Association for Social Economics was founded in 1941 as the Catholic Economics Association and its journal, Review of Social Economy, first appeared in 1942. Early articles were on the application of Catholic social thought to economics and economic policy; the importance of social and ethical values; social justice and current issues such as labor relations, unions, social security, and employment in the post-war world. Solidarism was a strong theoretical strand in many of these articles. If any generalization can be made, it is that the early members "tended to reject liberalism and laissez-faire, and argued for a social market economy and an economic process embedded in the larger living context of society." (Davis 1999, p. 1038)

In 1970 the members voted to change the name of the association to its present Association for Social Economics, moving away from its primary identification with Catholic social thought and recognizing the increasingly diverse nature of its membership. While the ASE has become ever more pluralistic, including in its membership Marxian, neo-Kantian, humanist, institutionalist, personalist, solidarist, existentialist, Ghandian, and undoubtedly, other varieties of social economics, the Catholic social thought perspective remains strong. This is the tradition that I operate from and make no apologies if this paper is strongly influenced by that tradition.

Therefore, I need to explain, however briefly, what that tradition is and what are the commonalities with other traditions in social economics.

THE TRADITION OF CATHOLIC SOCIAL THOUGHT

The social encyclicals and pastoral letters-- from Pope Leo XIII's Rerum Novarum (RN) in 1891 through the U.S. Bishops' Economic Justice for All: Pastoral Letter on Catholic Social Teaching and the U.S. Economy (EJ) to Pope John Paul II's Centesimus Annus (CA)-- that form the foundation of Catholic Social Thought (CST), are fundamentally moral documents not economic treatises. The tradition of CST is rooted in a commitment to certain fundamental values-- the right to human dignity, the need for human freedom and participation, the importance of community, and the nature of the common good. These values are drawn from the belief that each person is called to be a co-creator with God, participating in the redemption of the world and the furthering of the Kingdom. This requires social and human development where the religious and temporal aspects of life are not separated and opposed to each other.

As a result of these fundamental values two principles permeate Catholic Social Thought. The first is a special concern for the poor and powerless which leads to a criticism of political and economic structures that oppress them. The second is a concern for certain human rights against both the collectivist tendencies of the state and the neglect of the free market.

Ever since Rerum Novarum, Catholic Social Thought has taught that both state socialism and free market capitalism violate these principles. State socialism denies the right of private property, excites the envy of the poor against the rich leading to class struggle instead of cooperation, and violates the proper order of society by the state usurping the role of individuals and intermediate social groups. [RN, para. 7-8; CA, para. 13-14] Free market capitalism denies the concept of the common good and the "social and public character of the right of property" [Quadragesimo Anno (QA), para. 46], including the principle of the universal destination of the earth's goods [RN, para. 14; CA, para. 6]; and violates human dignity by treating labor merely as a commodity to be bought and sold in the marketplace. [RN, para. 31; QA, para. 83; CA, para. 33-35] Pope John Paul II summarizes the thrust of Catholic Social Thought when he says: "The individual today is often suffocated between two poles represented by the State and the marketplace. At times it seems as though he [she] exists only as a producer and consumer of goods, or as an object of State administration. People lose sight of the fact that life in society has neither the market nor the State as its final purpose, since life itself has a unique value which the State and the market must serve." [CA, para. 49]

CST repudiates the position that the level of unemployment, the degree of poverty, the quantity of environmental destruction, and other such outcomes should be left to the dictates of the market. Emphasis on the common good means that the community has an obligation to ensure the right of employment to all persons [CA, para. 15], to help the disadvantaged overcome their poverty [CA, para. 19, 40], and to safeguard the environment. [CA, para. 37]

Since the primary "signs of the times" that Pope John Paul II focuses on in Centesimus Annus (the latest statement of CST) is the collapse of Communism in Eastern Europe, he emphasizes the limits to the role of the state and the utility of markets in providing incentives for production. However, this is a highly qualified endorsement as when he says the efficiency of markets in fulfilling human needs is true only for those needs which are "'solvent', insofar as they are endowed with purchasing power, and for those resources which are 'marketable', insofar as they are capable of obtaining a satisfactory price. But there are many human needs which find no place on the market." [CA, para. 34] Thus, markets do not adequately fulfill the needs of those who have little income or provide for non-marketable goods such as a clean environment and participation in the workplace. He also registers his fears that unrestrained markets result in environmental destruction [CA, para. 37], promote a soulless consumerism [CA, para. 36], and destroy the human environment needed by a community of persons. [CA, para. 38]

A review of CST shows that its focus has been on the problem of poverty and marginalization of the disadvantaged, first in the industrial countries and then of the Third World. In the last 25 years CST has expanded its concern to include the problem of too much consumption by the rich in addition to too little consumption by the poor.

While there are a number reasons to be concerned with the consumption of the rich, there are three that have become prominent in CST. First, while it is recognized that consumption spending helps people by creating jobs, excessive consumption by some individuals and nations while at the same time other individuals and nations suffer from want is considered morally unacceptable. Income spent on luxuries could have been made available to others for their necessities. Typical is Pope Paul VI's statement: "...the superfluous wealth of rich countries should be placed at the service of poor nations...Otherwise their continued greed will certainly call down upon them the judgment of God and the wrath of the poor..." [Populorum Progressio (PP), para. 49] The problem of consumption spending to buy products produced under sweatshop conditions is recognized but usually treated under the heading of the rights of workers and the obligations of employers.

Second, excessive consumption which threatens the earth's environment is also considered morally unacceptable. Pope John Paul II recently stated: "Equally worrying is the ecological question which accompanies the problem of consumerism and which is closely connected to it. In his [or her] desire to have and to enjoy rather than to be and to grow, man [or woman] consumes the resources of the earth and his [or her] own life in an excessive and distorted way." [CA, para. 37]

Third, in direct contradiction to mainstream economics' view of people as homo economicus, treating consumption as the primary goal of life-- that is, focusing on having instead of being-- is seen as detrimental to human dignity. The Catholic tradition condemns the materialist view of human welfare. In his 1968 encyclical, Populorum Progressio, Pope Paul VI wrote:

Increased possession is not the ultimate goal of nations or of individuals. All growth is ambivalent. It is essential if man [or woman] is to develop as a man [or woman], but in a way it imprisons man [or woman] if he [or she] considers it the supreme good, and it restricts his [or her] vision. Then we see hearts harden and minds close, and men [and women] no longer gather together in friendship but out of self-interest, which soon leads to oppositions and disunity. The exclusive pursuit of possessions thus becomes an obstacle to individual fulfillment and to man's [or woman's] true greatness. Both for nations and for individual men [or women], avarice is the most evident form of moral underdevelopment. [para. 19]

On the twentieth anniversary (1987) of Populorum Progressio, Pope John Paul II wrote in Sollicitudo Rei Socialis (SS): "All of us experience first hand the sad effects of this blind submission to pure consumerism: in the first place a crass materialism, and at the same time a radical dissatisfaction because one quickly learns...that the more one possesses the more one wants, while deeper aspirations remain unsatisfied and perhaps even stifled." [Para. 28] In Centesimus Annus-- marking the one hundredth anniversary of Rerum Novarum, Pope John Paul II writes: "It is not wrong to want to live better; what is wrong is a style of life which is presumed to be better when it is directed toward `having' rather than `being,' and which wants to have more, not in order to be more but in order to spend life in enjoyment as an end in itself." [para. 36]

Let us compare CST to the mainstream economic theory that is dominant in our society. In contrast to CST and most traditions within social economics, economic theory is rooted in an individualist conception of society. Society is seen as a collection of individuals who have chosen to associate because it is mutually beneficial. The common good is simply the aggregate of the welfare of each individual. Individual liberty is the highest good, and, if individuals are left free to pursue their self-interest, the result will be the maximum material welfare.

Economic theory focuses on people as hedonists who want to maximize pleasure and minimize pain.⁽¹⁾ It assumes that pleasure comes primarily from the consumption of goods and services; and that pain comes primarily from work and from parting with your income. Thus, given resource constraints, the goal of the economy should be to maximize the production of goods and services. In short, more is better.

In modern industrial economies such as ours, it is perfectly rational for people to accept a philosophy of consumerism. People have little opportunity to choose meaningful work because the nature of jobs is determined by competitive pressures. The demand for labor mobility disrupts a satisfying sense of community. And the enjoyment of nature is attenuated by urbanization and the degradation of nature resulting from industrial and consumption practices. Thus, the only thing left under the individual's control is consumption. And it is true that consumption can substitute, however inadequately, for the loss of meaningful work, community, and a decent environment. With enough income people can buy bottled water, place their children in private schools, buy a mountain cabin, and obtain the education necessary to get a more interesting job.

However, when people are surveyed about their views on what the economy should do, some surprising results emerge. For example, a study by Scitovsky (1976) found that the simple increase in the amount of consumption in the U.S. has not increased peoples' happiness.⁽²⁾ Richard Easterlin (1976) discovered that a crucial component of such an evaluation was the perception of one's relative situation Thus it would seem to be exceptionally difficult for an economy to improve its performance, for every relative gain would imply a relative loss, or no net gain! This reality and the confusion in our society between growth, which we place as a preeminent goal, and affluence, which by all standards we have clearly obtained, suggests that one of the problems of our society is to deal with "the poverty of affluence." (Wachtel, 1983) These are issues embraced by social economists but discussed warily if at all by mainstream economists.

