What economics is

 

The economics of the individual agent's decisions about resources is referred to as microeconomics, while macroeconomics studies the interactions in the economy as a whole.

- SOAS

 

 

Every so often a sentence sticks in my mind. This is one of them:

Indeed, E. Khalil [1996] is right in arguing that Robbins’s conception of economics has won out over that presented by Alfred Marshall or Karl Polanyi, yet the issue has not yet been entirely settled.

Jérôme Maucourant. "The ambiguous birth of political economy: Montchrestien
vs. Cantillon". 2011. HAL Id: halshs-01016945
https://halshs.archives-ouvertes.fr/halshs-01016945/document

The topic is the definition of economics, or what econ "is". That's important. The issue has not yet been entirely settled. That's important. Definitions are attributed to Lionel Robbins, Alfred Marshall, and Karl Polanyi. That's important. And, E. Khalil said it and Jérôme Maucourant repeated it. That's important, too. But somehow, I don't get any information from that sentence. So it litters my mind like an empty beer can on the side of the road.

It litters in my mind until I do something about it. I did something about it before, but with no success: There are presently nine posts on my offline development blog containing the name Maucourant. Only one of them made it to EconCrit, and it doesn't mention Lionel Robbins.

I have to be finished with that important sentence. I need my brainspace for other things. So I went looking. The reference, from the Maucourant paper, is:

Khalil E. L. [1996], “What is economic action? From Marshall and Robbins to Polanyi and Becker”

I found the Khalil paper, but I refuse to pay to access it. All I want is a paragraph or two, for context. But, eh, I don't need it.

 I know of Robbins and find him sometimes interesting^[1] but I have no idea what his "conception of economics" was. Google's featured snippet, from the National Library of Medicine (of all places!) says

In his landmark essay on the nature of economics, Lionel Robbins defined economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses" (Robbins, 1935, p. 16).

To me that sounds like the standard version I was taught in Econ 101 back in '77:

Recalling that wants are unlimited and resources are scarce, economics can be defined as the social science concerned with the problem of using or administering scarce resources (the means of producing) so as to attain the greatest or maximum fulfillment of society's unlimited wants (the goal of producing).

Campbell R. McConnell. Economics: Principles, Problems, and Policies, sixth edition, p.25.

McConnell is more cautious and wordy than Robbins, but little different otherwise. The key ingredient for both of them is the relative scarcity of resources.

The scarcity of resources? How does that stack up to problem of insufficient aggregate demand? You can't have it both ways.

I checked Marshall. The featured snippet leads to a page at Vancouver Island University that attributes this sentence to Alfred Marshall:

Economics is the study of mankind in the ordinary business of life.

The understatement doesn't interest me. A page at Exam Notes says Marshall was

the first Economist who denied the wealth-related definitions of Adam Smith, which was in vogue for a long time...

Now that's interesting.

I checked Polanyi. Google's featured snippet turned up a paper by Daniel Ankarloo: "Some Notes on The Economic Theories of Karl Polanyi". Ankarloo's paper presents Polanyi's view in a way that stands in strong contrast to the "scarcity" focus of Robbins and McConnell:

To orthodoxy the economy is the choice between scarce means in relation to preferred ends. Economizing means allocation of these scarce resources. This according to orthodoxy is ”the economic problem”. Polanyi calls this a formalist definition of the economy. Its validity is relative to the historical development - and fact - of a market society (a specific form of economic organization) but, in essence, the substance of the economy is to provide a physical environment to sustain human life.

The substance of the economy is to provide a physical environment to sustain human life. It doesn't get any more clear than that.

That clear thought, by the way, reminds me of Vladimir Simkhovitch's summary of the "fundamental trouble" and cause of Rome's decline: "labor could not support life". Reminds me, too, of the toast Keynes made to "economists, who are the trustees not of civilization, but of the possibility of civilization." If economists fail in their job, labor does not support life and civilization does not survive.

That is the crux of the matter, right there.

I don't deny that scarcity plays an important role in economics. But I point out that scarcity only exists in relation to wants and needs: If there is no demand for buggywhips, then buggywhips are not scarce.

What's worse, and what is seriously wrong with Robbins's definition of economics, is that it describes only microeconomics -- "the individual agent's decisions", as SOAS says. For the consumer, scarcity reduces employment and increases costs, with the result that improvements in the standard of living are "scarce". For the producer, the scarcity of resources increases costs and reduces profits. The real concern for the producer is not scarce resources but scarce profits. 

