Hunt Darge Lemmings

8/6/2019 Hunt Darge Lemmings

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On Lemmings and Other Acquisitive Animals: Propositions on ConsumptionAuthor(s): E. K. Hunt and Ralph C. d'ArgeSource: Journal of Economic Issues, Vol. 7, No. 2 (Jun., 1973), pp. 337-353Published by: Association for Evolutionary EconomicsStable URL: http://www.jstor.org/stable/4224234 .Accessed: 10/05/2011 01:56

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J JOURNAL OF ECONOMIC SSUESVol. VII No. 2 June 1973

On Lemmingsand Other AcquisitiveAnimals:Propositionson ConsumptionE. K. HuntandRalphC. d'Arge

Humans tend to anthropomorphize nimals.Pigs and rats are seenas greedy, acquisitive, and voracious animals. They aggressivelycompete for more than their share. Lemmingsare close first cousinsof rats. Theacquisitivebehaviorof ratsreaches ts most absurdextremein the lemmings, who, in their recurrentmigratorysearch for more,rushhead-long nto theseain amass orgy of societal suicide.(Biologicalreasons are still in dispute. We provide our own interpretationhere.)In acquisitive societies, our views on pigs, rats, and lemmings arereasonably descriptive of much of human behavior. Greed and thedesire for endless acquisitionof materialwealth and greaterconsump-tion are the motivating orces underlyingAmericancapitalism.In our society, the desire for human inequality is intense. It isthe most fundamentaland overridingdesire of most success-orientedindividualmaximizers. But what if a competitiveeconomy were runby rats? Would we perceive a competitive equilibriumcharacterizedas Pareto efficient?Theansweris unquestionably"no." Rats immedi-ately would recognize the stronger and weaker of their species,regardless of intraspeciesutility comparisons. A peckingor survivalTheauthorsareAssociateProfessorsof Economics, University fCalifornia,Riverside.This articlewas presentedat the AnnualMeeting of the Associationfor EvolutionaryEconomics, Toronto, Canada,27-29 December1972.

337


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338 E. K. HuntandRalphC. d'Argeorder would be established.The privileges that stem from this hierar-chical order would be codified and legitimatizedin a set of implicitproperty rights. These property rights would determine the initialendowmentsof incomewith which the competitivestrugglefor more,relatively and absolutely, would be combatted.Each rational,econo-mizing economic rat or lemming would fight for his own private"optimum," as the entire society would be propelled irretrievablytowarda deadlysea of environmental egradation.Gaps nintelligence,knowledge, abilities, and power immediatelywould be sensed, byaction f notby instinct.The individual at,sensinghis ownpredicamentandposition, thenwouldbe confrontedwiththefollowingalternatives:(1) Accept the preliminarypecking order and distributionof rights,ignore the impendingdisaster, and make the best of things withinthe context of the rat or lemming society; or (2) rebel against theestablished order and in so doing create notoriety and suspicion,ultimatelyeithersettlingcomfortablyas a rebelwithout claws or beingeaten by antagonizedrat populations,but perhaps with some smallbut finite probabilityof contributing o the ultimatereplacementofrat society by a more humanesocial system.If the rat were a rational economizing sort, with risk aversion,he might likely choose the first option. But given that choice, whatwould his behaviorpatternbe followingsuch a clearly "stated" desirefor opting for the establishment. It is just such a case, with theindividualrat pitted against a society composed of other cooptedrats, thatneoclassical welfareeconomicsseeks to analyze. In so doing,neoclassicaleconomicsbuilds on a metaphysical ntellectualbase thatis appropriate o its task. Analysis of the second alternativerequires,we believe, a fundamentallydifferent set of intellectual irst principles.The eminent philosopher,Stephen C. Pepper, wrote a survey ofsystemsof metaphysics n which he showedthat therearefour generalmetaphysical world views which have providedrelatively adequatebases for scientific inquiries, social and ethical philosophies, andtheories of knowledge.' Most of the attempts to analyze the processof consumption and the nature of environmental externalities inorthodoxeconomic literaturehave occurredwithin the general norma-tive and analyticalframeworkof competitiveequilibrium.The meta-physicalbasis upon which the analysis of competitionand, generally,neoclassical economics is constructed Pepper calls "mechanism"2;this is the metaphysicalsystemupon which most of the other dominantstrains of economic orthodoxyalso have been based.There is anothermetaphysicalsystem, however, upon which manydissident economictheories havebeen constructed. This is the general