FROM CATHOLIC SOCIAL THOUGHT TO SOCIAL ECONOMICS

In this section I argue that Catholic Social Thought and the other traditions within social economics have much in common. Ed O'Boyle rephrases Bill Waters in articulating the four premises of solidarist/personalist economics. The hard core premises are:

(1) the person is the basic unit of the economy, (2) who acts freely but within certain limits, self-interestedly but often with regard for others, and calculatedly but at times impulsively, whimsically, or altruistically, in a self-regulating economy which from time to time must be constrained deliberately in order to serve the common good⁽³⁾ and to protect the weak and the needy, (3) whose economic behavior is grounded in reason and in faith,⁽⁴⁾ changing as economic conditions change but at times reflecting moral rules and principles, predictable and unforeseeable, and knowable with mathematical certainty and empirical precision but sometimes mysterious and beyond human understanding, and (4) whose worth at times may be construed instrumentally but finally is not reducible to economic calculus because it rests squarely on the conviction that humans have a worth and dignity beyond measure. (O'Boyle, pp. 1-2 )

Thus, O'Boyle says the central differences between mainstream economics and personalist economics all involve the differences between the individual and the person.

These premises explain why the solidarist/personalist tradition within social economics sees the economic world differently and approaches policy questions differently than mainstream economics. To them:

persons are moral agents which means that by virtue of intelligence and free will they are capable of making moral choices. In economic affairs, the moral choices they make are governed by justice and caring or charity. Their behavior, therefore, reflects those kinds of choices and must be judged according to the principles of economic justice and caring or charity. To mainstream economists, on the other hand, individuals are moral agents too, but it is necessary to prescind from making judgments about their behavior in economic affairs because to achieve and maintain the status of authentic science economics must be value-free. It remains for others such as policy makers to make ethical judgments regarding economic behavior. Many in social economics openly rebel against this view, taking the position that fact and value cannot be separated and that the goal of a completely positive economics is unattainable. However, as important as justice is in economics affairs and in economics, personalist economics is much more than mainstream economics with a veneer of justice and altruism. (O'Boyle, pp. 2-3)

John Davis describes social economics as "concerned with the role and nature of social values in economics and economics life. The principal assumption of a social economic approach is that all economics is strongly influenced by social values that operate in economic life, and that all economic explanation makes (usually implicit) use of social values. Economics... is inescapably value-laden." (Davis, p.1042) He goes on to argue that the neo-classical focus on self-interest ignores that people cooperate, that they exhibit altruism and regard for others, and that they display a sense of having responsibilities and duties.

Instead of the neo-classical homo economicus, social economists focus on the whole person, sometimes labeled homo socio-economics. This enables them to utilize concepts usually excluded from mainstream economics- needs, power, equity, gender, culture, family, institutional context, among others. This focus requires social economists to incorporate value frameworks that include the use of terms such as fairness, human dignity, human rights, and the common good.

Davis says that "there is also broad commitment among social economists to communitarianism, egalitarianism, and the idea of a human-centered economy....Theoretically, social economists begin with a rejection of atomistic individualism, emphasize the whole person, and often use holistic forms of reasoning to explain the relationship between individual and society." (Davis, p.1042)

Mark Lutz describes the humanist economics tradition within social economics as built on an Aristotelian image of the individual as a social animal, that is, a person with basic material needs and an innate drive for self-realization. These basic needs and drive for self-realization are pursued as part of a community. Both "are seen as universal, although their means of gratification are culture bound." (Lutz, p.473) In addition, the person not only has a material dimension but social and moral capacities and needs.

...The person is understood as being able to overcome self-interest in being "other-directed," or responding to moral imperatives, from which also follows that, beyond the forces of selfishness and "socialization," there is also "individuation." Such a view permits the conception of a dual self...where the agent is always confronted with a choice of following his inclinations (ego self) or acting according to his or her aspirational self, that is, the kind of preferences and behavior with which we prefer to be identified. (Lutz, p.473)

All these approaches to social economics share in common the following:

1. A rejection of individual preferences (choice) as the welfare criterion. Rather they seek to understand the concrete impact on all people, particularly the poor and disadvantaged, of economic institutions and policies. Further, they see economics as a tool to better the life of persons both through policy and through enabling individuals and groups to help themselves.

2.A rejection of the rational actor model with its focus on individuals as merely self-interested economic actors. Rather they see individuals as persons with multiple interests, passions, and frequently ethically driven behavior.

3. A rejection of the formal microeconomic model and its applications because the first two points make it impossible to utilize such a formal model. As a result they are forced to utilize less formal ways of understanding an economy that is composed of embedded institutions that help shape and interact with concrete persons who have goals and desires, beliefs and passions.

The next two sections of the paper focus on the first two points above. The remainder of the paper focuses on the third point- the resulting methodological foundations of social economics. It concludes with a look at the work of Albert Hirschman as an exemplar of social economics.

SOCIAL ECONOMICS AND HUMAN WELFARE: GOALS FOR THE ECONOMY

This section looks at the rejection of individual preferences as the sole welfare criterion and the social economics belief that the economy needs to have specific goals to guide economic policy and the adoption of institutional change.

It is not sufficient to simply reject the neo-classical economics position that satisfying individual preferences, as expressed in the market, is the only measure of economic welfare. Alternatives must be proposed and developed. Let me sketch out one possible alternative.⁽⁵⁾

Many working within social economics would argue that we must broaden our view of human welfare from that of a simple consumer of goods and services with consumer sovereignty as the goal. Instead, drawing upon cross-cultural studies which have attempted to find absolute needs or needs that are expressed in a variety of societies, three components of human welfare can be specified for an economy.⁽⁶⁾

The first is what Denis Goulet calls "life-sustenance," which corresponds generally to physiological needs or basic material goods. People need the basic goods that are necessary for life-- adequate food, water, housing, clothing, education, and health care-- and an economy is successful if it can provide them.

How can basic material goods be specified? One manner is to differentiate among three types of goods. The first are necessities such as food and water. Within some limits these needs can be specified. The second type of goods are "enhancement goods," which make life more vital, more interesting, more worth living. Examples might be music, various forms of entertainment, some household goods, and so on. The third level of goods involves what are commonly known as luxury goods. Driving a Cadillac instead of a Chevrolet, buying a marble-topped table instead of a wooden one, and walking on a llama rug instead of polyester are all instances of consuming luxury goods.

We can all agree that basic needs must be met. Most believe that enhancement goods are worthy of pursuit. There is less accord on luxury goods. Traditional economics in the U.S. has claimed that individual wants are unlimited and that luxury goods satisfy wants, as do basic goods. If individuals want Cadillacs and llama rugs, and if the economy can produce such luxuries, it ought to.

A second component of human welfare is esteem and fellowship. An economy should provide a sense of worth, of dignity to its citizens. One's goods can be a measure of societal esteem, but surely there are other important elements. The institutions in which citizens work should support them physically and give them a sense of belonging and of contributing to an important undertaking. Society should have clubs, churches, or other entities which support the individual. If the family is the basic social and economic unit, as is the case in the U.S., the economy should provide support and encourage in families a sense of self-esteem that can help sustain them. Another term for this is fellowship; the economy should promote right relations among its participants, and to the extent it can, should keep life from being "nasty and brutish," while providing basic material goods to lengthen it.

For no society can function smoothly, without disruptive tensions, if there is no fellowship among its members. If no genuine concern for one's neighbors exists and if empathy for others disappears, then each small self-reliant entity (whether this be family, occupational group, or individual) will eventually withdraw unto itself and live at odds with others. No social system can prevail which endorses or engenders such self-centeredness. Even if material economic well-being were at the heart of social success, surely fellowship would be the life blood that sustains the community, the cohesion that makes one individual feel a closeness and a unity of purpose with all others in that society, whether known personally or not. Consequently, a key component of human welfare, in addition to the satisfaction of people's material needs, is the growth of widely shared esteem that yields a life-giving and life-sustaining fellowship.

This implies an element of equity among citizens. No modern society could provide esteem or fellowship which gave minimal income to most of the population, but fabulous wealth to a few families. Equity, of course, does not necessarily mean equality, but it does mean that there be some consensus regarding the justness of the distribution of wealth and income.

The third component of human welfare is freedom. However, freedom is a difficult goal to specify clearly. It obviously does not mean that all individuals may do whatever they wish, for that would be anarchy and the death of society. At its weakest, an increase in freedom means that the range of options open to the individual or the group has increased, that there are more choices available. This has its physical side in choice of goods, but it can also operate in other spheres such as the political or religious.

