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On Lemmings and Other Acquisitive Animals: Propositions on Consumption

Author(s): E. K. Hunt and Ralph C. d'Arge


Source: Journal of Economic Issues, Vol. 7, No. 2 (Jun., 1973), pp. 337-353
Published by: Association for Evolutionary Economics
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J JOURNAL OF ECONOMICISSUES
Vol. VII No. 2 June 1973

On Lemmingsand Other AcquisitiveAnimals:


Propositionson Consumption

E. K. Hunt
and
Ralph C. d'Arge

Humans tend to anthropomorphizeanimals. Pigs and rats are seen


as greedy, acquisitive, and voracious animals. They aggressively
compete for more than their share. Lemmings are close first cousins
of rats. The acquisitivebehaviorof rats reachesits most absurdextreme
in the lemmings, who, in their recurrentmigratorysearch for more,
rushhead-longinto the sea in a mass orgyof societal suicide. (Biological
reasons are still in dispute. We provide our own interpretationhere.)
In acquisitive societies, our views on pigs, rats, and lemmings are
reasonably descriptive of much of human behavior. Greed and the
desire for endless acquisitionof materialwealth and greaterconsump-
tion are the motivatingforces underlyingAmericancapitalism.
In our society, the desire for human inequality is intense. It is
the most fundamentaland overridingdesire of most success-oriented
individualmaximizers. But what if a competitive economy were run
by rats? Would we perceive a competitive equilibriumcharacterized
as Paretoefficient? The answer is unquestionably"no." Rats immedi-
ately would recognize the stronger and weaker of their species,
regardless of intraspecies utility comparisons. A pecking or survival

TheauthorsareAssociateProfessorsof Economics, Universityof California,Riverside.


This article was presentedat the Annual Meetingof the Association for Evolutionary
Economics, Toronto,Canada, 27-29 December1972.

337
338 E. K. HuntandRalphC. d'Arge

order would be established. The privileges that stem from this hierar-
chical order would be codified and legitimatized in a set of implicit
property rights. These property rights would determine the initial
endowments of income with which the competitive strugglefor more,
relatively and absolutely, would be combatted. Each rational, econo-
mizing economic rat or lemming would fight for his own private
"optimum," as the entire society would be propelled irretrievably
towarda deadlysea of environmentaldegradation.Gapsin intelligence,
knowledge, abilities, and power immediately would be sensed, by
actionif not by instinct.The individualrat, sensinghis own predicament
and position, then would be confrontedwith the following alternatives:
(1) Accept the preliminarypecking order and distributionof rights,
ignore the impending disaster, and make the best of things within
the context of the rat or lemming society; or (2) rebel against the
established order and in so doing create notoriety and suspicion,
ultimatelyeither settling comfortablyas a rebel without claws or being
eaten by antagonized rat populations, but perhaps with some small
but finite probability of contributingto the ultimate replacement of
rat society by a more humane social system.
If the rat were a rational economizing sort, with risk aversion,
he might likely choose the first option. But given that choice, what
would his behaviorpatternbe following such a clearly "stated" desire
for opting for the establishment. It is just such a case, with the
individual rat pitted against a society composed of other coopted
rats, that neoclassicalwelfare economics seeks to analyze. In so doing,
neoclassical economics builds on a metaphysicalintellectualbase that
is appropriateto its task. Analysis of the second alternativerequires,
we believe, a fundamentallydifferent set of intellectualfirst principles.
The eminent philosopher, Stephen C. Pepper, wrote a survey of
systems of metaphysicsin which he showed that there are four general
metaphysical world views which have provided relatively adequate
bases for scientific inquiries, social and ethical philosophies, and
theories of knowledge.' Most of the attempts to analyze the process
of consumption and the nature of environmental externalities in
orthodoxeconomic literaturehave occurredwithin the generalnorma-
tive and analytical frameworkof competitive equilibrium.The meta-
physical basis upon which the analysis of competition and, generally,
neoclassical economics is constructed Pepper calls "mechanism"2;
this is the metaphysicalsystem upon which most of the other dominant
strains of economic orthodoxy also have been based.
There is another metaphysicalsystem, however, upon which many
dissidenteconomic theories have been constructed.This is the general
Lemmingsand OtherAcquisitiveAnimals 339

Weltanschauung that Pepper calls "contextualism."3 In economic


literature the intellectual traditions of institutionalismand Marxism
fall within the broader world view of contextualism. In this article
we shall attempt to impressionistically indicate a few highlights of
the two general systems of thought and indicate some of the reasons
why we believe the orthodox approach is almost useless as a basis
for formulatinga normativetheory of consumptionwith externalities,
which we believe to be the starting point for an understandingof
consumptive behavior. We also briefly will outline our reasons for
believing that the contextualism view offers far richer possibilities
for constructinga much more serviceable theory of optimalconsump-
tion in the presence of externalities.

