Elements of Economics

Economics is aptly defined as the science of scarcity (we could say “systematic study” if “science” seems too strong). Philosophy of economics is then the philosophy of scarcity, or of the science thereof. It is in this vein that I write the present words. What, then, is scarcity? Here is a good definition: “Insufficiency of supply; lack of availability, esp. of a commodity, in proportion to demand; shortage” (Shorter OED). It does not mean the same as “rare”, which means “occurring very infrequently”; “scarce” connotes a lack of quantity relative to demand, not just statistical infrequency. Things can be rare without being scarce in the economist’s sense (e.g., the excrement of a dwindling species), because there is little or no demand for the thing. When we speak of demand, we don’t mean primarily a speech act of demanding (“I demand a pound of apples!”); we mean desire or need—preference, utility, degree of wellbeing. We mean a psychological state, expressible in demand behavior. So, we can say that scarcity is proportional to desire and availability: if desire is high and availability low, then the commodity is scarce; if desire is low and availability high, then the commodity is not scarce. Some commodities are not scarce at all: space, time, air, ground to walk on—we have as much of these things as we want (in normal circumstances). Economics is the study of scarcity in this sense: human action in relation to commodity shortfall (I include services under “commodity”); it is about what happens when scarcity obtains. If there is no scarcity, there is no economics, either the science or the behavior. Economic action is action under conditions of scarcity, not plenty. There is no economics in heaven; economics results from finite resources, insufficient goods, shortages of supply. (In hell by contrast everything desirable is scarce and everything undesirable is plentiful, especially pain.) In the real world, scarcity is a natural fact, a fact of nature, and economics deals with the human response to it.

It might be retorted that this definition is both too narrow and too wide. Too narrow because of non-human economic agents (animals, aliens), and too wide because it includes types of behavior not normally classified as economic. The first complaint is entirely correct: we want to make room for animal economic action, though it may be primitive and disputable (e.g., cleaner fish symbiosis), and clearly non-human intelligent aliens could have economies. So, let’s expand the definition to include non-human creatures that live under conditions of scarcity (though I will continue to speak of human agents for convenience). The second complaint is more difficult to resolve and calls for some revision of intuitions and common speech. Consider a predatory tiger hunting for food: the food is scarce relative to the tiger’s desire, but should we say that chasing and killing the prey is an economic act? The tiger is responding to scarcity in a desirable commodity, and is making a sacrifice in order to obtain the commodity in question (“paying a price” in energy expenditure and risk); but the prey animal is not doing anything similar—there is nothing in it for it. There is no exchange of goods, no voluntary mutually beneficial transaction; there is just the predator forcibly taking the life of the prey (compare simple robbery). So, is this an example of economic activity? There is scarcity, need, actual cost, and opportunity cost, so far as the tiger is concerned; but the prey animal is operating under no such set of conditions—it is simply running for its life. If the prey animal were to offer part of itself to the tiger, thus sparing the tiger the cost of chasing it, while preserving its own life, then we might have a case of economic exchange; but no such thing is going on as things actually are. I propose that we describe such a case as “asymmetric economic behavior”: it is an economic calculation for the tiger, but not for the prey. There is no economic exchange, but one party is acting under economic imperatives—coping with scarcity by sacrificing some of its own well-being (its own wealth, we might say). In the same way a human robber is acting under economic constraints by responding to scarcity by acts that carry costs (including opportunity costs). He is thinkingeconomically. True, this is not your typical purchase, but it does meet the conditions for cost-benefit calculation under scarcity. We can then define normal economic exchange as “symmetric economic behavior”, acknowledging a real distinction within the class of economic actions. The case is similar to the question of whether economic action is possible for an individual in isolation: can there be a “private economy”, an economy consisting of a single individual? It might seem that this ought not to be possible, but further reflection suggests that it is just an outlying case not typically encountered but conceptually possible. For consider a man alone on a desert island providing for himself: he lives under conditions of scarcity and must weigh his productive options—should he hunt, fish, farm, or just pick fruit? How much effort should he put into constructing his dwelling? He is a producer and consumer with limited resources and finite supplies of energy; he must provide for his future self under the same constraints as apply to interpersonal production and consumption. He is semi-economic man, but recognizably engaging in economic behavior: he is coping with scarcity by standard economic means—capital, labor, costs, production and consumption. He doesn’t buy anything from anyone else, but that is not essential to economic activity: the key point is that he is responding to scarcity by adopting economic methods. He knows his supply and demand, and he pays the price in terms of labor (he pays for desire satisfaction in the currency of labor, mental and physical). The basic elements are there. In particular, he must always be conscious of opportunity costs, just like any spender of money in a department store; he is always trying to get the best bang for his laborious buck. He plans ways to maximize his utilities given the prevailing scarcities. He may come to the conclusion that hunting for meat is just not economical given the realities of the chase; he is better off fishing or fruit-picking. The OED defines “economics” as “the branch of knowledge concerned with the production, consumption, and transfer of wealth”; by that definition the solitary individual can be classified as part of the subject-matter of economics (he even transfers wealth to his future self in the shape of stored food and re-usable tools). We should not let our conception of the economic be too tightly defined by reference to post-industrial money-centered economies; the basic concepts are more general, more primordial.

