Via Government’s Fiscal Policy and Regulatory Oversight, Ethical Values Shape Monetary Value

By Michael Hoexter

There is no unified theory in our popular understanding of value: there are the market values of goods and then there are our “values” which we consider to be some of the most personal and even sacred aspects of ourselves.   Once people emerge from the realm of necessity or being driven by what seems to them to be compulsions of various kinds, they may feel that they are then making decisions which draw to some degree on their ethical or personal values.   People often have the impression that most of their financial dealings have little to do with their personal ethics; the realm of market interaction is viewed for the most part as an area of life controlled by forces outside the self or motivated by our insistent drives for self-preservation and pleasure.  There are exceptions: people of often modest means give money to religious organizations, as a way to express something of their ethical values or at least the ethical values that are expected of them by their religious community of reference.  And wealthy people will tend to use some of their substantial discretionary income to make an ethical statement directed by some combination of personal commitments and the desire to make a public statement about themselves.  Alternatively, if someone controls a business or a portion of a business, they may express personal values by the way they conduct themselves in that business or by strategic decisions they may make, with the important proviso that the business must maintain its solvency.

In civil society, many people attempt to express some of their personal values via politics, in which, often though not always, a clash of different conceptions of “the good” confront each other.  There are ethical ideals embedded in political ideas which unfortunately are not discussed openly enough or publicly enough discussed.  People donate to political groups and causes as a means to express their personal values, again, beyond and above the market value of the goods and services they buy every day.

In the last few decades, when discussions have turned to the relationship of ethics and economics, the focus has been on the influence of individual ethical choice within the realm of microeconomics:  producing more ethical forms of consumption and influencing market choices of consumers and businesses by introducing various price signals, making them act as, in appearance, more ethical individuals via policy-driven self-interest.  Ethics is thought to operate here on an individualized level: that the summed decisions of individuals or individual businesses will yield a socially “better” outcome, whether via internal compulsion or helped by social policy.  The method of action of most climate change policy is exactly this reliance on “market-based” mechanisms which will cause lower carbon products and services to outcompete products and services, that emit more carbon emissions, occurring within an assumed all-encompassing market.  Business economics and marketing have also noticed the segment of ethically driven purchases or at least those that are sanctioned by a hand-wave to some ethical value:  goods and services can be marketed to appeal to some combination of the appetites and desire for ethical probity in various admixtures depending on the product, marketer and market.

These microeconomic approaches to the intersection of ethical values and economics, which agree with the dominant neoliberal paradigm, overlook the role that ethical values play in shaping the budgeting process and law-making of government, which in turn shapes the entire economy.  In theory, lawmakers and political leaders are making decisions based on implicit and explicit sets of ethical beliefs that are often embedded in, or co-determined by, their political ideology as well as their cognitive beliefs about the polity, the economy, and government finance.   In practice, these beliefs and ideology are filtered through a process by which powerful and wealthy interest groups influence and shape the behavior of lawmakers.

If they are democratically elected, popular hopes about a politician’s potential ethical role are often why they are elected as individuals or as representatives of a political group. The persistent wish for higher ethical standards occurs in the electorate, despite the fact of varying degrees of corruption, both, legal and illegal, which will influence, beyond professed beliefs, the effective expression of political leaders’ ethics in laws and government actions.  Strange as it may seem in our cynical age, leaders are still expected to represent and achieve “the good,” however defined by a cultural or political grouping, as well as represent that group’s better, secular selves and, therefore, the continued relevance of understanding, exploring and, of course, insisting upon ethics in politics and policy-making.  The outrage against legal and illegal corruption is based on frustrated hopes based on an assumption of a potential ethical role for political leaders.

Macroeconomic Accounting and Ethical Principles

In enacting fiscal policy and in what might be called “macroeconomic accounting,” which encompasses the budgeting process of a sovereign government as well as the justifications for budget decisions, politicians make historical compromises with, and commitments to, their ethical ideals in the form of real initiatives and operations of government.  Unlike proclamations of ethical probity and the censures of their competitors, that politicians may utter during their campaigns and during their speeches in office, the budgetary and fiscal decisions made by lawmakers are a key component of their effective morality, a morality that has, by design, enormous and differential impact on others.

