A new commentator on this blog named Tony Wikrent made an interesting comment yesterday, saying, when discussing the purpose of economics:
”Many subscribe to Lionel Robbins' definition of economics as the allocation of scarce resources among competing ends”
This is where economics goes wrong – right from the beginning. The actual history of Understanding this would radically shift the what economists emphasise. Financial markets and prices would become much less importance, and the creation of science and new technology would become paramount areas of inquiry.
Robbins, whose overall contribution to economics was not nearly as important as I think the London School of Economics like to claim it to be, undoubtedly heavily influenced economic thinking with his 1935 book in which he offered the above suggestion. That idea was taught to me in the 70s. It is still commonly noted. Ask ChatGPT what economics is about and it suggests:
Economics is the social science that studies how individuals, businesses, governments, and societies allocate resources to satisfy their wants and needs, given scarcity. It analyzes production, distribution, and consumption of goods and services, as well as the behavior of markets and economies.
Scarcity is the condition that requires economic choice, apparently, based on a search of the web as a whole. The idea remains in common use then, in itself constraining us all. It was, apparently, Robbins maxim that human beings want what they cannot have, and that notion need not be true, meaning it did not have the power he gave it.
In the 1930s, when Robbins wrote, I am aware that one of my grandfathers earned 30 shillings a week (£1.50) and lived in a tied cottage in a state of both considerable insecurity and poverty. My mother's descriptions of that upbringing have influenced me, without a doubt. In that situation, then Robbins was to some degree right; human beings did want what they could not have.
But, as Tony Wikrent implies, Robbins thinking (both economic and social) was decidedly static. His presumption was that what was scarcity was a permanent state in which the economy must exist. Post-war development showed that this need not be the case. .
Vastly better housing became available. Incomes rose. The post-war consensus delivered prosperity to vastly more people, me included. The problem of scarcity was not solved, but it altered radically. Three themes became apparent.
The first was that it became possible that we could meet need. It was, and remains, possible for us to ensure everyone in the world could enjoy a life where their needs are met. I am not saying that would be easy. I think it could be done.
Second, that fact did not solve the problem of scarcity. Those with the ability to solve the problem of unmet need chose not to do so. Scarcity with regard to need was imposed instead. It was no longer inevitable, but it continued to exist, nonetheless.
Third, the reason why need was not met was because those with the means to do so chose, or rather were persuaded, that satisfying their wants was a higher goal than was the meeting of the needs of others.
When Robbins wrote in 1935 the whole field of marketing, and the manipulation of human perception that it involves, was virtually unknown. Advertising did, of course, exist. But marketing is quite different. It seeks to create wants where none existed, and that activity did not become commonplace until the 1950s. The imposition of continued scarcity was a necessary condition for marketing's success. Innovation might have created the means to address all needs, but the reality was that it was instead primarily directed at meeting previously unknown wants.
Does that mean that I disagree with Tony Wikrent? It does not. The point he makes is powerful, and appropriate. It does, however, need to be framed and that framing is to be found in the choice that supposedly free markets have made with the power to create technology that we have discovered.
That power has been used to achieve three outcomes. One, very obviously, is consumption beyond the physical constraints that the planet can sustain. As a result, we have the climate crisis.
Second, this power has been used to concentrate wealth in the hands of a few. Technology in innovation has, when subverted to private purpose, and when coupled with the abuse of artificial legal constructs like patents and copyrights, been used to create market power that eliminates competition, suppresses further innovation and delivers massive inequality within society.
Third, as a result, innovation has begun to destroy its own potential to meet either needs or wants as the preservation of the wealth of a few is deemed a higher-order priority than meeting the needs of an increasing number of people, whilst it also destroys the very markets that supposedly fostered its creation.
To put it another way, the whole purpose of market-based economics has become the prevention of the meeting of needs whilst simultaneously creating the means for an increasingly smaller number of people to consume to excess way beyond any conceivable measure of human requirement.
The problem for this economic model is that it is unsustainable. As more and more people are driven towards economic desperation, which is very obviously happening at present, the social acceptability of this form of economics is collapsing. Simultaneously, the excessive use of natural resources that it requires is becoming evermore apparent. Neither, by themselves, would be sufficient to bring this system down. Together, they create a situation where that is likely.
