READINGS

from Chapter II, Wealth of Nations, Adam Smith

THIS division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.

Whether this propensity be one of those original principles in human nature of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to inquire. It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any other species of contracts. … Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.

Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that. When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose its services it requires. A spaniel, by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will.

He has not time, however, to do this upon every occasion. In civilised society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It 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. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

From Communist Manifesto by Marx & Engels

The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors," and has left no other bond between man and man than naked self-interest, than callous "cash payment." It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms has set up that single, unconscionable freedom- Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.

SERMON

A man walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Tells the shepherd, "I will bet you $100 against one of your sheep that I can tell you the exact number in this flock." The shepherd thinks it over; it's a big flock so he takes the bet. "973," says the man. The shepherd is astonished, because that is exactly right. Says "OK, I'm a man of my word, take an animal." Man picks one up and begins to walk away.

"Wait," cries the shepherd, "Let me have a chance to get even. Double or nothing that I can guess your exact occupation." Man says sure. "You are an economist for a government think tank," says the shepherd. "Amazing!" responds the man, "You are exactly right! But tell me, how did you deduce

that?"

"Well," says the shepherd, "put down my dog and I will tell you."

The humor in this story highlights the difference between theory and reality that sometimes goes on in economic circles. It is an unavoidable flaw of trying to reduce human behavior to a mathematical model which then can be used to understand the past and to make decisions about the future. The particular model I'd like to discuss this morning is how economists model human behavior.

My title comes from a chapter heading in Dr. John Cobb and Herman Daly's book, for the common good: redirecting the economy toward community, the environment, and a sustainable future. In our adult education class at 9:00am, we have been watching a videotape of Dr. Cobb speaking to the UU Ministers this past June in Spokane right before General Assembly. As a social activist and world famous Process theologian, Cobb is deeply concerned about human communities, the environment and a sustainable future. Cobb became interested in economic theory when he realized that transformational power today to address these problems does not reside with the church or even the individual nation state but rather in economic institutions.

Central to economic theory is Homo Economicus, the economist's model of human behavior. For all the mathematics and the mask of objectivity, western economics begins with certain assumptions about human economic behavior. I quoted from the economist's bible, Wealth of Nations written in 1776 by Adam Smith, because it represents the most common economist's view of human nature.

Smith asserted we behave in the marketplace predominately out of self-interest. This sounds at first to be intuitively obvious. We all want to get the most for our hard earned dollars. Few of us would buy a product if we could get the same one of comparable value for half the price. Few of us will stay in a job if we know we can get paid three times as much at a new firm doing less work. When buyers and sellers are unrestricted in the marketplace, a free market is created. And in the free market, so the theory goes, the "unseen hand" works to stabilize prices, and maximize goods and services for the benefit of all.

Certainly we can see the truth that we often follow our self interest in the marketplace. It may surprise some of you, though, that the primacy of self interest has not always been how Homo Economicus has been described. In fact economic self-interest has only gained legitimacy within the last quarter millennia.

Economics is still a young science. John Kenneth Galbraith in his book Economics in Perspective: A Critical History, describes modern economics as born of the industrial revolution when large labor and capital markets emerged. From the Greek and Roman times through the medieval period, slaves and serfs provided the labor which was little valued as part of the cost of production. During those years and before, a large percentage of the population was engaged in one way or another in agriculture. There was little industry above and beyond basic survival needs. Production of most items such as clothing, agricultural implements, cooking equipment was done in the home or in small scale production for local consumption. Trade consisted of only what could not be made or grown locally. Capital was not freely available due to prohibitions against the charging of interest on borrowed money. Theory of marketplace behavior was ruled by the ethics of setting fair prices rather than charging what the market could bear.

The change in thinking came with the industrial revolution, the perfection of the steam engine, and the division of labor. The energy tapped from the steam engine allowed for the creation of machines which in turn could greatly increase the product of a worker's labor. But the expense of these machines meant they could not be used in cottage industry. Farmers and their children left their fields to devote their entire energies to factory employment. The division of labor had the dual effect of decreasing the cost of goods in the marketplace while at the same time making people dependent on the marketplace to supply their needs.

With the growth of industry, workers transferred their dependence from the lord, landowner, prince or king to the captains of industry. And as we have seen highlighted again in the past twenty years, the feeling of dependence is not mutual. Corporations often feel little or no loyalty to the workers or to the communities where their plants are located. If production costs are cheaper in Indonesia, off they will go. The loyalty of the corporation is first to the stockholders. And we as stockholders are glad this is so. And we as consumers are happy to get our goods and services at a cheaper price.

Cobb observes that Homo Economicus is an extreme individualist. He takes no delight in the well being of others but rather only in the goods he consumes. His or her satisfaction is measured economically by what is consumed or produced. The intangibles, the enjoyment of a public park, the appreciation of clear running streams, the desire to conserve soil fertility for the use of one's grandchildren are often lost in the calculus of economic value.

These inaccuracies in measuring economic value wouldn't be that important if economic value was subordinate to higher values which we used to guide our society. But in a liberal democracy which permits pluralism, the higher values are not held in common but relegated to the individual conscience. One of the unintended results of accepting a plurality of religious values and the exclusion of their unilateral use to control governmental policy is to substitute effective values for ultimate values. If we cannot agree that loving God and loving our neighbor are of supreme importance, we can agree that maximizing economic output serves the private good of all.