Whether or not national-level politicians study or are aware of the principles of, and data from, macroeconomics, lawmakers’ budgeting activities are one of the realizations of macroeconomics in practice, therefore, the label “macroeconomic accounting” for the numerical and ethical justification of budgetary decisions.   As example, a politician might justify his or her budgeting actions as follows:

“I voted for funding this jobs program (for the good of our people) because of persistent unemployment”


“I voted to fund this defense authorization because our people are threatened by this foreign power”


“I voted to fund this road building project to enhance the competitiveness of our region”

Numerical analyses may be brought to bear on, either, the rationale or on the budgeted amount for these particular expenditures (or levies), but ethical justification is, either, prior to or, more cynically, must be applied post-hoc to these fiscal operations.  A combination of ethical and monetary valuation intersects both in the qualitative choice of a budget line item as well as in the quantitative amount of that expenditure.  These valuations may, to a lesser or greater extent, be a “front” for non-transparent political dealing and interest group influence, depending on how corrupted the legislative process is. 

The neglect within the past three decades of macroeconomics within academic economics is particularly problematic given that without the support of a vibrant macroeconomics, the decisions of government with regard to fiscal and monetary policy are more subject to political fashion and corruption by powerful private interests.  Whether they like it or not, national-level politicians are engaged in practical macroeconomics in spite of themselves.  The identification by some right-wing politicians of macroeconomic principles with a “left” political tendency and, therefore, dispensable, is a sign of agnotology, the celebration of, and production of, ignorance to distract from or obscure knowledge.  Through ignorance, chosen or otherwise, politicians have a much greater chance of doing very significant social and economic damage and also of being manipulated by special interests.  Political opposition to there being a macroeconomics in the first place, opens the door to more corrupt influence by the wealthy and powerful.

Monetary sovereignty within a non-convertible, floating fiat currency system gives politicians a greater capacity to realize ethical ideals as well as concrete objectives via fiscal policy and also enables them to address and at times remediate specific macroeconomic challenges, such as unemployment, poverty, or lagging effective demand.  The fiat currency allows politicians to focus budgeting decisions on those decisions’ future impacts on society and the economy, not on the arbitrary relationship between taxes collected and expenditures, which is irrelevant to the mechanics of currency-issuing government finance.  Rather than traditional balance sheet accounting, monetarily sovereign governments with a floating non-convertible fiat currency are engaging in the different, but related, activity of macroeconomic accounting.  The previous gold-standard or metal based currencies forced politicians to focus on limitations in financial resources from the side of the government, tending to lead to policies that favored those in society who already had access to either personal or corporate sources of liquidity, from which they gain differential advantage.

A fiat currency system enables government to create and deploy financial resources in anticipation of emerging societal needs.  The deployment of these newly created financial resources builds real resources that serve existing and new social or environmental challenges, not addressed or ineffectively served by private market actors.  A fiat currency allows political leaders to exercise a relative independence of the wishes of the ruling financial and business elites, which in a hard currency system would possess greater influence.  In a metal-standard or, in austerity’s faux metal-standard currency regime, fiscal policy tends to represent the interests of stored “old” money that has already circulated in the private sector and that in larger than average proportion landed in the bank accounts of the already wealthy.

Because of its financial power, the fiat currency system is also an attractive object for powerful private interests to seek to control.  The austerity drive, though it holds up an outdated vision of the currency system, might actually be seen as an attempt to sequester the benefits of government’s fiat currency system for use by the already wealthy and powerful, in particular the financial elite.

The Creation of Value Via Fiscal Policy

The financing of unique public goods, like the military, judicial system, schools, infrastructure, and cultural institutions by governments, is the central, patently obvious, way that the ethical orientations of political leaders shape monetary value.  This the heart and primary rationale for fiscal policy at all, with the government supplying the infrastructure, broadly construed, for society and for markets.  These public institutions are the prerequisites for a complex modern civilization to exist.

