I was taught the defining feature of economics is scarcity: it’s all about tradeoffs and either/or choice. You do this or that. I or you get something. One or the other; life is choice. Resources – scarce – serve unbounded wants. We’re stuck in a game where we slice up pies. What you get, I don’t. Like it or lump it. Love it or leave it. We eat or have cake. “Let them eat pie!” I was taught this. And I believed…
Economists stress opposition. We struggle for goods. I envy all yours. How can we coexist? You have stuff I want. There’s no escape from this conflict. If we object, tough noogies! That’s the way of the world. Reality has the last laugh.
This system permits survival of the fittest, or is it the fattest? Do rich grow richer as poor people languish? Or will wealth trickle down and out? How does our world work? Is it fair? Do gains spread? What of Fate? Do lucky ducks win while the rest of us starve? What is economy, anyway? How well does it meet our needs?
Economists seek control over oppositional forces. Theories face an Existence Proof to pass muster in science, to show they yield stable outcomes. A model limns a balance of forces for this equilibrium mandate, for legitimacy. Such frames are pleasing, with tradeoffs resolved. Contests shake out the strongest desire; high bidders win! This process is for the best, for all; it fosters efficiency. Or so we say.
“Value” expressed in dollars stands on “willingness to pay” (WTP), yielding trade to mutual gain. A buck’s worth a buck; it’s nicely objective. Worth in dollars opens our route to “the best of all possible worlds” in its social welfare results.
It all seems so perfect. But then, I strayed. What of appendectomies? Bill Gates’ “value” exceeds my own! Is his life worth more than mine? My “appendectomy standard of value” upturned my world. Bucks’ worth varies. Gates’ll put up a few billion, while I can’t pay a grand. Where does that leave us? What is “worth”?
Charging what the market will bear – whatever we’ll pay – means Gates subsidizes my cure. Is that “fair”? Or should we both pay the same? That would charge Gates but a fraction of worth to him, while I go untreated. Tough luck for me?
Is it my fault for lacking money? Are there no lucky ducks here? Wait a sec! A uniform price subsidizes the rich, who underpay while the rest of us starve. Is that efficient or fair? Is individual pricing better? Do we reify money by using it as an “objective” measure of value? What is wrong with this picture?!?
Such is the social welfare case for progressive fines and taxation. The emotional burdens should be equal, adapting to dollars’ shifting worth. The rich pay more to equalize cost. That’s simple economics: the marginal value of dollars soars, the fewer of them you have. Prices should reflect that change; a few bucks to me are worth thousands to you, due to our relative wealth. The same price to all lifts the rich and downs the poor. Does that make sense? Is it just?
Uniform pricing may be unfair. If I charge what the market will bear, I can help poor folk for free! The gains trickle down, not up. Isn’t that better?
But I was taught to rank efficiency over equity here; fairness has costs, they said. Though uniform pricing may be unfair, might it be efficient? No way. Individual pricing is more efficient than charging one price to all (due to avoidable welfare loss). I sell in excess of unit cost, and use my profit to help the poor. What’s so wrong with that? Why is price discrimination illegal if not justified by cost? Who is served by this rule? Everyone? Or just the rich?
What is efficiency, anyway? The goal of efficiency is reached with all gains from trade exhausted. That’s the best of all possible worlds in social welfare terms. We’re all as happy as we can be, with no unfulfilled deals. Whoopee!
In my economic principles course, I’d start by selling a rose, posing “the economic problem” as getting it to who wants it most. Students bid, as I talked about “things” vs. “goods” and the role of imagination.
What does imagination have to do with economics? Everything! The whole system moves on creativity, hopes and dreams. Subjective value is emotional, projective, framed in our minds: it directs endeavor. We choose imagined results, standing on theories of how things work: if I kick thus, this’ll occur. Our views of cause and effect turn us onto the paths we take. Creativity is central in all economic acts!
So what do we mean by cost? Choices weigh alternatives. What we do is evaluated against what we might do instead: its “opportunity cost” lies in the worth of what we shunned. That makes cost theoretical, untestable, unobservable and invisible, living only in mind. These imagined depictions of value cannot be seen or realized; they open to no confirmation. Costs stem from projective fantasies of what we did not do, both in its factual limits and, as well, in what it would feel like to wear!