Worst of all, Robbins's statement justifies unnecessary costs that magnify the problem of scarcity, costs like those generated by excessive finance, and excessive debt, mostly in the private sector.

When Lionel Robbins described economics as the study of the "relationship between ends and scarce means", between scarce supply and limitless demand, he was describing only micro-economics. To be fair to Robbins, I should say that his definition dates from the early 1930s, and macro-economics wasn't even invented until Keynes published his General Theory in 1936.

However, Campbell McConnell cannot rely on the excuse that he didn't know about macro-economics. Nor can the economic "orthodoxy" that Ankarloo mentions. 

 The problem of scarcity is the problem of individuals in our economy. It is not the problem of our economy.

The economic problem today is often said to be the insufficiency of aggregate demand. That thought is unduly oversimplified, but I basically agree with it. And from this perspective, the perspective that aggregate demand is insufficient, one has to ask: Resources are scarce, you say? Your thinking is outdated, and your focus is wrong. The economy changes, brother.

Microeconomics is the science of making more profit. It is the science of business.

Macroeconomics is the science of making the economy work better. It is the science of promoting the general welfare. 

What we need, in these troubled days, is a science and study of monetary imbalance -- the imbalance that leads to extreme economic inequality, for example; the imbalance between the quantity of money and the quantity of debt; and the imbalance created for example when some types of income are taxed and others are not. We need a science of monetary balances.

 

 

 

NOTE 1: For example, Robbins said:

To move in any direction from a position of equilibrium is to encounter increased resistance: This is the fundamental conception.

That is from "Remarks Upon Certain Aspects of the Theory of Costs" by Lionel Robbins, from 1934.
https://www.jstor.org/stable/2224723?seq=1

It's not on topic, but it is the best description of equilibrium I ever read.

Simkhovitch on social science and economic history

Well I finally got to the end of the Simkhovitch essay, again.

 
From the conclusion of Rome's Fall Reconsidered :

But it is a mistake to think that social science is dealing with life. It is not. It deals with the background of life. It deals with common things, with what lives had in common, common conditions of existence, common purposes that these conditions suggest. They can and must be scientifically explained and determined, if social science is to be taken seriously.

Scientific determination is accurate determination. What forces that circumscribe and govern our life must we unquestionably accept? Obviously, the physical forces. Under certain conditions we are born, we live and die. The limits of our mortal existence we cannot transgress. Nor can we change the heavenly course of suns and planets; we do not govern the seasons of the year; they regulate our life.

Within the laws of nature our lives begin and end. They limit and compass our existence. But the laws of nature without our active participation do neither feed nor clothe us. This active participation we call our work, our labor. Social labor varies in its productivity. At all times this productivity had and has its limits. These limits of the productivity of our labor become, for society, physical conditions of existence. Within these limits our entire social life must move. These limits life must accept as mandatory and implacable; to them it must adjust itself.

The history of the productivity of our labor is the foundation of a scientific economic history, and the backbone of any and all history. Every law, every statute, every institution has obviously some purpose. But how are we to understand the purposes of the past if we know not the conditions which those purposes were to meet? The accurate knowledge of the productivity of our labor can explain to us why things were as they were, why they became what they are and what one may expect from the future.

Property rights

Still reading Simkhovitch on ancient Rome.

 From page 234 (35 of 44 in the PDF):

... the degree of depopulation was such as to compel extraordinary measures. And so it came to pass that morals and children became political issues. Recall the puritanic campaigns of Caesar's heir, remember the laws against adultery, and laws restricting the property rights of unmarried men and childless couples.

So it is possible to restrict property rights under certain circumstances. It is not easily done, but it can be done.

As Simkhovitch tells the tale, ancient Rome had to keep conquering its neighbors so that it could take their grain, so that the Roman people had something to eat. To keep conquering its neighbors, Rome needed strong armies. And to build strong armies, Rome needed a growing population.

From this point of view, depopulation was unacceptable. A growing population was necessary to assure military success. This reason was good enough that laws restricting property rights were acceptable. It didn't work, of course, and Rome eventually expired. But it wasn't the changes to property rights that caused the fall of Rome.

I argue that changes to property rights — changes that limit the concentration of wealth — are essential to our continued survival as a civilization.

Similarities (us and them)

Still reading Simkhovitch on ancient Rome. Caveat: I know little-to-nothing of history. I quote things and offer my impressions. If I have something wrong, let me know.