There are three component parts to the goal of freedom. The first, and the one which is usually at the center of much economic theorizing in the United States, is the provision of consumer sovereignty. Individuals should be able to choose the goods that they wish to consume. The second part is worker sovereignty. People must have a choice of jobs, jobs they find meaningful and that enhance their human capacities. There must be mechanisms for finding peoples' preferences on work and creating the types of jobs required. A variety of mechanisms could satisfy this need: labor mobility among jobs of widely different character, control by workers over their job situations, or provision of capital resources to laborers to allow them to establish their own undertakings. Whatever the mechanisms, this characteristic is important because work plays an important part in human development.

Third, a society must provide citizen sovereignty, a mechanism to aggregate peoples' preferences for community. What kind of community do people want? What kind of environment do they want? The concept of citizen sovereignty implies that a way to express preferences and to control communities is provided to the citizen. A number of mechanisms may be found which satisfy this requirement, in addition to the democratic voting procedures used in the U.S. One way of enhancing citizen sovereignty could be through strengthening local groups for citizen participation in decision making, e.g., parent-teacher organizations, zoning boards, and citizen review boards of police departments and other public agencies. Or perhaps local residents might participate in the operation of local industries in their areas, by electing representatives to firms' boards of directors to minimize the negative aspects of industrial production such as noise and pollution. The absence of real citizen sovereignty generates conflicts among groups in society. The reality of such conflict has been denied over the recent past, but is becoming a central element in local political debate. It can be either a destructive or a constructive force in charting the course of the economy.

In the light of mainstream economists' claims about the importance of incentives for the operation of markets, is the treatment of human welfare in social economics viable. It could be argued that this broadening of the concept of human welfare may be impossible because of: a) the way markets create a bifurcation of people as consumers/workers, coupled with the competitive pressures that force business firms to become ever more efficient; and b) the consumerism which is rooted in human greed and the workings of the business system.

Let me take the provision of meaningful work as an example. Because of competition one firm cannot improve working conditions, raise wages, or democratize the workplace if the result is an increase in production costs (The easy case is where improved working conditions are also more efficient and thus both workers and employers have an incentive to make the changes). Competition from other firms will keep the costs from being passed on in higher prices and, thus, profits will decline. The bifurcation of people into consumers/workers means that what they prefer as consumers-- lower prices-- makes what they prefer as workers-- better working conditions and wages, more meaningful work-- less obtainable. Reliance on the market as the primary decision making mechanism bifurcates the decision into separate areas. What people want as workers will not be ratified by those same people as consumers. Since competition is now worldwide, even a whole country faces difficulties in mandating workplace improvements that raise costs.

The problem is reinforced, first by the fact that millions of Americans live in poverty and consume too little not too much, and second by both human greed and the constant effort of business to promote consumption as the ultimate end of life. This creates constant pressure to reduce prices by reducing labor costs, undercutting attempts to improve the quality of work life.

Why do we accept this? The process, usually implicit, of teaching people that true happiness comes from consumption permeates our entire culture and begins at a very early age. Gintis and Weaver provide a vivid example from an old Sears Roebuck Christmas catalogue.

Sears advertised...a new doll named Shopping Sheryl. Sheryl comes equipped with a supermarket which has a rotating checkout counter, a ringing cash register, a motorized check-out stand, shelves, cart, and groceries. Sheryl is a vinyl doll which picks things up with her magnetized right hand and grasps with her left hand. We can visualize Sheryl in her supermarket, picking and grasping, picking and grasping.

This is really the final result of the evolutionary process. People have emerged from the muck and the ooze, overcome the hardships imposed by nature, built dwellings, invented agriculture, etc.-- so that our children can have Shopping Sheryl and learn early in life that the true purpose of life is consumption. (Gintis and Weaver, p. 8)

ECONOMICS AND ETHICS

Rejection of the rational actor model with its focus on individuals as merely self-interested economic actors and seeing individuals as persons with multiple interests, passions, and frequently ethically driven behavior requires the social economist to think through what that means and make clear the implications for economic research and policy making.

There are three ways in which ethics enters economics. (Wilber 1998) First, economists have ethical values that help shape the way they do economics. This builds into the core of economic theory a particular view of how the economy does work and how it should work. Second, economic actors (consumers, workers, business owners) have ethical values that help shape their behavior. Third, economic institutions and policies impact people differentially and thus ethical evaluations, in addition to economic evaluations, are important. Here my interest is in the second issue- why the simple self-interest model is inadequate because in fact human behavior is the result of more than self-interest with embodied ethics a crucial factor. This is not to deny the importance of the other two issues in social economics but rather to focus our attention on how rejection of homo economicus impacts economic investigation and methodology.

Economists recently have been thinking through the implications of one of Adam Smith's key insights: Self-interest leads to the common good if there is sufficient competition and if most people in society have internalized a general moral law as a guide for their behavior (see Evensky 1993). Smith believed most people, most of the time did act within the guidelines of an internalized moral law and that those who didn't could be dealt with by the police power of the state.

One result of this re-thinking is the recognition that (1) people act on the basis of embodied moral values as well as from self-interest and (2) the economy needs that ethical behavior to be efficient.

Hausman and McPherson recount an experiment in which wallets containing cash and identification were left in the streets of New York. Nearly half were returned to their owners intact, despite the trouble and expense of doing so to their discoverers (Hausman and McPherson 1996, p. 58). The effort expended and apparently unselfish behavior demonstrated by those who returned the lost goods may, as Hausman and McPherson assert, reflect a manifest commitment to societal norms over egoistic desires. Many researchers have found the same phenomena (Dawes and Thaler 1988; Elster, 1990; Frank 1988).

It is not solely for the sake of accuracy that economists should pay attention to evidence that human actions are guided by concerns not solely self-interested, but also because there are real economic consequences. Self-interest in a competitive environment is not sufficient to yield the common good. Pushed to its logical extreme, individual self-interest suggests that it would usually be in the interest of an individual to evade the rules by which other players are guided.

Under conditions of interdependence and imperfect information, rational self-interest frequently leads to socially irrational results unless that self-interest is constrained by an internalized moral code. A classic example is the situation where both the employer and worker suspect that the other one cannot be trusted to honor their explicit or implicit contract. For example, the employer thinks the worker will take too many coffee breaks, spend too much time talking with other workers, and generally work less than the employer thinks is owed. The worker, on the other hand, thinks the employer will try to speed up the pace of work, fire her unjustly if given the chance, and generally behave arbitrarily. When this is the case the worker may tend to shirk and the employer increase supervision to stop the expected shirking. If the worker would self-supervise, production costs would be lower. Thus this distrust between employer and worker reduces efficiency.

What constrains individuals from seeking solely their self-interest? One answer is that our tendency to maximize our material welfare at the expense of others is inhibited by a deeply ingrained set of moral values.

There are a number of approaches used to formally represent the relation between moral values and the standard utility framework of economic theory. One approach to formally incorporating moral values is to treat them as preferences comparable to preferences for goods and services. An individual's compliance with a moral norm generates a sense of satisfaction adding to the agent's welfare. Concurrently, defying a norm held as important creates disutility for the individual. This formulation appears more appropriate in modeling altruistic behavior, such as purchasing a gift for one's child, than it does for an ethical norm like honesty or a commitment like duty.

Amartya Sen (Sen 1987) has proposed an approach in which rational individuals would have both metapreferences and ordinary preferences.⁽⁷⁾ Moral values regarding fairness, liberty, and honesty among others make up the metapreference function and it in turn shapes the ordering of ordinary preferences. So, for example, a person who has a strong preference to consume grapes still doesn't buy any because of a commitment to justice for farm workers. This approach is also helpful in capturing in formal terms the internal conflict surrounding such personal choices as whether or not to smoke. An individual may simultaneously desire a cigarette (ordinary preference) and desire not to smoke (metapreference) in the first place.

Rather than conceiving of ethical values as preferences included among others in a standard utility function, or as metapreferences guiding the preference rankings of common goods, norms might also be seen as constraints on choices. As in a budget constraint, norms could be seen as externally imposing (presumably from the conscience or superego) limits on available choices. However, unlike their fiscal counterpart, norms may be violated; therefore, the limits they impose are not rigid. Also, attempts to distinguish norms-as-constraints from norms-as-preferences is often a muddy task.

Missing from the arguments of both the defenders and critics of homo economicus is what Hirshleifer (1994) calls the "dark side" of human behavior. While there is some discussion of envy and revenge as motives (Frank 1988), most economists, social or otherwise, believe that people are better than the selfish agent depicted in rational actor theory. Anderton points out that it might be closer to reality to model human behavior as both better and worse than mere selfishness. (Anderton 2001). As Michelle 11Garfinkel and Stergios Skaperdas note:

The notion of homo economicus is a bit puzzling in what it requires of a human being: he will haggle to death to get a better price, though never think about grabbing what the other person has if given the chance to do so. This is an image of well-defined ruthlessness within a bubble of sainthood. But, real human beings everywhere- from Russia, to Somalia, to Columbia, to inside U.S. prisons as well as board rooms, to name just a few places- are often so ruthless that they burst this bubble. (Garfinkel and Skaperdas 2000, p. 5)

Conflict economists see the darker side of human behavior as a general phenomenon having vast economic implications (Anderton 2001, p. 5) little explored by mainstream and social economists alike.