Inflation is not itself an essentially monetary phenomenon. Even in a bartering economy inflation can occur. A glut of apples will decrease the purchasing power of apples, as will the introduction of cheap labor into an economy (either wage labor or slave labor). You may find yourself having to do more to obtain less—work longer hours, skip vacations. It might be necessary to fight inflation by reducing the supply of apples or cheap labor (cf. printing less money). The same laws of supply and demand apply to money and to commodities. Banks don’t depend for their existence on money either: you could deposit your commodities in a bank too, earning interest on them, as the bank loans out deposits to interest-paying borrowers. There could be bank runs and financial crises (banks don’t have enough apples on deposit to pay for all the apple withdrawals). Money is just a contingent feature of economies. You could be taxed on your apple possessions and even on your labor resources (e.g., everyone has to pay a flat tax by working on the roads a few hours a week). A society could teach economics to students without even mentioning money (they don’t use the stuff); money is just one form that economic action takes. Economics is scarcity science not money science. When the singer sings that all he wants is money (“Money don’t get everything it’s true, but what it don’t get I can’t use”), he misspeaks; what he means is that he wants the opposite of scarcity—he wants not to be short of what he wants. Poverty is scarcity, desire dissatisfaction (“I can’t get no satisfaction” is more accurate), not a lack of funds.

There is another verbal deformation endemic to the way we talk economically: the division into consumer and producer. You would think there are two classes of people in an economy—those who produce (capitalists, manufacturers, entrepreneurs) and those who consume (customers, buyers, clients). But this is a misconception: everyone is both a producer and a consumer in the very act of economic exchange. First, note that sellers are not always makers of products (concrete consumer goods); people also sell their labor, their expertise, their talent. Philosophy professors are producers, as are actors and doctors and lawyers (et al). Nor is all consumption consumption (food being the paradigm): we “consume” lectures, pop songs, dental treatment, massages. We might better speak of “makers” and “takers”. Then we can say that every act of making is an act of taking, and vice versa. When you give me something I also give you something: you sell to me, but I also sell to you—in that very act. For example, I go to the supermarket to buy groceries: I buy from them, but they also buy from me—they buy my money with their foodstuffs. In exchange for my money, they give me food: they bought my money with their food. My money represents my labor, so they are buying the fruits of my labor with the fruits of their labor. They are consumers of my goods (in the form of money) as I am a consumer of their goods. The relationship is completely symmetrical. It is not that I am the passive (idle) consumer while they are the active (hardworking) producer; they are also the passive consumer of my money, in which I was actively productive. Everyone is simultaneously producer and consumer. I could go into a supermarket and say, “Would you like to purchase some of my money with your food items?” and not speak amiss. It is just a convention that we speak as we do, but it masks the realities of economic life. The relationship is not like speaker and hearer; in economic exchange every act is both an act of consumption and an act of production. The supermarket consumes my money in the very act of my consuming its food. One role entails the other. The two roles are indissoluble. So, it would be quite wrong to say that economies are divided into producers and consumers. Again, the model of industrial economies has too great a hold on the way we understand economic reality; and the institution of money disguises the nature of economic exchange. If I went into the supermarket ready to give philosophical lectures for food, that would convey the realities more clearly; the medium of money is incidental to the proceedings.

