1. The lively discussions on choice here reveal that economists do not agree
on the meaning, significance and role of choice in economic theory. I have
no choice but to break out of this state of refutation.
2. Economics was supposed to be a study of the observable concrete reality
called the economy. But the marginalist revolution dropped the economy out
of economics and instead fled to the world of an isolated individuals choice
that does not matter to anybody else. It began studying the application of
the principle of economy or economizing, and hence properly belongs to
biology.
Mickey the individual mouse faces choices between hunting this or that
insect, and foraging for this or that food, and has time and energy
constraints, and he bears various risks and uncertainties in the hunting and
gathering activities. The biological principle of conservation of energy can
very well be presented as the principle of economizing.
Microeconomics as it stands today is nothing more than Mickeynomics of
Mickey the Mouse, and can be simply thrown away with no loss of
understanding about the market economy. We can make a short visit to biology
to read about the natural economy and how solitary individuals allocate
their given resources to maximize their utilities and minimize their costs.
Specifically, the Walrasian general equilibrium model applies to a single
mouse that hunts n different insects and equalizes the production of each
item with its consumption. It says nothing about the uniquely human choices
in a market economy which is not a natural economy. It has nothing about the
market at all. It mistakes equality of production and consumption under
autarky for equality of demand and supply under exchange. To make it into
exchange, the demand for each good must be matched by something of a
different kind, but of equal value in payment. Without that additional
equation, the Walrasian model cannot be said to have anything about the
market. It remains pure biology.
I must add that there is old confusion about the idea of rational choice.
Rationality is not an observable reality. We cannot say that Crusoe is 38%
rational while Friday is 57% rational. It is an analytical concept for the
analyst only. Anything is rational if it is reasonable, that is, if the
analyst can make sense of it. The choices of a solitary mouse must be deemed
to be rational. It adds nothing about human beings at all. Biological
choices are rational choices too.
3. In a market economy, an individual is not isolated. He must rise above an
optimizer and be an entrepreneur. As an entrepreneur, he produces what he
does not consume (but what he sells), and he consumes what he does not
produce (but what he buys). Through buying and selling, he expresses his
entrepreneurial choices, which are fundamentally different from allocational
choices of an optimizer. An optimizer is a miserable loner who allocates a
given scare resource, and cannot make any gains. But an entrepreneur breaks
out of scarcity by creating new value that did not exist before. He
exchanges something of lower value for something of higher value. Since he
tries to satisfy the demand of others, he produces far in excess of what he
would produce only for his own consumption. This is what Grandpa Smith
wanted to understand in the Wealth of Nations: how do you create new wealth?
Division of labor did not mean allocation of an individual's time to many
tasks all done by Crusoe, but the exchange of time so that one man produced
something for many others, and relied on others for many things he did not
produce himself. There is entrepreneurial choice here, but no optimizer can
deal with it. Biologists are not economists because they cannot deal with
entrepreneurial choices.
4. James Ahiakpore sees that if the employer did not hire the guys at the
minimum wage, they laborers would be without work and worse off. To me, he
is saying what a biologist would say. Why? In biology, plunder is normal: a
lion simply kills and eats the fawn, and never pays. A slave has no
economic choice, but has biological choice: he can submit to the master and
stay alive or rebel and die.
To become an economist, it is necessary to see the entrepreneurial
potential, which in this case would be one of competition. Can the worker
compete effectively to get jobs that pay wages equal to marginal product? If
they cannot, there is plunder, and it is an exercise in biology of hunting.
If the worker does not have competing employers, he is not a participant in
a market, and he is of no importance to economics. In economics, one must
see the individual as a pursuer of profit, and that pursuit must occur
within an institutional setting in which the buyer is compelled to pay full
price to the seller. If the slave wage is lower than the value of marginal
product, the institution is not a market, and politics will intervene to set
it right based on brute power. As long as Americans can keep the Africans as
slaves, they will. If the political power-balance changes, the story will
change. It has nothing to do with economics.
To make it into economics, one must consider the option of the individual
for self-employment. Only under a plundering natural economy of one man
hunting another will a worker be unable to employ himself on his land or get
access to capital to set him up in production. If workers are unable to find
alternative employment, something is seriously wrong and it is time to pick
up the axe and fix it. It is time for politicians to liberate the market
from the free-market lobbyists who want the market to be monopolized, and
plunder to continue without any regulation. It is time to install
competition by busting monopoly.
5. How can a biologist aspire to become an economist? First, forget about
optimization and begin with entrepreneurship. Derive a merchants demand for
something which he will not consume and hence where utility will not matter.
Next, derive a merchants supply curve of something which he sells but does
not produce, and hence in which the production function and cost of
production does not matter. Next, one begins in economics by specifying an
economy as a set of real goods, all of which are potentially exchangeable,
that is, in principle, all of which could be consumed by people other than
their producers. Next, specify the relations between the kinds and
quantities of the goods to display how they affect one another. I have shown
how to do that with four equations. It covers the degenerate case of autarky
as well, the only case known to micreconomics.
6. The constraints on an optimizers miserable choices seem to have prevented
the biologist from becoming an economist. Why assume constant prices and
incomes in the consumers choices? No, prices are not constants, and incomes
are not constants either. When an individual is put in the market context of
exchange, he is both a producer and a consumer, and he must be both a seller
and a buyer. The fun is that he buys one thing and sells another, and these
two things must be related in some way to comply with the rules of exchange.
One rule is that he must pay for what he buys, and the value of the payment
must be equal to the value of what he buys. One learns about price through
an entrepreneurial exchange in which arbitrage necessarily occurs. Arbitrage
means that the market price is above the marginal cost of production and
below the marginal benefit of consumption, when both are measured in units
of a reference good. One also learns about money when specifying indirect
exchange in which the first individual gives his real good to a second and
gets its real compensation from a third. One then sees the seigniorage
operation of arranging payments in two steps: the seller first gets money
from the buyer, and then gets real goods from another supplier. All of it is
far above and beyond Mickey Mouse optimization.
7. An optimizer does not gain anything from allocating a given budget, but
only avoids wastage of misallocation. Seemingly, most economists choose to
be optimizers who will remain within the constraints of micro and
macroeconomics and individual choice as was handed down to them, and will
not break out of constraints to courageously beat micro, macro, trade and
monetary theory all into one solid pulp of economic theory that offers
great gains over those crude fragments. Micro fetish continues.
8. There is intellectual choice. The meek can inherit the earth and its old
miseries and be biologists looking at the optimizing behavior of isolated
Crusoe/ Mickey Mouse. Or they can be zoologists, primatologists and even
anthropologists and psychologists to observe the behavior of solitary man or
mouse or chimp, and even see them in a colony of interaction, but all within
the natural limits of optimization for the miserably constrained.
The non-meek can venture into the realm of economics as a study of the
market economy in which entrepreneurial choices occur. Those are choices
devoted to make net gains from actions of buying and selling, of arbitrage
and seigniorage. Then there would be no need to apologize for the plunders
of the slave masters, but one could instead offer eulogy to the
accomplishments of creators of wealth of nations. And then one would see the
rules of the game of exchange and have much fun watching how it is played.
I would encourage future economists to watch the creation of new wealth,
the busting of old constraints, and the elimination of the isolation of the
miserable Crusoe rescued back into glorious company of movers and shakers.
Save Crusoe out of his misery: let him produce for others and make profits,
and let him enjoy the products of others for which he pays well. Make him
richer and richer, so that the budget constraint becomes a laugh. Let him be
a man: let him bust his constraints.
Have a gainful summer of unconstrained fun and enjoy doing something new.
Mohammad Gani
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