As the relentless 35-year attack on government as an institution has called government’s provision of these services in question, it makes sense to rehearse what are the (interrelated) ethical principles from which such a fiscal policy would spring:

1)    Ethical commitment to the integrity and continuance of the national community (with international interdependence, increasingly some commitment to the community of nations)

2)    Ethical commitment to the future and future generations (not only specific individuals or one’s own family, but a generalized commitment)

3)    Ethical commitment to truthful data collection and analysis of challenges facing the nation, the economy, and the planet

James Buchanan’s public choice theory, which consciously and unconsciously has been the trend in the philosophy of governance over the last few decades, claims that these ethical commitments are illusory and impossible, as political leaders can only be expected to be individual utility maximizers.  The reality of humanity is different than the neoclassical economic theory upon which Buchanan based his political theory: people are both self-interested and community-minded in different measures, the latter of which Buchanan’s theory ignored.  Now, we are faced with re-establishing the obvious, that a deontological ethical commitment to the common good is, both, possible and desirable, to create an environment in which politicians can once again have alternatives to institutionalized corruption.

Once a unique public good or project is funded, the goods and services that are required to execute that project immediately acquire a monetary value that previously did not exist.  Teachers need to be trained, for instance, or less felicitously, military equipment needs to be invented and manufactured.  The government, whether “Big” or smaller, introduces into monetary circulation various “goods” that previously were assigned no or very small value at all.   This funding would not have come to pass without political leaders’ ethical commitments to the continuation of civilization in a particular form.  The spending then circulates through the private economy via payments to government employees and government contractors, money which in turn “feeds” the private economy more generally, as it is spent again by businesses and individuals.  Spending on unique government programs also shapes the private economy to, in part, serve public purposes by, for instance, inspiring young people to be teachers, soldiers, etc.

Sustaining Ethical Values Via Fiscal Policy

Not only does fiscal policy bring into existence unique institutions, goods, and services, but it also works as a supplement to sustain and realize ethical values that would otherwise become marginalized or disappear because of a lack of funding for them.  Various social support programs like Social Security and Medicare in the US are examples where fiscal policy realizes the ethical value of caring for the elderly and sick in a society where such care is delivered in part via monetary exchanges rather than via the (unpaid) work of extended family members.  There are more extensive supports for sustaining traditional and existing values via fiscal policy in some of the European social democracies, in particular in Scandinavia, than there are in the developing world and in the US.

Throughout the history of developed capitalist societies, poverty and vast social and economic inequality have been diminished by government provision of pensions and social insurance.  The right-wing has generally scorned these efforts, holding out the ideal that individual households might be able to provide the necessary care for their members via sufficient income and saving.  The ideal of household self-sufficiency has been realized only by the lucky few, either, by fortunate circumstance or by much greater than average accumulation of monetary wealth.  The monetary nature of providing care and self-sustenance has, then, in many instances required government to supplement private provision or, in some instances, to replace private provision with public provision of care.  When faced with the reality, the right wing has tended to cling to the ideal of family autonomy and sufficient private means, rather than recognize the role of government in large-scale civilization in realizing ethical values associated with mutual and trans-generational aid.

The Paradoxical Effect of Taxation on Value

Another obvious way that societal ethics shapes monetary value is via differential taxation of various monetary streams and products, social “bads” and “goods.”  When “sin” taxes are added to products that are considered socially or environmentally damaging, they reduce consumption of these products on the whole.  Paradoxically, the high tax may tend to make people value individual units of the “bads” more, while at the same time reducing use of the “bad.”  The effect of the taxation, then, on subjective “value” may, either, reduce or increase the attractiveness of the object or activity to which it is applied, even if the desired macroeconomic effect is achieved.  If sin taxation is uneven or not shared across multiple jurisdictions, for instance in the case of alcohol, the avoidance behaviors against the higher tax rate can produce their own social “bads,” such as cross border forays to consume or purchase that may lead to accidental death or acute alcohol intoxication.

