Mariella Smith

Brine Leas Sixth Form, Nantwich

A Levels in Economics, Maths, Further Maths, Chemistry

 

Degree aspiration: Economics
 

Is economics simply about the distribution of scarcity?

Like the generations that preceded me, on day 1, lesson 1, GCSE Economics I was met by the ‘textbook’ definition of the subject, as espoused by Lionel Robbins (H) in 1935. 

To summarise: 

Wants are infinite, yet the means of satisfying wants are finite, ergo scarcity arises. 

And it is the role of economics to address this issue. 

My approach to examine whether it is valid that this principle should define the scope of economics  will be in three stages.

Initially, I will review a selection of definitions of the subject offered by previous eminent contributors, in an effort to expose lines of reasoning which could impede or negate the hypothesis. Second, I will test the fit of the definition against some of the key macroeconomic challenges. Third, I will seek to draw a conclusion as to the most appropriate definition. 

Robbins’ principle of scarcity is an immutable bedrock of neoclassical thinking. However, critics have highlighted some key shortcomings.

Robbins did not address how people decide what goods and services they want. Instead, he established wants as a given input. He regarded how such preferences are formulated to be the preserve of other disciplines such as psychology.

Similarly, on the supply side, ‘the technical arts of production’ - which I interpret as the level of technology - are treated as exogenous.

Critics claim that Robbins undermines his own argument that preferences and technology are exogenous inputs. Robbins (1962) recognises agents may try to change preferences. I interpret this as, for example, the Government implementing an anti-smoking campaign. Or on the supply side, the level of technology may be influenced by government funding innovation activity. These new levels would be outputs from a policy enactment, rather than a preordained input.

Despite Robbins’ view being formed in the 1930s and falling out of favour in the following decades, his views have received some support in more recent times. Kohler (1970) (F) has since framed the subject as the ‘science of scarcity.’ Similarly, Laidler and Estrin (1989) (G)  stated economics is ‘about scarcity.’

Unsurprisingly, given perceived shortcomings of Robbins’ ideas, there have been detractors offering alternative definitions.  Whilst some build upon Robbins’ lines of thought, offering enhancements and widening the scope, others reject the core tenant and approach from a different vector.

Robbins received criticism for his definition as it failed to take appropriate account of the behavioural aspects of people. Colander (2009) (A) highlighted how it does not consider how people interact on an individual level, or as a collective. Similarly, Paul Sweezy (1970) (J) defined economics as something ‘social and collective’. Both these commentators elevate the importance of the social environment in which economics takes place. 

Wolf and Resnick (1987) (L) upheld a similar viewpoint. They hold that neoclassical theory does not explain the social relations that impact economic life. It looks at general ways of behaving and the actions of specific individuals, but it omits these important societal factors. I interpret this to mean that Robbins’ fails to account for the fact that addressing scarcity is not the only driving motive for actors. 

In a similar vein, Costas Panayotakis (2012) (5) reasoned that if scarcity is merely seen as an output of the interaction of human preferences and technology, then the impact of social and economic relationships is emitted - and the shaping influence they have on economic actors.  

Gowdy (1997) (E) also emphasised the importance of the social environment. He reasoned that if how wants are shaped is a given, and this is not the domain of neoclassicism, then it is the influence of the socio-economic system. Therefore, scarcity is largely a social construct, not an innate human characteristic.  

Marshall Sahlins (1972) (I)  in 'The Original Affluent Society' considered the role of huntergatherers. He outlined that such a traditional society has very basic needs, for example, to be healthy, which to a large extent involves being able to eat. On the supply side, the hunter-gatherers have relatively easy methods of satisfying such means from new sources. In fact, paradoxically, it would be detrimental to their interest to accumulate too many goods as they would have to carry them. In such societies the problem of scarcity is largely mitigated. Thus, this indicates that it is the the way societies are structured (particularly Capitalist societies) that causes scarcity, as distinct from being inherently unavoidable. Sahlins’ work supports the view of the endogeneity of human wants; the concept they are shaped and evolve by the societal context.

Sahlins’ work built on the previous study by Galbraith (1958) (D) ‘The Affluent Society’. Galbraith said that technological and production improvements in the USA meant that basic economic needs could now be essentially fulfilled. America was even on track for satisfying more higher level wants. For Galbraith, the issue was no longer that of scarcity. It was now an issue between the priority of higher-level goods verses public goods, which offered higher social welfare gains.  