The NeoclassicalFrameworkof ConsumptionSketched


In the eighteenth century the cosmology implicit in Newtonian
physics rapidlybecame the dominantintellectualframeworkfor both
the "natural sciences" and the "social sciences." The Newtonian
concept is basically that of an atomistic world governed by eternal
and immutablemechanicallaws of motion. All change was governed
absolutelyby these laws. Changeand movementin consumptioncould
be understood as series of equilibria of atomistic elements, each
self-contained and deterministically "programmed"by the totality
of forces buffeting it about in accordance with the laws of mechanics.
The basic Newtonian view is that which Pepper labels "mechanism."
This point of view rapidly came to dominate social inquiry in the
eighteenthcentury. David Hamiltonhas shown the resultof Newtonian
mechanismin the social sciences:
The eighteenth century viewed social forms as fixed in nature
and what change took place was at most a quantitativeone within
fixed limits set by a naturalorder of things. The universe was
a mechanicalpiece often likened to a clock whose moving parts,
when once wound up by a devine Creator, would run eternally
in the same pre-establishedmechanical arrangement.The best
interest of man could be attained by an objective scrutiny of
the workings of this mechanical universe. This inquiry was to
be guided by reason, which would uncover the great principles
by which the social universe was guided in its rhythmicalpattern
of movement. By laying bare these principlesman would be able
to conform to them and thus would enhance his contentment
and happinesson earth. Misery and despair, the productof man's
ignorance, which was also the source of his folly in flaunting
these immutablenaturalprinciples, could be banished from the
world.4
340 E. K. Hunt and Ralph C. d'Arge

Adam Smith's The Wealth of Nations was the denouementof this


eighteenth-centuryphilosophy.In place of Newton's law of gravitation
Smith substituted"self-interest." A society which operated in accor-
dance with naturallaw would be a privateproperty, capitalist, market
system in which each atomisticindividualexercised his "naturalright"
to seek his own self-interest. Each selfish-acquisitiveindividualsimul-
taneously would promote the social good while he sought only his
own welfare. The theory, of course, omitted social, political, and
economic differences which lead to the establishment of "rights"
and thereby consumptionopportunities.
Smith's assertion that the Invisible Hand of the capitalist, market
system would harmonize all individual egoistic actions and lead to
an "optimal" allocation of productive resources has remained the
most consistent theme for an ideologicaldefense of marketcapitalism
down to the present time. "The whole basis of modern price theory
is to be found in Adam Smith without 'modernrefinements.' "5
Orthodox economists of the last 150 years, like the medieval
scholastics, accepted the basic axioms of their system almost without
question. They have worked endlessly to create a brilliantdeductive
edifice on these axioms. By introducing complicated models of
mathematicalreasoningthey have made it difficult, if not impossible,
for all but the professional economist to follow the tortuous paths
by which they arrive at their conclusions. Their conclusions are the
same as Smith's: Inherentin the capitalisteconomic system are forces
which, if nurturedproperly, will tend to create an ideal consumption-
oriented society.
The "common core" or ideological and cosmological framework
of economics has been challenged only infrequently. Rather, with
zeal, economists endlessly have produced esoteric trivia to embellish
the decorative trim of their magnificent edifice. Milton Friedman
succinctly has described moderneconomics and moderneconomists:
"Economics is a scientific discipline that has a core that is common
to almost all professional economists. Naturally, economists devote
little professional research and writing-except in textbooks-to this
common core. They concentrateon the issues that are on the frontier
where economics is being made ratherthan taught or applied."6
The textbooks invariably begin with a very sharp, and perhaps
cheap, dichotomy: the theory of the consumer and the theory of
the firm.7 Here we meet the homogeneous, maximizing, "economic
man" with fixed budget, intent upon choosing commodities so as
to maximizehis individuallyinspiredutility.This resultsin commodities
being chosen in such proportionsthat the marginalrate of substitution
Lemmingsand OtherAcquisitiveAnimals 341