That’s a very tall order; it’s no trivial task. Worth is elusive, fantastic, conceptual, and diverse in us all, based on subjective values in mind. Theory is central; it frames our options. Sure, reality upsets illusion and knowledge calls for realistic conceptions, but how do beliefs meet truth? This is a matter of life vs. death, of gain vs. loss; it turns on the fit of resources to aims, and of ideas to facts.
Theories shape all we do, and direct the course of our lives. How we address social conflicts of value affect how we act toward others. Scarcity rules, while the market resolves – through a system of mutual gain, it is said. The claim is seductive, fed to us all. Thus we live in “the best of all possible worlds,” or so we believe.
An economics of scarcity and tradeoffs – of either/or choices, of conflicts of value – is one where competition quells strife in an optimal way. We all gain from willing exchange. And so, for now, we sleep peacefully, while life feels so good!
I first saw “abundance” as nonsense! Economists study tradeoffs and want. The focus is choice; there’s none without limits. So I was befuddled to find these absurdities in any serious science. What could these people be thinking (if at all)?
But I knew ecology, and was studying the British canals. I’d also wrestled with interdependence; it threw me for a loop. In school I’d learned to split things up, to break them into pieces: partial models were accepted, and systems simply ignored.
But I was stuck on how a canal should price a route tied to others. No parts stood out here; they were all intertwined. I explored theories of feedback control loops, temporal lags, open networks of fractal, dynamic complexity, organizational management tracts, all I could find on these subjects. My Ph.D. thesis advisor told me to “get off this theory stuff, and just do the canals!” I thought that was absurd…
“The only way out is through” became my dissertation mantra. One mentor left transport for models of fully diversified, interactive firms. So maybe linking canals with all else was the right way to go. A waterway network – capturing public goods and increasing returns – spun me into a troublesome morass of controversial issues on which great theorists had foundered. What could I have been thinking?
It taught me a lot of economics, too much to elaborate here! I spent many years reading all I could find on the economics of pricing, capital, time, knowledge and change; on organizational management theories; psychology; education; history; natural science of all sorts; philosophy; you name it! I explored diverse systems…
The interdependence of the canals suggested a question in need of an answer: how to relate these entities in the absence of well-behaved markets. Each canal linked to all others in a tangle of factors, with substitution and complementarity joined in an unholy mess. How could I sort all this out? What were the organizational limits of dynamic complex systems? For substitutes, competition is good; complements call for cooperation. Their balance gave me no institutional guidance or resolution…
Remember the scarcity question: for thirst, I drink beer or wine; their profits are opposed. These substitutes suffer a conflict of interest, so rivalry is a good rule. Monopolization – collusion – does harm. That was the easy part. The problem lay with wine and cheese, beer and pretzels, chips, and/or movies! What about all the radiant impacts of any decision? Ecology unfolds interdependence into a systems approach, where all we do engenders effects spreading outward to all.
Did this mean what I feared? That we are also responsible for all the results we start? In all their radiant tracks, for better and for worse? That was a very hard pill to ingest. How would I cope? Did it make sense? Where was I going with this?
I weathered the crisis, and racked my brain. I ignored my thesis adviser. We live in an Information Age of network connections suffusing all lives. An understanding of British canals should illuminate this situation. I thought about network effects…
The relation of beer to wine was like two parallel lanes; you chose one or the other. But wine and cheese, or beer and pretzels, simulate end-to-end ties, used jointly or not, in both/neither relations. Beer and wine were substitutes for a thirst; wine and cheese (or beer and pretzels) were complementary goods. However, for my next party (vs. the movies or bowling), they were all complements! Such patterns stand on intentions and context. One person’s substitutes are another’s complements, based on position and purpose. No single relational type pertained in this system.
Each action entailed a balance of substitution and complementarity in its impact throughout the system. A price hike would succor rivals and disrupt supportive firms; sales shift to the first (who welcome the change) and away from the latter (who lose). This is why a merger between them has inverse effects: substitution demands separation, while complementarity yearns for alliance. These are relational types: conflicts or concerts of value; negative vs. positive feedback.
Competition was not the answer, but neither was cooperation; this was a mixture of both. That in itself was important. The scarcity model in economics scored just one form of interconnection when there were two at play. The ruse of grouping firms into markets had packaged an answer right into the question through the way it was framed! Decentralization or full integration? How should these systems structure themselves to maximize social welfare? I had no way to resolve this enigma…
Here is what I knew. For substitutes, competition is good, and – for similar reasons – complementarity yields a case for cooperation. For rivalrous outputs, separate them: mergers hike fees and cut sales (assuming a uniform price). With goals aligned, we join to sell more. That is the way of our world. So how do we organize systems? Is there an answer to this? That’s why I did all that research!
