Economics deals with behavior of
agents as stated many a times in the past posts. The agents might be
individuals, groups of individuals, organizations, families, society, castes,
classes, institutions, nations, economies and what not. There might be a behavior
observed under individual conditions and something under aggregate conditions. There
is behavior which might be innocuous or something independent when viewed through
the prism of an individual yet the same when aggregated might result in a
totally different behavior. The motives might be micro yet the aggregate
behavior might result in something of a macro outcome. It might be simple
decision to park a car at some place which if followed by others might set a
pattern and thus a macro behavior of sort would emerge. If somebody were to
venture a question on why the king has no clothes, there might be no answers. As
the economists, Thomas Schelling once remarked, he was addressing a session and
he found the first eight rows were empty but to borrow from the Indian English,
it was houseful beyond the eighth row. He spends some considerable time trying
to wonder how such an outcome could have resulted in a perfectly natural
setting wherein each one is supposed to exhibit independent behavior.
Different schools of thought have of
course stressed on different dynamics as far as economics is concerned. It is
the economic naturalist school like of Schelling or Becker or Frank and others
who tried to view the society through a prism of human actions and reactions
and the consequent outcomes of those reactions in the society. It was these
economists who built up the foundation for the application of economics in the
real world. In their view, every action is perhaps an outcome of a cost benefit
analysis. The cost benefit analysis, it must be stressed, need not be
structured but often subject to heuristics and the cognitive constraints that
the human exhibits. The behavioral school built upon these constraints into
arguing about the bounded rationality. To these economists, the human society
was essentially an outcome of human individual actions and these would reflect
on the production, exchange and consumption. The economic naturalists too argue
that the production exchange and consumption too are an outcome of micro
actions the individual agents undertake which when aggregated would result in a
very different outcome.
It is not merely the production that
would be stressed but the naturalists would look at why this production is
chosen at. In fact, it would be inquisitive to decode whether the product
design is an outcome of economic actions. If a milk were to be deliver in
square carton, the same is not something observed in case of soft drinks and
related beverages which come in round bottles. This might be of interest from
scientific perspective but economist have tried to dig the economic motivations
behind the logic. Incidentally, the logic gets extended to packaging of different
goods, perishables and non-perishables alike. This was something untouched upon
in the previous schools of thought. The behavioralists of course argue that
these outcomes can be suited to make the humans change behavior. For instance,
the current need to wear masks could be altered by suitable nudge if one might term
it so. Of course neo-classicalists would argue that the people respond to
incentives and therefore with appropriate incentives people would adopt masks
as default accessory. Incidentally, there are suggestions that vaccination be
made compulsory to enter pubs or discs or malls or other entertainment venues. This
in itself would be enough to make people rush for vaccination across the
country and perhaps across the globe.
In the classical economics, the
focus was on production. It was the supply that mattered. The production was an
outcome of the self-interest of the agent which through the invisible hand
ensured the societal self-interest was served. Karl Marx was more interested in
the ownership of production when he argued that the production should be in the
hands of the labour rather than the capital. In his view, the labour was
exploited and thus the labour would revolt against the capital. The communist
model was essentially the collective ownership in theory but it ended up as a
producer and consumer lock-in in practice. Once the farmers for instance were
allocated to a cooperative, it was deemed to be permanently there and their own
private desire or choices became subordinate to the choices of the collective. The
individual lost to the collective.
It was the neo-classical school
which moved away from the production into the demand side. In their analysis,
it was the consumers who purchased goods and services to maximize their utility
given the constraints. To them, it was the demand side analysis that was
pertinent. They emphasized the role of exchange and consumption, something also
followed by the Austrian school. The Schumpeterians interestingly focused on
production but in their worldview it was about the cycle that predicated the future
of production trajectories. They argued that every production cycle at one
point would be subject to the creative destruction wherein the existing assets
would be restructured and used for more productive purposes. In this they
followed the prophecies of Marxists though they did not suggest or approve of
the Marxian model of production. In other words, the expected direction might
be similar but the outcome of the revolution would be different. This is
precisely why Schumpeter came to be loved both by capitalists and Marxists.
Yet in each of their views, these
analysis were more predicated either on the goods in supply and the motivations
and ownership behind the same or alternatively the analysis of demand patterns
and the motivations and the constraints behind the same. They did not delve on
the underlying logic of agent behavior under different circumstances. The behavioral
school focused on the process of decision making something an erstwhile forte
of psychology. The naturalists sought to decode the behavior in terms of the information
available and the trajectory these actions would lead to in others following
suit or otherwise. When one looks at the sweep of economics, it is clear that
every school seeks to analyze a certain part and base its arguments over the
same.
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