hedonic flow of pleasure or pain. The prime goal of existence was to maximize
happiness calculated as the sum of pleasure minus pain. Thus the utility of a certain
product or practice expresses a cost–benefit or pain–pleasure trade-off calculation
that people undertake when making choices. Since there is no such thing as one
‘util,’ the numerical formula became money: the purchase decisions of people
indicate what they want and the price indicates how highly it ranks on their list of
preferences. This willingness to pay expresses the utility and thus happiness they
gain from consumption of, for example, ice cream, and the loss of what they give
up for it, for example, money or their skills in lawn mowing.
This way of measuring utility through willingness to pay was also called
‘working with revealed preferences.’ It allowed for the building of mathematical,
thus scientific models. Combined with the assumption that humans are insatiable
when it comes to happiness or utility, this became the first ‘law’ of the human
condition. It also supports the basic premise of ubiquitous and eternal scarcity
(scarce means) that Robbins’s 1932 definition of economics carries: since our wants
are endless we are constantly worried about how to get more of them satisfied and
where we will find those resources. For Robbins, this means not only natural and
material resources but also services that are per se limited. His definition restricts
the path for need satisfaction—e.g., eating or leisure—entirely to market relations:
“Both the services of cooks and the services of opera dancers are limited in relation
to demand and can be put to alternative uses” (ibid.: 15).
In this paradigm, trading and bartering are the essence of all relationships.
Human existence means constantly improving one’s balance sheet. In order for this
model to work, it is assumed that actors undertake this improvement rationally,
although this paradigm has a very narrow definition of rationality: it is understood
as knowing all possible strategies available in a particular situation, knowing the
outcomes of each of those—including the behavior of others—and ranking all of
the possible outcomes according to the preferences as measured by utility (money).
So all relationships with other humans and nature are driven by the hedonic
calculus and thus best governed by markets. The societal vision of a market system
is born. The basic ‘law’ of this system is that of supply and demand. It suggests
that, given unlimited wants, every product and service will always find a customer
once the price is right. This law has resulted in the famous prediction that markets
will always tend toward equilibrium: if I cannot get satisfying prices any longer
(demand goes down or too many competitors are around), I will reduce production
(supply goes down).
On these two laws all models of mainstream economics have been built. The
impact of the Enlightenment movement has been studied by several scholars. David
Orrell, Canadian mathematician and author of Economyths. Ten Ways Economics
Gets it Wrong, muses: “Just as Newton believed that matter is made up of minute
particles that bump off one another but are otherwise unchanged, so mainstream
theory assumes that the economy is made up of unconnected individuals who
interact by exchanging goods and services and money but are otherwise unchanged” (Orrell 2010: 13).
58
3 Why the Mainstream Economic Paradigm Cannot Inform …
happiness calculated as the sum of pleasure minus pain. Thus the utility of a certain
product or practice expresses a cost–benefit or pain–pleasure trade-off calculation
that people undertake when making choices. Since there is no such thing as one
‘util,’ the numerical formula became money: the purchase decisions of people
indicate what they want and the price indicates how highly it ranks on their list of
preferences. This willingness to pay expresses the utility and thus happiness they
gain from consumption of, for example, ice cream, and the loss of what they give
up for it, for example, money or their skills in lawn mowing.
This way of measuring utility through willingness to pay was also called
‘working with revealed preferences.’ It allowed for the building of mathematical,
thus scientific models. Combined with the assumption that humans are insatiable
when it comes to happiness or utility, this became the first ‘law’ of the human
condition. It also supports the basic premise of ubiquitous and eternal scarcity
(scarce means) that Robbins’s 1932 definition of economics carries: since our wants
are endless we are constantly worried about how to get more of them satisfied and
where we will find those resources. For Robbins, this means not only natural and
material resources but also services that are per se limited. His definition restricts
the path for need satisfaction—e.g., eating or leisure—entirely to market relations:
“Both the services of cooks and the services of opera dancers are limited in relation
to demand and can be put to alternative uses” (ibid.: 15).
In this paradigm, trading and bartering are the essence of all relationships.
Human existence means constantly improving one’s balance sheet. In order for this
model to work, it is assumed that actors undertake this improvement rationally,
although this paradigm has a very narrow definition of rationality: it is understood
as knowing all possible strategies available in a particular situation, knowing the
outcomes of each of those—including the behavior of others—and ranking all of
the possible outcomes according to the preferences as measured by utility (money).
So all relationships with other humans and nature are driven by the hedonic
calculus and thus best governed by markets. The societal vision of a market system
is born. The basic ‘law’ of this system is that of supply and demand. It suggests
that, given unlimited wants, every product and service will always find a customer
once the price is right. This law has resulted in the famous prediction that markets
will always tend toward equilibrium: if I cannot get satisfying prices any longer
(demand goes down or too many competitors are around), I will reduce production
(supply goes down).
On these two laws all models of mainstream economics have been built. The
impact of the Enlightenment movement has been studied by several scholars. David
Orrell, Canadian mathematician and author of Economyths. Ten Ways Economics
Gets it Wrong, muses: “Just as Newton believed that matter is made up of minute
particles that bump off one another but are otherwise unchanged, so mainstream
theory assumes that the economy is made up of unconnected individuals who
interact by exchanging goods and services and money but are otherwise unchanged” (Orrell 2010: 13).
58
3 Why the Mainstream Economic Paradigm Cannot Inform …