Monday, July 24, 2017

Scarcity and Infinite Wants: The Founding Myths of Economics (2016)

From the June 2016 issue of the Socialist Standard

If you open any textbook on economics you will find the definition at the beginning as to what economics is will include the concept of ‘scarcity’. On the one side, it is taught, there are scarce resources and, on the other side, unlimited wants, and that economics is the study of the choices people make (as individuals and societies) to deal with this.

However, the concept of ‘scarcity’ used in these definitions is an abnormal and circular one and human wants are not unlimited. The relationship between scarce resources and unlimited wants is not what economics actually studies. The definition above is an ideological construct to justify one particular way of organising the production and distribution of goods and services – the capitalist system of production for profit, involving markets, money, prices, profits, wages, interest, banks, etc. That’s what economics really studies.

What is scarcity?
When someone says that something is scarce what comes to your mind? Probably you think that there’s not enough of it, that it’s in short supply. That’s the normal usage, but for modern academic economics it’s something rather different. In his widely used textbook Economics Paul Samuelson writes of ‘the law of scarcity’. Actually, it’s not a law but a definition. In setting it down Samuelson contrasts scarcity to a situation where ‘an infinite amount of every good could be produced’. The opening chapter of another American textbook, with the same title, by Ralph T. Byrns and Gerard W. Stone is entitled ‘Economics: The Study of Scarcity and Choice’. One paragraph, headed ‘Scarcity’, starts: ‘A world in which all human wants are instantly fulfilled is hard to imagine.’ Yes, it is. In fact it’s preposterous.

But that’s what’s behind what economics means by ‘scarcity’ – it’s the absence of an infinite amount of every resource and every good, the absence of a state of affairs in which everything would be provided free by nature, in which, as in the mediaeval legend of the Land of Cockayne, geese would fly around ready-cooked saying ‘eat me!’ And we’re supposed to take their definition seriously.

It’s the same with what economics means by what is normally regarded as the opposite of scarcity – abundance. The normal definition of this is, to quote a few dictionaries, ‘plenty’, ‘more than enough’, and even ‘ample sufficiency’. It does not mean everything being what economics calls ‘free goods’. ‘Free goods’, in fact, is the last trace in economics of the Labour Theory of Value, which was embraced by Adam Smith and David Ricardo as well as by Karl Marx, since they are goods that are available without having to be the product of human labour. They are ‘free’ because no labour has to be expended to produce them.

So, economics is defining ‘scarcity’ is such a way that it exists by definition and irrespective of human needs; that it’s part of the human condition. In a way it is, though this is a strange way of putting it. A much more straightforward way would be to say that humans have to produce by their own work what they need. But that of course leads back to the dreaded Labour Theory of Value as it would bring out that the only sort of goods that economics is interested in are those that are the products of human labour, past and present.

But this definition of scarcity is still not adequate for the ideological aim of justifying a system where people’s consumption is rationed by money. The imagined killer argument here is that productive resources, however abundant (in the normal sense), will never be enough to satisfy human needs and wants as these are ‘unlimited’. So there will always be a need to ration what people can consume.

This view is stated very clearly in the Byrns and Stone textbook in its definition of economics:
‘Economics is the study of how individuals and societies allocate limited resources to try to satisfy their unlimited wants.’
On the same page there’s ‘Figure 1: The Origins of Scarcity’ which aims to illustrate this. On the left side there’s ‘Limited Resources and Time’ and on the right side there’s a list of ‘Virtually Unlimited Human Wants’. This is introduced by a statement which already begs the question of the existence of a system with monetary incomes and spending:
‘Scarcity occurs because our limited resources and time can only yield limited production and income, but people’s needs are virtually unlimited. Output is produced by using knowledge (technology) to apply energy to a blend of resources. Production, in turn, generates the income people spend on the limited goods and services available.’
What are human needs?
Philosophers, psychologists, anthropologists. sociologists, nutritionists and others have argued over the definition of both ‘needs’ and ‘wants’ but clearly there is, to coin a phrase, a ‘hierarchy of needs’ based on, first of all, physiological/biological needs, primarily food. But ‘Man does not live by bread alone’ as humans are social animals and have other needs beyond this level, basically to be members of a community and to have social recognition and esteem within it. This is not purely social but has a material aspect to it as what a person consumes affects how they are socially regarded, how they regard themselves, and what their aspirations are. In other words, ‘wants’ are socially-determined, not just a matter of individual whim. They are determined by society, not by biology in the way that basic human needs are (though even how these too are met is socially-determined).

So we’ve got: (1) Basic, physiological needs; (2) Non-material, social/psychological needs; and (3) Material needs and wants arising out of both of these. These categories can be applied to the textbook’s list of ‘Virtually Unlimited Human Wants’.

The list contains what can be regarded as basic needs: food, clothing, housing, etc.

It also contains some goods to meet people’s survival needs over and above the minimum to stay alive, e.g: transportation, comfort, good health but also useful objects such as microwaves, telephones, washing machines, computers, CDs, CD players, VCRs. But there is no problem in producing enough of these for everyone. In fact most people have already got them now. (It’s not certain, though, that people still want CD players and video recorders but the book came out in 1992 – another example of how wants are socially determined and depend on what’s available).

And then there’s non-material, social needs: recognition, sense of personal worth, peace of mind, success in life.

And finally, and this is where it becomes revealing, the material goods to satisfy these non-material needs: jewellery, three-car garage, golf lessons, plastic surgery, swimming pool, Hawaiian vacations, fancy automobiles, ski boats, yachts, designer wardrobes, country estate.

Non-material needs (such as the listed recognition, sense of personal worth, and success in life) can be met in a number of ways depending on what kind of society people have been brought up in and live in. The textbook’s list of ways to meet them today clearly reflects a society divided into rich and non-rich where to be rich is a measure of success in life and a way of gaining recognition.

The dogma of unlimited human wants which economics preaches assumes such a society and that wants are infinite because the non-rich aspire to be rich and the rich want to be richer. This latter itself is an internalisation by the rich of the fact that capitalism is a system of endless capital accumulation.

The ‘wants’ that capitalist society generates may well be ‘virtually unlimited’ but capitalism is not the only way of producing and distributing wealth nor of satisfying people’s need for recognition, sense of personal worth, and success in life. These needs can be met in other ways in a different society and have been in past and would be in a socialist society of social equals producing to satisfy people’s needs rather than for sale with a view to profits and their accumulation as capital.
Adam Buick

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