Tax incentives reverse the process and add value by subtracting taxes from an overall tax bill or from a particular good or service.  Differential taxation increases the value of “tax-free” or lower tax alternatives to the good or activity that is taxed.  In the United States, renewable energy has been incentivized largely by tax credits.  Tax incentives also drive charitable giving in the US.  Again, ethical values of what is “good,” as determined by the political process, have shaped tax policy for good or ill, depending on one’s perspective and analysis.

Lawmaking and Law Enforcement Shapes Monetary Value

Laws and regulations can be considered to be a subset of rule-based (deontological) ethics, so, in themselves, express something of the ethical ideals and strictures of the community.  Beyond the obvious fact that the legal-regulatory functions of government employ people and are, therefore, an economic activity, the regulatory oversight function of government shapes perceptions of value within the private sector.  The US Clean Air Act and Clean Water Acts and their enforcement, for instance, brought into being the business of designing and manufacturing pollution controls as well as various environmental remediation services.   Similarly, regulatory oversight of businesses leads those businesses to place value upon compliance with laws, at least to the degree to which they can escape sanction.

Of course, regulations, especially if designed or enforced in a way that is cumbersome or contradicting the ethical intent behind the law, can also create a new or re-energized industry for evading or minimizing the impact of the law’s intent to save costs.  The success or failure of a regulation might be measured by the proportion to which the regulated spend money to comply with the law, rather than how much money they spend in minimizing or escaping the law via legal or illegal means.  There are segments of contemporary society where effort expended at circumventing laws is considered to be a mark of being a “real person” and following the law to the letter the sign of a lack of imagination or foolishness.

In Austerity, Lawmakers Commit to a False Ethical Object

The austerity campaign still popular in Washington and in other capitals despite disastrous economic results has developed a political following, in part, because it seems to promise to politicians the appearance of virtue.   If they follow the directives of the leaders of the austerity campaign, they think, they will appear to be virtuous managers of a limited financial resource and, like potential borrowers to a private bank, attract favorable borrowing conditions and loans in the future.  They think of themselves, like business owners and heads of household, to be “saving” money, a financial resource, for the future.  In other words, lawmakers under the influence of austerity are choosing, as they may have in their private lives, a conception of “saving money” as the ethical object through which they are preserving resources for future generations.

For lawmakers at the national level with a fiat currency-issuing government, choosing saving money as the primary ethical object to which they should commit their efforts leads, in most circumstances, to an abandonment of economic and ethical duty.  The fiat currency-issuing government cannot run out of its own currency; and the focus on limiting its supply leads to economic disasters wherever it has been tried.  The primary ethical commitment of lawmakers should be to mobilize to an optimal degree real resources via the government’s financial technologies:  their primary ethical concern should be the welfare and state of the people and the real resources that enable a flourishing of the civilization in which they govern.  Choosing to conserve the virtual financial resource of money as the measure of success and failure of government is, both, economically naïve and a misplacement of ethical focus.  The financial role of the national government, serving the public purpose and supplying liquidity with a counterbalancing eye on inflation and relative currency valuation, is entirely misrecognized by those who hold up the ideal of budget-balancing, a critical component of the austerity ideology.

In pursuing austerity, political leaders are following the trend of neoliberalism, which suggests that being a business founder and owner is the highest ethical good, compared to which the role of political leadership is considered to be a lesser calling.  Business owners must, ultimately, be committed to money-making and money-saving as a condition of survival, though they must also be committed to other goals if they are to run a business that is ethical in the broader sense of the word.   On the other hand, the fiat currency issuing government is the generator and supplier of the currency, as well as the monitor and remediator of the real world macro-economic and social-ecological conditions, that are created and/or overlooked by businesses in their pursuit of profit.  The managers of that government cannot pretend that they are business managers without doing significant damage to their people and to the future.