1. Introduction

Can economics identify which local cultural attitudes are universally valuable for the economic systems? A system that depends on value judgements cannot be adequately studied without including values as a factor for the operation of the system. Yet, a scientific study of values should be objective, without deterministic subjective labelling of values as good or bad. The Culture-Based Development (CBD) approach proposes that the universality of a value should be positively analyzed against its objective effect on a socio-economic output of interest.

The question about the importance of values for the existence of economies and society has been an integral part of science since its very dawn. Based on: (i) a systematic literature review covering contributions from 1677 till 2020 on economic thought on values, culture, wellbeing and welfare and earlier philosophical contributions that this economic research built on (reviewing material mainly from Jstor, Web of Science, Google Scholar and Science Direct); and then (ii) an integrative literature review that synthesizes and recombines main perspectives from part one, in order to create a new theoretical model (of value free analysis of values), CBD delivers a mixed method of systematic-integrative literature review and outlines several cornerstones in the literature of particular importance to economics as a field and fundamental for the here proposed specific CBD approach for the value-free analysis of values (see the link to the full article at the end of this entry).

Modern moral philosophy, propelled by Sen and Nussbaum’s research, calls for a return to the question of values in studying the factors for economic development [3,4,5,6,7,8,9]. Revisiting the argonauts of philosophy and sciences, Plato, and his student Aristotle, we choose to highlight here two main concepts, which are very compatible with each other. Plato (Republic 375 BC) is known for his parable of the cave, suggesting that cultural relativity of values exists due to the individual’s local bias in the perception of the pure truth. Pure truth is presented by the parable as a flame and one’s perception of pure truth is equivalent to only the reflection of this flame on the walls of one’s own ‘cave’ (i.e., one’s context). Aristotle (Nicomachean Ethics 350 BCE) suggested that a ‘golden mean’ of every value exists. Put differently, too much or too little affinity towards a particular value never leads to the most optimal behavior. Instead, an individual needs to empirically find out where the most-useful (i.e., ‘golden’) mean level of affinity to a value should be placed in order to live a really good life. Next, the father of economics as a moral philosophy, Adam Smith [10], suggested his own theory of moral sentiments, relying to a big extent on the notion of the ‘Impartial’ Spectator. In line with work by Khalil [11], the latter notion is interpreted in this study as the presence of a socially prescribed and internally monitored value system, which is in essence the outline of the cultural cave in which we are embedded. These three classical approaches to studying values have been deserted in neoclassical economics for decades.

In the 1930s, the urge for a value-free study of economics was suggested by neoclassical economists [12,13]. It was argued that utility and culture are difficult to measure and explain. It was hoped that a study of the economy as a system, operating on certain value-free mechanisms, could help reveal these mechanisms and put them in service for socio-economic recovery and development [14]. It was however, soon realized that it is impossible to mechanically separate culture from the economic mechanisms. Signals for this problem started being powerfully sent by important contributions to the new economic academic world [15,16]. The work by Herbert Simon, Tibor Scitovsky, Daniel Kahneman has pointed to the cultural- and value-dependence of the macro economics of place development and micro economics of customer behavior [17,18,19]. Yet, the cultural economics field became too diverse and internally disintegrated, and remained mostly apocrypha and muted in the majority of its contributions, ultimately evolving into a misperception that there needs to be necessarily some deep methodological divide between neoclassical and institutional (cultural) economics.

It was only in recent years that New Institutional Economics (NIE) realized and started promoting the alternative more natural thesis—that actually using a common methodological ground might be the key to ameliorating the general economic field and its understanding of culture and values.

New Institutional Economics (NIE) revolutionalized the field of institutional economics by opening its doors in a pluralistic manner to the use of empirical methods. NIE promoted the quantitative study of institutions and culture [20]. Studies building on this literature have empirically demonstrated that there is persistence and path-dependence in the process of impact by cultural institutions on socio-economic development [21]. Working on a very similar vein, one of the fathers of modern Political Economy, Alesina and Perotti [22], demonstrate how empirical neoclassical models can accommodate for the study of the impact by political and voting behavior on the economic process. The entire field of New Cultural Economics (NCE) has also generated numerous elaborate empirical studies demonstrating the various effects of cultural variables on various economic processes [23,24]. Alesina, Miano and Stancheva [25] also discuss the endogeneity of values and beliefs.