But let us sidestep here. I started this section with “abundance” and how foolish it seemed, in the face of “scarcity” theory. I saw no way around the tradeoffs central to economics (as a study of choice). Either/or. Never both. That’s the essence of substitution vs. complementarity, of conflicts vs. concerts of value, of beer/wine vs. wine/cheese. The latter’s needs are aligned, not opposed!
One way into the question might be to ask which weighs more. The answer could tell me if this system – or any network connections – should be apart for rivalrous struggle or merged into a cohesive whole. Perhaps it would shed some light on the issue to think about what these two worlds are like: one with conflicts – the other, concerts – of value guiding us all. Where would that take us?
We already know what a world based on substitution is like! That is the one we inhabit: a realm of opposition, where rivalry is the norm, where we vie with each other for goods and – at least sometimes – get what we want. This is familiar turf.
But what about complementarity? If your needs and mine are aligned, then when I help you I advance my own goals. Indeed, there is no distance between us; we will strive together to realize mutual hopes and dreams: it all works better that way… You and I share a community sense of fellowship practiced by all like-minded folk in our realm. Our efforts and motivations are resonant and reinforce each other as we advance our common aims. There is no conflict here. We rise and fall together.
It took me a while to see it, but this is the realm of “abundance,” so it started to gain some meaning for me. I still considered it unrealistic, if an attractive fantasy, but gave it a bit more credence. A universal linkage of both analyses – swirling around in lockstep – buttresses the notion of framing complex systems around their relations, given this balance of forces.
So I turned to canals, when free markets overcame mercantilism, inviting Industrial Revolution. Their history had three stages: construction; operation; decline. The first showed two “mania” booms, where rational homo economicus shuns such foolish excess. So even at its start, this system meandered from mainstream models. Phase two was the Age of Canals, from the 1760s to the 1840s, and it transformed the British economy, lifting bulk goods off the roads, so paving a way to MacAdam. During this time, the earliest projects used the Canal Bill approval process to block new rivals from entry, or to restrict them in nefarious ways.
These entities fought and bickered incessantly, like bitter rivals often do, and thus impeded a network expansion that would have been good for them all. Trapped in a Prisoner’s Dilemma – where cooperation helps everyone, but only if faith is kept – they wallowed in a level of conflict that doused any hope for resolve.
They also were subject to a fatal “Carriage Trade Restriction” in which privately-owned canals were barred from carrying goods or booking trade, depriving them of any incentive for growth and development tactics. As a result, they acted like local monopolies with high prices on traffic, gouging custom for profit while not keeping up plant and equipment, dooming the system to rapid decline.
And during the 1830s, the era of railroads began. Folks were so fed up with canals that funds gushed into the new technology just to break canals’ stranglehold. The waterway interests knew what to do: they used the Railroad Bill process as a means for richly-rewarded exit! In three short years, from 1845, a third of the 3,000-mile network cascaded into railway ownership; by then this system was broken, and the ploy ran out of steam. Why was all this so worth understanding?
What was going on? A magnificent, capital-intensive, long-term investment that thrived for a time brought on its own demise in its failure to develop potential. What went wrong? This story intrigued me.
THE HORIZONAL NATURE OF SOCIAL RELATIONS
The facts screamed an answer at me! I just had to pay heed. Canal Manias. Crazy behavior? Irrational exuberance? Herd mentality running amok? That’s the story of phase one: self-feeding capital booms seeking gargantuan profit in excessive flows of investment due to bandwagon effects. People leapt into the venture; waterway engineering grew with amazing, creative vertical lifts and devices aimed to overcome problems such as land-level changes. So phase one opened this story…
The second phase showed canals resisting new entry and fighting their rivals. This antagonistic conflict disrupted the smooth operation of an interrelated whole; linkages were contested due to discordant ties. Profit-taking and lack of maintenance alienated boatmen and agents, who grew fed up with these ownership practices. By 1830, canals had become an object of scorn and rage: rails were sought as a rescue.