between any pairwill be equal to the ratioof theirprices. Furthermore,


these marginalrates of substitutionbetween any pair of commodities
will be the same for all consumers since they are confronted by
more or less the same prices and not with each other. This allows
an instantaneoustransition to be made from individualpreferences
to those of the community-the community'smarginalrate of substitu-
tion being equal to that of an individual-and from this it is concluded
that what is being produced is in accordance with the community's
preferences, with social needs.
Next, an individualfirm is considered, confronted by given prices
in a competitive market. A production function is postulated giving
the greatest physical output for all possible combinationsof inputs.
With specified prices for both inputsand outputs, in orderto maximize
profits, the firm will follow a set of efficiency conditions: A point
is chosen on the firm's production function such that the price of
any factor (includinglabor)is equalto the value of its marginalproduct;
the marginalrate of substitutionbetween any pair of factors is equal
to the ratioof theirprices;the marginalrate of transformationbetween
any two outputs is equal to the ratio of their respective prices. These
conditions are the same for all firms since they all face the same
inputand outputprices and implicitlythe same amountof information,
and they are located on top of each other at one point in space.
They ensure both profit maximizationand that all factors will be
utilized as efficiently as possible. Now in equilibrium,since the prices
facing the individualfirm and the individualconsumer are the same,
an individual consumer's marginal rate of substitution is equal to
any firm's marginalrateof transformation.At this pointthe neoclassical
economists ecstatically proclaim:"ConsumerSovereignty"-"Pareto
Optimality." Every resource is being used, every commodity is
produced, in accordance with consumers' wants; it is not possible
to reallocate without decreasing someone's "utility" subject to initial
entitlementof resources and ownership.
The whole analysis is based on a set of assumptions that seldom
are madefully explicit. The followingarefour of the most objectionable
assumptions. First, there is acceptance of the socioeconomic institu-
tional structure. Currentcapitalist institutionsdefine the constraints,
and the economist's task is clearly delimited within these bounds.
Second, the premise of social harmony assumes that aside from a
few "frictions" and difficulties, there are no irreconcilableconflicts
of interest between social groups. There are, in fact, seldom any
groups or classes of men at all. Third, differences between men
disappear. They become simply homogeneous, utility-maximizing
342 E. K. HuntandRalphC. d'Arge

machineswith sets of metaphysicallygiven preferences. Veblen aptly


summarizedthis view:
[This] conceptionof man is that of a lightningcalculatorof
pleasuresand pains,who oscillateslike a homogeneousglobule
of desire of happinessunderthe impulseof stimulithat shift
himaboutthearea,butleavehimintact.He hasneitherantecedent
nor consequent.He is an isolateddefinitivehumandatum,in
stableequilibrium exceptfor the buffetsof the impingingforces
that displacehim in one directionor another.Self-imposedin
elementalspace, he spins symmetrically abouthis own spiritual
axis until the parallelogramof forces bears down upon him,
whereuponhe followsthe line of the resultant.Whenthe force
of the impactis spent,he comesto rest, a self-contained
globule
of desireas before.8
The fourthassumptionis thatthe governmenthas a shadowyexistence.
As long as Paretianoptimalityexists it is nowhere. Whenan externality
occurs (it is generally an isolated occurrence in an otherwise perfect
world) the government becomes a deus ex machina which restores
the system to a state of bliss. It is an aloof, neutral,impartialarbitrator
that descends on the scene and enacts an excise tax or gives a subsidy
that re-creates competitive equilibrium.Vested interests? Economic
and political power? Class control of government processes? These
are the fuzzy notions of sociologists and political scientists. They
have no place here. When the first order conditions are restored,
or the new property rights to consume and pollute are established,
the governmentdiscreetly recedes into the mystic mist.
The ContextualistFramework
Whereas the paradigmmodel of mechanism is the functioning of
a machine, the paradigmmodel of contextualism is the "historical
event." For the contextualist, the world of experience is not made
up of immutable, fixed, atomistic elements that can be analyzed in
complete isolation. Reality is a process. Our experience is the sum
of on-going historic events and is not made up of atoms, lengths,
heights, weights, numbers, and so forth. The most basic units of
our experience are entire holistic events. They consist of such things
as "making a boat, running a race, laughing at a joke, persuading
an assembly, unravelinga mystery, emptying the garbage, removing
an obstacle, exploring a country," discharginga whole amalgamof
pollutantsin a river, "communicatingwith a friend, creatinga poem,
re-creatinga poem."'
The precise nature of a historical event depends on many things.
First, events have a texture, that is, they have many particularthings
Lemmingsand OtherAcquisitiveAnimals 343