Clearly the view of human behavior in social economics is much richer than in neo-classical economics but that very richness of detail causes problems for economic research and policy making. The virtue of the rational actor model is that its simplicity lends itself to formal modeling and empirical research in a way impossible for the more complex models of social economics. But is there really an advantage? The next section will attempt to sort out the answer.

METHODOLOGICAL FOUNDATIONS

Unfortunately, rejection of the individual preference criterion and the rational actor model make it impossible for social economics to do the same type of research studies as mainstream economics. But so what? In fact, the empirical methods of mainstream economics utilizing the rational actor model are not that successful. The more informal methods of social economics may have much to contribute.

The 1996 American Economics Association Presidential address was given by health economist Victor Fuchs.(Fuchs 1996).⁽⁸⁾ After quoting a 1965 article by George Stigler that "the age of quantification is now full upon us" and that it will be "a scientific revolution of the very first magnitude"(p.6), Fuchs goes on to note that the revolution is still in the future: "the

shallow and inconclusive debate over health policy in 1993-94 contradicts (Stigler's) expectation that this research would narrow the range of partisan disputes and make a significant contribution

to the reconciliation of policy differences."(p. 6)

There are many other examples of contemporary social issues, and the policies to address them, whose resolution seems immune to the insights claimed by the social sciences: environmental disputes ranging from the northwest salmon to the Utah wilderness, welfare reform, in particular the treatment of teenage welfare mothers, or even the inheritability of intelligence with all of its racial and social darwinist implications. Does the continued intransigence of social issues and the stubborn intractability of social policy imply that all of the developments in data collection, data storage, and data analysis have come to naught, that the age of quantification is a bust and that the millennium should see social science move in a different direction? I don't see that as the appropriate conclusion, though I see the problem as a real one. And I think social economics has something to add to the solution.

I believe that social science and empirical investigation can make important contributions to our understanding and resolution of policy issues, but only if we are clear on the nature of social science and the role of theory and quantification. In particular we must recognize the limits of our truth claims, their communal nature, and the possibility of their being utilized to

serve vested interests. We must then be very clear about our potential contribution and must educate our students and the public about what we can offer. Finally, I think that we must find ways of making our basic data and analyses more understandable so the public is better able to join the policy debates.

The Nature of Social Science: Rhetoric. Fuchs offers three possible explanations for the

unsatisfactory state of affairs he describes: that health economists cannot agree among themselves, that the results were not disseminated adequately to influence policy, and that differences in values could not be bridged by empirical research. He developed a questionnaire to examine the issue and concluded that on "positive (i.e. logical positivist) issues," there is substantial agreement among health economists (seventy-two percent gave the same answer to his seven positive questions). There is less (thirty-four percent) agreement on "policy-value" questions. So he concludes that value differences account for the irrelevance of economic analysis to the health care reform debate, though the inability to convince policy-makers about the "positive" results also contributed.(p. 15)

Fuchs settles comfortably into the mainstream understanding of what economists do and even quotes its central document, Milton Friedman's, Essays in Positive Economics (1953). It is based on a distinction between positive or scientific statements by economists and normative or value-laden statements. That seventy-two percent of health economists agree with Fuchs on seven propositions is taken as evidence of the possibility of positive economics, i.e. that economists can solve social and policy issues in the degree that they can succeed in attaining positive scientific results.

Let me suggest that there is a different way of understanding the very real problem that Fuchs highlights. It starts again from a particular understanding of the nature of economic science, in this case that economics is a form of storytelling that uses "rhetoric" to arrive at conclusions whose status and limitations can best be understood within that context. Let us examine this approach.

In an important article in one of the central journals of the economics profession, McCloskey (1983) argued that economics is best understood as a form of argumentation or persuasion rather than the value-free scientific endeavor that logical positivists would have us believe. The effort does allow economists and other social scientists to "make knowledge", but it is a contingent knowledge which depends greatly on factors such as operation of the scientific community of economists, the times, the biases or ideologies of researchers, the historical development and context of the issues, and the technical capacities of the scientists. Rorty (1987) describes this as "pragmatism" and suggests that the aspiration of scientists should be to find mechanisms to bring about "unforced agreement" among themselves, rather than to reach Truth. Examination of the main economics journals indicates that McCloskey's perspective is gaining a very slow and gradual acceptance by its utilization in professional articles (Sims 1996). However, this methodological perspective remains controversial (Maki1995), and, for the most part, economists are minimally introspective about their methodology.

When economics is viewed from the perspective of rhetoric, the shortcomings of the age of quantification are not surprising. Data-based empirical analysis is only one among many approaches to persuasion/knowledge. For the Greeks the intrinsic components of an argument are the proofs and the canons or principles. (Covino and Jolliffe 1995) For Aristotle, data are "extrinsic" to making an argument, i.e. not an inherent part of the process. As Crowley(1994) notes:

Ancient philosophers seem to have had a clearer understanding of the limited usefulness of empirical facts than moderns do...Perhaps because of their skepticism about the nature of facts, ancient rhetoricians were equally skeptical about the persuasive potential of facts. Aristotle wrote that facts and testimony were not truly within the art of rhetoric...He considered extrinsic proofs to be outside of the art of rhetoric because a rhetor only had to pick them up and display them to an audience. (p. 6)

Making a convincing argument, on health care reform for example, becomes much more complex in this framework. Data and quantitative analysis can play a role, one which has certainly increased in importance since the nineteenth century. But many other elements enter into any research, influence what is accepted as true, and determine what is persuasive in policy. Indeed, much of McCloskey's original article is concerned with illustrating how metaphors, appeals to authority, analogies, etc. are immanent in good economic argument.

To understand how we might approach data and empirical analysis differently to increase its salience in arguments on social policy, let me illustrate by placing the discussion within a broader context of methodological issues.

Storytelling: Mainstream economists claim to explain an event by logically deducing an hypothesis as a specific instance of a more general law and then subjecting it to empirical verification. More often than not the final outcome of the use of formal models is that those methods fail to generate the hoped for results, and the investigators end up engaging in what has been called "storytelling." (Wilber 1999b) Economists tell a variety of stories-- some more plausible than others. Some take their logical models and tell a story about a world of perfect competition: Institutions are characterized by smallness, everyone is driven by self-interest, and all problems are frictions, externalities, and other "sociological penumbra." Other economists prepare econometric studies, "massage" the data on the basis of other information, vary the auxiliary hypotheses to paribus the ceteris, develop ad hoc explanations, and then compose a story about what happened.

The use of the term storytelling is not meant pejoratively. Rather it is an accurate description of most work in the social sciences. One benefit of formalism is the pressure it exerts for systematic storytelling. The introduction of linear programming models led to the systematic collection of data and the model itself functions as the outline of the story one wants to tell about optimizing economic agents. The problem with this type of storytelling is that it is not grounded in concrete reality. It is about optimizing agents wherever and not about some specific situation.

Social economists, like their institutional economist cousins, have engaged in (sometimes explicitly but usually implicitly) a special form of storytelling known in the philosophy of social science as pattern modeling. (Wilber 1986) Instead of using a pre-existing theoretical framework, such as rational choice theory, to logically construct a story, this type of story is constructed empirically from the bottom up through the use of case studies. This allows the social economist to introduce specific behavioral patterns instead of relying on homo economicus. Also the social economist can introduce the specific cultural and historical context that economic actors must function within.

Many of the best-known social economists-- John R. Commons, Joseph Schumpeter, Gunnar Myrdal, Karl Polanyi, Albert Hirschman-- have utilized this approach. I next focus on the work of Albert Hirschman as an exemplar of story telling as a methodology.

Albert Hirschman Versus Mainstream Methodology: A Case Study in Social Economics

Specific consideration of Albert Hirschman's methodology serves the purpose of isolating features of his method of inquiry which differ significantly from those of mainstream economics and illustrates the storytelling approach of a first rate and well recognized social economist.

The formal methods utilized by mainstream economists produce models that are capable of yielding lawlike statements. These formal laws are not empirical generalizations but are logical deductions that make a priori statements about necessary connections between abstract entities. Hirschman recognizes that formal methods often fail to explain the nature of social reality. Thus he has engaged in the task of developing his own explanation of social phenomena, the nature of which has ruled out other than incidental use of formal methods.

His approach looks behind such abstract variables of mainstream economics as savings, investment, competition, utility/ profit maximization and efficiency to the attitudes and behaviors of real economic actors and to the institutional environment in which they must operate. He focuses on what in their circumstances leads people or firms to save or invest. For example, traditional growth theory talks about the effect on output of changes in capital/output ratios or saving rates. Hirschman wants to know what causes the mobilization of savings, capital, and labor. Thus he is necessarily drawn to look at social, political, and cultural factors as well as purely economic variables and to tell a persuasive story about them.

Hirschman's work has stimulated debate and research across a wide range of disciplines--sociology, political science and economics. How he has gone about researching questions, developing ideas and extracting conclusions from a lifetime of observation and reflection can tell a great deal about why he has had such a broad influence. I am interested not so much in what Hirschman wrote, although that certainly is important, but in how he constructed his particular explanations of social issues.