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Lemmingsand OtherAcquisitiveAnimals 339Weltanschauung that Pepper calls "contextualism."3 In economicliteraturethe intellectual traditionsof institutionalismand Marxismfall within the broader world view of contextualism. In this articlewe shall attempt to impressionisticallyindicate a few highlightsofthe two general systems of thoughtand indicatesome of the reasonswhy we believe the orthodox approachis almost useless as a basisfor formulatinga normative heory of consumptionwith externalities,which we believe to be the starting point for an understandingofconsumptive behavior. We also briefly will outline our reasons forbelieving that the contextualism view offers far richer possibilitiesfor constructinga much more serviceabletheory of optimalconsump-tion in the presence of externalities.

The NeoclassicalFramework f Consumption ketchedIn the eighteenth century the cosmology implicit in Newtonianphysics rapidly became the dominant ntellectual frameworkfor boththe "natural sciences" and the "social sciences." The Newtonian

concept is basically that of an atomistic world governed by eternaland immutablemechanical aws of motion. All change was governedabsolutely by these laws. Changeandmovement n consumptioncouldbe understood as series of equilibriaof atomistic elements, eachself-contained and deterministically"programmed" by the totalityof forces buffeting it about in accordancewith the laws of mechanics.The basic Newtonianview is that whichPepper labels "mechanism."This point of view rapidlycame to dominate social inquiry in theeighteenthcentury.DavidHamiltonhas shownthe result of Newtonianmechanism n the social sciences:

The eighteenthcenturyviewed social forms as fixed in natureandwhatchange took placewas at most a quantitativeone withinfixed limits set by a naturalorder of things. The universe wasa mechanicalpiece often likenedto a clock whose moving parts,when once wound up by a devine Creator,would run eternallyin the same pre-establishedmechanical arrangement.The bestinterest of man could be attained by an objective scrutiny ofthe workings of this mechanical universe. This inquirywas tobe guided by reason, which would uncover the great principlesby whichthe social universewas guided in its rhythmicalpatternof movement.By laying barethese principlesman wouldbe ableto conform to them and thus would enhance his contentmentandhappinesson earth. Miseryand despair,the productof man'signorance, which was also the source of his folly in flauntingthese immutablenaturalprinciples, could be banishedfrom theworld.4


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340 E. K. Hunt and Ralph C. d'ArgeAdam Smith's The Wealthof Nations was the denouement of thiseighteenth-century hilosophy.Inplaceof Newton's law of gravitation

Smithsubstituted"self-interest." A society which operatedin accor-dance with natural aw wouldbe a privateproperty,capitalist,marketsysteminwhich eachatomistic ndividualexercisedhis "natural ight"to seek his own self-interest.Eachselfish-acquisitive ndividual imul-taneously would promote the social good while he sought only hisown welfare. The theory, of course, omitted social, political, andeconomic differences which lead to the establishment of "rights"and thereby consumptionopportunities.Smith's assertion that the InvisibleHand of the capitalist,marketsystem would harmonize all individual egoistic actions and lead toan "optimal" allocation of productive resources has remained themost consistent themefor an ideologicaldefense of marketcapitalismdown to the present time. "The whole basis of modernprice theoryis to be found in AdamSmith without 'modernrefinements.'"5Orthodox economists of the last 150 years, like the medievalscholastics, acceptedthe basic axioms of their system almostwithout

question. They have workedendlessly to create a brilliantdeductiveedifice on these axioms. By introducing complicated models ofmathematical easoningthey have made it difficult, if not impossible,for all but the professionaleconomist to follow the tortuous pathsby which they arrive at their conclusions. Their conclusions are thesame as Smith's: Inherent n the capitalisteconomicsystem are forceswhich, if nurturedproperly,will tend to create an idealconsumption-oriented society.The "common core" or ideological and cosmological frameworkof economics has been challenged only infrequently. Rather, withzeal, economists endlessly have produced esoteric triviato embellishthe decorative trim of their magnificent edifice. Milton Friedmansuccinctlyhas describedmodern economics and moderneconomists:"Economics is a scientific discipline that has a core that is commonto almost all professionaleconomists. Naturally, economists devotelittle professional researchand writing-except in textbooks-to this

commoncore. They concentrateon the issues that are on the frontierwhere economics is being made ratherthan taughtor applied."6The textbooks invariably begin with a very sharp, and perhapscheap, dichotomy: the theory of the consumer and the theory ofthe firm.7 Here we meet the homogeneous, maximizing, "economicman" with fixed budget, intent upon choosing commodities so asto maximizehisindividually nspiredutility.This results ncommoditiesbeingchosen in such proportions hat the marginal ate of substitution