and processes which are contained within them. Second, they have
an aggregate and individual quality that transcends the qualities of
their textural components. Furthermore,the textural particularsare
significantlyaffected by the total quality of the event. For example,
in music the experienced quality of a particularchord depends upon
the quality of the entire composition of which it is a part; similarly,
the compositionof solid waste odors depends not only on the dominant
smellingcomponentbutalso uponcompaction,soil content, absorbtion,
andotherdimensions.Third,events have a spread.The presentmoment
in any event contains elements of the past as well as elements of
the future.10 To consume a cluster of grapes now means a cost of
soil, water, and humanresources in the past, a bellyache in the near
future (or headache if the grapes were pressed and fermented into
wine), and a greater sludge load in secondary waste treatmentplants
for municipalorganic waste.
Thus, relationships between objects, men, societies, and all other
elements of realityare the essence of contextualism.The contextualist
is "convinced that facts are never isolated appearances, that if they
are producedtogether, it is always within the higherunity of a whole
(although the whole may not be understood entirely), that they are
tied to one another by internal relations, and that the presence of
the one profoundlymodifies the other." " The phenomenonof syner-
gism, which is treatedas somethingexceptionaland strangein orthodox
economics concerned with separabilityand linearity, is regarded as
typical or normalin a contextualistframeworkbecause combinations
or wholes are the most importantingredientfor this theory.
Economic Growth and Consumption
The most importantdifferences between contextualismand New-
tonian mechanism are the notions of change or growth implicit in
the two systems. Neoclassical growth theory is based upon the
Newtonian notion of change. P. S. Laplace believed that if "we knew
the configuration of matter in the whole universe at any one time
and the precise laws of matter, or if we knew the configurations
of matter at two times, so that we could deduce the laws which
led from one configurationto the other, then we could deduce the
configurations of matter for any other times whatsoever.""12 What
better description could be given of neoclassical growth theory? A
curvilinearline drawn between two points?
The neoclassicaltheoryof optimalgrowthsimplyposits the existence
of the necessary transformationand utilityfunctions with the appropri-
ate mathematical characteristics, generally ignoring the validity of
344 E. K. HuntandRalphC. d'Arge

the Sraffa inspired demonstrationof the impossibility of empirically


identifyingsuch well-behavedtransformationfunctions as well as the
mountainof philosophical, methodological, and practical difficulties
in specifying the existence of (much less the nature of) a dynamic
utility function. From this point onward, with acceptance of a simple
individualutility function and nonfinite resources, the analysis merely
requires a few pages of mathematical deductions to "prove" the
existence of a single optimal balanced growth path. 13
From the same premises it is very simple to deduce the growth
path of consumptionwhen it is maximized(and, hence, in neoclassical
economics, optimized): "To maximize consumption per man into
perpetuity along a balanced growth path, choose that capital-labor
ratio at which the marginalproduct of capital is equal to the rate
of populationgrowth." 14
Externalitiesin NeoclassicalTheory
In the neoclassical framework the processes of production and
consumptionwere assumed to have "direct" effects on only the one
or a few persons who do the consumingor producing.15 Externalities
occur when the utility function of one consumer is affected by the
consumptionor utilityof anotherconsumer,or the productionfunction
of one firm is affected by the production(or profits) of anotherfirm,
or the utility of an individual is affected by a production process
with which he has no direct connection. The traditionalneoclassical
approachis to assume that, except for a single externality, Paretial
optimality-cum-competitiveequilibriumexists everywhere else.
The older policy measure(initiatedby A. C. Pigou) which generally
emerged was to tax and in so doing restore universal optimality.
One of the newer policy prescriptions is to establish a "market for
the right to pollute" and then let the Invisible Hand restore universal
optimality. It generally is asserted that "failure to reach mutual
agreement . . . can be regarded prima facie evidence that . . . a
net potential Pareto improvementis not possible." 16 But this is too
muchfor even the more candidneoclassicaleconomists: "Rationalizing
the status quo in this way brings the economist perilously close to
defending it. "17
The fantastically unrealisticassumptions upon which the Paretian
analysis-cum-competitiveequilibriumrests led J. De V. Graafto declare
that "the measure of acceptance . . . [this theory] has won would
be astonishing were not its pedigree so long and respectable."18
Furthermore,even if the analysis were not totally unrealistic, the
ethical assumptionsunderlyingthe notion of competitive equilibrium-
Lemmingsand OtherAcquisitiveAnimals 345

