Table Of ContentON ETHICS AND
ECONOMICS
“To say I’m interested in ethics is probably just to say I’m a human being.
You’re brought up full of ethical concerns; these things are part and parcel of
life. The real issue is whether you think about ethical concerns rather than just
accept them.”
So begins a remarkable conversation with Kenneth Arrow. Part
intellectual autobiography and part exposition of complex yet
contemporary economic ideas, this lively conversation with renowned
scholar and public intellectual Kenneth J. Arrow focuses on economics
and politics in light of history, current events, and philosophy as well.
Reminding readers that economics is about redistribution and thus
about how we treat each other, Arrow shows that the intersection of
economics and ethics is of concern not just to economists but also for
the public more broadly. With a foreword by Amartya Sen, this book
highlights the belief that government can be a powerful force for good,
and is particularly relevant in the current political climate and for the
lay reader as well as the professional economist.
Kenneth J. Arrow is Joan Kenney Professor of Economics and
Professor of Operations Research, Emeritus at Stanford University.
Kristen Renwick Monroe is Chancellor’s Professor of Political
Science at the University of California, Irvine.
Nicholas MonroeLamprosis an Associate at Covington & Burling
LLP.
Praise for On Ethics and Economics
No one has done more than Kenneth Arrow to define what economic theory is
today. His story is central to the modern history of economic thought. In this beautiful
book, he has given a unique personal perspective on this great work which will be
valued for ages to come.
Roger Myerson, Nobel Laureate, University of Chicago
Kenneth Arrow changed my life when, as a math major in college, I wandered into
his course in the economics of information. The course showed me how economics
can use mathematics and other technical tools to study important issues. He won
me over and I ended up doing a PhD with him. This book should give readers
some idea of why he was so persuasive.
Eric Maskin, Nobel Laureate, Harvard University
These interviews are a true delight to read, reminding us of Arrow’s clear-headed
intelligence, marvelous good sense, and how his broad views emerge from his pleasure
in systematizing guided by ethical concern. Arrow provides cogent, common-sensical
explanations of how economies work . . . and has a keen eye for what we don’t
grasp about economies, such as the role of non-market social networks and relations
Allan Gibbard, University of Michigan
Can you imagine having a conversation with one of the foremost social and
economic thinkers in the world? Imagine no more. In this lively and engaging
book, Kenneth J. Arrow—who continues to be productive well into his nineties—
continues to enlighten us about the market economy, democracy, politics, social
choice, and ethics. Few have done more to illuminate these fields, show how they’re
intimately connected, and why the connections are so important to understand.
Robert B. Reich, University of California-Berkeley
We are indebted to Kristen Monroe for a charming interview on ethics and
economics with one of the great economists of our era. I enjoyed it thoroughly and
am sure you will too.
Thomas C. Schelling, Nobel Laureate, University of Maryland
ON ETHICS AND
ECONOMICS
Conversations with
Kenneth J. Arrow
Kenneth J. Arrow
Kristen Renwick Monroe
Nicholas Monroe Lampros
With a foreword by
Amartya Sen
Published 2017
by Routledge
711 Third Avenue, New York, NY 10017
and by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2017 Kenneth J. Arrow, Kristen Renwick Monroe, and
Nicholas Monroe Lampros
The right of Kenneth J. Arrow, Kristen Renwick Monroe, and
Nicholas Monroe Lampros to be identified as authors of this work
has been asserted by them in accordance with sections 77 and 78
of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic, mechanical,
or other means, now known or hereafter invented, including photocopying
and recording, or in any information storage or retrieval system,
without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identification
and explanation without intent to infringe.
Library of Congress Cataloging in Publication Data
Names: Arrow, Kenneth Joseph, 1921– author. | Monroe, Kristen
Renwick, 1946– editor. | Lampros, Nicholas Monroe, editor.
Title: On ethics and economics : conversations with Kenneth J. Arrow /
Kenneth J. Arrow ; edited by Kristen Renwick Monroe, Nicholas Monroe
Lampros ; with a Foreword by Amartya Sen.
Description: 1 Edition. | New York : Routledge, [2016]
Identifiers: LCCN 2015049666| ISBN 9781138676053 (hardback) |
ISBN 9781138676060 (pbk.) | ISBN 9781315560281 (ebook)
Subjects: LCSH: Arrow, Kenneth Joseph, 1921—Political and social views. |
Economics—Moral and ethical aspects.
