Rather than being seen as the sum of free individuals who had their own rights, society was compared with the human body. Each social group was thought to have its own function to perform, with the aim of keeping the whole being living and breathing.2 The function of peasants was to labour to make sure that everyone was fed. The function of the elite was to provide justice and to ensure that the nation was protected from foreign incursions. The function of the clergy was to take care of spiritual and moral well-being. Mobility between groups was frowned upon; only by individuals performing their allotted functions could the whole body of society be kept alive. Responsibility to wider society was key, not the rights of the individual. Selfish desires were kept in check by the Church ‒ under threat of eternal damnation. The assumption was that individuals are inherently sinful, driven by passions such as greed, envy and lust which had to be contained by religious and moral teaching.
The Church had provided a structure within which societies functioned from the fall of the Roman Empire. However, by the sixteenth century, the modern-day nation-states began to form. In this new age of state building, a nation's ultimate survival depended not only on its moral fibre but on its ability to defend itself. That required financial means. If a nation was to acquire the riches it needed to achieve its defensive goal, the presumption was that it had to operate like a merchant. The state took control of trade in an effort to maximize the ‘balance of trade’: to sell more on international markets than the country needed to import. It was by maximizing this surplus that the state believed it could strengthen its position on the world stage. Rather than pinning their own nation's survival on the products of other countries, policy makers aimed to build independent domestic economic capacity.
Trade policy and industrial policy became all the rage as, unfortunately, did imperialism. In an effort to maximize their ‘specie’, governments used a mix of import taxes to punish and discourage imports (except those that were vital to production), and subsidies to encourage exports. They sought access to foreign lands, trying to monopolize their markets and access their produce. Colonies were acquired and vast trading companies were created alongside; the East India Company in the case of England and VOC in the case of Holland. The desires of individual consumers and of individual entrepreneurs came second to the merchant state. Merchant activity was now acceptable, so long as it was aligned with the mercantile interests of the state. Conspicuous consumption of luxuries was discouraged, portrayed as an economic evil that used up scarce foreign exchange. In other words, the moral case against greed was now also supported by economic logic. This was a time when the state could be self-interested but not the individual.
This hypocrisy could not continue. Either the state had to become ‘moral’ or a case had to be made for the self-interest which the state enjoyed being rolled out to everyone else. Before long, a radically new way of thinking about society and individuals began to emerge, one that led a number of European states along the latter path.
The Enlightenment, which gathered steam in the eighteenth century, demonstrated the power of human thought to generate an ever-improving understanding of the world around us. Reason came to trump ‘passions’. With the capacity for reason came the idea that individuals are born equal and should be free to pursue their own individual goals. Rather than expecting citizens to blindly obey, reason enabled individuals to engage in a social contract with one another, with the state acting as intermediary. Whilst Hobbes argued that this could lead us to voluntarily accept a Leviathan as a means to avoid a violent state of nature, Locke disagreed. The first duty of the state, he argued, should be to uphold the rights of individuals. Rather than limiting their freedoms, the state should be protecting them. Medieval writers had emphasized individual responsibilities towards wider society; Locke pointed to individual rights.
This notion of individual rights and freedoms could not have been more radical. The fear had always been that leaving people to their own devices would wreak havoc. How could the needs of society ‒ our need to be fed, clothed and sheltered ‒ be met simply by leaving everyone to ‘do their own thing’? Chaos would surely be the outcome of a society in which neither the Church nor the state imposed order, through either physical or spiritual threats. When Mandeville's Fable of the Bees attacked puritan values in 1714, questioning the commonly held notion that it was Christian morality that ‘held society together’ and suggesting that private vices can in fact be to public benefit, it resulted in an outcry.3
Undeterred, David Hume and Adam Smith took up the mantle. Hume argued that without the desire to acquire ever greater riches, we would be idle.4 Smith pondered how economies developed from a simple state of nature in which we spent our days hunting and gathering to one in which we were surrounded by factories, offices, new technologies and an ever expanding stream of goods and services to tickle our fancy. Drawing inspiration not only from Mandeville but also from the school of French economists known as the physiocrats, Smith argued that order, not chaos, would be the result of leaving everyone to do as they pleased ‒ so long, that is, that we were free to engage with one another through the market and the state took on the role of providing justice. Though it might not seem the most ‘moral’ of drivers, Smith suggested that the market harnesses selfishness and channels it in a direction that works in the best interests of society. The natural harmony of the market would translate individual desires into a wider social good. In his own words, ‘[i]t is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.’5 Or, in the words of the French economist Quesnay, ‘[t]he whole magic of a well-ordered society is that each man works for others, while believing that he is working for himself.’6 Somehow, with everyone simply doing what is best for themselves – behaving as ‘rational’, self-interested and calculating creatures – we end up living in a complex and sophisticated economy with access to everything we need to live our lives. Rather than being by design or the result of some big state plan, it is as if by magic.