Economic reality should really be conceived as split-level. At the level of logical form, so to speak, it is all about scarcity, desire, supply, demand, markets, cost (actual and opportunity), production and consumption, conserving and using, materials and labor; but at the level of existing speech, as it were, it superimposes money, high-street banks, stocks and shares, exports and imports, bosses and workers, profits and taxes—all the apparatus of modern economies. I have tried to sort out the essential and foundational from the contingent and superimposed. Of course, it is worthwhile to study contemporary encrustations, but also worthwhile to distill out the underlying realities. Apart from anything else, it makes the subject more interesting. The science of scarcity need not be the “dismal science”.[1] Current expositions make it sound dry and dull, forbiddingly technical, remote from the human condition; but viewed more philosophically it connects with human life at a more visceral level. We live in a world of scarcity, a world brimming with unsatisfied desire. That is the basic subject-matter of economics, scientific and philosophical.

[1] Thomas Carlyle didn’t mean by this phrase that economics is dismal qua science (though that is often what it means to people today); he meant that it contains depressing truths about the human condition. I would describe it as a “pitiful science” in that it evokes pity for the life of man (and other animals) simply because scarcity is a terrible burden. Its most immediate impact is hunger. Hunger is the central fact around which economics is built.

Bounds of Sense

Quine once described Strawson as applying his “limpid vernacular” to the technicalities of logic (in a review of Strawson’s Introduction to Logical Theory). One might hope that he would do the same in exegesis of Kant in The Bounds of Sense. However, in that work we are treated to such tortuous locutions as “necessary conditions of the possibility of any experience of objective reality such as we can render intelligible to ourselves” (119): why not simply “necessary conditions of experience” and “intelligible”? We seek the necessary conditions of experience (adding “the possibility of” is redundant) and we want to know what kinds of experience are intelligible (whether we can “render” them “intelligible to ourselves” is another question, depending on our powers of self-directed persuasion). Further, what is meant by “experience” here? Strawson regularly alternates this word with “empirical knowledge”, including scientific knowledge; but these are different things, one perceptual, the other conceptual-propositional-cognitive (as in knowledge of scientific theories). It seems clear that he is mainly thinking of visual experience as delivered by adult human eyes, but is generalizing beyond that domain. Does he wish to include emotional experience, or olfactory, or ethical, or imaginative, or experience of pain and pleasure? The doctrine of the necessity of spatiotemporal content is clearly more convincing for the visual sense than these other types of experience (especially the spatial component), so we shouldn’t be lulled into accepting a perfectly general thesis based on one instance of it. And what kind of spatial content is deemed essential to experience as such—extension, ordering, continuity, dimensionality, unity, objectivity, infinity? Some experience might be weakly spatial (smell and taste) while other experience is more strongly spatial (looking into the distance on a bright clear day). Imaginative experience prescinds from space considerably, dispensing with spatial relations to other objects. Emotions have little to do with space compared to normal binocular vision. And some forms of vision are more spatially rich than other forms—think of the etiolated visual experience of closed eyes in the dark. The question is a lot messier than Strawson allows, much less clearly defined. Could we ask the same question equally of sensation, perception, sentience, appearance, seeming, consciousness? Might we not get different answers depending on what term we choose? The term “experience” is vague and general, so we don’t know quite what Strawson (channeling Kant) is considering. Is memory included—and what kind of memory? Is mathematical reasoning included? What about logical “experience”? We need more limpid vernacular to tie the question down, more ordinary language philosophy.

