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Chapter 5: On Some Popular Errors Concerning the Scope and Method of Economics

2. The Study of Motives

Public opinion still labors under the failure of classical economics to come to grips with the problem of value. Unable to solve the apparent paradox of valuation, the classical economists could not trace the chain of market transactions back to the consumer, but were forced to start their reasoning from the actions of the businessman, for whom the valuations of the buyers are a given fact. The conduct of the businessman in his capacity as a merchant serving the public is pertinently described by the formula: Buy in the cheapest and sell in the dearest market. The second part of this formula refers to the conduct of the buyers whose valuations determine the height of the prices they are prepared to pay for the merchandise. But nothing is said about the process that sets up these valuations. They are looked upon as given data. If one accepts this oversimplified formula, it is certainly possible to distinguish between businesslike conduct (falsely termed economic or rational conduct) and conduct determined by other considerations than those of business (falsely termed uneconomic or irrational conduct). But this mode of classification does not make any sense if we apply it to the behavior of the consumer.

The harm done by such and similar attempts to make distinctions was that they removed economics from reality. The task of economics, as many epigones of the classical economists practiced it, was to deal not with events as they really happened, but only with forces that contributed in some not clearly defined manner to the emergence of what really happened. Economics did not actually aim at explaining the formation of market prices, but at the description of something that together with other factors played a certain, not clearly described role in this process. Virtually it did not deal with real living beings, but with a phantom, "economic man," a creature essentially different from real man.

The absurdity of this doctrine becomes manifest as soon as the question is raised in what this economic man differs from real man. He is considered as a perfect egoist, as omniscient, and as exclusively intent upon accumulating more and more wealth. But it does not make any difference for the determination of market prices whether an "egoistic" buyer buys because he wants himself to enjoy what he bought or whether an "altruistic" buyer buys for some other reasons, for instance in order to make a gift to a charitable institution. Neither does it make any difference on the market whether the consumer in buying is guided by opinions that an unaffected spectator considers as true or false. He buys because he believes that to acquire the merchandise in question will satisfy him better than keeping the money or spending it for something else. Whether or not he aims at accumulating wealth, he always aims at employing what he owns for those ends which, as he thinks, will satisfy him best.

There is only one motive that determines all the actions of all men, viz., to remove, directly or indirectly, as much as possible any uneasiness felt. In the pursuit of this aim men are affected with all the frailties and weaknesses of human existence. What determines the real course of events, the formation of prices and all other phenomena commonly called economic as well as all other events of human history, is the attitudes of these fallible men and the effects produced by their actions liable to error. The eminence of the approach of modem marginal utility economics consists in the fact that it pays full attention to this state of affairs. It does not deal with the actions of an ideal man, essentially different from real man, but with the choices of all those who participate in social cooperation under the division of labor.

Economics, say many of its critics, assumes that everybody behaves in all his actions in a perfectly "rational" way and aims exclusively at the highest possible gain like the speculators buying and selling on the stock exchange. But real man, they assert, is different. He aims also at other ends than material advantage that can be expressed in monetary terms.

There is a whole bundle of errors and misunderstandings in this popular reasoning. The man who operates on the stock exchange is driven in this activity by one intention only, to enlarge his own competence. But exactly the same intention animates the acquisitive activity of all other people. The farmer wants to sell his produce at the highest price he can obtain, and the wage earner is anxious to sell his effort at the highest price obtainable. The fact that in comparing the remuneration that is offered to him the seller of commodities or services takes into account not only what he gets in terms of money but also all other benefits involved is fully consonant with his behavior as characterized in this description.

The specific goals that people aim at in action are very different and continually change. But all acting is invariably induced by one motive only, viz., to substitute a state that suits the actor better for the state that would prevail in the absence of his action.

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