by Daniel Bell
The key proposition for Smith, of course, was that every individual, by pursuing his own ends, helps society as a whole. Adam Smith argued:
As every individual, therefore, endeavours as much as he can ... to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it ... by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.4
To put the case briefly and baldly in the modern jargon, Smith’s conditions for a free and productive society are: individualism, rationality, perfect information, and rational choice; the good of the society is the aggregate of individual utilities. In fact, Smith here laid down a proposition that was almost entirely new in the history of civil society: in a free exchange, both parties to a transaction could gain. In previous times, it was well understood that wealth was in some way acquired largely through exploitation: conquest, tax-farming, tolls, tithes, and so on. Economic life was thus a zero-sum game; one could win only at the expense of a loser. Under the conditions laid down by Smith, economic life could be a non-zero-sum game.5
We come to the problem raised by the two quotations from Adam Smith, for economic goods are not of one type, but two: individual goods and social goods. Individual goods are divisible and each person or household buys particular objects and individual service on the basis of free consumer choice. Social goods are not divisible into individual items of possession but are part of a communal service (e.g. national defense, education, beautification of landscape, flood control and so on). These goods and services are not sold to individual consumers nor adjusted to individual tastes. The nature and amount of goods must be set by a single decision, applicable jointly to all persons. Social goods, therefore, are subject to communal or political, rather than individual, demand.6
The singular point is that in “the great society” more and more goods necessarily have to be purchased communally. Defense apart, the planning of cities and the rationalization of transit, the maintenance of open spaces and the extension of recreational areas, the elimination of air pollution and the cleaning up of the rivers, the underwriting of education and the organization of adequate medical care, all are now “public institutions” which cannot be undertaken by individuals, though their creation would “more than repay it to a great society.”
Now, individuals have their own scale of values, which allow them to assess relative satisfactions against costs, and to make their purchases accordingly. Yet, as I have argued in the previous chapter, there is no mechanism which allows us to consider, in terms of costs and benefits, the varying combinations of private consumption and public purchases of goods.
These are practical, political problems. But at this point a theoretical thorn intrudes. For in recent years economists and mathematicians have been able to supply a “rational proof of the individual utility preference model, but not that of the group welfare function model. Let us turn to what might be called Adam Smith I. In the famous beginning of The Wealth of Nations Smith remarks that only human beings engage in truck or barter. An animal who wants attention fawns or seeks to be engaging. While human beings are sometimes equally servile, they do better by trying to strike a bargain. (“... it is in vain for him to expect [help of his brethren] from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them.”)
In effect, one offers another man a rationally calculable advantage. But how does one make such calculations? What is the value of an object or a service to a person, and how does he compare one object to another? For a man to choose rationally, there must be some underlying standard of value against which he can rate all alternatives. Money is a rough and ready measure. But the “value” of money diminishes as one’s hoard of it increases. .Ten dollars means much less to a millionaire than to a pauper. (This is one of the difficulties, as well, in applying a theory of equality to punishments. Two men may be fined $ 100 for speeding, but for the millionaire the $ 100 means much less than for a worker who pays the same fine. Is equality then the “same” punishment, or an equal ability to bear punishment?) Jeremy Bentham proposed the concept of “utility” as the unit for a model of rational choice, in which individuals would rank their preferences in an orderly way. But there was little way of comparing utilities (i.e. how much more one wanted one preference rather than another— its intensity quotient, so to speak) or of working out optimal combinations when one wants different proportions of different things. Utility, like value, came to be regarded as a metaphysical concept, and price alone was taken as the indicator of exchange and comparability.
The publication of The Theory of Games and Economic Behavior by von Neumann and Morgenstern, in 1944, rehabilitated the concept of utility by dealing with the conditions of choice, or decision-making under risk. One does not know for certain the consequences of a given choice, but one does know the alternatives, and a certain gamble can be built into the choices in which the value of the probability of winning is put against the probability of losing. (A simple game: under conditions of a gamble you can win a Cadillac, but if you lose you get a bicycle; if you decide not to play you get a Volkswagen. Thus, if the chances are 50–50, will you take the gamble or take the consolation prize? What if the chances are 40–60, 30–70, 20–80, 10–90? At what point will you stop taking the risk?) Under such conditions it is possible to assign numerical values to utility which allow you to scale (like a temperature gauge, rather than just rank) the preferences individuals may have.7 It is equally possible, using the various techniques of linear programming, to work out “optimal” solutions in the combination of resources, the maximizing of utilities and the like.
