Tuesday, September 17, 2019

Countering the lazy greedy person argument

On the question of human beings as being “inherently greedy” and harbouring “insatiable wants”, one needs to understand that this has not been a particularly dominant theme in the history of economic ideas – at least not in the naïve form referred to below.  It certainly appears in precursors  to the Neoclassical Marginalist revolution  like Hermann Gossen in the 1850s who had an almost fanatically religious attachment to the idea of maximising one’s self interest  (in fact, he saw egoistic impulses as a “natural law” designed by god which humans have a moral duty to conform to.)

The concept of “Homo Economicus” – Economic Man – was really ushered in or popularised by Alfred Marshall ,  a leading economist in the second generation of neoclassical economists.  However, like  the utilitarian J S Mill, he considered that self interest strictly related to the economic sphere of life and did not deny that human beings were subject to “higher motives” – altruism – in other parts of life.  Marshall defined economics as the  “study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well being

Marshall’s “Economic Man” was subjected to criticism from people like Thorstein Veblen and other humanistic economists and from then on  you find a subtle shift in the way economics approached the problem of human motives , pioneered by economists like Wicksteed and Lionel Robbins. The ends (whether these be altruistic or egoistic)  were  effectively separated and  distinguished from the means of realising those ends with economics being purportedly concerned only with the what are the most effective means by which human beings realised their ends. 
 Even someone solely motivated by altruistic  concern for others still had to make wise economic choices in order to best realise his/her objectives. In this way the caricature of the “Greedy Man”  was replaced by another caricature “Rational Man” – though one could argue that the latter is just a way of camouflaging, rather than banishing, the former. It is still “self-interested” insofar as it treats other people as a means to realising your ends rather than an end in themselves

So the basic argument becomes this – that in making economic choices we always face “opportunity costs”. If I want to go for a swim this afternoon I cannot at the same time go for a stroll in the park. The opportunity cost of my decision to swim is that I forego a stroll in the park. Similarly if a particular society wants to develop its agricultural sector, say, this may require having to divert resources from some other sector(s) of the economy and so on.  
Thus, the concept of “scarcity is built into the very definition of opportunity costs which any kind of society must face.  This is a truism but we don't think this particular concept of scarcity in any way undermines the case for socialism which depends on our ability to produce enough to satisfy our reasonable needs. In the latter case we are talking about a quite different definition of scarcity which socialists argue is no longer applicable given the development of a productive potential to sustain a socialist society

Which brings us to a final point – it might be slightly misleading to just baldly portray contemporary economics as having as its basic assumption that “people’s wants are insatiable”.  This could be misconstrued as suggesting that my particular want for something  e.g a cone of ice cream – is “infinite”. Obviously this is a caricature and an Aunt Sally argument and in fact, flatly contradicts the “Law of diminishing marginal utility” in contemporary mainstream economics itself.  In other words, for every additional ice cream I consume I derive less utility or pleasure until eventually eating another ice cream might even become a disutility – I might become sick at the very thought of it – meaning very clearly that my demand for ice-cream is definitely not insatiable! Nor is contemporary mainstream economics saying that it is.

Rather, the argument is that as the marginal utility of a good falls with each additional unit of that good consumed, the consumer switches his/her desire to some other good depending on the marginal rates of substitution, (MRS).  The point being that there is no end to the variety of goods that could potentially provide a substitute for ice-cream. Indeed, this argument is employed in “indifference theory ” in conventional economics to analyse consumer behaviour

It is pretty easy to knock down the Aunt Sally argument referred to above but more problematic when it comes to dealing with the so called “Greedy Person” argument in this wider context  of what modern economic theory is actually saying.

For this we need a more sophisticated nuanced approach which recognises that human behaviour is always a dynamic mix of both self interested and altruistic motives and will be so even in socialism. That approach will also need to make a distinction between “needs” and “wants”, in my view,  something that has long been a cornerstone belief in humanistic economics in its debate with conventional mainstream economics.  Sometimes “wants” will have to be sacrificed in order that “needs” be met  – not least in a world in which we face growing environmental constraints.
R. Cox

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