A further interesting demand-side perspective is offered by Nicholas Xenos (1989) (M). Xenos’ article built on Veblen's (1934) (K) seminal work on conspicuous consumption. Xenos reasons that conspicuous consumption is a modern capitalist phenomena, fuelled by advertising. The purchase of particular goods and services may be a means of attaining status and recognition from others. I may want a Rolex because it signals wealth and success. But to maintain my status, I must have more than my peers. It is a relative position, not an absolute position. If all my peers are participating in the same purchasing league, the finish line forever shifts further away, and there is no winner. All that remains are unfulfilled wants, and hence, conspicuous consumption brings the issue of scarcity back to the fore. The drivers that underpin this form of scarcity are not solely wants, as defined by Robbins, but social factors such as social status, peer pressure, wealth and self-image.

Further work regarding conspicuous consumption was conducted by Robert Frank (1999) (C) . He attributed the causes of conspicuous consumption to psychology and even physiology - he observed that individuals could get serotonin and testosterone ‘hits’ from making purchases. Consequently the disciplines of neuroscience and psychology may be needed to be considered in the modern definition of economics.

The works of Sahlin, Galbraith, Xenos and Frank contain themes of absolute versus relative scarcity, which was the focus of study undertaken by Dugger and Peach (2009) (B) . They argued that in modern societies there could be enough goods and services to achieve ‘adequacy.’ I interpret this as meaning fundamental needs are satisfied - as opposed to all wants. So, as per Maslow’s ‘Hierarchy of Needs’ if many of the lower and mid bases are covered, then for Dugger and Peach the key focus now becomes inequality; such as class, global, gender and racial. For Dugger and Peach “social relationship is where the scarcity shoe pinches.”

I see Dugger and Peach’s analysis as highly relevant. It feels more appropriate to be studying relative scarcity as supposed to absolute scarcity, because, in a world of conspicuous consumption and avaricious humans, wants shall be continuous and it does not feel appropriate for economics to be focusing on the ever-escalating higher level demands. 

Adam Smith’s mercantile view of the subject focused on the process of the production, consumption and accumulation of wealth. Following, Smith’s publication of ‘The Wealth of Nations’ (1776) (3) the likes of John Stuart Mill and Nassau William Senior (1) have also argued that economics is a science of wealth. 

Alfred Marshall (1890) (3), a neoclassical economist defined economics as “a study of mankind in the ordinary business of life”. Marshall stressed the primacy of human welfare in examining the behaviour of both individual consumers and collective action.

Other definitions (6) have been presented by Beveridge who regarded economics as “the study of the general methods which men use to meet their material needs.” Pigou referenced economics as “the study of economic welfare as part of the social welfare process”.

After offering a range of definitions and perspectives, I now seek to advance by considering the relevance of scarcity in addressing some example key macroeconomic problems. 

Inflation occurs due to the interaction of supply and demand and the situation that arises when they outstrip one another e.g. cost-push or demand-pull. Meanwhile, scarcity relates to wants not being able to be met by finite resources. Both situations present competing forces and the tension amongst them. Therefore, the principle of scarcity seems to fit when considering inflation.

Governments may aim to counteract structural unemployment which arises due to a mismatch of skills. Scarcity gives us insights on optimising limited resources. Consequently, there seems relevance between the two.

By contrast, the concept has limited use when considering negative externalities such as pollution. The focus on production and meeting wants seems to take limited account of the side effects of the process. If I purchase a newly built house in a village, my wants have been satisfied. Hence, in Robbins’ eyes, the economic transaction has been a success. However, Robbins fails to account for the negative spill-over effect upon my neighbours who have had their views obstructed.

Scarcity provides limited help in choices such as having a larger police force or allowing working parents to spend more time with their children. Some direct economic benefits may be measurable but the model doesn’t account for a pensioner feeling more or less safe. Or the parent and child having a better relationship. Or the relative merits between these two options. Ben Fine (2012) (2) stressed that economics as Robbins defines it is unfit for purpose as ethics (a subset of value judgements) is needed to be taken into account.  

The concept of scarcity has remained important and relevant in economic theory. I believe it is very helpful in summarising the interaction of supply and demand, showing the inherent tension in the capitalist system and providing a very eloquent starting point to signpost the remit of economics. It also appears congruent with other key concepts such as utility optimisation and Pareto optimality.

However, the wheels start to come off the neoclassical bus - or at least loosen - in a number of key areas.