Hirschman as Participant-Observer. His exploratory method used in constructing explanations can best be described as participant-observer analysis. In the preface to The Strategy of Economic Development, he describes his role as a participant-observer:

I was engaged primarily in an attempt to elucidate my own immediate experience in one of the so-called underdeveloped countries. In the course of this attempt, the various observations and reflections I gathered began to look more and more like a common theme. So I undertook to discover this theme and then used it in reinterpreting a variety of development problems (Strategy, p. v).

The book distills the observations Hirschman made while working as a consultant to the Colombian government in 1952-56. He went to Colombia as a relative newcomer to the field of Third World economic development, though he had six years (1946-1952) experience working on the reconstruction of Europe for the Federal Reserve Board. As he says in the World Bank retrospective:

When I returned to the U.S. after four and a half years' intensive experience as an official adviser and private consultant, I began to read up on the literature and discovered I had acquired a point of view of my own that was considerably at odds with current doctrines (Rival Views, p. 5).

In describing his approach to observing Colombian development patterns Hirschman relates that:

my instinct was to try to understand better their patterns of action, rather than assume from the outset that they could be "developed" only by importing a set of techniques that they knew nothing about (Rival Views, p. 8).

In addition to Hirschman's obvious reluctance to impose onto Colombia ideas and norms from outside, he claimed that his purpose as an observer of Colombian development experience was to "look for elements and processes of the Colombian reality that did work, perhaps in a roundabout and unappreciated fashion" (Rival Views, p. 9). In research for Development Projects Observed Hirschman steeped himself in the experiences of eleven projects in Asia, Africa, and Latin America, and first allowed the projects to impress upon him the themes or lessons of each particular success and failure.

Hirschman constructs tentative hypotheses about the system out of the recurrent themes that become obvious to him in the course of his participation-observation. The themes are then woven into a complex, multidimensional story which includes some generalizations from observed experience. For example, in Development Projects Observed, he constructs hypotheses about the importance of latitudes or "the characteristic that permits project planners and operators to mold a project" (p. 86).

Instead of looking at these decisions from the point of view of the "objective" analyst and his optimizing techniques, our inquiry shall deal with the propensities and pressures to which decision-makers themselves are subject (p. 87).

In his detailed examination of why Nigerian railroads failed to respond to competition from highways, he attributed the problem, at least partially, to the latitude for poor performance permitted by the existence of an alternative method of transport, a theme which had been found in his observations. This particular theme is picked up later in Exit, Voice, and Loyalty to provide an explanation for the special difficulties in combining exit and voice.

Hirschman evaluates an hypothesis or interpretation by means of a process of cross-checking different kinds and sources of evidence for their consistency with the themes. One form of this contextual validation occurs when his earlier themes are elaborated on and expanded in later works. In fact, Essays in Trespassing is organized in thematic categories based on previous work, and as one reads the studies chronologically, a remarkable thread of consistency runs throughout. Exit and voice are applied in different contexts, the elements of unbalanced growth are extended, and backward and forward linkage are expanded to include consumption and fiscal linkages.

Hirschman identifies "technological alienness" and other compelling technical characteristics as additional key variables in the linkage "hypothesis." This example is important in showing how Hirschman altered his original linkage idea and expanded it to a more generalized approach. Contextual validation serves as a means of cross-checking different kinds and sources of evidence, and serves as an indirect means of evaluating the plausibility of one's initial interpretations. The technique can never produce the rigorous "certainty" espoused by formalists; it can only indicate varying degrees of plausibility. In addition, a test of a particular theme at the initial stages can never be conclusive, since later tests are likely to catch errors that were missed earlier. Consequently, Hirschman's later reflections on exit and voice reminded him that the costs of voice (i.e., in time and effort) can quickly turn into a benefit and become a "sought-after, fulfilling activity" (Essays, p. 215).

The Structure of Hirschman's Explanations. His work is further distinguished by the structure of its explanations. To use Abraham Kaplan's terminology, the structure of explanation is concatenated (linked together) rather than hierarchical, as in formal theories. Several relatively independent parts are linked together in composing his explanations, rather than being logically deduced as hypotheses from a formal theory. A concatenated explanation with its relatively independent subsections provides a many-sided, complex picture of the subject matter and much of Hirschman's earlier work appears to be composed this way. The theory of unbalanced growth, for example, links together clearly identified themes such as the scarce resource of "genuine decision-making," imbalances on the supply side, bottlenecks, balance of payments disequilibria and demand imbalances, and combines these themes to form a theory of development characterized by unbalanced growth.

Hirschman steps further outside the discipline of economics and links market forces to nonmarket forces in the unbalanced growth process, contrasting his view to that of classical economics:

Tradition seems to require that economists argue forever about the question whether, in any disequilibrium situation, market forces acting alone are likely to restore equilibrium... As social scientists we surely must address ourselves to the broader question, is the disequilibrium

situation likely to be corrected at all? It is our contention that nonmarket forces are not necessarily less 'automatic' than market forces (Strategy, p. 63).

Here, Hirschman has not only linked together economic phenomena but has also connected those economic forces to broader societal concerns and has created a coherent, multidimensional view of the development process.

Hirschman's Holistic Approach. For Hirschman there is an interconnectedness of the elements that make up an economic system with the political and social context in which they function. This vision of the social world is essentially "holistic"--in place of abstracting a part from the whole for individual study the relation of the parts to each other and to the whole is the focus of study. When he investigates the development of Brazil's Northeast, land reform in Colombia and inflation in Chile he does so, not with the tools of traditional micro and macro economics but through a detailed discussion of each country's historical, political and economic situation. Within that context, Hirschman analyzes the particular role of public policy in order "to learn something about the problem solving capabilities of public authorities in Latin America" (Journeys Toward Progress, p.1).

Hirschman has criticized the application of "economic laws" which were discovered in a developed country context to problems in the developing world. Traces of this rejection of universally applied laws can be found in his earliest works, in which he questions the applicability of the then new macro growth models of Harrod-Domar to the less developed world: "theories which, because of their high level of abstraction, [may] look perfectly 'neutral' as between one kind of economic system and another, often are primarily relevant to the conditions under which they are conceived" (Strategy, p. 29). As a result he suggests that 'the economics of development dare not borrow too extensively from the economics of growth...it must work out its own abstractions" (Strategy, p. 33).

In the remaining chapters of Strategy, Hirschman does just that: works out his own abstractions about the development process which are not based on general laws but center more on the interrelations of the many aspects of development in an entire social system. Thus, backward and forward linkages are identified as important elements of dynamic development processes that proceed in sequences or spurts of growth activity. The focus of his schema is not on macroeconomic variables but on imbalances that exist in the society and the way in which they operate to energize human action in a certain direction. The forces of development are not those that have been identified by 'monoeconomic theory' (i.e., savings rates, capital/output ratios and the like) but are powerful stimuli such as mechanisms to induce investment, "pacing devices," imbalances in supply and demand, and important social side effects of the creative role of imports in the development process.

The insights in this work are only possible through a method that rejects a rigid, disciplinary approach to development, based on universal laws, and proceeds by identifying the dynamics of development in a pattern that characterizes the ongoing processes of change in the whole society. A crucial element is the concept of interrelationship or unity. In Exit, Voice, and Loyalty, Hirschman observes the economist's neglect of the role of voice, typically associated only with politics, in response to the decline in quality of a firm's product, and he notes a similar neglect of exit (i.e., ability to leave) in the realm of politics. Analysis of the role of voice and exit in relation to the economy as well as to the body politic is undertaken, and Hirschman argues that the incorporation of both into a unified treatment of the political-economic system is vital to improving our understanding.

Some of the policy conclusions which are reached based on this unified analysis are quite striking, and run contrary to traditional economic prescriptions derived from general laws. Breaking up monopolies may not result in greater efficiency because such action could tend to reduce the role of voice in improving the firm's performance (Exit, Ch. 5). The consumers who exit are likely the ones who would ordinarily exercise the loudest voice and prompt improvement of the firm's product.

Hirschman argues that it is inappropriate to take parts of an interdependent system out of context, and indeed that such an approach leads to erroneous conclusions. For example, Milton Friedman's voucher plan for education whereby private schools compete with public education disregards the role of voice in the performance of public schools. Hirschman maintains that the first to leave the public school under such a system, at the first sign of quality decline, may be those who have the strongest voice in improving the schools' quality. Thus, the plight of public schools and the good of the general public may not be served by greater competition. The neglect of the role of voice in this case is the culprit. The whole has been broken up into its parts, and as a result the policy conclusions are questionable.

Hirschman as a General Social Theorist. Let us now turn our attention to how Hirschman builds a more general theoretical model from particular observations and hypotheses which have been tested contextually. This type of model is constructed by linking validated themes into a network or pattern and the theorist's account of a particular part refers to the multiplicity of connections between that part and the whole system. In this way the investigator attempts to capture the interactive relationship between the part and the whole system.

