The Economic Point of View
3. The Science of Avarice; Getting the Most for the Least
In the past economists have often been attacked on the grounds that their theories only applied to selfish people; such attacks were brushed aside as absurd. But they were not absurd . . .
I. M. D. Little
The bottle of medicine for a dying child, or of wine for himself; the tools for his trade; the supplies for a home for the aged, bought as a contribution to the home from a future inmate—all are bought with the same end of getting the most for the least, whatever the motive for the purchase may be.
J. Viner
In the present chapter a number of types of definitions are grouped together by virtue of their possession of either of two special characteristics. These definitions either see economic activity as being essentially motivated by pecuniary self-interest or they see it as conforming to a pattern of behavior prescribed by the so-called “economic principle.” These two points of view and the postulation of a common starting point for both require some elaboration.
The Science of Avarice
For many years now, economists have been at pains to disassociate themselves from this view of economic activity. The latter is seen as reflecting all motives, altruistic as well as selfish. This contention, together with the broadening effect it possessed on the scope of economic analysis, is one of the basic undercurrents guiding the development of definitions of economics. At this point it is sufficient to observe that the connection between economics and selfishness was for a long time widely assumed. This assumption served as the foundation for a separate conception of the nature of economics, viz., as the science of the operation of self-interest in human activity.
Of course, much of the stress on selfishness which was ascribed to economists, or which was admitted by economists, did not involve the explicit definition of the subject in these terms. Selfishness was often merely a convenient assumption by means of which the analysis of the data could extract rather definite results. The essential character of economics may have been seen, for example, to concern material goods, and the postulation of selfishness was in such a case only an incidental simplification, made to assist the theorist, of the real economic phenomena. The discussion in the previous chapter, as a case in point, revealed the conception of economic affairs held by the classical economists to have been predominantly bound to a class of objects called “wealth.” How far the classical economists did, in fact, exclude from their consideration all human motives other than self-interest is a matter of controversy that need not detain us here. But to the degree that selfishness was assumed by Smith, Ricardo and their followers, it certainly did not constitute the essence of the phenomena that they undertook to investigate.
Indeed, the possibility of carving out a segment of activity governed by self-interest as a distinct subject of study could offer itself only to economists who recognized the hypothetical character of such an assumption. If a homo oeconomicus endowed with only one aspect of human nature, viz., that of greed, is postulated, then it is possible to see the whole body of economic theory as the extended exposition of the consequences of this greed. The knowledge that real men are actuated by other motives besides greed makes feasible the conceptual isolation of that aspect of human activity from which these other motives have been prescinded. But it is precisely this possibility that was not open to the earlier classical economists. In so far as these writers assumed the impulse to economic activity to arise from selfishness, they considered their assumptions to conform closely to the facts of the real world. “It is,” Ricardo wrote in a well-known passage, “self-interest which regulates all the speculations of trade . . .” Because they believed the pursuit of wealth to be characterized by self-interest, and because they conceived of economics as studying the phenomena of wealth, the classical writers made use of the concept of selfishness in their analysis. But this selfishness was only incidental to the real object of study. In no way did economics, as they conceived it, revolve exclusively around that aspect of man’s nature inspired by selfishness.
For “the purposes of the philosopher,” Mill presses on with still further refinement and rigor of definition. Political economy does not treat of the whole of man’s nature;
In his final and most carefully formulated definition, the “laws of society” rather than those of wealth are set aside for investigation. Political economy is the science
Yet in spite of the progress represented by the conception of economic activity as motivated essentially by pecuniary self-interest, this view still, of course, bears obvious signs of its close relationship to the earlier definitions of economics as the science of wealth. In fact, economics as the science of avarice is most illuminatingly understood as the link between economics as the science of wealth and the more sophisticated conceptions of the subject that have emerged in recent decades. The concept of wealth involved the postulation of some common quality in the objects constituting wealth—a quality that was generally identified as “material’’ or as catering to the “lower” needs of man. These objects themselves were the focus of economic attention. By shifting this focus of attention away from wealth itself and towards acting man in his quest for wealth, Mill and Bailey were still obliged to assign a significant role to wealth. And the qualities common to the objects constituting wealth became perhaps even more pivotal to economic analysis, since it was attraction towards these qualities that kindled and conditioned the avarice of economic man.
But the break with the earlier definitions formulated in terms of wealth, however slight it may seem, was enough to point the way to the complete extrusion of that clumsy and misleading concept from economics. Once economics was conceived as involving a certain pattern of behavior, or even a uniquely motivated kind of behavior, then the bonds that attached it to the class of objects constituting wealth could easily be broken. Although it was wealth that was the initial structural unit in the formation of the pattern of behavior of wealth-seeking man, this goal could soon be discarded as scaffolding unnecessary to the completed structure. The behavior of wealth-seeking man was found to be sufficiently distinctive, but at the same time sufficiently universal, in pattern to warrant a separate treatment in its own right. Economics could then be identified, not in terms of wealth, nor even in terms of men-in-quest-of-wealth, but in terms of a unique pattern of human behavior: the getting of the most for the least.
The Economic Principle
The conception of economics in terms of the principle of maximization, whether expressed in terms of selfishness or not, was, in fact, in the direct line of development that was initiated by the explicit delineation of the character of economic man. Its relationship to the view of economic activity that sees it as motivated by pecuniary self-interest parallels that which the concept of welfare bore to the early formulations of economics, discussed in the previous chapter, as the science of wealth. Just as welfare had come to be regarded as the central point of economic interest instead of the objects (i.e., the wealth) considered as necessary for the enjoyment of welfare; so, quite analogously, the idea of behavior patterned on the principle of maximization—i.e., the abstract urge to get more for less—replaced the conception of selfish wealth-oriented activity as central to economic affairs, even though it was greed for wealth that was at first thought to be the sole stimulant to this pattern of conduct.
