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Tuesday, September 28, 2010

Efficiency and Liberty as Value Judgements

According to Lord Acton “Liberty is the highest political end of man” if it is true that liberty is a constant goal of all political action then perhaps liberty and not efficiency should be the guiding principle of public finance. After all, economics and politics are intertwined to the point where for years people studied political economy rather than economics. It is impossible to value equally both efficiency and liberty, because where efficiency would promote government involvement liberty would always decry it. For example, in the case of a market failure the government may get involved to correct the inefficiency under an efficiency criterion. However a system with liberty as the foundational principle would avoid any government action preferring inefficiency but a free inefficiency.

Nor can a system be devised that balances liberty and efficiency achieved by government action. As Ludwig Von Mises aptly states, “when the government interferes with the market, it is more and more driven towards socialism.” Once the government begins to regulate a situation or a business more and more regulation will become necessary for the group to operate until only regulation remains in every sector, and freedom is just an ephemeral quality students read about in books. Liberty and Efficiency cannot share the throne; thrones are only designed to hold one whether it is an idea or a king. Furthermore governments cannot achieve efficiency because to do so would require an intimate knowledge of the value every individual places on a certain good.

Perhaps it is the case that times have changed and where liberty was once valued, efficiency now is the premier judgment. After all Lord Acton wrote in the 1800s. However, economics is based on the idea that the basics of human nature are fixed and that even the preferences of an individual do not vary. If human beings changed greatly every 100 years then economics would need to be re-evaluated every 100 years. This is not the case. Every new idea and thought to come from modern economics is based on the work of prior generations of economists. No one discovers everything for him or herself. If Isaac Newton recognized the work of previous scientists when he said, “if I have seen further than others, it is by standing on the shoulders of giants” then surely economists must as well. Furthermore Lord Acton is not the only person to recognize liberty as a foundational principle. Benjamin Franklin said, “those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.” People valued liberty before the writings of the father of economics, Adam Smith. For in 1776 the same year The Wealth of Nations was published the American colonists rebelled against Britain sacrificing short term security for the possibility of long term political liberty.

This is not to say that efficiency should never be used as a value judgment, but to say that there is danger in relying too much on the notion of efficiency. Not everyone is an economist and people value things differently. If everyone placed the same value on goods trade would not occur and economists would have little to study. Economists should be thankful that people do value things differently and should remember that other criterion besides efficiency do exist. The use of other value judgments other than efficiency should be evaluated occasionally to see if a principle such as liberty exists that would serve as a more universal way of studying our world. From looking at history it seems that liberty as the “highest political end of man” is a proper way of looking at the world.

Von Mises, Ludwig. Economic Policy: Thoughts for Today and Tomorrow. Auburn, Alabama: Ludwig Von Mises Institute, 2006. Web.
Lord Acton Quote from The History of Freedom in Antiquity

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