About one thing Strawson is crystal clear: Kant thinks that reality itself is not spatiotemporal and Strawson himself rejects that claim. The phenomenal world is deemed spatiotemporal in its essence, but the noumenal world is non-spatiotemporal in its essence, according to Kant. This doctrine is hard to take seriously, as Strawson indicates. How could Kant know this given that (as he thinks) we have no access to the nature of the reality that exists outside our minds? How can we use our sense experience to navigate the objective world if their essences are so different—doesn’t there have to be at least some kind of correlation? Why would we be designed (by God or nature) to represent reality so faultily? What possible reason could be given for removing things in themselves from space and time? The idea that space and time are “in us” but only in us is unmotivated, bizarre, and preposterous; and certainly not required by the Kantian apparatus of phenomenal space and time (intuitions, sensibility, the understanding, the categories, etc.). It may be that phenomenal space and noumenal space are not the same (Euclidian and non-Euclidian, say), but there has to be someveridical relation between them; denying this is gratuitous and disastrous. I would say that concrete, causal, law-governed reality is clearly spatiotemporal, necessarily so—we can make nothing else “intelligible to ourselves”. That is indeed why sense experience is spatiotemporally imbued (to the extent that it is): this is just a scientific fact, a fact of biology and evolution, of the body and brain. Animals experience the world spatiotemporally because that is the real nature of the world in which they have to survive.

So, we can say, lamely but limpidly, that objective reality is necessarily spatiotemporal and that sense experience is variously and to some degree spatiotemporal. There is no simple binary opposition here: animal sentience is spatiotemporal in many ways and to different degrees (possibly going down to zero). But what about language—meaning, linguistic sense? Curiously, Strawson says little about this in The Bounds of Sense(despite the pre-existence of Individuals). The answer again is mixed and unsystematic, even more so than in the case of sentience. True, we often speak of extended objects in space standing in spatial relations within a unified and ordered spatial manifold (what we call Space). But we also speak of things that are ambiguously and problematically related to space: states of consciousness, numbers, values. Reference is not a purely spatial act. Nor is syntax or grammar best defined in spatial terms. Sounds are not, in themselves and essentially, extended things. Senses are not laid out in space. Language has one foot in space, so to speak, but it also dallies with the non-spatial. Spatial reductionism is a misguided metaphysics. The real is not co-terminus with the extended. It is certainly not a necessary conceptual truth. Language is not, then, subject to Kantian requirements regarding space, even phenomenally. The Kantian project, pushed to extremes, is really an exercise in hyperbole, in which Strawson colludes (as befits an interpreter) but to which he does not wholly succumb. The idea that space is the general form of all our representations is a philosophical exaggeration, like many philosophical theories.[1]

[1] As to time, from the fact that all mental acts occur in time it doesn’t follow that they are of time—that time is an aspect of their content. All events occur in time, but it would be strange to say that they all represent time. It is also misleading to employ the term “spatiotemporal” uncritically: time and space are really very different things, and what holds of time might well not hold of space. Roughly speaking, time is more all-embracing than space. Not everything is space-like and not all mental representation is as of space. Certainly, we cannot derive the necessity of spatial content from the mere existence of the particular-general distinction, as Kant hoped.

Rebecca gave me permission to publish this.

Empiricism, Memory, and Knowledge

In pre-Socratic times there was a school of thought known as “memorism” (or so I once dreamt). The principal doctrine of this school was that all knowledge is stored in memory: whenever you know something there was a past event that laid it down in memory, and knowledge is the recall of that something. Past event, storage, recall: these are the necessary and sufficient conditions of knowledge. The memorists opposed the orthodox school of thought (the “revelationists”) which held that all knowledge arises from direct communication with the gods: whenever you know something the gods are conveying it into your mind by speaking directly to you. The revelationists found the memorists impious in their reliance on memory, a human attribute, instead of the divine action of the gods, to whom we owe everything. There is no invocation of the past, no mysterious storing of information, no ecstatic recall experience, just good old-fashioned godly beneficence. Let the gods be praised! The two schools debated the matter at length, never coming to any firm resolution. The revelationists brought forward counterexamples: what about knowledge of the present and future—surely, we don’t know these things by memory? The memorists responded either by denying the existence of such knowledge (eliminative memorism) or by explaining present and future knowledge as special cases of memory knowledge (reductive memorism). Ingeniously, they contended that by the time knowledge is acquired the thing known is past and retained in memory, and that we only know the future by remembering the past (induction etc.). So, it was either memory naturalism or revelation supernaturalism. The memorists were gaining adherents as their anti-supernaturalism spread and flourished; the revelationists seemed mired in superstition and pseudo-explanation. The gods surely had other things to occupy their time, and anyway were not deemed “empirically verifiable”. Memorism seemed to cover the ground nicely, was rooted in everyday experience, and dispensed with ad hoc appeals to divinity. And indisputably, a vast amount of human knowledge simply is stored in memory—knowledge of history, geography, animal husbandry, who your friends and enemies are. The theory looked warranted by the plain facts of human psychology.

