markets

Rational Fools: Amartya Sen’s Critique of Economic Theory

The formalizing of self-interest as an economic principle was largely the work of Francis Edgeworth. It is sometimes wrongly traced back to the work of Adam Smith. While Smith wrote about self-interest, he actually had a much, much more nuanced view of both when people would behave out of self-interest and when self-interested behavior could be good for society then he is usually given credit for. (He most certainly did not claim either that individuals are always self-interested or that self-interest always leads to optimal outcomes, and cited limits to self-interest in both Theory of Moral Sentiments and Wealth of Nations; see here, here, and here for more on the misinterpretation of Smith.

Moral Limits of Markets

Michael Sandel’s new book What Money Can’t Buy: The Moral Limits of Markets is a well-timed critique not of capitalist economics, but of the spread of economic thinking well beyond the boundaries of traditional economic issues like trading, inflation, prices, wages, etc. I just started a microeconomics course in preparation for graduate school in the fall and the textbook simply defined economics as “the study of choice.” Sandel’s thesis is relatively simple: “…we drifted from having a market economy to being a market society.