As the model is constructed, earlier descriptions of the parts are continually tested by how well they fit together in a pattern and how new evidence can be explained within the pattern.

For example the pattern developed by Hirschman in Strategy of Economic Development was the basis for an analysis of import substitution undertaken more than ten years after initial publication. In the process he obtained a finer and finer degree of coherence between his account of the system as a pattern of interconnected parts and the real system. However, since new data and observations are constantly evolving, the model must be continually revised and can neither be completed nor rigorously confirmed.

Looking at the historical evolution of Hirschman's writing one can see this process at work. The themes elaborated in Strategy of Economic Development show up continually in later works, sometimes in slightly revised form. An observation and its accompanying theme in early works can be the takeoff point for an entire book, as the Nigerian railway experience was the basis of Exit, Voice and Loyalty. Indeed, this is one of two "social theories" which Hirschman has developed and which have provided the framework for many others' work on social theory.

In Development Projects Observed, Hirschman tried to explain why the Nigerian railways had performed so poorly in competition with trucks even for low-value, bulky cargo on long-hauls, which is the railroads' comparative advantage. He was specifically interested in the apparent inability of railroad management to correct its most glaring inefficiencies, despite the fact they were losing customers to the trucking industry. He proposed the following explanation:

The presence of a ready alternative to rail transport makes it less, rather than more, likely that the weaknesses of the railways will be fought rather than indulged. With truck and bus transportation available, a deterioration in rail service is not nearly so serious a matter as if the railways held a monopoly for long-distance transport--it can be lived with for a long time without arousing strong public pressures for the basic and politically difficult or even explosive reforms in administration and management that would be required. This may be the reason public enterprise, not only in Nigeria but in many other countries, has strangely been at its weakest in sectors such as transportation and education where it is subjected to competition: instead of stimulating improved or top performance, the presence of a ready and satisfactory substitute for the services public enterprise offers merely deprives it of a precious feedback mechanism that operates at its best when the customers are securely locked in. For the management of public enterprise, always fairly confident that it will not be let down by the national treasury, may be less sensitive to the loss of revenue due to the switch of customers to a competing mode than to the protests of an aroused public that has a vital stake in the service, has no alternative, and therefore will "raise hell" (Development Projects Observed, pp.146-7).

A reviewer objected to the paragraph claiming that hidden assumptions were necessary for Hirschman to arrive at that conclusion. Hirschman decided to "pursue these assumptions into their hiding places" (Exit, p. vii). He found that the explanation for the Nigerian experience was generalizable and he developed that generalization into "a manner of analyzing certain economic processes which promised to illuminate a wide range of social, political, and indeed moral phenomena" (Exit, p. vii).

Hirschman has used the resulting exit-voice-loyalty model to analyze both political and economic phenomena. Exit has traditionally been associated with economics and voice with politics. Exit means to withdraw from a relationship with a person or organization--quit working for a particular employer, stop buying a particular product, stop buying an input such as steel from a particular supplier. Withdrawal from a relationship is facilitated by the existence of alternatives and economists usually see these alternatives as provided by competitive markets. Exit provides signals to the other party in the relationship that something is wrong. However, exit by itself gives little information about what is wrong.

Voice is traditionally associated with politics and has been ignored by economists. An alternative to quitting a relationship when there is dissatisfaction is to voice the complaint to the other party which provides more information as to what is wrong. Voice becomes more important as exit becomes more difficult. This is the case for families, ethnic and religious communities, and the nation. Also it is the case of those long-term relationships that one enters--husband/wife, student, member of a political party, employee of a firm.

While exit is cheap when markets provide alternatives, voice is always expensive. Exit means to withdraw from a situation, person, or organization and depends on the availability of choice, competition, and well-functioning markets. It is usually inexpensive and easy to buy or not, sell or not, and hire or fire on your own. Voice means to communicate explicitly your concern to another individual or organization. The cost to an individual in terms of time and effort to persuade, argue, and negotiate will often exceed any prospective individual benefit.⁽⁹⁾

In addition, the potential success of individual voices frequently depends on the possibility of all members joining together for collective action. This presents the "free rider" problem; if people cannot be excluded from the benefits of collective action, they have no incentive to join the group.

The problem is further complicated by the possibility that what started as a simply self-interested or even benevolent relationship will become malevolent. Face-to-face strategic bargaining may irritate the parties involved if others are perceived as violating the spirit of fair play. This can result in a response of hatred rather than mere selfishness. Collective action is unlikely if the members of the group are hateful and distrustful of one another.

Despite these problems voice plays an important role in the economy as well as the political system and voice has grown along with the rights of dissent and due process. Trade unions, consumer protection groups, consumer unions have all increased the importance of voice.

In addition the presence of loyalty--to employer, to a product, to a supplier--strengthens the role of voice. When the economic view of people as calculating self-interested maximizers is broadened to include "the pursuit of truth, beauty, justice, liberty, community, friendship, love, salvation, and so on" (Rival Views, p. 149), loyalty and voice can no longer be ignored. Thus consumers out of loyalty will continue to patronize a store in the face of falling quality and will voice their concerns in hopes for improvement, before giving up and exiting. Firms understand this and cultivate loyalty to their products. Also they seek to hear voice through market surveys of consumer attitudes toward their products.

Hirschman and many others have applied the exit-voice model to a number of different situations.⁽¹⁰⁾ A fruitful application is in Freeman and Medoff's book What Do Unions Do? (1984). Traditional economics views unions as monopsonies that raise wages of unionized workers above the competitive level at the expense of unemployment of non-unionized workers. However, in the exit-voice model, the collective voice provided by the union channels information to employers about workers' grievances and desires. This voice is more efficient than exit by individual workers because it provides the employer with more information. This reduces labor turnover-- exit--which reduces search and training costs and thus increases labor productivity. Also if the employer responds to the workers' complaints and accepts union negotiated fringe benefits, grievance procedures, seniority and working conditions, it is likely that employee shirking with its attendant supervision costs can be reduced.

The second more general social theory which Hirschman developed grew out of his attempts to understand human behavior, especially when it seemed irrational and self-destructive.

Hirschman again captured the interaction between the parts and the whole in The Passions and the Interests and in Shifting Involvements. In the former work he synthesized the thought of previous writers such as Adam Smith, John Calvin, James Steuart, Thomas Hobbes, and Bernard Mandeville. Upon this foundation he built a theory of human behavior that enriches the dominant self-interest view of human action by providing a role to the passions. The passions and the interests were seen as two counteracting forces, one of which may predominate over the other at different times. In Shifting Involvements he analyzed the role that disappointment plays in shifting collective behavior between "concern with public affairs and the pursuit of a better life for oneself and one's family" (p. 7). This theme was also part of his Essays in Trespassing where in Chapter 5 he examined the "turn to authoritarianism in Latin America". The hope of Latin Americans was much like that of the seventeenth and eighteenth century philosophers and political economists, a hope that "an expanding and industrialized economy would discipline the excesses of power-seeking and passionate politics in general" (Essays, p. 100). But, in reality, the privileged position that the "modern economy" was given led to a justification of despotism, exactly what was to be avoided. As mentioned earlier, that the economy must be deferred to meant that there was a case for constraining the actions of the ruler or for repressing those of the people. In Latin America in the 1970s, the smooth functioning of the economy took precedence over the demands of individual citizens or social classes.

Hirschman used the concept of disappointment to analyze the experience of the many popular movements in Latin America. As promised economic improvements failed to bring the expected increases in welfare, peoples' focus turned from private gain to social action. The turn to social action may be further reinforced by the "rebound effect". (Shifting Involvements 1982) As the confidence in the present government's ability to deliver improved welfare dissipated into disappointment, the promises of an alternative government become more appealing. The social action that results can often be expressed, as in Latin America, in the form of popular movements, revolutions, or coup d'etat's, depending on the extent of the collective disappointment. In Hirschman's terminology, disappointment results in exit from the private sphere into the public sphere. In this case not only is there exit, but exit is reinforced by voice as the population engages in action to make its disappointment known. In the process an ideology is formed that encourages social action to promote the common good. It would be interesting and possibly productive to apply this to the problems of economic development in the Arab and Muslim worlds.

Hirschman's thought in The Passions and the Interests, Shifting Involvements, "Against Parsimony" in Rival Views, and scattered throughout his writings provides an enhanced picture of human behavior in the social sphere. He questions the scientific pretensions of orthodox models: "Could it be that the behavioral assumptions built into them proceed from an excessively simplistic image of both human nature and the social system?" (Essays, pp. 287-88). His response to this question was to introduce a richer view of human behavior. His analysis posits a person motivated not only by self-interest, but also by passions. For example, in Shifting Involvements he demonstrated how disappointment is a key element in human behavior and citizen activities. Disappointment stimulates us to change our focus from the public to the private sphere and vice versa.

Hirschman used this change in focus or shift in preference caused by disappointment to discuss the volatility of consumer preferences. He built on the work of Harry G. Frankfurt who proposed that it is a "peculiar characteristic of humans...to form second-order desires, wants, and volitions" ( Shifting Involvements, p. 69). That humans have this ability means that, in addition to first order desires for food, leisure, status and the like, they can reflectively self-evaluate their preferences and modify them. He extended Frankfurt's work by showing how disappointment may be a catalyst in changing our preferences about preferences.

