Economic Irrationality

Most people on the face of the earth today believe that capitalism is a system of rational economic actors i.e. buyers and sellers, consumers and producers each acting rationally in their own self interest. But an argument can be made that capitalism at its very core is irrational. No, I am not a pinko commie who is going to be quoting you Karl Marx or Das Capital. On the contrary my main source is Adam Smith, the author of The Wealth of Nations and the father of capitalist economic theory.

Economics is generally considered to be a social science which deals with the allocation of scarce resources to satisfy human wants. The allocation of scarce resources, (that is to say the inputs into the products) makes good sense; these are the scarce means to an end, that end being the products or outputs which satisfy our wants. The irrational part which befuddled Smith and other early classical economists was that the ends themselves, the outputs, the products, the wants which people sought to satisfy were also based on scarcity and not necessity. An example is in order. Water and food are necessities for human life; diamonds and other “precious gems” are not; we can live fine without the shiny rocks but it is those rocks that humans give the greater value to. Scarcity trumps necessity. Likewise gold, a soft fairly useless metal is stored idly in vaults while with the much more useful metal, iron (which has been transformed into the plow, every type of useful machinery, skyscrapers, and canned food containers) we have a hard time getting people to bother to pick it up for recycling. Bottom line is that any system that values scarcity over necessity is somewhat irrational. We see this irrationality played out in movies when people lose their lives in a quest for gold or some large gem. You want to yell out, “Hey…it’s just a R O C K!”

This inherent irrationality of capitalism, (or is it an irrationality of human nature only exposed in capitalism?) could cost us greatly if we continue to trade the health of our planet for “must have” products. Eve had everything she needed in paradise but she just had to have that “other apple”.

Ecos

Environmentalist and economists (or more accurately business) always seem to be at loggerheads. Businessmen want to drill for oil in the Gulf, along the Atlantic seaboard, and the north shore of Alaska. Environmental groups say no. Big corporations want to open national forests up to clear cut logging and oil explorations. Mining companies want to flatten some of the Appalachians to get at the coal and strip mine the Midwest. Utilities want to continue to generate power from coal. Do we want the economy to prosper or not? Do we want people to have good jobs to support families or not? Environmentalist green types fear we will degrade the planet if we accept these options.

Perhaps it is good that these two mindsets oppose each other and perhaps the debate allows us to achieve the proper balance between ecology and economics. Still, it does seem strange that two words with such similar Greek root word derivations should be in such desperate contention. Economics means management of the oikos (home or habitat) while ecology means study of the oikos. From a derivation point of view these two concepts should be synonyms not opposites.

I guess I would call myself a conservationalist; that term has been around decades longer than environmentalism. Basically, don’t use more than you need. I don’t subscribe to the idea that I need to buy more in order to keep business going and my neighbor employed. If we all conserved and used less (that includes my neighbor) then we could get by on less income and have low unemployment based on a shorter workweek. Maybe the 40-hour work week could become reality. I also don’t accept that I need to buy more in order to be happy. I am smart enough to know what I need without being brainwashed by corporate commercials. If a true need exists then there would be no need for coaxing commercials to get me to buy.

Economics and ecology need to become more aligned and work in tandem to match the similarity of their root derivation.