4 New Assumptions for a New Economics

James Bondio (undergraduate at University of Queensland, Australia)

I hope to add to the kindling that has been laid to ignite a new economics. The ideas in this paper are not original but their combination as an economic theory came to me while I was waiting in various airports recently. I have reached this point of view through combining studies in philosophy and history of economic thought, behaviourism, social psychology, sociology, theology, and the beautiful people around me.

I am not an expert at economics and know less of writing theories, but it is my opinion that economics has a noble greater purpose, making people happy, and an economic theory should explain ways to achieve this. At present the theory I am taught teaches profit maximisation, utility maximisation and (individually summed utilities) social welfare, which are achieved through self-love and greed. Then the fear created by competition forces us to do the best we can for each other to fulfil our selfish motives. My common sense tells me that a society dominated by fear and greed will not be happy and my experiences provide me with enough evidence to believe that selfish and scared people are never happy. The ideas for a new theory that I present here are assembled in an effort to create a more realistic theory, to better understand people’s behaviours and decisions, how prices are set and to explain ways people can be happy.

My theory goes something like this: the economy is not made up of individual rational utility and profit maximisers; it is made up of people. Traditionally, what makes human beings as a species different from other animals is two things: the power to reason and the power to communicate through language. We are creatures eternally looking for reason, meaning, and value in everything around us (economics itself is evidence of this) and most importantly in our own existence. If we find meaning and worth in ourselves, then our own existence is valuable and can be appreciated. It is when our existence is meaningful that we are happy. Of course, the greatest human expression of value and appreciation is love. So my first assumption of economic behaviour is:

People search for meaning and value in their own existence and everything around them.

Our ability to communicate value and meaning between each other enables values to be agreed and disagreed upon, reinforced and rejected by those around us, and learnt and taught to those we have contact with. People who communicate to each other (verbally, through body-language, clothing, or anything else that can communicate meaning) create a social group and a social context. Groups can be formal and established or informal, but groups have common and recognisable values and reason. These common values and reasons within a group are referred to as, habits, culture, stereotypes and social norms. They communicate meaning and value. They exist within friendships, families, firms, political parties, university faculties, religions, age groups, and football teams. My second assumption is:

We are all subject to social norms.

It is the values and meanings we learn from groups and individuals important to us that define what is meaningful. Our values are dependent on the groups we are members of. Group membership is maintained and established with groups that provide and communicate meaning or value. To be members of a group people then adopt what is important and representative of that group, and can be recognised as group members. Being recognisable means an identity has been established, which communicates meaning to others. My third assumption is:

People will adopt the norms of the groups most important to them at any point in time.

What is important to people will depend on what context they are in. Different contexts will demand needs that need to be satisfied. Individuals will behave within norms that will satisfy their needs according to a hierarchy. Importantly, people will satisfy their needs within the boundaries of the norms (values & beliefs) of the groups vital to their identities. For example, a strictly Jewish man dying of starvation would not eat pork. The hierarchy operates such that lowest order needs of physical survival must be satisfied, then pleasure needs, self-fulfilment, social fulfilment and spiritual/universal fulfilment, each a higher order of needs. The orders represent levels of personal development. The level that people have reached will determine what they value and consider meaningful. The more developed person experiences a deeper meaningfulness and reason. This fuels our desire to develop. Therefore, my fourth assumption:

The importance of groups (and their norms, which are followed) will depend on two, sometimes opposing, forces – personal development and context.

Those are the basic assumptions I need, thus far, to explain behaviour within economies. I feel that the current assumptions in economic theory should be replaced by a set of assumptions similar to these. I want to direct this paper from here towards explaining how people can behave according to the assumptions, how behaviour could be modelled, and the implications of a theory based on these assumptions. Perhaps, to follow in the footsteps of our ancestors, an example of how the butcher’s love provides us with meat is appropriate.