And then, in three short years, the system fell into ruin. A few main routes survived, but the Canal Era was done. Railroads were rapid and more reliable; water would do for bulk goods – the staples of the economy like coal, wool, stone, etc. – but all other freight and most passengers traveled by rail after that.
How to explain all this? Initial investments were crazed, though they earned their owners a good return during the early years. Subsequent projects were often encumbered in order to get their Canal Bill through; the network grew, but slowly. Expansion threatened what was had, rather than inviting growth. Then came the collapse! So much enduring capital stock was sabotaged due to a fleeting political moment when opportunism pummeled the system into failure in just three years. The story is sad and dramatic. What does it teach?
Let us revert to the question posed in the sections above. Scarcity? Or abundance? Substitutes? Or complements? Beer vs. wine? Or wine and cheese? What we have in networks is more of an interlinked tangle. In interdependent systems, all is glued together; there are no seams to guide any carver.
The system is connected; every part jiggles the rest! That is the way of our world, and a mainstay of ecology. Only in orthodox circles – scarcity theories of substitution – is interdependence shunned through partial equilibrium models. Other approaches – like institutional and ecological economics – start with interactive phenomena, but they are treated as alien to mainstream points of view. With networks, I could find no escape from facing interdependence. Somehow.
Here we have not only beer vs. wine, but cheese, pretzels, movies and bowling. Everything kicks all else, spreading outward for better and worse. We all bump into each other. That is scary and wonderful. We matter!
Our existential importance is something we should fully embrace.
So what was the message shouted at me by the British canals? I was stuck on the irresolvable balance of interdependence, where one agent’s alternate tracks were another’s end-to-end ties, with that difference so context and purpose specific it could not be unmixed. That is the case with every activity; each costs everything else, while all our moves entwine with the rest. How can this be resolved?
That is the point of my essay. Let me say it now: social relations are horizonal.
Huh? What do I mean? I’ve spent almost 50 years thinking about this solution. It changes everything in economics, if anyone were to pay heed…
The balance of substitution and complementarity across social relations – inherent in the radiant impact of every human decision – is shifted by “horizon effects” in a predictable way. To explain this, I must introduce you to “planning horizons.”
Think about how we make decisions. We don’t choose among known outcomes, but rather between imagined projections of what might happen if we act thus vs. doing that. Those projections have a range I call the planning horizon.
Do I account for my impact on you right now or into the future? Do I act in accord with the needs of living creatures around me, whether human or not? Am I devoted to making this world a better place for all, or do I not give a fig about you? Is everything always all about (((❤❤❤ !ME! ❤❤❤)))? Or am I part of a loving crowd of folks who cherish and nurture each other? The way we relate to the world around us is a horizonal matter, based on our range of focal awareness.
But any horizon is dynamic, adjusting at every instant to the factors around and inside us. I would present a complex story of planning horizons to students that ended with: “This is the point: Don’t make important decisions when you’re drunk or tired!” You could feel the relief in the room. They knew about “drunk or tired”!
Horizons shift with knowledge, confidence, stability, familiarity, care, fear, anger, energy, etc. “Horizon effects” entail changes in the range of projective vision embedded in decisions. They open and close like a breathing eye.
Another relevant matter is that horizon effects are contagious. They spread like a virus, infecting us all. Take one hypothetical case: imagine if someone became President who was a narcissistic charlatan caring for nothing beyond herself! Falsity emanates onto us all, leaving us more myopic. And when a leader with vision appears, supporting and inspiring us, we’ll strive for a higher realm.
These are horizonal changes that transform a social culture, radiating hope and joy or writhing in fear and division. We swim through these currents, swayed and diverted. Take any argument with a friend about some passing slight. Who is first to step back and evaporate the rage? So will perspective foster resilience.
What does this teach us about canals? The intractable balance of feedbacks says the case for competition is based on opposition, due to a grouping of firms into “markets” with no heed to alignment. But there is no escape from interdependence in network connections, whether of transport or love! The only issue is how we are joined, through conflicts or concerts of interest. Do we pull apart or together? Are we friends or foe? How do our rewards shift us toward or away from each other?
This is an organizational question that we need to resolve: how will competition or cooperation affect our behavior? How will these systems shape planning horizons? What do canals have to say about that? My encounter with British canals suggested the right question: How did prolonged myopic behavior affect their development pattern? From manic investment through rivalrous strife to tragic collapse, they bought their retreat. This system of durable, long-lived capital led to abortive failure; they never got their poop in a group! What is the story it tells?