Simkhovitch's topic is the decline of population. Beginning on page 234 (35 of 44 in the PDF), he writes:

We have no statistical data for Rome... Certain, however, it is that the degree of depopulation was such as to compel extraordinary measures. And so it came to pass that morals and children became political issues. Recall the puritanic campaigns of Caesar's heir...

Simkhovitch goes on for about a page, listing "puritanic campaigns" of Augustus and later emperors, and comes to this thought:

In the beginning of the fourth century we find still more far-reaching alimentary attempts. To put an end to infanticide Emperor Constantine in 315 orders his fiscal administration to provide for the children of all poor parents residing in Italy, who have not the means to provide for and educate their children.

Today, "right to life" concerns are presented as an entirely moral issue. No concern is expressed about our slowing population growth. At least, no concern about population growth is expressed as a right-to-life concern, far as I know.

Simkhovitch quotes Emperor Constantine in Latin, something like letting children die is a crime we can not permit and says:

The sentiment is a noble one, but back of all these measures is the more and more pressing necessity of maintaining the Roman population if the Roman state is to be maintained.

You can't populate an adequate army if your population is inadequate.

//

I can't end it there. I have to leave you with Simkhovitch's view of the Roman Emperors' efforts:

They were trying to affect the results of a certain given situation, without in the least affecting that situation itself.

They were concerned about the decline of population, but did not address its cause.

The first great land reformer of Rome

Still reading Simkhovitch on ancient Rome.

I hesitate to post some of the thoughts I want to post because I know little-to-nothing of history. If I post something and get it right, you may have known it already anyway. But this hesitation is killing me.

"Rome's Fall Reconsidered", by Vladimir Simkhovitvh, published in 1916, presents the argument that the fall of Rome was caused by "exhaustion of the soil" and the consequences of that exhaustion: declining farm productivity, rising farm debt, and the consolidation of small farms into big farms and of big farms into latifundia, which were farms as big as some of the Roman provinces.

On page 228 (p.29 of 44 in the PDF)

Roughly speaking, Roman political and economic life found itself involved in a series of vicious circles. It is only too well known that as long as Italian land was productive and of value, the struggle for that land was the keynote if not the very content of Rome's political struggles. The wealthy were either in lawful possession or were unlawfully using the public land, and hence they were opposed to its subdivision among colonists.

Rome was not without patriots and prophets, to whose vision it was revealed what the Fates had in store for it. They were the great land reformers – and according to tradition they all had to die. Thus, Spurius Cassius, a consul and a triumphator, is said to have been executed in 486 B. C. 

Who? (I have trouble with this when I'm watching TV, too. I can't remember the names, so I can't follow the plot. And you thought I was kidding about my memory!)

Spurius Cassius. I looked him up. Wikipedia says:

Spurius Cassius Vecellinus or Vicellinus (died 485 BC) was one of the most distinguished men of the early Roman Republic. He was three times consul, and celebrated two triumphs. He was the first magister equitum, and the author of the first agrarian law. The year following his last consulship, he was accused of aiming at regal power, and was put to death by the patricians.

I love it; I love the irony. The first of the great land reformers, trying to improve conditions for the poor, was put to death by the wealthy for aiming at regal power. Wikipedia says:

The strife between the patricians and plebeians was a recurring theme throughout the early history of the Republic, and in time cost Cassius his life.

The Republic was founded, according to legend, in 509 BC. When Spurius Cassius died in 486 or 485 BC, the Republic was still brand new. The "strife between the patricians and plebeians" in those years must have been the "Conflict of the Orders" that came to a head after the monarchy was abolished.

Anyway, the Roman Republic was still in diapers when Spurius Cassius wrote the first agrarian law of ancient Rome.

On the difference between slaves and freemen

I'm still reading and re-reading Simkhovitch's "Rome's Fall Reconsidered". At one point he writes: "Varro had advised against the use of slaves for work in marshy lands, and advocated taking chances with the health of hired freemen" because of the spread of malaria. It's better for a free man to get malaria than for a slave to get it -- better for Varro's readers, the owners of the slaves.

As for myself, I think it is sad that we still have to dwell on the evils of slavery. I think we need to focus today on the evils inherent in the idea that property is sacred. For if we do not cut short the concentration of wealth that arises because we honor the "property is sacred" principle, it will soon be too late to prevent the return of slavery on a massive scale.

Why we can't fix the economy, for example

So it happens that the true causes of things are hardly discussed in the markets and meeting-places. It is the future, not the past, that worries politicians. Remedies, not causes, are what they are bound to discuss.

 - Vladimir Simkhovitch in "Rome's Fall Reconsidered" (1916)