Smith aimed to show that individual selfish behaviour in the context of the market would not result in chaos and would in general be in everyone's best interests. However, this did not mean that such selfish behaviour had to dominate our every waking hour. His Theory of Moral Sentiments showed a different side to human behaviour, one which placed individuals in the context of a wider society and brought morality to bear on self-interest. And, rather than seeing our key goal in life as being the maximization of riches, he instead believed that we should be left to pursue whatever goals we wanted ‒ as separate individuals. By using the market, as opposed to being part of some system of state or societal control, we can more easily and cheaply meet our material needs, but that would leave more time and resources for us to fulfil whatever non-material goals we might have. Unlike in the mercantilist system, the state is not bearing down on us to produce whatever it thinks we should be producing and in the quantities that it demands. And, rather than the Church imposing its own view of what our goal should be in life, Smith believed we should answer to our inner selves ‒ to an ‘impartial spectator’ that sits inside each of us.
The Big Picture: Classical Economics
Regularly bundled into the same school of economic thought as Adam Smith is, seemingly paradoxically, Karl Marx. As with Smith, Marx took the view that, when it came to our lives in the market (if not outside), selfish behaviour rules. However, unlike Smith, he did not believe that the overall result would be beneficial for the ‘proletariat’ or even, in the long run, for the capitalist. Selfishness results in an order but one that oppresses the worker for the benefit of the capitalist and that would, he argued, end in chaos. Capitalists might feast off the exploitation of their workers in the short to medium term, but they can only do so by undermining their own future sustainability. The pursuit of profit to fund capital accumulation would eat into consumption, leading to an economy with an ever-increasing capacity to p
roduce but without the demand needed to mop it up. An over-investment‒under-consumption equilibrium would result, and a revolution would ultimately be required, shifting the means of production into communal ownership and spreading the fruits. This new ‒ communist ‒ system would rest on individuals who were motivated by the common good. For Marx, it was capitalism which corrupted our humanity. The death of capitalism would mean the death of selfishness. Marx and the Church, it seems, have a lot in common. Whilst the Church had a moral case against selfishness, Marx had now provided them with an economic case. But, rather than seeing self-interest as inherent in human behaviour, he saw it as a product of capitalism itself. Without capitalism, the Church becomes defunct. Without capitalism, we internalize the needs of our fellow citizens.
Although they may not have agreed on the implications of individual selfish behaviour, Smith and Marx did, however, have one thing in common. They focused on the big picture, on aggregate outcomes. This was an age of revolution – of the British Industrial Revolution, in fact. Evidence from the world around them seemed to suggest that the fate of any economy was not signed and sealed; it was changeable. The rise and decline of economies ‒ and political systems ‒ was centre stage. The big picture with its focus on ‘the wealth of nations’ was, therefore, ever present. Marx simply added another dimension: distribution, or how that wealth was divided up between the classes.
The Marginal Revolution
In the latter part of the nineteenth century, economic thought underwent something of a revolution, one known as the marginal revolution. Led by William Stanley Jevons (1835‒82) in England, Carl Menger (1840‒1921) in Austria and Leon Walras (1834‒1910) in France, and drawing influence from Jeremy Bentham's utilitarianism, economics shifted away from the big picture ‒ from questions of growth and distribution ‒ towards the study of the individual. It began to analyse individual choices, attempting to quantify the notions of pleasure and pain. The assumption that we are all rational, self-interested and calculating beings formally took hold. Mathematical proofs of Smith's invisible hand ‒ of the magical properties of the market ‒ would soon follow.
According to Partha Dasgupta, this marginal revolution was economics’ natural defence mechanism against Karl Marx. By placing the individual at the centre of their analysis, economists sidestepped the need to face up to class inequalities.7 And, as the economy moved from the transformative phase of the Industrial Revolution, Dasgupta argues that the focus began to switch away from the growth of the economic pie to scarcity: to how we could best use the resources that we had (rather than assuming a world of ever-expanding fruits). In a situation of scarcity, the marginal economists argued that we had to make sure every single resource was used as efficiently as possible so as to achieve maximum ‘happiness’, where for firms such ‘happiness’ was defined in terms of profits and for consumers in terms of ‘utility’. That involved modelling individual decisions on both the production and consumption side of the economy: how businesses could make best use of the ‘factors of production’ (capital and labour), and how consumers could make best use of their resultant earnings ‒ choosing between all of the different types of products available to them ‒ so as to achieve maximum enjoyment. Self-interest again was key.
Jevons noted that the enjoyment we receive from consuming a particular product is not constant: it depends on how much of that good we have already consumed.8 Our enjoyment tails off the more cakes or crisps we consume in a single day. This led to the development of the notion of ‘diminishing marginal utility’, with which we could then model how consumers can best optimize the enjoyment they receive from a given level of income. The analogous concept of ‘diminishing marginal productivity’ was developed, suggesting that a single business would obtain less and less additional output from each additional worker or machine. Profit maximization involved selecting the point at which this marginal productivity ‒ the marginal benefit of production ‒ was equal to the marginal cost. Beyond that point, each extra factor of production would be producing too little to cover its cost. In a world of scarcity, margins mattered. That was where all of the interesting action took place in terms of ensuring economic efficiency: hence the term ‘marginal revolution’.