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Lemmingsand OtherAcquisitiveAnimals 341between any pairwillbe equalto the ratio of theirprices.Furthermore,these marginalrates of substitutionbetween any pairof commoditieswill be the same for all consumers since they are confronted bymore or less the same prices and not with each other. This allowsan instantaneoustransitionto be made from individualpreferencesto those of the community-the community'smarginal ateof substitu-tion being equalto that of an individual-and from this it is concludedthat what is being producedis in accordance with the community'spreferences, with social needs.Next, an individual irm is considered, confrontedby given pricesin a competitive market.A productionfunction is postulatedgivingthe greatest physical output for all possible combinationsof inputs.With specified prices for bothinputsandoutputs,inorder to maximizeprofits, the firm will follow a set of efficiency conditions:A pointis chosen on the firm's productionfunction such that the price ofanyfactor(includingabor) s equalto the value of itsmarginalproduct;the marginalrate of substitutionbetween any pairof factors is equalto the ratio of theirprices;the marginal ate of transformation etweenany two outputs is equal to the ratio of theirrespectiveprices. Theseconditions are the same for all firms since they all face the sameinputandoutputprices and implicitly he sameamountof information,and they are located on top of each other at one point in space.They ensure both profit maximization and that all factors will beutilized as efficiently as possible. Now in equilibrium, ince the pricesfacing the individual irm and the individualconsumer are the same,an individual consumer's marginalrate of substitution is equal toanyfirm'smarginal ateof transformation.At this pointthe neoclassicaleconomistsecstatically proclaim:"ConsumerSovereignty" "ParetoOptimality." Every resource is being used, every commodity isproduced, in accordance with consumers' wants; it is not possibleto reallocate withoutdecreasing someone's "utility"subject to initialentitlementof resources and ownership.The whole analysis is based on a set of assumptionsthat seldomare made ully explicit.Thefollowingarefourof the most objectionableassumptions. First, there is acceptance of the socioeconomic institu-tional structure.Currentcapitalistinstitutions define the constraints,and the economist's task is clearly delimited within these bounds.Second, the premise of social harmony assumes that aside from afew "frictions" and difficulties, there are no irreconcilableconflictsof interest between social groups. There are, in fact, seldom anygroups or classes of men at all. Third, differences between mendisappear. They become simply homogeneous, utility-maximizing


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342 E. K. HuntandRalphC. d'Argemachineswith sets of metaphysicallygiven preferences.Veblenaptlysummarized his view:

[This]conception f manis that of a lightningalculator fpleasures ndpains,who oscillates ike a homogeneouslobuleof desireof happinessunderthe impulseof stimuli hat shifthimabout hearea,but eavehim ntact.Hehasneither ntecedentnor consequent.He is an isolateddefinitivehumandatum, nstableequilibriumxceptfor the buffetsof the impingingorcesthatdisplacehimin one direction r another.Self-imposednelementalpace,he spinssymmetricallybouthis own spiritualaxis until the parallelogramf forces bearsdown uponhim,whereupon e followsthe line of the resultant.When he forceof theimpacts spent,he comes o rest,a self-containedlobuleof desireas before.8

Thefourthassumption s thatthegovernmenthasa shadowyexistence.As longas Paretianoptimalityexists it is nowhere.When anexternalityoccurs (it is generallyan isolated occurrencein an otherwise perfectworld) the governmentbecomes a deus ex machina which restoresthe systemto a state of bliss. It is an aloof, neutral, mpartial rbitratorthat descends on the scene andenacts an excise tax or gives a subsidythat re-creates competitive equilibrium.Vested interests? Economicand political power? Class control of governmentprocesses? Theseare the fuzzy notions of sociologists and political scientists. Theyhave no place here. When the first order conditions are restored,or the new property rights to consume and pollute are established,the governmentdiscreetlyrecedes into the mystic mist.