What happens then is the question to ask? This is where I think Tony's comment is very relevant. Suppose that the whole purpose of industrial and agricultural development was to become the overcoming of the scarcity of resources. Could we find the food to feed the world, the water to sustain it given global heating, and the means of shelter, free from risk, where people might enjoy secure lives of reasonable comfort, free from fear? I think we could. But it does present the most massive challenge to a hierarchy of innovation and power that largely ignores need at present and instead presumes that the accumulation of excessive wealth for a few is the goal of society.
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Everybody needs a little time away.
Even lovers need a holiday.
Do we need to live in a world of beautiful songs, or is it something we would like.
And if we decide that great art is indeed needed, does it need government to step in or to step out of the way.
The eternal libertarian versus American style liberal battle. Which will not be settled at the next election which is between parties on the same side.
Great post. It clarifies that fundamentally economics is treated as a right wing activity. When you understand this, and consider a centre or left wing alternating model, as you describe, I suspect a majority would agree with that alternative. It also helps to explain why economists (generally) don’t resonate with the public. Something to be added to the “ways to improve Scotland when we regain independence” – an economic model at least informed by need not scarcity.
I agree this is an accurate account of the 20th century development of economics as a discipline – and of its capitalist context. But it is by no means clear either in other disciplines – in history or in archaeology or anthropology – that scarcity was ever hugely important to most people – cf https://www.sciencedirect.com/science/article/pii/S0305750X22002169
“The common notion that extreme poverty is the “natural” condition of humanity and only declined with the rise of capitalism rests on income data that do not adequately capture access to essential goods. Data on real wages suggests that, historically, extreme poverty was uncommon and arose primarily during periods of severe social and economic dislocation, particularly under colonialism. The rise of capitalism from the long 16th century onward is associated with a decline in wages to below subsistence, a deterioration in human stature, and an upturn in premature mortality. In parts of South Asia, sub-Saharan Africa and Latin America, wages and/or height have still not recovered. Where progress has occurred, significant improvements in human welfare began only around the 20th century. These gains coincide with the rise of anti-colonial and socialist political movements.”
“The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty.”
― John Maynard Keynes
I think today’s politicians have dumped the last two to focus on the first, but only for themselves.
Agreed
I’m not even sure it meets the first, but that does rather depend on how you define efficiency! If the definition includes the aim of the activity (as machine learning algorithms do) then presumably achieving the second and third are the aim so it has totally failed. But if individual wealth is it’s aim then for the few it has worked but for most it has not.
“…economics as the allocation of scarce resources among competing ends”.
Econometrics* cannot possibly “decide the allocation” of scarce resources, without assuming what it seeks to prove. Indeed I think in this context Robbins confused Operational Research (OR is largely an American development, to fight WWII with systematic application over the effective use of resources efficiently to deliver results that had already been decided for reasons unconnected with OR). “Deciding” for OR, was the decision to go to war; which is resolved without econometrics, which had no leverage, and no place in the decision. It should be no surprise that Adam Smith came to economics, first as a Moral Philosopher; and is best understood as framing his economics within the presupposition of his ‘Theory of Moral Sentiments’. Economics, especially in its Neoliberal iteration attempts to hide the “decision process”, and replace it with a focus on the managerial delivery of OR, having presupposed that the allocation is there to satisfy only the rentier.
You may still expect Labour may not fall for that variant of the three-card trick; but they were duped by the success of 80s Thatcherism.
* “Econometrics uses economic theory, mathematics, and statistical inference to quantify economic phenomena. In other words, it turns theoretical economic models into useful tools for economic policymaking” (IMF definition).
Your second sentence is spot on.
I still have nightmares about econometrics, which was a compulsory part of the curriculum for the single honours course in economics at my university in the 1980s…
Schumpeter argued acutely that “economic theory is almost wholly a theory of the administration of a given industrial apparatus” (‘Capitalism, Socialism and Democracy; 2nd Edition’; Preface, p.x).. He goes on:
“….. in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts, but the kind of competition from the new commodity, the new technology, the new type of organisation – …… competition that commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives” (p.84).
This is what Schumpeter really meant by capitalist ‘creative destruction’; but the key point is that the destruction delivers in capitalism begins with the destruction of economic theory. It does not predict; and being neither God nor Physics, or biology for that matter; economics knows nothing about ‘creation’. Bin it. We do not need it. we have sufficient tools to do the work in practical economic application that actually works, within realistic, sober limits.