Pareto efficiency are questionable, at best.'9 Joan Robinson calls the


theory an "ideology to end ideologies,"20 and S. S. Alexander notes
that it "grants our social institutions immunityfrom criticism other
than on grounds of efficiency.""21
The critical coup de grace (if such is, indeed, needed) comes when
one realizes that externalities are totally pervasive.22Most of the
millions of acts of consumption (and production) in which we daily
engage involve externalities. In a market economy any action of one
individualor enterprise which induces pleasure or pain in any other
individual or enterprise and is unpriced by a market constitutes an
externality. Thus, if some guest at a formal dinner belches loudly
and continuously, and this belching causes discomfort to other guests,
then the economy is said to be in an inefficient state. Of course,
we omit consideration of cultures where such behavior is taken as
indicative of the superiorquality of the meal.
A more incisive example of externality is the upwind factory that
emits large quantitiesof sulfur oxides and particulatematter inducing
rising probabilitiesof emphysema, lung cancer, and other respiratory
diseases to residents downwind. This is clearly a case of undesired
"consumption." The externality arises because the factory owners
historically have not had to bear the burden of health and psychic
damageswhich they cause.23In effect, their use of the air as a medium
of waste disposal was (and in most areas still is) unrestricted and
free.
These rather extreme examples underscore the difficulty of deter-
miningwhich social or privateactions can be identifiedwith externali-
ties andwhichcannot. Unless people in modernsocieties are completely
homogeneous, self-serving robots respondingonly to price and cost,
practically any social behavior results in externalities. In fact, one
of the reasons cited for the founding of societies is the common
need for protection. Yet protectionachieved by an individualthrough
groupparticipationis a form of reciprocalexternality;I receive added
protectionby your presence as you receive added protectionby mine.
Such benefits of group participationare not priced at all or not by
a well-defined market, but they are tantamount to identifying the
sine qua non of societies in perhaps the most simplistic way! One
therefore can argue that externalities are a normal and inherent part
of societies and not some form of isolated, deviant behavior or
exceptional outcome.
Returningto our first question of the mechanistic or neoclassical
approach to the "decision" of rats as to where to "rip it off," let
us start with the assumption that the rat is basically unsatisfied with
346 E. K. Hunt and Ralph C. d'Arge

income, Godgiven endowments,andsocial position. The rator lemming


is confronted with a zero-sum game: What you have, if I take part
of it, will be your loss and vice versa. If the rat were a rational
self-economizing sort, with aversion to risk, he very well might opt
for being a rebel without identifiableclaws. However, normally we
might expect the following behavior so that we denote this as our
first proposition:
I. Since economic behaviorwithin broad social norms and
statutes is determined by the marketplace, wages, and
prices, the only way to advance oneself with some degree
of self-decision and control is through nonmarkettransac-
tions. Thus, a feasible goal is to maximize (for each
individual)eitherthe numberor expected value of nonmark-
ket transactions subject to the initial allocation and con-
sumptionof goods as dictated by formal markets.
If propertyrightsare somehow obscure or flexible in interpretation
in some area of potential nonmarket transactions, then it pays (at
least for individual gain) for the consumer (or producer) to exploit
it. The long history of court cases on fee simple land entitlement,
mineralrights, nuisanceprovisions, zoninglaws and variances, special
tax rebates, and practicallyevery legal or jurisdictionaldecision can
be traced to origins of nonmarket transactions. The market exists
for establishinglegal rights with regardto real property,but excluded
are political patronage and nonrecorded payments (commonly de-
scribed rather homily as side-paymentsin economic circles, where
the word bribeis disliked).Anyone who has attendeda county planning
commission meeting on a zoning variance, observed the implicit
relationshipsamongjudges and lawyers that decorate our courtrooms,
or read about organized crime will not swallow easily the notion
that nonmarkettransactions do not pay. We all know that they do.
Have you ever invested in stock without inside information,whether
or not correct? Even economists cannot be categorized as fools in
this sense. Those who know, win. But it might be added that if
everyone knows, no one can win. Thus, we conclude that nonmarket
transactions pay for those exploiting them. In a society dominated
by a competitiveethic andpeckingorderwith little chance for breaking
out, which does the rebel do? If he is naive, like Abbie Hoffman
before 1971, he asserts "goodness" and revolutionarychange. If not,
if he lacks "Consciousness III," we would assert that if he were
a self-maximizerhe would ascribe to our second ratherloose proposi-
tion:
Lemmingsand OtherAcquisitiveAnimals 347