According to these assumptions the butcher can provide us with meat for a number of reasons. The butcher can provide us with meat for his survival, purely out of self-love. His job provides him with income that lets him buy food, shelter and clothing. However, the butcher could do a number of jobs that will satisfy his survival needs. He may choose to be a butcher, over other trades, simply because he finds pleasure in cutting and preparing meats. If the butcher’s father was also a respected butcher then the son may have followed his fathers valued footsteps to gain the same self-respect. Further he can provide us with meat because of the pride it gives himself when others recognise him as a skilled tradesman and a hard worker. He may work to support his family. The butcher may love the fact that he can provide fresh food as a source of life and enjoyment for his customers and community, which means he may take extra care in ensuring quality, not just for his own profits, but for the people around him. The butcher can choose to provide us with different meat. He can choose to supply ‘free range’ chicken, beef grazed in pastures that have not caused deforestation, and non-genetically modified meat because of the values he places on animal life, the environment or god’s creation. The butcher can provide us with meat for any number of reasons and loves. Why he does will depend on what is meaningful to him.

How then is this behaviour modelled? I haven’t given this a huge amount of thought; however, I think the supply and demand model can remain, with a few modifications. What follows is a list of ideas instead of a structured argument. The simple supply and demand model can no longer be viewed as the relationship between utility and profit according to the axioms of price and quantity. Equilibriums will no longer represent optimal outcomes and equilibriums will only be context specific. Equilibriums could be viewed more as contextual agreements and instead of equilibrium points they could be modelled as intervals. Agreements can be made within the intervals depending on the salience (contextual relevance) of group norms. This is where advertising and salespeople come into play, they attempt to increase the salience of norms that will most benefit sales and prices.

This then gives power to the people who influence norms (group leaders, respected institutions, publications, advertising and media figures). Therefore, there does not have to be perfect competition. Nor does the assumption of perfect information need to be kept, indeed it is because there is not perfect information that we adopt group norms, relying on the perceptions and judgements of each other to guide our decisions (i.e. “if everybody else whom we see as important thinks it is good there must be something good about it.”). Hence outcomes are not always optimal and people do not have to be modelled according to subjective expected utility theory as rational economic agents. Nor do firms have to be modelled as profit maximising juggernauts. Instead people (on both the supply and demand curves) are behaving in order to achieve something meaningful to find reason so that we have value and can be appreciated by others.

To find what is meaningful we then look to those people we respect and regard as important, and they are determined by our context and development. Therefore if we are to understand the behaviour of different markets, identifiable groups with observable group norms, we can benefit from understanding these processes. Importantly, what order of needs, according to the hierarchy, are being satisfied need to be identified explicitly. I think this is already done implicitly in analysis but is left largely outside of analysis that I have been taught. This would require empirical research out in the wide-open ‘playing fields,’ finding out why people do what they do. Present theory restricts motivations for behaviour purely to the lower order needs of survival, pleasure and self. If this were true, then everybody would live according to fear and greed – not a happy situation! Progressing the theory in the way I have suggested here means analysis can also include the value and benefit of things greater than our individual existence. This is what my common sense tells me will make the world a happier place, and this paper is the draft of a theory that says the same.

The implications of a theory based on these foundations are many and I am sure to think of others after I have written this paper. But primarily these foundations:

bring both consumer and producer analysis together through the analysis of people;
require less emphasis on mathematical logic and more on observing reality;
shift methodology towards group analysis away from individualism (this is important in explaining group hostility and cooperation, gender, class, societal and cultural characteristics) and;
require explicit historical perspectives when analysing the development and emergence of groups and their norms.

Importantly, economics will need to move to analysing actual contexts that groups exist in. We will need to broaden our analysis from contextual factors (e.g. income, welfare, savings, standard of living) to include personal development factors (e.g. education, the family unit, group membership, judgements and perceptions). Economists will need to ensure that the economy creates a context, by including normative analysis and policy, where people are not solely concerned with survival and self, a context where people value each other, our environment, the miracle of life on this planet, the power of love, and the existence of things greater than ourselves. It’s time to make economic teachings relevant again.

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SUGGESTED CITATION:
James Bondio, “4 New Assumptions for a New Economics“, post-autistic economics review, issue no. 2 April 2003, article 4, http://www.paecon.net/PAEReview/Issue/Bondio19.htm