CBD is a research paradigm which defines development as a process that depends on economic decisions which are inevitably culturally embedded and biased. In this study, CBD suggests a systematic approach to value-free study of any value in three steps through: (i) establishing whether the value has a universal impact across space, (ii) detecting if its impact exhibits nonlinearities (such as Aristotle’s golden mean suggests) and (iii) explaining through Platonian cultural relativity how the universality of moral values and the presence of diverse local culturally dependent ethics can find a coherent conceptual and empirical explanation.

2.3. Platonian Cultural Bias: Subjectivity and Relativity of the ‘Impartial’ Spectator

Adam Smith himself noted that the ‘Impartial’ Spectator is prone to individual subjectivity and cultural relativity biases due to customs and social proximity (TMS, Part I, Chapter I–V; Part V, Chapter I). CBD agrees with this, by understanding it from Plato’s point of view that the true moral is an unknown ideal state of calibration of the affinity to certain values (a view that has been pointed out also in related research [99,106]. Local ethics represent only ‘reflections from the flame’ of this ideal on the local ‘cave’ of a particular time and space. Thus, CBD states that local cultural capital creates local culturally biased ‘morals’ which have been transmitted across generations through the persistence of group ethics.

CBD therefore proposes as a third step the analysis of universal values to pass through the empirical cleaning of subjectivity and positive documentation of its geographic relativity. In particular, CBD suggests that the individual subjectivity of values can be treated as individual uniqueness (see Shackle [36]) and can be cured empirically through the use of individual fixed effects. CBD has also been flagging elsewhere (see for instance [69]) the danger of ‘throwing the baby with the water’, since an under-specification of an empirical model may result due to the omission of the cultural factor and simple use of individual fixed effects. Use of fixed effects without presence of cultural explanatory variables results in inability to analyze the cultural effect on individual choice. Here, however, we recommend use of individual fixed effects in the presence of cultural explanatory variables).

Meanwhile, the cultural relativity of values and moral systems can be understood and handled in the analysis as a local (ethical/cultural) bias over the ‘fellow-feeling’ which dictates the ‘Impartial’ Spectators ‘sentimental’ reasoning (for some recent contributions on the role of feelings/emotions in socio-economic behavior, see Borowecki [107] from an economic perspective, and Nussbaum [8] from a philosophical perspective). This bias is sometimes termed in the economic literature as ‘home bias’ [108,109,110]. This cultural relativity bias has in its roots the local cultural capital and it creates nestedness of the individual observations in local cultural groups. This nestedness has to be empirically modelled accordingly in order to cure the Platonian cultural bias from identifying the impact of a value. The use of hierarchical modelling or other related methods that stochastically account for both the individual and local effects in the data are suggested to cure the Platonian subjective and cultural relativity.

Figure 1 provides a synthesis of the above proposed three steps. It depicts the logic tree behind the three steps that the CBD value-free analysis of values suggests and sums up the main rationale for each step. Implementing the three steps of the CBD value-free analysis of values can help determine whether a value has a universal socio-economic significance; whether there is some limit to its exploitation (if there is an inflection point shaping an Aristotelian Kuznets curve); and whether it is subject to cultural biases that can make the transferability of interventions with regard to this value sensitive to the context in which they are implemented (pointing precisely analytically to what structural level drives the effect in the economic system).

Figure 1. The CBD Value-free Analysis of Values—Logic Tree Diagram. Note: The figure shows the essence of each logical step in the CBD value-free analysis of values, respectively: (i) Step 1—identifying whether a value is universal or local in terms of its impact; (ii) Step 2—identifying nonlinearities in the impact from the value, or the presence of what is called the Aristotelian Kuznets Curve; (iii) Step 3—exploring the complexities of the impact from the value in terms of the individual and local levels that shape the Platonian cultural relativity of values.