II. It is always in the interest of the self-maximizing


individualin a marketeconomy with incompletelyspecified
property and user rights or differences in information
available to create as many (in terms of value) nonmarket
transactionsas are possible.24
Given acceptance of this proposition, we should like to offer a
third. What are the natureand texturalcontent of nonmarkettransac-
tions? Some, if not all, are physical, social, biological, or other forms
of interdependenciesamong individuals or groups where the market
has, at least momentarily,overlookedsuch relationships.By definition,
these are externalities of either a positive or negative sort.25Violent
and nonviolent crimes are livid examples of such nonmarket in-
terdependencies:
III. There will be a tendency in market economies with
incomplete information and unclear ownership rights for
the value associated with the appearanceof nonreciprocal
external diseconomies and economies to be maximized.
Let us take E. J. Mishan'scase of the individual'spower lawnmower
that disturbs a neighbor. The structure of incentives is as follows:
Unless there are adequatelyspecified nuisanceordinanceson decibels
of noise emission, it pays for the individual to mow his lawn in
the middle of the night to create the strongest possible incentive for
the neighbor to negotiate and offer a bribe. (We presume here that
the neighborcannot effectively retaliate in kind.) Once the "externa-
lity" appears or the neighboris told of its potential existence, there
is, of course, a transferof wealth and consumptionpossibilities.
The transfer of wealth and consumption by "creating" external
diseconomiesfor others needs little furtherelaboration.Creatingthese
diseconomies, in effect, means "producing" a new good (or bad).
The problem of such an incentive structure is its inherent ability
to negate any efficiency associated with marketeconomies. If through
contrivance one man can impose an external diseconomy on other
men knowing the bargainingwill make him better off, he clearly
will do so if he is a self-maximizingtype described in the traditional
economic literature.If all men attemptto impose externaldiseconomies
on others for their own gain, then it cannot be said that the economy
will be efficient since such imposed costs are market distorting, and
there is no organized market to trade external diseconomies. As
Kenneth Arrow recognized, there are not enough market traders,
includingthird parties, to sustain efficiency (with only the externality
348 E. K. Hunt and Ralph C. d'Arge

generatorand recipient)when there are informationcosts and inherent


differences among intellectualcapabilities.26
These very brief remarkslead us to the following proposition:

IV. With incentives to generate external diseconomies and


other potential nonmarkettransactions in consumption or
use of resources, the following efficiency principle will
tend to be approximated: No one can be made more
miserablewithoutmakingsomeone else less miserable.This
might aptly be called the Pareto misery principle.

To see why this principlehas some validity, note that a self-oriented


individualwill maximizethe value, to him, of participatingin organized
marketsand creatingnonmarkettransactions.Takingthis "production
possibility" set for creatingexternal diseconomies, he will select only
those with a higher return than he could earn by engagingin market
transactions.But by so doing, he will maximize the "cost" to others
in that his gain is someone else's loss. All individualsacting indepen-
dently to maximize the "cost" imposed on others will yield a "maxi-
mum" of these "costs" or payments to society, that is, by selecting
only highly productive external effects. The recipient of contrived
or inadvertentexternal diseconomies will undertakedefensive expen-
dituresor pay bribes until the usual marginalconditions of efficiency
are fulfilled. Thus, the recipient's "cost" will be minimizedfor each
externaldiseconomy, and an "efficient" patternof externaldisecono-
mies will emerge.
But if external diseconomies, in terms of value to the generator,
are maximized in the society and if they are efficiently contended
with by recipients, then we have a mirror image of consumption
theory and Pareto efficiency. That is, instead of allocation of a good
to its highest value use with its productioncosts minimized,we have
allocationof a "bad" (externaldiseconomy) to its most costly impact,
with the impact being minimized in terms of recipient cost as well
as productioncosts. The economy, of course, is efficient but efficient
only in providing misery. To paraphrasea well-known precursor of
this theory: Every individualnecessarily labours to renderthe annual
externalcosts of the society as great as he can. He generally, indeed,
neither intends to promote the public misery nor knows how much
he is promoting it. He intends only his own gain, and he is in this,
as in many other cases, led by an Invisible Foot to promote an end
which was no part of his intention. Nor is it any betterfor society
that it was no part of it. By pursuing his own interest he frequently
Lemmingsand OtherAcquisitiveAnimals 349