But when one turns from individual decision-making to that of groups, when one considers the problem, quoting Luce and Raiffa, “of how best to amalgamate the discordant preference patterns of the members of a society to arrive at a compromise preference pattern for society as a whole,” we seem to be at an impasse. In the first major effort to formulate the problem, Kenneth Arrow demonstrated, in his Social Choice and Individual Values, written in 1951, that the five requirements of “fairness” for social welfare functions are inconsistent (i.e. no welfare function exists which satisfies all of them.)8 Even the principle of majority rule, which satisfies three and possibly four of the conditions, is subject to the logical contradiction, first formulated by Condorcet, of the paradox of the cyclical majority.
What is paradoxical, therefore, is that while one can now, for the first time perhaps, set up a rational “model” of the Smith-Bentham world, the basic conditions for social rationality become less and less a possibility for the “players” in the communal society.
The proof can be demonstrated by an elementary theorem. Supposing there are three voters, A, B, and C, whose preferences on issues x,y, and z are ordered in the following pattern, we find:
Clearly, x is preferred to y by a majority (voters A and B); y is preferred to z by a majority (voters A and C); from the principle of transitivity (i.e. if an individual prefers x to y, and y to z, we assume he would also prefer x to z) we should predict that x is also preferred to z, and that x, therefore, is the choice of the majority of the voters: but in fact, z is preferred to x by voters B and C, so that no single majority can be formulated on these three issues.9
There have been numerous attempts both to modify the original conditions Arrow put forth as necessary to organize a group welfare function and to res
olve the voting paradox (by conceptions of logrolling, bargains, or the creation of what Anthony Downs has called “passionate majorities”). But so far, at least to the extent that I can follow the technical literature, no satisfactory solutions have been forthcoming.10
This problem—of seeking to produce a single social ordering of alternative social choices which would correspond to individual orderings—is academic, in the best sense of the word. In the “real” world the problem of social priorities, of what social utilities are to be maximized, of what communal enterprises are to be furthered will be settled in the political arena, by “political criteria”—i.e. the relative weights and pressures of different interest groups, balanced against some vague sense of the national need and the public interest. But it is precisely at this point that the theoretical thorn may begin to prick. For increasingly, one of the issues of a great society—one which can be defined as a society that seeks to become conscious of its goals—is the relationship, if not the clash, between “rationality” and “politics.” Much of contemporary social theory has been addressed to the rigorous formulation of rational models of man, in which optimizing, maximizing, and minimizing provide models of behavior that are rationally normative. But we seem to be unable to formulate a “group theory” of economic choice. The impasse of social theory, in regard to social welfare, is a disturbing prospect at this stage of the transition to a communal society.
I have raised a problem—the lack of an ordering mechanism to make social choices—and quickly taken it to a level of abstraction which is meaningless to practical men.11 For theorists, the implications are quite drastic, for these logical conundrums strike at the assumptions of those who think that the general will will emerge out of necessity in democratic debate, and those rationalists—as we all may be—who assume that the public interest is discoverable simply by a summation of preferences. Practical men can take heart, for in all this an intuitive idea is reinforced; namely, that differences between persons are best settled, as are so many differences, by bargaining. As Robert Dahl has observed:
Many Americans are frequently dismayed by its paradoxes; indeed, few Americans who look upon our political process attentively can fail, at times, to feel deep frustration and angry resentment with a system that on the surface has so little order and so much chaos.
For it is a markedly decentralized system. Decisions are made by endless bargaining; perhaps in no other national political system in the world is bargaining so basic a component of the political process.... [Yet] with all its defects, it does nonetheless provide a high probability that any active and legitimate group will make itself heard effectively at some stage in the process of decision. This is no mean thing in a political system.12
And this is, perhaps, as it should be. But if we are to rest our case on the legitimacy of the group interest process—and this was the contribution, initially, of Arthur F. Benrley—some less rarefied but still theoretical questions arise.13
If rationality and individual choice operating through the market were the theoretical contributions of eighteenth-century economics, the idea of representation and interests was the addition of nineteenth-century politics; and the fusion of the two resulted in a social theory of the free society. The most comprehensive formulation of the political idea was offered, perhaps, by John Stuart Mill, in his essay on “Representative Government.” Mill wrote:
The meaning of representative government is, that the whole people, or some numerous portion of them, exercise through deputies periodically elected by themselves the ultimate controlling power, which, in every constitution, must reside somewhere ...
