Human beings have no instincts save one and that is a basic instinct to survive. All life form seems to have this one basic instinct, that is a hard wired behavior in the brain. All animals, when faced with the treat of death, will continue to struggle to regain life as long as possible. The lower animals have other instincts. Birds build nests, an activity that is not taught to them by their parents. Some birds and mammals mate for life, others do not, but there appears to be an instinct behind such behavior. Humans, on the other hand have no behavior that points to any sort of genetic encoding or hardwiring of the brain for a specific activity. Even procreation seems to lack a genetic behavioral basis, although there are many who practice learned behaviors who believe otherwise. But for our purposes, lets us state behavior in terms of needs. Motivation is quite the complex need and operates on a variety of levels while being very difficult to measure. I think we distil much of our behaviors into three categories: Competition, that is, striving against others for goods and resources; Self Interest, which we can think of a the need to procreate and pass on our genes, or obtaining some sort of emotional attachment; and Cooperation or cooperative effort, where we share goods and resources with others to promote well being.
Competition is a behavior common to human activity. We compete for employment, for raises, for promotions, for marriage and sex partners, for all that we find in life. In so many ways we compete against each other for many of these rewards, and they literally are rewards in that full sense. Of course there are other emotions that come with these rewards since we usually associate loving and being loved by the mate for whom we have competed for against all others. Self Interest is exactly that. We usually have some idea what our self interest is, what it does for us, how it works in conjunction with self preservation, and so on. Wrestling alligators may not be in our best self interest and so we avoid such an activity. On the other hand attending a university or college may be an activity that we see it greatly in our self interest and so we enroll and work towards that degree, competing with others for good grades. Finally cooperation is those activities we engage with others that are in our self interest. Perhaps we view a home owner association to be in our best interest and we then engage in cooperative efforts to see that the HOA is successful. If our car is stuck in the snow we seek help and others who believe in engaging in various forms of cooperation come an help push us clear the white stuff. Cooperation is even about sharing common gossip. Indeed, the theory that speech came about because we needed a form of communications that would span more than about forty individuals. Language is a very important part of cooperation.
I take this approach because markets serve all three areas of human behavior. The market is human behavior. If you and I grow apples to sell in the market we compete for customers who wish to buy apples. We compete together against those who would sell pears to our customers. And we might find it in our individual self interests to form a cooperative association to share the cost of machinery, obtain better prices of fertilizer, and so on. The market embodies these three approaches to individual behavior. Economists talk about markets and economies as if they were static things without life. Obviously this is not true. Some of the new thinking is to approach economics from a behavioral point of view. Unfortunately what has happened is that same academic approach to seeing markets as just a few added rules and observations. There is quite a bit of talk about all the biases individuals show in thought and action and the attempt to tease some sort of rule making from it all. You might say that we have too many academics looking at all the labels and definitions and then attempting to find a number of equations that can be used to predict behavior. Life simply doesn’t work that way. Number one, there is no such thing as logical behavior as compared to the philosophy of logic. As humans we simply do not sit down with venn diagrams or attempt to solve P and ~Q when we wish to buy and sell in the marketplace. Of course we use short cuts such as rules of thumb. We do so to save a little time and because we developed such uses back when we left the trees. One doesn’t stop to examine that animal that just moved to see if it is a leopard, one simply cuts to the act of climbing back up the tree. Plenty of time to see if our rule of thumb was correct. Approximation is often a better value than exactness in living.
So what does this tell us about markets and economies? First it should tell you that the exact price point is not found by all but is an approximation. Someone always buys for less and someone always pays more. Also, marketing targets not so much our needs as if does our emotions. Is an Apple iPhone really worth paying two to four times more than some other smart phone? Can we apply marginal utility to the use of an iPhone? It’s great for making telephone calls but its marginal utility is less in texting. Maybe, maybe not. Is the iPhone a tool or a toy or both depending on how it is used at the moment? And what happens when you iPhone is out of range of any cell phone towers? But let us not dwell there. On to an underdeveloped country and let us see how markets work there. Hey, its pretty much the same, just different goods and services. Food and shelter are more important commodities than cell phones, smart or not so smart. Much of the current economic thinking has been developed strictly for developed countries. This is why the thinking gets so abstract and individuals become mere numbers to be run through equations.
In a sense, by focusing on there three concepts we put fire to the feet of those individuals who call for such things as sustainable economies, limited growth economies, and so forth. Most of these new ideas really preach the ideal of some paradise. If you have ever read Milton’s Paradise Lost you become profoundly aware that in this utopia everyone knows his place in society. The leaders are always leaders and the followers all know they are followers and will never become leaders. All human emotions are dampened so that only the spirit of cooperation is retained. Of good, wonderful perfection in all its glory. And all are guided by some unifying spirit. Hey, I’ve got a bridge in New York City to sell you. Its always wonderful thoughts that have no basis in reality. Yes, there are limits to real growth. No questions there, one can only manufacture so many widgets and the public can only consume so many. But not one of the people, be they biologists or economists, have ever answered is how our growth rates have gotten to such a high point and what has been grown? It’s a problem of measurement. Credit is the eight hundred thousand pound gorilla in the room. True, oil use has risen but look at the value of oil. It has risen so much faster and few can tell us why. Again, it’s a thing called credit. When credit is created or issued, it spends just like money. But physical currency has a finite limit, only so much is printed at any one time. Ah, but credit can be created out of thin air and issued in amounts that stagger the imagination. Credit is a multiplier or wealth, if you like. Unfortunately that wealth is represented by future earnings. But is credit limited to only possible future earnings? Of course not, we can issue far more than we could ever pay if we used it all. And it is the use of credit that creates debt. And it is debt that can cause an economy to be totally out of control. All these people see fantastic growth and think it must be real and that we will run out of it like we might with oil. They fail to see the it is credit that has grown, not economic growth. Real economic growth comes with the expansion of individual consumers who have the means to earn an income and buy goods and services. It is the increase in population that is the true economic growth. But credit dislocates that growth because not everyone gets credit or almost unlimited amounts of it.
So how does this dislocation of credit and growth come about? Simply, we are human and we have many variations of behavior. Some of us are more competitive than others. Much of this is learned behavior. Our parents, our friends, our schools our societies push this sense of competition is good early and quite a few of us take it to heart, else not that many people would overpay for a smart phone that has a particular fruit logo on it. Self interest play a part in that we may not feel that we have enough when we have a hundred times that amount. We cheat, we lie, we steal. We get lazy and ask the government regulators to make the creation of unfair advantage easier so we can accumulate more. Rich people get rich because they ask for and pay for special favors that enable them to get richer. But that’s not right, is it? Stop electing idiots who will take the money that the rich offer as bribes or inducements. Forget about political party, start electing honest people for a change. Our morass of tax code is not the fault of republicans or democrats but those people who elected those idiots who enacted the legislation that made the morass possible. I keep trying to tell people that economics is not abut mathematical formulae, it is about human behavior and human behavior is far more akin to chaos theory. Competition, Self Interest, and Cooperation, from these three concepts we can develope all behavior forms. This is the starting point for the study of economics based on human behavior.