promotes social misery more effectually than when he really intends


to promote it.
External economies also offer incentives for individual gain, but
the incentive structure here is basically different than for external
diseconomies. Withoutliability or nuisance rules that establish social
responsibility, it is in the interest of both generator and recipient
to negotiateon external diseconomies. However, with externalecono-
mies the recipientgains more by attemptingto be a free rider except,
perhaps, at the margin. In consequence, the incentive for creating
or producingexternaleconomies is less than that for external disecon-
omies, except perhaps for altruists. The policy presumptions for
resolving external diseconomies by assigning propertyrights or using
governmentaltaxing and subsidy powers are doomed to failure or,
at best, limited success unless the viewpoint of contextual wholes
is adopted and one analyzes all aspects of the underlying incentive
structurein the competitive system. It appears to be an impossible
task to develop legal rights on every type of physical, biological,
and social interdependence, or a rational taxation system that will
eliminate external diseconomies. Rather, to move toward a better
efficiency of the economic system the incentive system itself needs
alteration.
We have three suggestions utilizing the contextualist approach as
regards resolution of externalities problems in consumption or use
of goods. (I) The appearance of externalities should be recognized
as a never-endingprocess unless certaintypes of externaldiseconomy
generatinglaws or ethical values are introduced to stop it. (2) Laws
and property rights systems not only must be designed to control
behavior within the market but also must consider expectations on
the value of nonmarkettransactions.(3) Nonmarketeconomics should
be concerned not only with the question of liability, which the rich
can bid against, but also with the contextualcontent of rules systems,
liability, and the basic incentive structurefor nonmarkettransactions.
Consumption and Externalities

Consumptionto a rat or lemming is another ounce of grain. To


humans in modern societies it is another XKE, Firebird,solid waste
compacter, or deviant sexual act. All are costly and all are status
symbols, either displayedin the parkinglot or in the office for discreet
viewers. All contributeto the GNP, but in a success-orientedeconomy,
it is hard to argue that each contributes to the social welfare. With
gross nationalproductpercapitaof morethan$5,600andgross national
waste per capita of about 11,000 pounds per year per capita, it is
350 E. K. HuntandRalphC. d'Arge

not hard to contrast us with Nero. What we have is too much to


be appreciated,beyond adequateperceptionyet within our purchasing
power at least partiallybecause of the exploitative use of externalities.
Our consumptionis almost totally conditioned by an insatiabledesire
for individualadvancement,invidious comparisonsof the class imme-
diately above, or a rat-like attempt at domination and sublimation.
The result is a spiralingset of preferences conditionedby the surreal
acts in TV and movies portrayingdesirable consumption. Everyone
should have his (or her) San Simeon or Hyannis Port. Whata Martian
would perceive is not only an infinite desire for goods but an infinite
desire gone mad! There is no longer a value to solitude or individual
contemplation,health or humancreativity.
Consumption formerly meant food, clothing, shelter, and a few
amenities. No longer. Anyone traveling the streets of Georgetown
or Beverly Hills will realize that consumption in the GNP accounts
is a misnomer. Conspicuous demonstration, perhaps, but not con-
sumption. What we see is a consumption pattern oriented toward
externalityyielding services of the following kinds: drugs;specialized
prostitutioncurrentlycalled "massage parlors";fast cars on crowded
freeways; guarded apartments with stereos, educational television,
and other equipmentwhich make the home a self-contained "cultural
center"; and a renewal of individual rights toward the principle of
maximization of individual nonmarket negotiation or involuntary
exchange. What we suggest is that, at least partially, the realization
of the value that can be obtained from externaldiseconomies or other
forms of involuntary exchanges has swamped the earlier value of
externaleconomies and cooperation.This changein incentive structure
manifests itself in what is consumed and how it is consumed.
Conclusion
The contextualistframeworkdoes not provideany a priori, dogmatic
answers to the problems of externalities. Yet, it does provide a frame
of reference which seems to us to offer greater potential for coming
to grips with the issues. The starting point in contextualist analysis
is the recognition that both consumption and production are social
activities involvingthe entirephysical and social milieuand all persons
within it. The basic cause of externalities is that, whereas the costs
andbenefits of economicactivityare social, the laws of privateproperty
bestow the privileges and benefits on particular individuals while
imposing only a part (and often a small part) of the social costs
on these same individuals.
Lemmingsand OtherAcquisitiveAnimals 351

Moreover, the contextualist analysis of change stresses the fact


that quantitative increases inevitably result in qualitative changes.
The rates at which additionalconsumptionwill add to social benefits
and social costs are bound to change. Furthermore,the changes will
be qualitative;totally new kinds of social costs will be encountered.
Some may involve irreversible damages. Orthodox economics has
tended to ignore the ethical problems of inequality in the belief that
continued economic growth would make everyone better off and
obscure the inequities of the system.
Finally, contextualism rejects the notion that the government is
a neutral deus ex machina which can be expected to charge excise
taxes, bestow subsidies, or establish new markets which will cure
the problems. The prime responsibilityof governmentis the enforce-
ment of private property rights, one of the most importantsources
of externalities.By forcingthose who derive disproportionatebenefits
from production, by virtue of their ownership of capital, to pay a
larger share of the social costs of production,the governmentwould
be biting the hand that holds its financial reins. If the bite were
severe (as it would have to be to make significantprogressin cleaning
up our environment),the audacious administrationthat initiated this
precipitous action surely would find that its financial support (the
lifeblood of Americanpolitics) would be swiftly withdrawn.
The contextualist approach does show that to obtain satisfactory
solutions to the problem of externalities there must be some way
of altering the powers of private property and the vested interests.
This may necessitate sweeping changes in the nature of property
rights-the very foundationof a capitalist economy. The alternatives
are violent self-destructionor the slower societal suicide of environ-
mental destructionbroughton by acquisitive, lemmingmaximizers.