We assume society benefits from economic growth. It is our highest article of economic faith. Quite often this is true. Unfortunately, what can get lost by our focus on effective values in the encouragement of individual maximization of economic gain can be concern for justice, fairness or the well being of the community as a whole as these values are often externalized from the costs of economic production. Productive use of natural resources get greater valuation than conservation and preservation. One can be measured in dollars and the other cannot. The value of an endangered species or an old growth forest doesn't fit into the economic calculus since they have little economic value when left undeveloped in some way.

What gets lost in the middle is the community, the family, the social dimension which is often compromised by free markets. When individual production and consumption becomes the highest value, the common life of a community suffers. Communities are defined by place, relationship and culture which all mitigate against production which strives to be independent of place, culture and relationship.

Because the public good is often at odds with self-interest as expressed in the marketplace or the corporate boardroom, the question then is what to do about it. The communists thought public ownership and control was the answer. No one today is seriously advocating that path. On the other end of the spectrum, many today still champion full lassie faire economics as ultimately serving the public good. Let capital flow where it will unrestricted - keep the market completely free. This is not the answer alone either.

There are. however, some new ideas about solving this age old tension between public and private and at its core is reshaping how we understand Homo Economicus.

Matt Ridley and Bobbi Low write in The Atlantic magazine in an article titled, "Can selfishness save the environment?" (9/93 p76(9)) about one such solution in protecting common resources:

…Near the Spanish city of Valencia, the waters of the River Turia are shared by some 15,000 farmers in an arrangement that dates back at least 550 years and probably longer. Each farmer, when his turn comes, takes as much water as he needs from the distributory canal and wastes none. He is discouraged from cheating - watering out of turn - merely by the watchful eyes of his neighbors above and below him on the canal. If they have a grievance, they can take it to the tribunal…Records dating back to the 1400's suggest that cheating is rare

Here a precious resource, water, is shared in a sustainable way. Why does this work? Why do people not cheat? A new theory of reciprocal behavior may hold the answer.

To get a handle on this theory, imagine this scenario. You and your friend commit a crime, are arrested, sent to jail and placed in separate cells. Each of you are interrogated separately. Each is offered the same deal. If you individually confess to the crime and implicate your friend, you will go to jail for three years. If you stay silent and your friend confesses and implicates you, you will go to jail for five years and your friend will go free on a plea bargain. But if both of you stay quiet, the police will only be able to prove a lesser charge and the sentence, at most, will be is one year.

When this situation was converted into a game, called the prisoner's dilemma, which is played for points rather than years in jail, researchers discovered that there was only one consistent winning strategy: to cooperate with your friend the first time and stay silent and then rat on them the next time if they ratted on you the previous time. Initial cooperation with the threat of retaliation is the optimal solution. This strategy is probably already familiar to us as "tit for tat."

What is interesting is this turns out to be an accurate description of commonly observed animal behavior:

A female vampire bat, for example, will regurgitate blood for another, unrelated, female bat that has failed to find a meal during the night - but not if the donee has refused to be similarly generous in the past…Male dolphins call in their debts when collecting allies to help them abduct females from other groups. Baboons and chimpanzees remember past favors when coming to one another's aid in fights…

The implication of these studies is that where cooperation among individuals does evolve, surmounting the prisoner's dilemma, it does so through tit-for-tat…Cooperation can emerge naturally. The collective interest can be served by the pursuit of selfish interests.

This kind of cooperation for the common good is grounded in individual experience and the ability to effectively punish those who transgress the commons. This kind of reciprocity is just what is lost when impersonal governing bodies step in to manage the commons. This kind of reciprocity is also lost when we give away our responsibility to care for our sick and poor to an impersonal welfare system.

If tit-for-tat is indeed an effective way to harness self-interest for the common good, we will need to rethink the importance of local communities. Unaccountable bureaucracies of faceless people do not build the spirit of cooperation. The more names and faces of people we know are associated with the protection of, say, the Peace River Estuary, with interlocking relationships which can be used to reward cooperation and punish transgression the more successful we will be at managing our natural resources for the benefit of all.

Yes we are driven by self interest, but we are social creatures too. We realize it is in our best interest to cooperate if and only if we are in reciprocal relationships. Homo Economicus is a social being who desires relationships based on reciprocity as the foundation of his or her activity. Our challenge is to support the growth of that reciprocity to embrace larger and larger groups and goals. A more accurate understanding of Homo Economicus as social and selfish will assist us in that goal through the recognition of the mutual advantage of cooperation before competition and exploitation.

Closing Words

Whether we base our public policy on reciprocity or self interest, neither are the highest motivation for our action. In economics, our survival depends to some degree on rational self interest. But in matters of the heart, self interest cannot dominate our affections. The enduring fabric of our social life is best woven out of love and the desire for peace.

GO IN PEACE
MAKE PEACE
BE AT PEACE.

Copyright (c) 1995 by Rev. Samuel A. Trumbore. All rights reserved.