The All-Seeing Eye

Musings from the central tower…

Economics Foundation

One of my goals in this blog is to examine the interplay between certain postmodern theories and certain economic theories that, due to certain political and demographic realities, might never be considered together. In Constituting Feminist Subjects, Kathi Weeks points out that there is a “paradigm debate” between modernists and postmodernists that makes it difficult to constructively combine elements of, for instance, Foucault and Marx. However, someone whose area of interest is feminist politics would be highly likely to, in their course of study, come across somewhat favorable accounts of both of these thinkers. Perhaps socialist feminism and postmodern feminism would be presented as opposing movements, but they oppose each other only in their approach to meeting ostensibly similar goals. Thus the logic of Weeks’ attempt to bring some degree of reconciliation to the two.

This same student of feminist thought would be very unlikely to encounter certain other
theories, thinkers, or schools of thought, or if they were encountered, they’d be likely to be presented negatively, misrepresented, or dismissed as irrelevant for one reason or another. This is not an attack on the feminist movement – merely an observation that, in any movement or school of thought, there are areas of particular interest that are studied in great depth, and there are areas of no particular interest that are not studied at all. I could easily level the same critique against economics. In fact, I arguably already have, when I said that Libertarian thought needed to be reevaluated in the face of certain postmodern theories. I’ve spoken a bit about some of the formulations of power that will inform this project of deconstruction and reconstruction, so now, I’d like to talk a little bit about the economic side of things. My project here is to begin to lay the foundations for my postmodern theory of economics.

According to Merriam-Webster, the definition of economics is “a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services.” Let’s deconstruct this definition a little. What is a good, and what is a service? The definition implies that these things are produced, distributed, and consumed. When we think about what these words mean to us, we think of mass-marketing, of a consumer economy, of production in factories, of distribution centers. Most importantly we think of money, of supply and demand, in other words, of price. The mainstream of economic thought deals only with things that have a price, things that are bought and sold. Money is the ultimate measure by which economic success or failure is determined. As many feminists have noted, this leads to a tendency to ignore or erase the goods and services that are not bought and sold for money. For example, the work of a housewife does not have a readily identifiable price, and so mainstream economics ignores it.

Carl Menger, founder of the Austrian school of economics, deconstructs the nature of goods. He specifically rejects a definition of goods based on an inherent property of the thing. Rather, he claims that a thing acquires “goods-character” under certain circumstances based on the needs, perceptions, and abilities of the subject or subjects who regard the thing as a good. Menger admits that these characteristics could conceivably describe “family connections, friendship, love, religious and scientific fellowships, etc” although he also admits that he has his doubts as to whether these things are really goods. In any case, Menger’s work makes the important point that the traditional definition of goods is overly limited, and that it ignores things that have obvious value – things that obviously meet human needs. His work also opens the door for us to include things like human relationships, love, friendship, et al. in our economic analyses.

Although Menger made these claims in Principles of Economics, a book published in 1871, most economists continue to ignore the “goods-character” of relationships, of the many services Weeks describes in her overview of “women’s labor,” and of countless other things that people use to satisfy their needs.

The more fundamental concept behind goods and services, then, are human needs. Goods and services are not useful in a universal or a priori sense due to their inherent or essential properties. Rather, they are useful to a particular entity because of that entity’s needs. And behind the production, distribution, and consumption of these goods and services, there are people producing, distributing, and consuming. Who are these people, and why do they produce, distribute, and consume? The people are acting agents, and they produce, distribute, and consume goods and services in order to meet their needs. Therefore one could say that in a broader sense, economics is the study of how people act to meet their needs.

However, I think the word “needs” is problematic. I prefer to follow both Lacan and Mises, among others, and use the term “desires.” “Needs” are things that people cannot live without, like food, water, shelter, etc. Desires are what people want. People desire specific foods, specific drinks, specific shelters. People desire things that they don’t need in order to live. People even sometimes desire some things more than life – think of a person who gives his or her life for a cause – and so desires can outweigh needs.

So for now we can talk about economics as the study of how people meet their desires. Earlier I described these people as “acting agents” – a term I’ve used before in my descriptions of metonymic power. Underlying the concept of an acting agent are questions of agency (to what extent to we determine our own actions?) and identity (who are “we” in the first place?) that I will not go into just yet. Let me just address any concerns with this approach by proposing an amendment to the commonly held definition of “action.” Usually, action refers to a behavior that was done on purpose, as opposed to a behavior that was done by accident. Picking up a glass of water is an action; spilling a glass of water that you were not aware of is not an action. I would like to specify that “purpose” is not necessarily a conscious purpose. In other words, actions may not be the result of a conscious process. Suffice it to say that they are the result of some process, or of different processes, and that at this time I would like to leave open the possibility that these processes are conscious or unconscious, individual or social, freely chosen or determined, or that they break out of these dichotomies entirely.

So the question of who or what is acting shall be deferred (but only temporarily) and we shall simply state now that it is possible to observe individual and group behavior and try to discern some purpose to the behavior, to account for the behavior in some way.

