Principle of Efficiency, & Morality

Principle of Efficiency and Morality

The principle of efficiency is an important concept that we hear about primarily when we hear that "the market is efficient". I think that in terms of the stock market this implies that there exists transparency and everyone has the same information. In the matter of morality it is often used to illuminate the concept of distribution as it relates to matters of justice.

The web site http://oak.cats.ohiou.edu/~piccard/entropy/rawls.html provides an outline of John Rawls book "A Theory of Justice". In this outline the author provides this account of the meaning of "The Principle of Efficiency":

"Rawls adopts the concept of efficiency that is associated with the name Pareto in the field of economics. It is perhaps most easily described in the negative:
No system can be called efficient if there is an alternative arrangement that improves the situation of some people with no worsening of the situation of any of the other people.
In general, there are many arrangements that are efficient in this sense. Not all of them are equally just; other principles of justice must be invoked to select the most just arrangement."

A graph is the best way to visualize the meaning of this concept. Imagine a standard two dimensional X-Y graph with X being left to right and Y being the vertical axis. Draw a convex line connecting equal length on both axis. The line represents the distribution of commodities in an efficient market. X and Y share in the commodities as shown by this line. If X gains Y loses and vise versa.

Efficiency is considered to be an instrumental matter and is an objective determination based on reasoned consideration without subjective bias. Any point on this line is a point of maximum efficiency; it is the best that is possible based on objective parameters alone.

Human rationality is very good at developing the most efficient way to accomplish a given task. Our technology is one example of our capacity to accomplish instrumental matters, i.e. matters concerning the most efficient means for reaching a proscribed end.

On the other hand we are very weak at determining matters requiring communicative rationality. Communicative rationality is that rationality focused on subjective considerations when human values are involved rather than concrete objects. We are good at developing the best means for an end but we are not so good for determining the end to be sought. The determining of ends, i.e. values is where morality enters into the equation.

On our imagined graph anything on the efficient line is best if efficiency is the only parameter of consideration. If other parameters are important then the area onto which the point of distribution occurs is southwest of the maximum efficiency line.

A theory of justice is required for us to understand how to pick that point SW of efficiency. The SW point is dependent upon our set of values and how well we understand such matters and how much we care about such matters.