What Plato Can Teach Economists

By James Broughel

In Plato’s classic dialogue “Phaedo,” Socrates, in the moments leading up to his death, puts forward a series of arguments for why the soul is immortal. His conclusion is that the soul will outlive the body after a person perishes, and at the moment of death, the soul is liberated as it is freed from the needs and distractions of the body. The story can be thought of as forming part of a larger, often religious body of literature that makes a clear delineation between body and soul.

Modern economists take a different view. Much of the normative approach to economics—that is, the recommendations economists make that follow from studying economics and applying an economic lens to social problems—is about satisfying people’s preferences. An advantage of a preference-based approach is that it has an air of objectivity. If one can measure people’s preferences, then analysts can, at least in part, remove their own values and biases from the equation. An economic analysis can simply answer the question, “Is this situation an improvement according to this person’s preferences?” while avoiding passing judgment on whatever the person’s value system happens to be.

A framework such as this has some obviously attractive elements. But economists should also be willing to take a step back and ask themselves whether preferences are all that matters. Socrates might say that our desires often lead us away from contemplating larger issues of “the good.” What if we are all just slaves to our passions? Should we follow our preferences then? And although there is a distinction between hedonism, which is about seeking pleasure and avoiding pain, and satisfying preferences, which is about giving people what they want, it’s a distinction without much difference in many contexts.

There is also a loose connection here to the famous invisible hand of Scottish economist Adam Smith. He argued that in certain circumstances, people pursuing their own self-interest (which could be interpreted as following their preferences) will lead to beneficial results that are not the specific intention of anyone. Implicit in this view is some notion of the good. Perhaps he was simply commenting on the wealth and prosperity that results from situations involving trade and exchange. The good, according to Smith, apparently has a nexus with wealth creation.

Plato, meanwhile, through the character of Socrates, was more ascetic in his treatment of the good. Plato’s asceticism was not fully fledged. He wasn’t an advocate of forgoing all worldly pleasures, like a Buddhist monk might be. He didn’t engage in celibacy or abstain completely from alcohol. But Socrates did seem to think these things should be kept in check and that they shouldn’t be allowed to distract the philosopher from the higher pursuit of truth. Moreover, bodily pleasures are not the only vices that can draw the philosopher off course; social pressures can provide equally menacing temptations. Indulgences of the mind, such as envy and pride, can corrupt the philosopher in the pursuit of knowledge, too.

Humans Are Imperfect

Economists have developed a toolkit that looks objective on the surface: Model preferences, measure them and then apply them in policy settings. It all appears very neat and scientific. And yet behind the veneer of scientific precision are the very imperfect value systems of very imperfect human beings. Many brilliant thinkers have rejected the notion that giving people what they want is all that matters. Even Adam Smith never claimed that following self-interest always leads to beneficial outcomes. Rather, he said that when the mix of incentives and institutions is just right, then self-interested people are led to promote a greater good.

The history of civilization shows that there are many institutional settings in which people getting what they want does not yield good outcomes. And while some medieval and religious thinkers undoubtedly went too far toward the ascetic, any notion that all we should do is give people what they want goes too far in the opposite direction.

Modern economists more than anyone should recognize a basic problem in their logic. Economists are, after all, trained to recognize when markets fail due to misaligned interests. When the price system is absent or functioning imperfectly, it is unable to coordinate the activities of different peoples, whose preferences are more often in conflict than in harmony.

When Socrates drank the hemlock, he was not afraid of what would follow because he believed that his soul was immortal and that the next stage of his development would bring him closer to the truth. Economists have taken a very different approach, one explicitly tied to worldly affairs and to the satisfaction of preferences in the moment.

This is not all bad of course. There was considerable ignorance in many social arrangements and conventions in the past. But an economist who knows only the tools of modern economics is likely to eventually find himself in a difficult position. He should not be surprised if at some point his tools of the trade leave him ill-equipped and caught off guard. It’s exactly the kind of folly that Socrates might find altogether ordinary and to be expected because it is a folly that ultimately stems from being human.