We started by deconstructing a definition of economics, changing its terms to suit broader and deeper meanings, and in doing so arrived at some fundamental observations and the questions raised by them. Now let us reconstruct economics based on these observations.(1)

We can observe individual and group behavior and try to discern some purpose to the behavior – in other words, why does the person or group behave in this way? We can infer that there is some underlying force that prompts the behavior, and we can call this force “desire.” We could also call it need, impulse, drive, will, or any host of other terms with different backgrounds and implications. So we can say that people (individually or in groups) act to satisfy their desires, based on our observations, as long as we remember that we must restrict or expand the definitions of desires and actions in order to fit our observations.

If an action implies a desire, it also implies an expectation of a causal relationship between the result of the action and the satisfaction of the desire. In other words, people behave in ways that they expect will make them better off. It is important to remember that this expectation is also not necessarily a conscious process. When a dog barks near us we might have a fight-or-flight reaction: we jump, our norepinephine is released, followed by adrenaline, we look around to assess the threat. We do this because of our instincts, not our conscious minds. Our instincts may not think, or have expectations, precisely in the way we think about thinking or expecting as conscious processes. However, (we infer that) our instincts developed in response to situations in which following those instincts led to better results than not following them.

(Can evolution be looked at in economic terms? Of course. We can do cost-benefit analyses of various evolved traits and see which are likely to give a survival advantage. We can attempt to approximate the expected value of a trait. We can track various traits and various competing organisms and observe which of them have the highest market share, and from that information make conclusions about which strategies are strong and which are weak. Economic competition and evolutionary competition function exactly the same way. We can’t say that an individual mutation has a “purpose” in that mutations are accidental, but we can say that the purpose of life seems to be survival based on the behaviors of living things. We can’t say that a trait has an “expectation” in that evolved traits are not conscious, but we can say that past success leads to an expectation of future success.)

To recap:  we have behavior + purpose = action, where purpose = desire + expectation.  When we frame economics as the study of how people act to satisfy their desires, we take the desires as given.  The reason for this is simple: economics is not concerned with what the desires are.  Ethics, psychology, and many other fields are dedicated to the question of why people want the things they want, and what, if anything, they ought to want instead.  Economics is concerned, rather, with what people do given certain desires.  Remember, in our economic epistemology, the only way to know what desires are – or even that desires are – is to infer them from behaviors.

Before I finish I’d just like to bring two terms to the table and define them very specifically using the construction of economics I’ve presented here.  These terms are utility and value.  Menger discussed “useful things” – this usefulness is what I will call utility.  Marx called it use-value.  Utility is how useful something is – the perceived capacity of a certain item to satisfy a desire.  Remember, as Menger said, this is not owing to any specific property of the item in question – rather, it is the person’s perception of the item that gives it utility.  Utility is subjective: it is based entirely on the evaluation of the subject, because useful always means useful to someone.  Utility is also independent – an item’s utility is not based upon the utility of any other item, or on any other observable or quantifiable amount.  Some economists have adopted the convention of “measuring” utility in units, called utils – but I resist this and any attempts to enumerate utility, because it leads us to think of utility – and therefore desires – as subject to the laws of mathematics.  Utility is only discoverable by observation of an action – we can ony say an item was useful if someone used it.  We can’t measure how happy that use made them, nor how well their desire was satisfied – these things are subjective and unquantifiable.

Value is how much something is worth.  Like utility, value is also subjective – something is always worth something to someone.  Unlike utility, value is relative.  When we say an object is worth something, we always need a “something” for comparison.  Value is only discoverable through observation of an exchange – if someone trades one of Object A for three of Object B, we can say that that particular Object A was worth less to them than three Object Bs.

An important note here is that someone can make claims about their utility and value judgments, in other words, about their preferences – but in the case of value, these claims cannot be verified, and in the case of utility, they can’t even be properly understood (for instance, how do you explain to someone else exactly how much you like to eat an apple?)  The only way we can infer what people desire in an economically rigorous way is by observing their behavior.

It is of paramount importance, however, when considering these observations, to recall Frederic Bastiat’s words:  “the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”  When looking at an exchange, what is really being exchanged?  Let’s use the Traveler’s Dilemma as an example.  The game theorist expects a “rational” player to play (2), assuming that the person values money and (2) is the play that will result in the greatest amount of money.  Instead the TD player more often picks (100), valuing the chance to win more money over the certainty of winning very little money, or alternately values losing a small amount of money over losing a large amount of money.  What is being “exchanged” here is not just money, but chances, certainties, potentials, and opportunities.  Money can be seen, and so many economists make the mistake of seeing only money.


(1): I’d like to acknowledge my indebtedness to praxeology as presented in Human Action by Ludwig von Mises, whose methodology I closely followed in establishing a foundation for a new construction of economics.  I am in many places simply refining his positions and insights with postmodern tropes, although I believe that this will come to represent a substantial deviation from his work by clarifying some of his underlying assumptions and thus demonstrating the conditional nature of some of his conclusions.


March 2, 2008 - Posted by | Economics | , , , , , , , , , , , , , , , , , , , , , , , ,

1 Comment »

  1. Nice Site layout. Keep up the good work. Looking forward to reading more from you.

    Comment by Joshua Kwentoh | March 17, 2008 | Reply

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