A place where every interest and shade of opinion in the country can have its cause even passionately pleaded, in the face of the government and of all other interests and opinions, can compel them to listen, and either comply, or state clearly why they do not, is in itself, if it answered no other purpose, one of the most important political institutions that can exist anywhere, and one of the foremost benefits of free government.
The theory of representative government reflected a picture of society as a “balance of forces.” The legislature, in this conception, was supposed to contain representatives of the various social divisions and all the class interests in the country, for, as Mill noted in appealing for the right of the working class to be represented in Parliament, “in the absence of its natural defenders, the interest of the excluded is always in danger of being overlooked.” Mill, in fact, was so intent on the idea of the representation of minorities that he gave enthusiastic endorsement to Thomas Hare’s proposal for proportional representation, “a scheme which has the almost unparalleled merit of carrying out a great principle of government in a manner approaching to ideal perfection as regards the special object in view....”14
This normative theory was refined by what might be called the “realist” school of political thought, from Arthur F. Bentley on (one should note, of course, that Bentley’s original formulations in 1908, ignored for many years, were restated three decades later by V. O. Key, David Truman, and Earl Latham), to describe the empirical nature of political reality. If a “group theory” was lacking in economics, it certainly made its appearance, in full flower, in American political thought in the twentieth century. V. O. Key put it most succinctly:
At bottom, group interests are the animating forces in the political process.... Whatever the bases of group interest may be, the study of politics must rest on an analysis of the objectives and composition of the interest groups within a society... The chief vehicles for the expression of group interest are political parties and pressure groups. Through these formal mechanisms groups of people with like interests make themselves felt in the balancing of political forces.15
And, in this conception, the role of the politician was to be a broker:
The problem of the politician or the statesman in a democracy is to maintain a working balance between the demands of competing interests and values.... Within limits ... special interests in a democracy are free to express their demands and their disagreements.... The politician in a democracy ... must be able to hold together enough of these special interests to retain power; he must yield here, stand firm there, delay at the next point, and again act vigorously in a confusing complex of competing forces and interests.... The politician ... must play the part of arbitrator and mediator, subject to the criticism of all. To avoid or mitigate conflict, he compromises.16
Whatever the truth of this “model” as a description of the “nineteenth century inheritance,”17 it is astonishingly out of date for an understanding of politics in the second half of the twentieth century, for it fails to take into account the three most decisive characteristics, or shaping elements, of national policy today: the influence of foreign policy, the “future-orientation” of society, and the increasing role of “technical” decision-making.
Foreign policy is not primarily formulated in response to the needs and pressures of domestic pressure groups (though once decisions are taken, some modifications may be made in reaction to their demands —e.g. to build airplanes in the Southwest rather than in the Northwest). Foreign policy is shaped in accordance with great power and ideological interests, and as responses to perceived threats from other great powers or ideological forces. But its consequence, under conditions of a cold war, is to force a “mobilized posture” on the society as a whole, to create some sense of national unity, and to centralize decision-making and enormous resources in the hands of a national administration.
The commitment to economic growth and the new dimensions of social change—its more rapid shock effects on larger and larger sections of the society and the consequent need to anticipate social change and, to a considerable extent, direct it—have brought with it a renewed emphasis on planning, on the need to become more conscious of national goals and with the “alternative futures” which a society with a steady productivity (a constant 3 percent rate of productivity will double national output in
twenty-four years) can provide. “The process of innovation,” write Dahl and Lindblom, “is both scientific and political. It is not enough that new social techniques be discovered; they must also be put to use. Invention and discovery are only the beginning of a process, the next step in which is innovation, a matter of politics. What we are suggesting is that this process taken as a whole is proceeding with astonishing rapidity— it is perhaps the greatest political revolution of our times.”18
The combination of these two elements brings into play the increasing role of technical decision-making. The shaping of conscious policy, be it in foreign policy, defense, or economics, calls to the fore the men with the skills necessary to outline the constraints ahead, to work out in detail the management and policy procedures, and to assess the consequences of choices. The revolutions in military technology (the introduction of nuclear power, the replacement of manned aircraft by missiles) were initiated by scientists. The development of systems-analysis and cost-effectiveness techniques, which have revolutionized both the strategy process as well as the management structure of the Pentagon, was brought about by mathematicians and economists.19 The management of the national economy, with its close watch on the effects of government spendiing, requires the services of men skilled in the arts, and such crucial policy questions as when to have tax cuts or tax increases, how much to have and where to apply it, and what the wage-price guidepost should be, increasingly become technical decisions.20