He also introduced "social facts" into the analysis. These affect the way that people, and society in general, behave. They are "facts about human social institutions, like families or businesses, and facts about large aggregations of people, like social classes, religious groups, or even whole societies which have implications for behavioral patterns" (Rosenberg, 1988, p. 113). For example:

[Each] time economic progress has enlarged the availability of consumer goods for some strata of society, strong feelings of disappointment in, or of hostility toward, the new material wealth have come to the fore. Along with appreciation, infatuation, and even addiction, affluence seems to produce its own backlash, almost regardless of what kinds of goods are newly and more abundantly marketed (Shifting Involvements, p. 46).

This passage captures many of the elements that make Hirschman a social economist. Not only does he set the stage for a shift in preferences, and allow for passions such as infatuation and for unchosen behavior such as addiction, but he also places the subject within a "social fact" such as society, thereby presenting us with a richer picture of the individual economic actor.

But the challenge to the prevailing model of economic behavior goes further. He argues that individual behavior is also shaped by values that transcend the narrow self-interest of the economic model. We must re-think our view of people as simply self-interested maximizers. Economists have made a major mistake in treating love, benevolence, and particularly public spirit as scarce resources that must be economized lest they be depleted. The analogy is faulty because, unlike material factors of production, the supply of love, benevolence, and public spirit is not fixed or limited. As Hirschman says: "first of all, these are resources whose supply may well increase rather than decrease through use; second, these resources do not remain intact if they stay unused" (Rival Views, p. 155). Of course these moral resources are not inexhaustible, can be overused and are not substitutes for self-interest but complements. Up to a point they respond positively to practice, in a learning-by-doing manner, and negatively to non-practice.

Hirschman's attempt to generalize from the facts of experience about the working of the economy as a whole and the role of human behavior within it has resulted in a fruitful theory--exit, voice, and loyalty. Traditional economists do not generalize from the facts of experience; rather, they attempt to construct models based on assumptions about how economic agents would behave if they acted rationally in their self-interest; this rationality is bounded by the competitive equilibrium model of economic theory. If one is interested primarily in how economic actors behave in fact, Hirschman's approach may prove to be more fruitful.

Conclusion

The social economists' methodology of storytelling has its limitations. First, because of their lack of precision, the use of the story's concepts- such as ethically driven behavior- must continuously be monitored by reference to observation, cases, and examples. Storytelling separated from its empirical base easily becomes loose, uncontrolled speculation. A second problem is that the impreciseness and generality of storytelling make any definitive verification of hypotheses impossible. As a consequence social economists must remember that these theories are always tentative and subject to change. Ben Ward offers a check-list for increasing the veracity of a story (p.189):

1. Are the facts and theories correctly stated?

2. Are all important facts or theories included?

3. Are there no other stories which use the facts and theories employed in the given story?

4. Are the facts and theories relevant or essential to the story; that is, can no other hypotheses be used to tell a good story about the facts?

5. Do experts in the various parts of the story believe the story itself?

6. Are values correctly stated?

7. Are all relevant values included?

The stronger is the yes to each of these questions, the stronger is the verification of the story.

From the social economists viewpoint the primary function of storytelling is to provide understanding; from the viewpoint of mainstream economics, the purpose of models is to allow predictions. Within the context of the pattern model form of story, the pattern which provides the explanation does not uniquely determine the parts. Thus, knowledge of the whole pattern and of some of the parts does not necessarily enable the investigator to predict any or all unknown parts. The explanation still explains even though it leaves open a range of possibilities. The theory of evolution explains highly specialized forms as produced by natural selection, but they are predictable only in a general way.

Use of the pattern model form of storytelling appears appropriate when an explanation involves many diverse factors, each of which is important; when the patterns or connections among those factors are important; and when these patterns can be observed in the particular case under study. Use of formal theoretical models appears more appropriate when one or two factors or laws determine what is to be explained and when these factors or laws are better known and understood than the specific instance. These formal models have their uses, even by social economists, for certain types of problems. Many of the issues social economists deal with, however, are better handled by storytelling.

I CATHOLIC SOCIAL THOUGHT DOCUMENTS. National Conference of Catholic Bishops,

Washington, D.C.

Pope Leo XIII (1891). Rerum Novarum, May 15.

Pope Pius XI (1931). Quadragesimo Anno, May 15.

Second Vatican Council (1965). Gaudium et Spes, December 7.

Pope Paul VI (1967). Populorum Progressio, March 26.

Pope John Paul II (1981). Laborem Exercens, September 14.

Pope John Paul II (1987). Sollicitudo Rei Socialis, December 30.

Pope John Paul II (1991). Centesimus Annus, May 1.

U.S. Catholic Bishops (1986). Economic Justice for All: Pastoral: Letter on Catholic Social Teaching and the U.S. Economy, November 18.

II ALBERT O. HIRSCHMAN BIBLIOGRAPHY

Books

National Power and the Structure of Foreign Trade. Berkeley: University of California Press, 1945.

The Strategy of Economic Development. New Haven: Yale University Press, 1958.

Journeys Toward Progress: Studies of Economic Policy Making in Latin America. Twentieth Century Fund, 1963.

Development Projects Observed. Washington, D.C.: Brookings Institution, 1967.

Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge, MA: Harvard University Press, 1970.

A Bias for Hope: Essays on Development and Latin America. New Haven: Yale University Press, 1971.

The Passions and the Interests: Political Arguments for Capitalism before Its Triumph. Princeton: Princeton University Press, 1977.

Essays in Trespassing: Economics to Politics and Beyond. Cambridge: Cambridge University Press, 1981.

Shifting Involvements: Private Interest and Public Action. Princeton: Princeton University Press, 1982.

Getting Ahead Collectively: Grassroots Experiences in Latin America. New York: Pergamon Press, 1984.

Rival Views of Market Society and Other Recent Essays. New York: Viking Penguin, Inc., 1986.

Articles

"On Measures of Dispersion for a Finite Distribution," Journal of the American Statistical Association, Vol. 38, No. 223 (September, 1943), pp. 346-57.

"Investment Policies and 'Dualism' in Underdeveloped Countries," American Economic Review, Vol. 47, No. 5 (September, 1957), pp. 550-70.

"Investment Criteria and Capital Intensity Once Again,' Quarterly Journal of Economics, Vol. 72, No. 3 (August, 1958), pp. 469-71 with Gerald Sirkin.

"A Generalized Linkage Approach to Development, with Special Reference to Staples," Economic Development and Cultural Change, Vol. 25, Supplement (1977). Reprinted in Essays.

"The Turn to Authoritarianism in Latin America and the Search for its Economic Determinants," in David Collier, ed., The New Authoritarianism in Latin America (Princeton: Princeton University Press, 1979). Reprinted in Essays.

"The Rise and Decline of Development Economics," in Mark Gersovitz et al, eds., The Theory and Experience of Economic Development, Essays in Honor of Sir W. Arthur Lewis (London: Allen & Unwin, 1982). Reprinted in Essays.

"The Principle of Conservation and Mutation of Social Energy," Grassroots Development (Journal of the Inter-American Foundation), Vol. 7, No. 2 (1983).

"A Dissenters Confession: Revisiting The Strategy of Economic Development," in Gerald M. Meier and Dudley Seers, eds., Pioneers in Development (Oxford: Oxford University Press, 1984). Reprinted in Rival Views.

Entries for The New Palgrave, A Dictionary of Economics (London: Macmillan, 1987). Reprinted in Rival Views.

"Exit and Voice"

"Interests"

"Linkages"

"Jean-Gustave Courcelle-Seneuil (1813-92)"

"Two Hundred Years of Reactionary Rhetoric: The Case of the Perverse Effect," Tanner Lectures in Human Values, Vol. 10 (Salt Lake City: University of Utah Press, 1989), pp. 3-31..

"Having Opinions-- One of the Elements of Well-Being?," American Economic Review, Vol. 79, No. 2 (May, 1989), pp. 75-79.

"The Case Against 'One Thing at a Time'," World Development, Vol. 18, No. 8 (August, 1990), pp. 1119-22..

III OTHER WORKS CITED

Charles H. Anderton, "Conflict Economics in Christian Perspective, Faith & Economics, No. 37 (Spring 2001), pp. 1-9.

Freek Bruinsma, "The( Non-) Assertion of Welfare Rights: Hirschman's Theory Applied," Acta Politica, No. 3( 1980)

William Covino and D. Jolliffe. Rhetoric: Concepts, Definitions, Boundaries. Boston: Allyn and Bacon, 1995.

Sharon Crowley. Ancient Rhetorics for Contemporary Students. New York: MacMillan College Publishing Company, 1994.

John B. Davis, "Social Economics: Organizations," in Encyclopedia of Political Economy, ed., Phillip Anthony O'Hara. London and New York: Routledge, 1999, pp. 1038-40.