But a new school of thought was taking shape at around this time: this school sympathized with the memorist’s anti-supernaturalism but were troubled by apparent counterexamples to the central doctrine. What about our knowledge that everything is self-identical? Is that based on memory? Was there some past event that laid this information down in memory—say, seeing a bunch of self-identical things and making an inductive leap, or hearing it from a trusted teacher? We never seemed to have learned this truth—never made an observation of it or were taught it in school. Yet we knew it. And there is a lot more knowledge like this, as they quickly pointed out: all of geometry and arithmetic, logic, conceptual truths, ethical propositions, maybe even philosophical theories. No past event triggered and justified this type of knowledge; there was no experience of recall in entertaining it; and people never suffered from difficulties of recollection over it (“I know the answer to this, but I can’t quite bring it to mind”). Such knowledge simply doesn’t bear the marks of memory.[1] Has anyone ever said “I just can’t remember whether everything is self-identical or not”? It thus appears that our knowledge exists in two places in our mind: in memory and in some other faculty not itself a type of memory. When asked what this faculty consists in, the anti-memorists grew dark and pensive: for no name suggested itself and the question was obscure. Some declared it an irresoluble mystery, while others (the “eternalists”) boldly asserted that such knowledge exists in the mind eternally (there was no moment of acquisition) and is a primitive fact of human nature. If we want a name for it, we can call it “un-memory” or “pre-memory”—in any case, it isn’t a form of memory in any normal sense. We just have this knowledge; it exists in the deepest recesses of our soul. It was never put there by anyone, divine or mortal, nor was it the result of an interaction with external reality. Remember, these were ancient times and evolution and genetic inheritance were unknown concepts. What this third school (they had no generally accepted name) was sure of was just that not all knowledge is memory knowledge. They opposed the idea that memory knowledge exhausts the whole of human knowledge; their positive theory, however, was still a work in progress. To be sure, much human knowledge is represented in memory, but there remains a substantial core of knowledge that is not so represented. Thus, there are really two types of knowledge; knowledge is not a homogeneous phenomenon. It has two species, two fundamental forms. They resisted the epistemological monism of the memorists.

Does all this ancient intellectual history remind you of anything? Is my dream a reflection of any actual history? Empiricism versus rationalism, of course: memorism is another version of empiricism and anti-memorism is the analogue of rationalism (or nativism). The memorist substitutes memory for experience: instead of saying that all knowledge derives from experience, he says that it is all dependent on memory. He thus sidesteps the standard problems with the concept of experience—whether it is conceptual or non-conceptual, given or interpreted, justificatory or epistemically idle, opaque or transparent—and replaces it with the concept of memory. Interactions with the environment lay down memories, which are later recalled; this is the source of all knowledge worthy of the name. Surely, something like this picture was implicit in traditional empiricism, since experiences had to be retained in memory in order to provide the basis of subsequent knowledge: you see something, remember it, and later recall it in an exercise of knowledge. In short, knowledge is sensory memory, according to empiricism. And rationalism is the denial of that: some knowledge (mathematics, etc.) is not memory knowledge of past interactions with the observable world; it has a different origin and modus operandi (which is hard to specify). Both empiricism and rationalism were opposed to the revelationists of their day; knowledge is not a gift from the gods (or God) but a fact of human natural psychology—an achievement of memory or a product of instinct. My pre-Socratic dream narrative thus mirrors the actual narrative of later philosophy (as Plato’s belief in innate knowledge anticipates Descartes and Leibniz). For some reason, the empiricists didn’t make memory salient, but it was hovering in the background: knowledge is experience remembered. The rationalists, by contrast, thought that not all knowledge consists in experience remembered—remembering past sensory interactions is not a part of knowledge arrived at by pure reason. The question being debated concerns the role of memory in knowledge, not so much the role of experience—whatever that might be exactly. We can even imagine a form of empiricism that eschews the concept of experience altogether, but still insists on the vital role of memory: perhaps there are just physical excitations of the sensory receptors (conscious experiences having been eliminated from the picture), and anyway we want to make room for subliminally acquired empirical knowledge that involves no conscious experience at all. Memory empiricism thus takes precedence over experience empiricism, theoretically speaking.