I will be returning to this theme, soon
“ Suppose that the whole purpose of industrial and agricultural development was to become the overcoming of the scarcity of resources. Could we find the food to feed the world, the water to sustain it given global heating, and the means of shelter, free from risk, where people might enjoy secure lives of reasonable comfort, free from fear?”
Born in the 60s, educated in the 70s and 80s, I thought this was what life was all about. It inspired me to follow a career in science, as a public servant since graduation.
My adult life though can be summed up by ‘for evil people to accomplish their purpose it is only necessary that the good do nothing’ . Public discourse has been overwhelmed by those whose inclinations are at best nasty and spiteful, at worst genuinely evil. I’m not religious but the irony of a message of mutual support, respect and love being subverted by Rees-Mogg and his ilk doesn’t escape me.
Things generally need to get worse before they get better. I live in hope that the crisis we’re living through can be reversed at winter of discontent level, rather than the global conflict that ushered in the post war consensus.
Richard, your work is vital and you aren’t a lone voice. Eventually the penny will drop with the population at large, that they’ve been taken for fools.
Thanks, Philip
Excellent post. I think a good example of the role of free marketeers is that played by the various ‘think tanks’ such as the Centre for Cities and the Centre for Policy Studies. With specific regard to housing, they advocate a very free market approach seeking to remove planning controls and allow the market to run riot. So they think that the private sector should provide more housing regardless of whether it ends up in the second home/holiday lets/investment sector or is actually used to house people. In Cornwall, we already see the effect of that – lots more houses but a lot bought by the more affluent as 2nd homes etc. Unfortunately, the right wing think tanks get a lot of coverage and are treated as providing expert evidence – which it is not.
They really are undermining hope
“With specific regard to housing, they advocate a very free market approach seeking to remove planning controls and allow the market to run riot”
We already have off-shore holding companies with so many assets that they passively earn £millions without contributing anything productive to society. This is why there is a housing shortage and house prices and rents are so high.
Tory donors own UK properties via more than 150 offshore firms, The Guardian, Jan 2023
“Conservative donors who have collectively given the party more than £21m since 2001 have been declared as the ultimate owners of UK properties held through more than 150 offshore companies in a new government register.”
https://www.theguardian.com/politics/2023/jan/27/tory-donors-own-uk-properties-via-more-than-150-offshore-firms
In many ways Kate Raworth’s doughnut economics is about a reframing of this nature. In short, meeting the basic needs of all people without overshooting the capacity of the natural world. In more traditional terms, the former represents a demand, and the latter represents a scarcity of resource.
As Adam Smith had it, political economy (that is, the economics of the polis) is about arranging a national affairs to deliver “a plentiful revenue or subsistence for the people” and “the state or commonwealth with a revenue for the publick services”.
I can understand how there might be a scarcity of usable natural resources – water or wheat or wood or gold – or indeed of labour, but how can there be a scarcity of capital? It is just an accounting number.
True of financial capital but not of human and natural capital
Hmmm …. ” the allocation of scarce resources among competing ends”
It appears to be an objective and value free claim, but as Andrew points out, is anything but.. If anything it is pure smug.
It certainly isn’t an efficient or effective allocation of resources, and resource application doesn’t come into the equation at all.
There is no presumption in favour of a circular economy, so no effective resource use on a finite planet.
Externalities, including the big one of climate change, mean a capitalist economy is not remotely efficient , as it creates a massive range of other uncosted impacts which then need to be met by the general population.
What is the real cost of Turds in the Thames, eh ?
Economics (as wider political economy) doesn’t need to be either dismal or scientific to be useful, but unless there is an unerpinning value system to root it, as has been discussed on various threads recently, (and which has been criticised about Keynesianism) its general validity is very limited,.
However, it is indispensable to the political and economic elites which manipulate it to seek and maintain advantage.
Perhaps this is where Rawls’ principles ought to come into play ?
Namely that “a just society should find ways to reduce inequalities in areas where it can act”.
“All differences in wealth and income, all social and economic inequalities, should work for the good of the least favoured.” ….. and not the continued accumulation of income and wealth by the most advantaged.
The “good’ or welfare referred to, has to include a presumption against any environmental degradation, as the impacts of this fall upon future generations, as well as those least able to insulate themselves from pollution etc..