John B. Davis, "Social Economics: Major Contemporary Themes," in Encyclopedia of Political Economy, ed., Phillip Anthony O'Hara. London and New York: Routledge, 1999, pp. 1042-5.

Robyn M. Dawes and Richard H. Thaler, "Cooperation," Journal of Economic Perspectives, Vol. 2, No. 3, pp. 187-97.

Richard A. Easterlin, "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," in Nations and Households in Economic Growth. New York: Academic Press, 1974.

Jon Elster, "Selfishness and Altruism," in Jane J. Mansbridge (ed.), Beyond Self-Interest. Chicago: University of Chicago Press, 1990, pp. 44-52.

Jerry Evensky, "Ethics and the Invisible Hand," Journal of Economic Perspectives, Vol. 7, No. 2 (Spring 1993), pp. 197-205.

Alejandro Foxley, Michael S. McPherson, and Guillermo O'Donnell, Eds. Development, Democracy, and the Art of Trespassing: Essays in Honor of Albert O. Hirschman. University of Notre Dame Press, 1986.

Robert H. Frank, "Beyond Self-Interest," Passions Within Reason: The Strategic Role of the Emotions. New York: Norton, 1988, pp. 1-19.

Richard Freeman and James L. Medoff, What Do Unions Do? New York: Basic Books, 1984.

Victor Fuchs, "Economics, Values, and Health Care Reform," The American Economic Review, Vol. 86, No. 1 (March 1996), pp. 1-24.

Friedman, Milton. Essays in Positive Economics. Chicago: University of Chicago Press, 1953.

Michelle R. Garfinkel and Stergios Skaperdas, "Contract or War? On the Consequences of a Broader View of Self-interest in Economics," The American Economist, 44 (2000), pp. 5-16.

Herbert Gintis and James H. Weaver, The Political Economy of Growth and Welfare. New York: MSS Modular Publications, Module 54 (1974), pp. 1-26.

Denis Goulet, The Cruel Choice: A New Concept in the Theory of Development. New York: Atheneum, 1971.

David Ray Griffin, ed., Spirituality and Society: Postmodern Visions . Albany: State University of New York Press, 1988.

Daniel M. Hausman and Michael S. McPherson, Economic Analysis and Moral Philosophy. Cambridge: Cambridge University Press, 1996.

Jack Hirshleifer, "The Dark Side of the Force," Economic Inquiry, 32 (1994), pp. 1-10.

Kenneth P. Jameson, Data and Social Science Rhetoric: Policy and Instruction. Presented at joint IASSIST/Computing in the Social Sciences Conference, Minneapolis, Minn., May 15, 1996.

Lena Kolarska and Howard Aldrich, "Exit, Voice, and Silence: Consumers' and Managers' Responses to Organizational Decline," Organizational Studies, No. 1( 1980)

Jean Laponce, "Hirschman's Voice and Exit Model as a Spatial Archetype," Social Science Information, No. 3( 1974)

Stanley Lebergott, Pursuing Happiness: American Consumers in the Twentieth Century. Princeton, NJ: Princeton University Press, 1993.

Mark A. Lutz, "Humanistic Economics," in Encyclopedia of Political Economy, ed., Phillip Anthony O'Hara. London and New York: Routledge, 1999, pp. 472-5

Mark A. Lutz and Kenneth Lux, Humanistic Economics: The New Challenge. New York: The Bootstrap Press, 1988.

Mark A. Lutz, Economics for the Common Good: Two Centuries of Social Economic Thought in the Humanistic Tradition. New York: Routledge, 1998.

Uskali Maki. "Diagnosing McCloskey," The Journal of Economic Literature, Vol. 33 (September 1995), pp. 1300-18.

D. McCloskey, "The Rhetoric of Economics," The Journal of Economic Literature. Vol. 21 (June, 1983), pp. 481-517.

Edward J. O'Boyle, Personalist Economics: Unorthodox and Counter-Cultural, Presidential Address, Association for Social Economics, January 6, 2001, New Orleans, Louisiana. Revised. August 15, 2001

Richard Rorty, "Science as Solidarity," in John Nelson, et. al., eds. The Rhetoric of the Human Sciences: Language and Argument in Scholarship in Public Affairs. Madison: The University of Wisconsin Press, 1987.

Alexander Rosenberg, Philosophy of Social Science. Boulder, Co.: Westview Press, 1988.

Amartya K. Sen, Commodities and Capabilities. Amsterdam: North-Holland Press, 1985.

Amartya Sen, On Ethics and Economics. Oxford: Basil Blackwell, 1987.

Tibor Scitovsky, The Joyless Economy: An Inquiry into Human Satisfaction and Consumer Dissatisfaction. New York: Oxford University Press, 1976.

Christopher Sims, "Macroeconomics and Methodology," The Journal of Economic Perspectives, Vol. 10, No.1(Winter 1996), pp. 105-20.

Ira Sohn, ed., Readings in Input-output Analysis .Oxford and New York: Oxford University Press, 1986.

Carl M. Stevens, "Voice in Medical Markets: 'Consumer,'" Social Science Information, No. 3 (1974).

Paul L. Wachtel, The Poverty of Affluence: A Psychological Portrait of the American Way of Life. New York: Free Press, 1983.

Benjamin Ward. What's Wrong with Economics? New York: Basic Books, 1972.

William R. Waters, "Social Economics: History and Nature," in Encyclopedia of Political Economy, ed., Phillip Anthony O'Hara. London and New York: Routledge, 1999, pp. 1040-2.

Charles K. Wilber and Kenneth P. Jameson, An Inquiry into the Poverty of Economics. Notre Dame, IN: University of Notre Dame Press, 1983.

Charles K. Wilber, "The Methodological Basis of Hirschman's Development Economics: Pattern Models vs. General Laws," in Development, Democracy, and the Art of Trespassing: Essays in Honor of Albert O. Hirschman . Eds. Alejandro Foxley, Michael S. McPherson, and Guillermo O'Donnell.University of Notre Dame Press, 1986, pp. 317-42.

Charles K. Wilber, "Roman Catholic Social Thought and Economic Theory: An Agenda for the Future," Review of Social Economy, Vol. XLIX, No. 4 (Winter, 1991), pp. 566-577.

Charles K. Wilber and Kenneth P. Jameson, The Political Economy of Development and Underdevelopment, 6th ed.(New York: McGraw Hill, 1996)

Charles K. Wilber and Kenneth P. Jameson, Beyond Reaganomics: A Further Inquiry into the Poverty of Economics (University of Notre Dame Press, 1990).

Charles K. Wilber, Economics, Ethics and Public Policy (Rowman & Littlefield, 1998).

Charles K. Wilber, "Holistic Method," in Encyclopedia of Political Economy, ed., Phillip Anthony O'Hara. London and New York: Routledge, 1999a, pp. 513-6.

Charles K. Wilber, "Story telling and Pattern Models," in Encyclopedia of Political Economy, ed., Phillip Anthony O'Hara. London and New York: Routledge, 1999b, pp. 1264-6.

Charles K. Wilber, "Value Judgments and World Views," in Encyclopedia of Political Economy, ed., Phillip Anthony O'Hara. London and New York: Routledge, 1999c, pp.1381-4.

1. This is not quite accurate. Many economists would say that in maximizing their self-interest people might choose to help others because it makes them feel good. But in practice economists focus on people wanting more goods and services.

2. However, for an opposing view, see Lebergott (1993).

3. Defined by Dempsey (pp. 272-273) as the fulfilment of the needs of human beings which arise from their living together, as in the case of public health, instead of each one living alone. Two characteristics set these needs off: (1) they are common to all, and (2) they can be met only through the united efforts of all members of the community acting together. The fulfillment of these common needs depends critically on each person contributing to the community because the community by itself has nothing to contribute to its members apart from what its various members contribute to it (Dempsey, pp. 219-220). Thus is the common good dependent on contributive justice.

4. Reason discovers truth from direct, personal experience; faith accepts truth on the word of another.

5. See Gintis and Weaver, 1974, pp. 1-26; Goulet, 1971; Wilber and Jameson, 1983; Sen, 1985.

6. See Goulet, 1971.

7. Also see Lutz and Lux 1988 and Lutz 1998.

8. I owe reference to this article and to the analysis that follows to my close friend and collaborator, Ken Jameson. See Jameson, 1996.

9. Exit is more difficult in Japan where the Confucian tradition is more binding. As a result, with much greater emphasis on harmony and consensus at all levels, voice is more appreciated and cultivated.

10. See Pierre Bourdieu, "An Antinomy in the Notion of Collective Protest"; Carol Gilligan, "Exit-Voice Dilemmas in Adolescent Development"; Guillermo O'Donnell, "On the Fruitful Convergences of Hirschman's Exit, Voice, and Loyalty and Shifting Involvements: Reflections from the Recent Argentine Experience"; Rebecca J. Scott, "Dismantling Repressive Systems: The Abolition of Slavery in Cuba as a Case Study" in Foxley, et al, Development, Democracy, and the Art of Trespassing. See also Bruinsma 1980; Kolarska and Aldrich 1980; Laponce 1974; Stevens 1974.