The Quoran who asked the question, below, might not have been driving at what I took it to mean. The intention may actually have had something to do with economic systems, with “capitalism” as it has developed in “the West.” It never crossed my mind, as I wrote my answer, that it was not about the social science. But I should have guessed, for people often use “economics” as a description of some system.

Ayn Rand wrote of “the separation economics and State” while James Branch Cabell referred to “The Economics of Coth” (and others) when drolly recounting one of his better character’s decisions and rationales.

Cabell’s usage strikes me as more than merely forgivable, Rand’s does not. For one thing, when Cabell wrote, “economics” was still a fairly new term in an educated person’s lexicon. “Political economy” had served for over a century, and many economists wrote tomes in Cabell’s time calling the science “Social Economy.” For another, there is only one way to take Cabell’s construction, while Rand’s “economics” could mean either the science (it should not be subsidized) or “markets and the private property order.”

I write a lot comparing varying social systems of production, distribution and consumption on Quora. But here I stick to considerations of basic explanatory theory.

Why is western economics based on self-interest?

…adapted from an answer on Quora…

It isn’t.

Self-interest is a moral concept, and economists are supposed to be Wertfrei (value-free) social scientists — if on track of value.

You might say, “but economics is all about the results of people choosing according to their own values, thus all about choices dependent upon a kind of perceived or self-constructed interest.” And I reply, “well, OK, if you must — but it is just as much a science exploring other-interest, for these selves doing their choosing also value others, and their interests in others figure into their demand and supply curves just as much as does their self-regard.”

The truth is this: the logic of choice at the heart of subjective value and marginal utility and marginal rates of substitution and satisficing and all that is not egoistic . . . according to economists. And when they say that it is — as they sometimes do, in large part because they are not always good philosophers — they err.

The brilliant Jevonsian economist P. H. Wicksteed tried to make this clear when he argued that economists are not pushing a rationale of egoism when they develop their notion of a demand schedule or draw up indifference curves, nor negating altruism, either. What they apply, he argued, is a concept of non-tuism.

This is a coinage he offered to help explain what he regarded as the basic nature of trade: when a person economizes in his purchases and asks for the highest prices possible in his sales, he may do so for egoistic or altruistic reasons, but still works to maximize the interest of the transaction, either egoistic or altruistic, when he makes those trades. (Or when she makes her trades, for one of Wicksteed’s better examples was of a housewife deciding the basic economy of the household under her charge.) Non-tuistic interest is a worthwhile concept to try to understand: see Israel M. Kirzner’s The Economic Point of View: An Essay in the History of Economic Thought (1960), for a good treatment.

But even Wicksteed did not get it exactly right, for we do sometimes trade for others’ benefit, accepting a higher price for pencils from the blind man at the corner than at the Five and Dime.*

It helps to focus not on “interest” — which, as I assert above, has too moral a component — and not on “utility” — which is unduly abstract, and gets students confused. Concentrate, instead, on the specific uses to which a good may be put. Under the theory of Grenznutzen (border use) of the Austrian School economists (from which English-language economists got their term of art marginal utility), the various uses to which a fungible good may be put, and against which value is to be understood (as dependent upon the importance of the specific use the last unit of a good decided upon has to the economic actor), can be almost any mix of self-regarding and other-regarding purposes.

In my personal economy, my first gallon of clear water goes to drink, the second and third to food preparation, the fourth to cleaning myself, the fifth to my neighbor, the sixth to my dog, the seventh to washing the dog, the eighth to washing the house, the ninth to letting the neighbor’s cow to drink, and so forth.* All of these uses satisfy me, but several also satisfy others. Do you see how useless quibbling about whose interests are being served?

The economist does not usually inquire deeply about the egoism and altruism of the goals, or uses, that are the foci of the border use (Grenznutzen) that goes into explaining the formation of prices and the rates of exchange. Because such concerns are irrelevant to what economists are usually trying to explain.

Similarly, economists rarely fret about how a person forms the value scales which place the various uses to which goods are put into order. Not because they cannot be analyzed, but because they are mostly irrelevant to what economists do.

Who is concerned? Moralists, whose traditional and self-appointed job it is to get people to change their values.

But when moralists get worked up over whether choices on the market are “too egoistic” or “not altruistic enough,” they go too far if they also castigate all economic choice as selfish. And usually they descend into a very deep error.

The error was identified clearly by Austrian philosopher Alexius Meinong in his Ethische Bausteine (see Marie-Luise Schubert Kalsi, Alexius Meinong’s Elements of Ethics, 1996), where he explores the difference between subject and object, ego and alter. Of egoism and altruism, Meinong argued that, before any deep inquiry, one might think that “a value is egoistic if the subject is egoistic, altruistic if the alter is the subject. However, that this is not so can be seen in the fact that I myself have altruistic desires and valuations besides egoistic desires and valuations. Thus, no objection should be raised that there are altruistic and egoistic values for me. Then, the ego is subject of even altruistic values. But the altruistic nature of these values must be grounded on something other than the valu[ing] subject.”

The notion that economics is “based on self-interest” is actually a misguided philosophical complaint, and though I recommend Wicksteed and Kirzner and other economists to clear this up, it really is a philosophical error, and should be dealt with philosophically.

 * Yes, I am old. I like throwing around seemingly ancient examples.

N.B. In addition to the texts explicitly cited, above, one should consult

Reconsiderations

I have to confess to writing my Quora answers fairly hurriedly. It is obvious that some are better than others. This one was not great, rather poorly organized, with some sloppiness. The Meinong section should have been placed up a few paragraphs, and my problem with Wicksteed’s non-tuism is not adequately identified.

The issue lurking (as if Yog-Sothothery) behind the scenes, is this: in discussing market prices in terms of marginal utility we generally assume that the goods being traded are discrete and serve a specific set of needs, or wants. But sometimes we do trade “just to trade,” even though Adam Smith protested that he was unaware of much good being done in that vein. Human interaction is more complex than simple models can map, and, yes, the Austrian praxeological method of catallactic explanation is modeling, too. There is no way around models. There are just different sorts.

This complexity becomes clearer, amusingly enough, when you move away from mass markets and into murkier realms of barter markets, gift economies, plunder procedures, and straightforward cooperation in domestic and tribal contexts.

Much work must have been done in the manner I indicate, here, but I have not seen that work, especially amongst the Austrians.

Austrians, whose basic approach I apply to social science, are like today’s leftists in one sense, at least: just as leftists endlessly and obsessively and yammer about racism for the obvious reason that the fight against racism is the only good thing they have ever accomplished, Austrian economists grind their brand of marginal utility theory because it was, indeed, the best thing they ever accomplished. Expanding it into other domains is harder work. So that work is generally not done.

That being said, Austrians are least apt among market-oriented economists to get caught up in puerile charges of “egoism.” The self-interest notion, too, is rarely botched by Austrians in a crude way, though I do not see many in the tradition to take a deep interest in the processes by which individual actors construct and revise their own understandings of their interests.

Finally, it is indeed unfortunate that we have to deal with two quite distinct concepts of “interest”: the moral concept, in which one aims to provide an objective standard for one’s subjective (personal) value scale, and the catallactic concept, which is associated with (if not defined as) the price of loaned funds.

twv