I’d argue that it might be advantageous to see these principles as distinct from the perceived duopoly of political opinion from collectivism/communism through socialism to capitalism/individualism and that it can accomodate both.
“Justice as fairness” definitely has a duty of care to future generations.
Thanks, and agreed
The language ot ‘allocation of scarce resources’ is the ‘Newspeak’ of our times – so that ‘thought crimes’ cannot be enacted.
It is so chilling that Labour have embraced the language.
To ask the question, ‘Is there really no money?’ is a crime.
Why doesnt anyone on BBC – make a joke about it? Dictatorships – including thought -dictatorships can’t stand being ridiculed.
Plenty of economics has gone way beyond allocating need and scarcity – including Marx – analysing exploitation etc etc.
Richard’s overall question – ‘can we feed and shelter the world, sustainably’ is susceptible to technical analysis – George Monbiot has done some of this – but then we need to show how economic relationships can be organised to achieve it. Obviously it will involve dismantling the exploitative rentier system we have now – limiting the power of global corporates etc etc.
But the political parties just dont want to frighten the populace by raising this.
The necessary relationships do require the redistribution of wealth, but also the tackling of monopoly as FDR said
Once again a great post from Richard. The huge dichotomy we face Sustainability and Wellbeing versus massive Market Forces, and the influence these MF’s have over our politicians. The glaring example of which has been clearly illustrated by the fall of the Left and the rise of the middle right in the Labour Party. Add in the refusal of diverse cultural, religious and geographical entities to enter into collaborative discourse to save themselves and the planet, and we can see the state of the world we have created today, where the poor, sick and needy massively outweigh the rich, healthy and over indulged.
Man’s continued antipathy to neighbouring Man continues to dominate our downward slide into chaos and ruin.
As an atheist I believe that Man is both the potential architect of success or annihilation. Here’s hoping for the former.
Indeed….
Richard, you’ve reminded me to dig out my rather dog-eared copy of Vance Packard’s ‘The Hidden Persuaders’. Prophetic when published in 1957, and still so! He hit the nail bang on the head back then, and his analysis prophetically applies still today. And of course, his work was strongly crticised by the ad & marketing industry.
Marketing really is pernicious
Economics is not science only the sciences are where doubtful ideas get eliminated by logic and experiment nor is it social except countries like #Denmark. Our failure is seen the the number of billionaires, millionaires and the number of poor and homeless..
Richard
A renowned economist who has been changing his mind …rethinking Economics …moving in your direction
https://larspsyll.wordpress.com/2024/03/14/angus-deaton-rethinking-economics/
Read, with interest
I consider these trials to be next to useless
An increase of 1.24% per year does not seem alarming.
But in the year I was born there were approximately 2.4 billion humans
There are now over 8 billion, an increase of 1.24% per year.
Some recent figures for mammalian biomass (https://ourworldindata.org/wild-mammals-birds-biomass)
– Livestock 62%
– Humans 34%
– Wild mammals 4%
A continued gentle increase of 1.24% per year would give 16 billion humans in 30 years time.
What will the world look like and what are those humans going to eat?
Every delay in mitigating climate change reduces future food production.
In his take-down of Rachel Reeves’ Mais lecture, Prem Sikka points out she mentions growth 58 times. (https://leftfootforward.org/2024/03/the-labour-party-must-not-follow-tory-economic-policies/).
The UK imports nearly 40% of its energy and nearly 40% of its food.
I suspect that indefinite growth in clean energy is probably feasible. The moon could provide all the energy the UK needs. (Although at least one Conservative MP did not know that the moon was responsible for tides).
But where could a doubling in food production come from?
Sadly, both parties believe in the Growth Fairy. Neither offers sustainability or fair allocation of resources.
My favourite Stephen Hawking quote “If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.”
Why is it assumed that technology means fewer jobs, not more people enjoying a better quality of life?
A great many questions, but it is important to note that in many countries birth rates now mean population fall is likely. The exception is Africa,. And it will happen there in time.
The world knows its limits, as do we.
We are ready for change.
World population currently growing at 0.9% per year
https://www.worldometers.info/
With the growth based model and climate crisis/sustainability issues I find it ironic how a key concept of what the word economy means is totally ignored – see definition 2a here:
https://www.merriam-webster.com/dictionary/economy
and https://www.merriam-webster.com/dictionary/economical
In other words, there is no economy in our economy.