As said above in this section: social relations are horizonal. The ongoing balance of substitution and complementarity in any system – of conflicts vs. concerts of value, of fear with love (if you will) – is sensitive to horizonal length, the ranges of vision embedded throughout our private and social decisions. As planning horizons extend, the balance shifts away from rivalrous struggle to consilient ties. This is why education matters; it benefits us all by an expansion of planning horizons.
Though planning horizons spread through learning, caring and other role model effects, such expansion develops slowly in an accretion of conscience and growth. The collapse of our range of projection can occur in an instant, however: think about how a flash of furor reduces spans of attention into the moment with nary a warning at all. In this sense, horizon effects are akin to a gain or loss of trust as a way to address such matters. So what? Why should we care?
The lesson is stark. Competition nurtures output in the presence of substitutes; that is the scarcity model. However, rivalry impedes complements! So where relations are more like wine and cheese than beer vs. wine – if wants are aligned and not opposed – competition destroys. Think of fighting for love in a family! What’s the effect? How well does that work? Intangibles should be shared.
But maybe all this is specious, since complements are ignored. That’s what a lot of economists do. Are abundance stories not “economic”? They avoid tradeoffs in choice. That’s what I thought at first. Then I found papers showing increasing returns mean complementarity rules over all long-run outcomes, based on a macro model of growth. Yikes. I’d crafted a microeconomic case for the same conclusion. Longer horizons shift social relations in favor of friendship, promoting concerts of interest. Increasing returns supporting consilient types of interdependence are more important than opposition? What could this possibly mean?
The implications were stunning. I had long understood that all production of physical goods enjoyed increasing returns to scale. The revelation was that concerts of interest dominate all long-run theory: even in a material realm, complementarity wins over time. Models of short-term marginalism and scarcity were OK, but for ongoing growth this story falls short.
Let us speak of intangible goods, such as information, knowledge, community, art, caring, and love. They are not scarce! Indeed, the act of sharing them produces more for all. These are realms of complementarity, of giving for social gain. We find no rivalry here; aspirations and dreams are aligned in a concert of values and goals. An economics of love is one of open growth opportunity.
Let me say it again. The process of competition – of systems structured for opposition – deters such flows of free goods. We see how property rights on knowledge stop us short in science, where restrictions stifle learning for people locked outside the wall. I understand this too well.
Economists say human relations suffuse substitution and conflict, so rivalry makes systems efficient; these terms are seen as synonymous. The costs of competition are invisible in a scarcity world. Though once we understand abundance, we ask why orthodox standards shun concerts of value. Rivalries stifle cooperation: this is how networks fail. That’s the lesson these British canals shouted at me in the dark.
Economic development transforms output away from material goods to information, knowledge, status, social linkage and love. If physical needs, once met, dry up, intentions shift to intangibles. This is how our relations favor consilience as horizons extend, restoring ethics and conscience.
So what’s the bottom line? If longer and broader planning horizons support more peaceful intentions, then a free system of education benefits all as a “public good.” Learning will lengthen planning horizons. Information, a complementary good, ought to be freely available to willful learners. Competition impedes intangibles; such suggests some horizonal losses from a competitive frame.
This is the bottom line. Competition is spawning and reinforcing a myopic culture. Its symptoms surround and drown us in ethical and ecological loss, short-term practice, and a slow and painful erosion of vital integrity. As horizons extend through personal growth – as human needs shift from material to intangible goods – social institutions should evolve from competition to cooperation or this progress stops. A simple look around us shows surfeits of validation for these social losses.
The economic case for competition as efficient does not apply to long-run effects. Our lovely planet is dying, due to a myopic culture rolling in filth. The problem is invisible to a materialistic conception; it takes a horizonal understanding of how cognitive faculties work. We are doing it wrong. Our systems are coming apart.
The problem is not just in economics. The poison of competition has corrupted academic concerns; selfishness simply fails in this setting. Knowledge should be shared, to open its ample loving embrace. Let us start by encouraging cooperation in ourselves and each other, and nurturing greater trust. When truth – too fragile, left untold – triumphs, so we move forward. This is the key to it all.
There is a fertile promise here in all that will open to us, if we can unify in love for each other. That is the unexplored magic of a world we might share…
All we must do is join together: “We’ve met the enemy, and he is us.”