A major drawback is that it fails to accommodate value judgments on the merits of relative satisfaction between different individuals. In fact it explicitly excludes this “different peoples’ satisfactions should not and cannot be compared”. If economic policymakers are seeking to direct resources I feel they should take into account the satisfaction of different groups and individuals and their relative merits.

Secondly, Robbins regards wants and technology as fixed inputs - beyond the scope of economics. In my opinion, this assumption is overly simplistic since economic policies can be implemented to influence these factors.

Thirdly, the theory does not account for the socio-economic context in which it is applied. I have referenced the nomadic hunters and Galbraith’s industrialising America, but now I would like to reference another example. In a society such as Cuba, I think scarcity would be less of a cornerstone because people have lower expectations, a base level of need fulfilment is provided by the state, there is a strong emphasis in Cuban society regarding the collective good and arguably ostentatious displays are less acceptable. In societies such as this - and potentially future post-Capitalist societies - I would argue the concept of scarcity would have less relevance.

Fourthly, scarcity fails to address the issue of negative externalities. Satisfying wants may cause repercussions such as pollution to arise. Robbins’ definition fails to account for this.

Finally, the levels of wealth in many modern-day societies means that for the fortunate, scarcity is now a relative issue. Conspicuous consumption is a demand 'arms race' which cannot be won, and as I have previously stated it feels wrong to have a subject that is orientated on the focus of the long-tail of extreme demands. 

I support a definition of economics which addresses these shortcomings.

Bibliography

 1. Deepali, P. (2013) ‘Top 4 Definitions of Economics (With Conclusion)’. Available at: http:// www.economicsdiscussion.net/economics-2/definitions/top-4-definitions-of-economics-withconclusion/14134 2. Fine, B. (2013) ‘Economics: Unfit for Purpose’, Review of Social Economy, pp. 373-389. 3. The Library of Economics and Liberty. (Last updated in 2019) ‘What is Economics?’. Available at: https://www.econlib.org/library/Topics/College/whatiseconomics.html 4. Noyes, D, (2015) ‘Fairy-Tale Economics: Scarcity, Risk, Choice.’ Narrative Culture, vol. 2, pp. 1 - 26 5. Panayotakis, C. (2013) ‘Theorizing Scarcity: Neoclassical Economics and its Critics’, Review of Radical Political Economics,, pp. 183–200. 6. Sharma, V. (2011) , ‘Introduction of Economics’ pp. 1-15 Available at: http:// www.ddegjust.ac.in/studymaterial/bmc/bmc-107-eco-e.pdf

Panayotakis references these primary sources, which I have referred to:

A. Colander, D. (2009) ‘What was “it” that Robbins was defining?’ Journal of the History of Economic Thought 31 (4) (December): 437-448.

B. Dugger, W. M., Peach, J. T.. (2009) ‘Economic abundance: An introduction.’ Armonk, NY and London: M. E. Sharpe.

C. Frank, R. H. (1999). ‘Luxury fever: Why money fails to satisfy in an era of excess’. New York: Free Press.

D. Galbraith, J. K. (1984). ‘The affluent society’, 4th ed. Boston: Houghton Mifflin.

E. Gowdy, J. M. (1997). ‘Introduction: Back to the future and forward to the past. In Limited wants, unlimited means: A reader on hunter-gatherer economics and the environment’, ed. Gowdy, J. M. Washington, DC and Covelo, CA: Island Press.

F. Kohler, H. (1970) ‘Economics: The science of scarcity.’, Dryden Press.

G. Laidler, D., Estrin, S.. (1989) ‘Introduction to microeconomics’, 3rd ed. New York: Philip Allan.

H. Robbins, L. (1962) ‘An essay on the nature and significance of economic science’, 2nd ed., revised and extended. London: Macmillan.

I. Sahlins, M. (1972). ‘The original affluent society’. In Stone age economics. Chicago: Aldine Atherton.

J. Sweezy, P. M. (1970) ‘The theory of capitalist development: Principles of Marxian political economy’. New York: Monthly Review Press.

K. Veblen, T. (1934) ‘The theory of the leisure class: An economic study of institutions’. New York: The Modern Library.

L. Wolff, R. D., Resnick, S. A..(1987), ‘Economics: Marxian versus neoclassical.’. Baltimore and London: The Johns Hopkins University Press.

M. Xenos, N.  (1989) ‘Scarcity and modernity’ . London and New York: Routledge.

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