But in Germany and in the United States the fundamental economic principle was accorded quite extensive and sensitive treatment. The debate in Germany over the status to be assigned to the economic principle is the clearest evidence of the advance in the conception of economics in the last quarter of the century. Regardless of the opinions expressed on both sides, the fact that such a controversy did occur is a sign of the sophistication with which economists were now examining their subject matter. Whether to consider the principle as the defining criterion of economic phenomena or as merely a convenient tool in the analysis of an independently recognized economic activity was a problem that the classical economists were precluded from considering. It was necessary for the economist first to recognize that he is concerned with a species of activity rather than with a species of object before he could begin to debate the role of the economic principle in understanding such activity—whether as an explanatory aid or as a defining characteristic.
The “Economic Impulse”
The specificity of any one human drive depends on the uniqueness of the end that stimulates and activates it. The most conspicuous feature of the earlier definitions of economics was their identification of the subject with an allegedly unique category of ends, viz., wealth. And it was this association that gave plausibility to the concept of an economic motive. With the recognition that the ends embodied in wealth are as heterogeneous as human wants themselves, the significance of the concept of wealth as a criterion for defining the nature of economic activity declined. Thus, with the progress seen in the present chapter from an economics analyzing human avarice towards an economics analyzing the maximization pattern of human behavior, the notion of a specifically economic impulse fell under a shadow.
Thus, the attack on the isolation of any specifically economic motive came from both directions. On the one hand, the theorists were finding it unnecessary to invest wealth with any special role; it was sufficient for analysis to introduce a specific type of human behavior aiming at maximization. On the other hand, the historically-minded economists, interested in the “full reality” of economic phenomena, were finding that it was a misleading oversimplification to see the motive of economic activity in the desire for wealth and were probing into the many and diverse impulses that together constitute the pursuit of wealth.
This possibility does not seem to have occurred to any of the nineteenth-century writers who discussed the maximization principle. But several more recent writers have laid stress on this newly isolated “end,” especially in connection with the means-ends conception of economics that, as will be seen in a later chapter, was developed from the “most-for-the-least” approach. Viner seems to have this idea in view when he declares the ends of economic man to be simple enough for inductive investigation:
Selfishness and “Non-Tuism”
In a chapter which has dealt with the view that economic activity is essentially self-centered and egoistically motivated, space must be found for the novel idea of the economic relationship that Wicksteed substituted in place of the controversial concept of egoism. We have noticed Wicksteed’s vigorous rejection of the notion that economic activity is exclusively self-regarding. Robbins has commented:
Wicksteed’s major contribution to the characterization of the scope of economics lies in his thorough and exhaustive analysis of the process of economizing. He realizes, however, that the principles of this process are not peculiar to economics but “are laws of life itself.” He seeks to isolate within the realm governed by these laws an area in which a peculiarly “economic” relationship is at work. This area is characterized by “non-tuism”:
The existence of such a separate area is made possible by specialization, the division of labor and exchange, but its essence is seen in the lack of regard for the interest of the man with whom one is dealing.
There is undoubtedly an element of artificiality, albeit ingenious artificiality, in this exception. If “one’s own purposes” are wide enough to include concern for the support of charitable institutions, they are surely able to include an interest in the welfare of the person with whom one is dealing. Despite the skillfulness and persuasive beauty of Wicksteed’s prose, it remains difficult to see the boundary line as other than the result of a quite arbitrary piece of surgery on the whole of commercial activity. While theorists have been both openly and tacitly employing such surgery on business behavior in order to simplify their analysis, few have followed Wicksteed in elevating what survives their excision into a separate category of economic behavior or in treating it as the sign of a separate economic relationship.
Economics and Mechanics
For the earlier classical economists, who thought of economics as concerned with wealth understood in a more or less material sense, self-interest was an impersonal force that extracted this wealth from the factors of production and propelled it through the distributive channels of the economy. The greater stress laid by later writers on the force of self-interest itself as the core of economics and the consequent emphasis on maximization-patterns of behavior tended to enhance the attraction of the analogy to mechanics. Jevons’ “mechanics of utility and self-interest” and the “Economic Calculus” of Edgeworth, which investigates the equilibrium of a system of hedonic forces each tending to maximum individual utility, are typical examples. It seems no accident that both Jevons and Edgeworth were early users of mathematical methods in economics. The emphasis that both writers laid on self-interest goes hand in hand with a desire to turn economics into a “science” like mechanics. This required the postulation of a pervading force manipulating “wealth” into various configurations susceptible of analysis through the use of maximization formulae from the calculus. Self-interest was seized upon with avidity from the classical system as providing just such a plausible “force.”
Although Schumpeter’s lack of interest in the behavior of men and his stress on the impersonal changes in “quantities of goods” are reminiscent of the classical approach, his economics is far from identical with their science of wealth. Schumpeter does not recognize “wealth” as constituting in itself a subject of investigation by virtue of its character as wealth, but simply postulates the presence of mathematical interdependence between the quantities of various “goods” possessed by members of the Volkswirtschaft. It is the exposition of this mutual dependence of goods, rather than the investigation of goods or wealth as such, that constitutes the sum and substance of Schumpeter’s economics.