Classification: LCC HB72 .A7677 2016 | DDC 174/.4—dc23
LC record available at https://lccn.loc.gov/2015049666
ISBN: 978-1-138-67605-3 (hbk)
ISBN: 978-1-138-67606-0 (pbk)
ISBN: 978-1-315-56028-1 (ebk)
Typeset in Bembo
by Florence Production Ltd, Stoodleigh, Devon
CONTENTS
Foreword: The Triumphs of Kenneth Arrow by Amartya Sen vii
Introduction: Chance Favors by Kristen Renwick Monroe
and Nicholas Monroe Lampros 1
1 A Life in Economics 7
2 On Ethics and Economics 89
3 The Global Economic Meltdown of 2008 125
4 Information as an Economic Commodity 163
Afterword: April, 2016 179
Appendix: The Complete Works of Kenneth J. Arrow 197
Index 227
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FOREWORD
The Triumphs of Kenneth Arrow
Amartya Sen
I feel very privileged to have the opportunity of saying a few words
about Kenneth Arrow, who is not only one of the greatest economists
and political theorists of all time, but also an intellectual of exceptional
vision, humanity, and generosity. It is wonderful that Kristen Monroe
can share with us the really interesting conversations she has had with
Arrow, covering a wide variety of subjects. The understanding of
Arrow’s thinking that we get from his answers to Monroe’s well-chosen
questions, combined with some passing remarks that Arrow makes,
animate their conversations, and make them both lively and illumin-
ating. On behalf of the readers of this engaging—and illuminating—
volume, I would like to put on record our grateful appreciation.
Ken Arrow’s genius found very early expression when he himself
was only a graduate student. His doctoral dissertation completed in
1950, which was published the next year as a book, Social Choice and
Individual Values, not only changed people’s understanding of politics
and economics, it also established Arrow as one of the foremost
social thinkers in the world. Then came a series of foundational
contributions on a wide range of fundamental problems in the social
sciences. The subjects covered by him included the rationale,
functioning and achievements of the market economy, the assessment
of risk and uncertainty (including the operation of insurance as an
activity), the role of information in general and of asymmetric
viii Amartya Sen
information in particular, and the successes and failures of business
relations and state intervention, among a hundred other brilliantly
chosen problems to which Arrow brought exceptional illumination—
transforming our understanding of them. With his general wisdom,
combined with his logical power, his mathematical skills, and his
sympathetic understanding of human relations, Arrow changed the
subject of modern economics in a truly profound way.
For over 60 years this restless analyst has produced works of
astounding importance in a variety of subjects, exploring some of the
most fundamental issues of human relationships and social interactions.
Arrow continues to be remarkably productive in his nineties. The world
has benefited so immensely from Arrow’s intellectual restlessness, it is
interesting to ask what has been driving this restlessness. I think part
of the answer can be found in the lines of the poet A.E Housman:
“my two troubles they reave me of rest,/The brains in my head and
the heart in my breast.” Both brains and heart are immensely important
in explaining Arrow’s far-reaching productivity. Certainly, Arrow’s
extraordinary analytical power and penetrating insights have given him
the capability to be so comprehensively productive. But, in addition,
his dedication to clarifying the impact and implications of human
decisions and their interactions, which can make a gigantic difference
to the richness and poverty of human lives, has clearly been a constant
motivation for Arrow.
Consider Arrow’s early results on the working of the market
economy. There is something quite remarkable in the fact that a
collectivity of individually reasoned but uncoordinated choices of
millions of people can somehow gel together to produce an equi-
librium in the market economy, and that the equilibrium in some
specifiable circumstances can achieve an efficiency that would be hard
to attain through any other means. These absolutely central results, of
the greatest importance not only to economic theory but also to the
lives that we can lead in a modern economy, came almost at the same
time as Arrow’s spectacular breakthrough in social choice theory in
his doctoral thesis, dealing with political relations and social evaluation
that are of fundamental importance to our social existence.
Foreword ix
If the subject of engagement in one exercise was the way the market
economy can function, the theme of the other exercise was the role
and reach of democratic systems and political relations. In his famous
impossibility theorem, Arrow showed how a very plausible set of
axioms for reasonable social choice can be impossible to meet simul -
taneously. This alerted social analysts to the fact that some demands
on the reasonableness of social choice that look extremely plausible
when seen individually can produce unexpected contrad ictions if they
are combined together. Arrow’s findings also led to a huge literature
on seeing how the axiomatic requirements can be altered in a way
that would allow consistent and reasonable social decisions.
Arrow’s results, dependent on powerful logical and mathematical
reasoning, were also of the deepest interest for the well-being and
compatibility of human lives in relations with each other in modern
society. Later on, Arrow would go on to investigate how the market
economy can fail badly in delivering efficient and equitable health care,
and have many other failures, which must invite supportive actions
by the state and the society. He would also make it possible for people
to understand how risks influence human lives, and how the market
for insurances may be able to help people, and why it could sometimes
fail to deliver what may be expected.
In these—and many other—far-reaching contributions on subjects
of the greatest interest to humanity, Arrow made the world around
us both better understood and better reformed. If the brains in Arrow’s
head allowed him to resolve these questions, it is his heart that firmly
committed him to take up such daunting problems—of profound
importance to our individual and social lives. It is interesting that in
answer to Kristen Monroe’s very first question, Arrow says, “To say
that I am interested in ethics is probably just to say that I’m a human
being.” It is not just modesty that makes Arrow say that ethical
concerns are “part and parcel of life”—there is a profound recognition
there that is often ignored in mainstream economics—and yet there
can be little doubt that Arrow has taken the responsibilities of being
a human being in an exceptionally engaged way.
