theory.”38 Arrow also considers the absence of this link as “one of the major scandals of current price theory”.39 In other words, if microeconomics is now rightly conceived, then macroeconomics should not be concerned with policy issues like full employment, need-fulfilment, and equitable distribution. The neoclassical approach of government non-intervention would then be correct. However, if humanitarian goals are to be served, then microeconomics is not built on a proper foundation. In a market economy, where the government’s role is expected to be limited, the goals hang in the air without any logistic support if microeconomic analysis fails to address the question of goal-realization.
Microeconomic analysis based on excessive individual freedom is concerned with efficiency in the Pareto sense but not in the realization of the macroeconomic goals of the humanitarian religious worldview, which requires the reining in of self-interest. Moral values are capable of helping in this task. They are tuned to the creation of social harmony by reducing the gulf between private interest and social interest and promoting the use of scarce resources in conformity with the needs of goal realization. The market is by itself unable to do this in a value-neutral environment, particularly in situations where there is a conflict between self-interest and social interest. The market cannot discriminate between the various uses of resources on the basis of their contribution to normative goals. It needs to be complemented by moral values which help orient individual preferences in harmony with humanitarian goals. Such an orientation may be difficult to attain without individual and social reform in conformity with moral values.
Keynes concentrated only on government fiscal policy. The rational expectations theory is perhaps right in drawing the conclusion that the reaction of individuals to government fiscal policy in anticipation of inflation may go a long way in generating the expected inflation and frustrating the realization of full employment. This conclusion would, however, be true only if primary reliance is placed on increased government spending, and individual behaviour continues to be in conflict with social goals. The enlarged budgetary deficit would then join hands with the consumer culture in the private sector to contribute to excessive claims on resources and stagflation.40 Fiscal policy appeared as the only solution to Keynes because change in individual behaviour and tastes and preferences in conformity with social goals, which moral values help bring about, had to be ruled out in a secularist paradigm.
Hobbes rightly argued in his famous Leviathan (1651) that self-interest knew no bounds and could push man into the greatest of excess if he strove to satisfy it. The only way to prevent him from doing so would be to make him submit to an absolute authority.41 Within the religious worldview, such authority cannot be given to human beings. Quite simply because they tend to misuse it for their own self-interest. The experience of totalitarian states has amply proved this point. Only the Supreme Being, Who has created human beings, Who knows best what is in their overall interest, and Who has no personal axe to grind, could exercise such authority in the interest of all. He has done so by sending His messengers and providing a morally-oriented worldview. Injection of this worldview into conventional economics in place of its secularist Enlightenment worldview is, therefore, indispensable.
Positive economics and normative goals are, hence, mutually inconsistent and may not be capable of coexisting harmoniously in the same analytical framework, or what Lakatos calls, “scientific research programme”.42 What conventional economics should have done is to base its microeconomics on the same religious worldview from which its macroeconomic goals have been derived so that there is harmony between the worldviews of its two major branches of study. This would have helped discussions on individual and firm behaviour that is consistent with these goals and could have enabled a strategy to bring this about.
Instead of doing this, conventional economics adopted the easier but unrealistic course of shying away from making value judgements and giving advice. A number of economists, among them Senior and the younger Mill, ruled out the giving of advice about practical problems as a function of economics, because this would require not only value judgements but also the non-economic elements of other Social Sciences.43 Giving advice based on inherently subjective and religious norms was declared outside the scope of a scientific discipline. Hence, Robbins warned the profession against recommending a particular course of action.44 The aversion to giving advice, along with the assumption that goals would automatically be realized, has unwittingly confined the method of economics to just explanation and prediction, devoid of prescription.
Positivists and operationalists like Paul Samuelson emphasize that the role of economics is to describe and explain the economic phenomena by means of testable or refutable hypotheses.45 In Samuelson’s own words: “a description (equational or otherwise) that works to describe well a wide range of observable reality is all the ‘explanation’ we can get (or need desire) here on earth ... An explanation, as used legitimately in science, is a better kind of description and not something that ultimately goes beyond description.”46 He does not show what it is that “works to describe well”. Could it be anything other than its relationship with the normative goals and their realization as long as these goals continue to be adopted by economics?
Instrumentalists like Milton Friedman emphasize that the primary purpose of economics is to predict. This raises the question of whether it is possible to make dependable predictions when so many of its epistemological assumptions are so grossly unrealistic. Friedman came to the defence of these assumptions with his controversial answer that it is not only unnecessary for assumptions to be realistic, it is also a positive advantage if they are not: “to be important ... a hypothesis must be descriptively false in its assumptions.” He further argues that “the only relevant test of the validity of a hypothesis is comparison of its predictions with experience.”47
But the problem that the instrumentalists face is that unless all relevant social, economic and political variables are taken into account, predictions may turn out to be untrue most of the time. Is this acceptable? Economists, however, have a way out of this dilemma whenever their prediction is falsified. All predictions are subject to the ceteris paribus clause, and they can always claim, without any compunction, that the ceteris paribus conditions were not satisfied. The undeniable fact is that the world economy has been subject to such great instability over the last two decades that it has become almost impossible to make reliable predictions and the predictive record of economics has been uninspiring.48 If prediction is considered to be the primary function of economics, and predictions have in general turned out to be inaccurate, then what has economics achieved? Just professional sophistication! Does this not imply that economics should take into account at least the major non-economic factors that adversely affect its predictions or frustrate the realization of its humanitarian goals?
Even if analysis and prediction are accepted as the primary goals of economic method, they need to have proper direction if they are to be effective. The goal of actualizing the socially-agreed humanitarian goals could help provide such a direction and save economics from moving aimlessly in any conceivable direction. The political decision-maker, whose responsibility it is to take decisions, is not interested in knowing just ‘what is’, as described and analyzed by the economist. He is more interested in fulfilling his commitments to the electorate whom he periodically has to face for votes. These commitments are related to the humanitarian goals which concern the realm of ‘what ought to be’. Since resources are limited, he would like to get advice on the appropriate strategy for realizing the promised goals. He may not be able to work this out himself from the ‘is’ as described, analyzed, and predicted by the economist. If economics does not come to his help, its attractiveness as a discipline for solving socio-economic and political problems declines. Is it, therefore, possible for economists to live in human society and yet refrain from giving such advice?
The most desirable task of economics may, therefore, be to focus on the realization of humanitarian goals and the policy measures needed for this purpose.