Putting traditional empiricism aside, the memory formulation affects our view of the distinction between a prioriand a posteriori knowledge. We can now reformulate this distinction in the obvious way: a posteriori knowledge is knowledge based on memory, while a priori knowledge is knowledge not based on memory. This works pretty well: the role of individual and collective memory in the formation of scientific and commonsense knowledge is acknowledged, while its irrelevance to typical instances of a priori knowledge is highlighted (it is not a type of historical knowledge in the broad sense). If anything, this puts a priori knowledge in a better light, because it sounds like pure dogma to insist that all knowledge proceeds from memory—memory is just one way of storing information. The genes store information, in animals and humans, which is then transmitted to offspring (we call the result “instinct”), but such storage is not the faculty normally labeled “memory”. Memory is just one way of possessing information (as well as skills and pre-dispositions); and there is little prima facieplausibility in the thesis that all knowledge (etc.) is contained in acquired memories. Memory is just one method of being informed, equipped, internally configured. And it sounds completely wrong to claim that logical and mathematical knowledge is arrived at by consulting one’s memory, as if it has a basis in historical records; logical and mathematical reasons are not time-bound in that way (“I remember seeing the law of non-contradiction for the first time when I was ten years old, and I have never forgotten it”). You don’t have to ransack your memory to decide if modus ponens is a sound logical rule, nor is there any danger of forgetting it. This kind of knowledge is completely different from knowledge of historical dates, or the route home, or the results of an experiment. Thus, the distinction between a priori and a posteriori knowledge has a firm and clear foundation, which helps establish the sui generis character of the a priori. Strangely enough, the place of memory in relation to the traditional distinction has not been much recognized (if at all).

The empiricist, whether experiential or memorial, puts space and time at the center of knowledge: you can only make pertinent sensory observations at certain times and in certain places. The doctrine might, indeed, be so defined: all knowledge rests on suitable spatiotemporal proximity to the thing known. But the rationalist points to types of knowledge not restricted in this way: we don’t need to be near numbers at a certain time of day in order to know about them (or logical truths or meanings). This type of knowledge is not dependent on spatiotemporal proximity to the thing known—hence the adequacy of the armchair in arriving at such knowledge. Nor is the subject matter naturally conceived as existing in space and time (what is a number such that we could be near it?). Here we find a marked contrast between the two types of knowledge. We really should not expect that a priori knowledge could be subsumed under the a posteriori umbrella. The empiricist is guilty of overgeneralizing from properties of knowledge characteristic of only certain types of knowledge—those dependent on sensory experience or memory. Such knowledge is only so good as the experiences that (allegedly) ground it, or the memory capacities that make it possible; but rational knowledge is free of these kinds of limitations, being neither experiential nor memorial. How it does work, however, is far from clear. All we can say is that considerations of space and time make no difference to the availability of a prioriknowledge.[2]

[1] I discuss this in Inborn Knowledge (2015), 44-46.

[2] I realize that I have been writing and thinking about a priori knowledge for over fifty years, and I never tire of it, difficult though it is. It’s one of the things that got me into philosophy in the first place. I think most discussions of it over the last century have been pretty feeble—exercises in problem avoidance and tendentious stipulation. The nature of a priori knowledge is one of the Big Mysteries of philosophy.