This individual-centred movement fitted neatly with the scientific turn that came with the Enlightenment. As science became all the rage, emotions were out and rationality was in. Society was making the shift away from seeing the world as driven by fate, magic and heavenly forces to recognizing life around us as the product of scientific laws – laws that were for intellectuals to uncover and subsequently harness for the betterment of mankind. Enviously observing developments in scientific disciplines like physics, including its ability to reduce aggregate phenomena to the behaviour of individual atoms, economics was on a quest to become ever more scientific. That seemed, after all, to be the route to earning respect as an academic discipline. Economists had previously tended to involve themselves in business and politics; now science seemed to be a whole new higher calibre of activity. The marginal revolution, which opened the door for the application of maths to economics, appeared to be the way forward.
Conclusion
Since the marginal revolution, economics has held on tight to its focus on individuals. Not only was the development of microeconomics – the study of how consumers and producers make choices – the natural result, but macroeconomics – the big-picture questions surrounding the causes of economic growth and economic crises that had long interested economists – has since been rebuilt on micro-foundations of rational, self-interested, calculating individuals.
The marginal revolution is, however, the marmite of economics. Many economists see it as the beginning of modern economics, but there are others who, as we will see in the next chapter, consider it the point at which economics began to go awry. Both, however, miss the historical context, the two prongs that were the scientific Enlightenment, with its faith in our ability to reason, and the rights-based philosophy of Locke and his followers which, when embodied in economics, culminated in economists assuming that people are rational, self-interested and calculating agents. Taken together, these two developments ‒ outside of economics ‒ had created the case for individual freedom in an age in which capitalism was fast replacing an older system of production, one in which the state and religious authorities bossed us all around.
It was on the basis of claiming that we were all rational ‒ that we could all reason ‒ that philosophers were making the case for individual freedom. And it was by showing that any resultant individual selfish behaviour, unchecked by Church and state, would not lead to complete chaos, either in our ability to meet our basic needs or in wider society, that economists were able to support this case for individuals to be freed from the wrath of the Church and the state, whether at home or in the colonies. As Mark Pennington recently noted, ‘For much of human history, the prevailing assumption has been that the social order can only be maintained by the exercise of deliberate authority. It has been the contribution of the classical liberal tradition to argue that this is not so.’9
However, if we can certainly understand the direction that economics took in the context of the time, the turn was, nevertheless, a mixed blessing. First, as we will see in chapter 9, it limited economists’ ability to understand the world, something which economists are still reluctant to admit because of the way in which they perceive alternative insights as being ‘too soft’ and ‘feminine’. Second, and as will be seen in chapter 10, whilst some harnessed individual freedom to push for equal rights and equality of opportunity for women,10 others accepted patriarchy and chose to divide up the economy into a public ‘male’ sphere, one of markets and politics where rationality and self-interest were thought to apply, and a ‘feminine’ domestic sphere in which the very opposite assumptions were thought to apply ‒ a supposed world of altruism, dependency and self-sacrifice.11 It was the sphere that economists chose to ignore at their peril.12
N
otes
1 Sandelin, Trautwein and Wundrak (2008), pp. 1, 3.
2 For a historical perspective and feminist critique of the separate versus connected self, see England (1989): 15‒17.
3 Backhouse (2002), ch. 6.
4 Ibid., pp. 114‒15.
5 Smith (1776).
6 Meek (1962), p. 70.
7 Dasgupta (1987), ch. 6.
8 Jevons (1888), ch. 3.
9 Pennington (2011).
10 Taylor (1992); McElroy (2001); Hirschmann (2007).
11 Kessler-Harris (2001), p. 7.
12 Picchio (1992); Ferber and Nelson (1993); Nelson (2018); Folbre (1991, 2009); Folbre and Hartmann (1988).
9
Humans Versus Robots: the Behavioural Revolution
In recent years, economics has faced a behavioural challenge. Neuroscientists and psychologists have questioned whether economists are correct to assume that we are financially motivated, ‘selfish’, rational and calculating. As we will see in this chapter, behavioural economics has a point: human beings are motivated by much more than money, and we are something other than rational and calculating. Only by admitting this real human behaviour can we start to answer properly many of the big questions that economists ask: why we veer from boom to bust; the causes of economic growth; and why poverty is difficult to escape. However, as we will conclude, economics has resisted the behavioural challenge for one rather foolish reason: the association of self-interested, rational and calculating behaviour with masculinity. As Jane Humphries notes, ‘[a]s long as masculinity is associated with superiority, the idea that economics could be improved by becoming more feminine makes little sense.’1
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