Notes

1. Stephen C. Pepper, World Hypotheses (Berkeley: The University of


CaliforniaPress, 1961),pp. 1-348.
2. Ibid., pp. 186-231.
3. Ibid., pp. 232-79.
4. David Hamilton, EvolutionaryEconomics (Albuquerque:The University
of New Mexico Press, 1970),pp. 19-20.
5. Ibid., p. 22.
6. Milton Friedman, "On Paul Samuelson," Newsweek,9 November 1970,
p. 80.
7. The following three paragraphsare from the introductionto E. K. Hunt
352 E. K. Hunt and RalphC. d'Arge

and Jesse G. Schwartz, Critiqueof Economic Theory(London: Penguin


Books, 1972).
8. The Portable Veblen, ed. Max Lerner (New York: The Viking Press,
1948), pp. 232-33.
9. Pepper, Hypotheses,p. 233.
10. The terminologyused is Pepper's.
11. Jean-PaulSartre, Searchfor a Method(New York:RandomHouse, 1963),
p. 25.
12. Pepper, Hypotheses,p. 208.
13. See, for example,Kelvin Lancaster,MathematicalEconomics(New York:
The MacMillanCo., 1968), pp. 174-83. For a strong objection to this
set of premises, see the article by R. C. d'Arge and K. C. Kogiku,
"Economic Growthand the Environment,"Reviewof Economic Studies
(forthcoming).
14. Alvin L. Marty, "The Neoclassical Theorem," American Economic
Review54, no. 6 (December 1964):1027.
15. By using the adjective directwe are following E. J. Mishan,"The Postwar
Literatureon Externalities:An InterpretativeEssay," Journalof Economic
Literature9 (March1971):2. Excludedare "indirecteffects" which obtain
throughchanges in relative prices (or other means) in a Walrasiangeneral
equilibriumsystem.
16. Ibid., p. 17.
17. Ibid.
18. J. De V. Graaff, TheoreticalWelfareEconomics(Cambridge:The Univer-
sity Press, 1957),p. 142.For a survey of the objectionsto the neoclassical
treatment of externalities see S. K. Nath, A Reappraisal of Welfare
Economics (New York: Augustus Kelley, 1969); R. C. d'Arge and E.
K. Hunt, "EnvironmentalPollution,Externalitiesand ConventionalEco-
nomic Wisdom: A Critique," EnvironmentalAffairs 1 (June 1971);and
Hunt and Schwartz, Critique.
19. See d'Arge and Hunt, "EnvironmentalPollution."
20. Joan Robinson, Economic Philosophy(GardenCity: Doubleday, Anchor
Books, 1964),p. 64.
21. S. S. Alexander, "Human Values and Economists' Values," in Sidney
Hook, ed., Human Values and Economic Policy (New York: New York
University Press, 1967),p. 111.
22. See d'Arge and Hunt, "EnvironmentalPollution."
23. There have been, of course, a few extreme exceptions. EdwardI once
executed a coal burningviolator in his politically and socially expedient
but economically unsound attempt to reduce air pollutant emissions in
London. The attempthad no long-termimpact.
24. Actually, Samuelsonand others forecast this propositionin some sense
with their recognitionthat any public good would involve problems of
"free riders" unless preferenceswere sufficiently altruistic.
25. For an argumentthat Coase and his predecessorshad, at least implicitly,
informationalbarriers or costs in mind in defining the existence of
externalities,see R. C. d'ArgeandW. D. Schulze, "TheCoase Proposition,
Information,and Long Run Equilibrium,"American Economic Review
(forthcoming).
Lemmings and Other Acquisitive Animals 353

26. See Kenneth Arrow, "The Organizationof Economic Activity: Issues


Pertinent to the Choice of Market Versus Non-MarketAllocation," in
The Analysis and Evaluation of Public Expenditures: The PPB System,
Sub-Committeeon Economy in Government,Joint Economic Committee,
U.S. Congress, vol. 1 (Washington, D.C.: U.S. Government Printing
Office, 1969).