TheContextualistrameworkWhereas the paradigmmodel of mechanism is the functioningofa machine, the paradigmmodel of contextualism is the "historicalevent." For the contextualist, the world of experience is not madeup of immutable,fixed, atomistic elements that can be analyzed incomplete isolation. Reality is a process. Our experience is the sumof on-going historic events and is not made up of atoms, lengths,heights, weights, numbers, and so forth. The most basic units ofour experienceare entire holistic events. They consist of such thingsas "makinga boat, running a race, laughing at a joke, persuadingan assembly, unravelinga mystery, emptying the garbage,removingan obstacle, exploringa country," discharginga whole amalgam ofpollutants n a river, "communicatingwith a friend, creating a poem,re-creatinga poem."'The precise nature of a historicalevent depends on many things.First, events have a texture, that is, they have many particular hings


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Lemmingsand OtherAcquisitiveAnimals 343and processes which are contained within them. Second, they havean aggregateand individualquality that transcends the qualities oftheir textural components. Furthermore,the texturalparticularsaresignificantly affected by the total qualityof the event. For example,in music the experiencedqualityof a particularchorddepends uponthe qualityof the entire compositionof which it is a part; similarly,the compositionof solidwaste odorsdependsnotonlyon the dominantsmellingcomponentbutalsouponcompaction,soilcontent,absorbtion,andotherdimensions.Third,events have a spread.Thepresentmomentin any event contains elements of the past as well as elements ofthe future.10 To consume a cluster of grapes now means a cost ofsoil, water, and human resources in the past, a bellyachein the nearfuture (or headache if the grapes were pressed and fermented intowine), and a greatersludge load in secondarywaste treatmentplantsfor municipalorganic waste.Thus, relationships between objects, men, societies, and all otherelements of realityarethe essence of contextualism.The contextualistis "convinced that facts are never isolated appearances,that if theyareproducedtogether, it is always within the higherunity of a whole(althoughthe whole may not be understoodentirely), that they aretied to one another by internalrelations, and that the presence ofthe one profoundly modifies the other."" The phenomenonof syner-gism, whichis treatedas somethingexceptionalandstrange northodoxeconomics concerned with separabilityand linearity, is regarded astypical or normal n a contextualistframeworkbecause combinationsor wholes are the most important ngredient or this theory.

Economic Growth and ConsumptionThe most importantdifferences between contextualismand New-tonian mechanismare the notions of change or growth implicit inthe two systems. Neoclassical growth theory is based upon theNewtoniannotion of change.P. S. Laplacebelieved that if "we knewthe configurationof matter in the whole universe at any one timeand the precise laws of matter, or if we knew the configurations

of matter at two times, so that we could deduce the laws whichled from one configurationto the other, then we could deduce theconfigurations of matter for any other times whatsoever.""12 Whatbetter descriptioncould be given of neoclassical growth theory? Acurvilinear ine drawnbetween two points?Theneoclassicaltheoryof optimalgrowthsimplyposits theexistenceof the necessarytransformation ndutilityfunctions with the appropri-ate mathematicalcharacteristics,generally ignoring the validity of


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344 E. K. HuntandRalphC. d'Argethe Sraffa inspireddemonstrationof the impossibilityof empiricallyidentifyingsuch well-behaved transformation unctions as well as themountain of philosophical,methodological,and practicaldifficultiesin specifying the existence of (much less the natureof) a dynamicutility function. Fromthis point onward,with acceptanceof a simpleindividualutilityfunctionandnonfiniteresources,the analysismerelyrequires a few pages of mathematical deductions to "prove" theexistence of a single optimalbalancedgrowthpath.13From the same premises it is very simple to deduce the growthpathof consumptionwhen it is maximized(and, hence, in neoclassicaleconomics, optimized): "To maximize consumption per man intoperpetuityalong a balanced growth path, choose that capital-laborratio at which the marginalproduct of capital is equal to the rateof populationgrowth."14

Externalitiesn NeoclassicalTheoryIn the neoclassical framework the processes of production andconsumptionwere assumedto have "direct" effects on only the one

or a few persons who do the consumingor producing. 5 Externalitiesoccur when the utility function of one consumeris affected by theconsumptionorutility of anotherconsumer,or theproduction unctionof one firm is affected by the production(orprofits)of anotherfirm,or the utility of an individual is affected by a productionprocesswith which he has no direct connection. The traditionalneoclassicalapproachis to assume that, except for a single externality, Paretialoptimality-cum-competitivequilibrium xists everywhere else.The olderpolicy measure(initiatedby A. C. Pigou)whichgenerallyemerged was to tax and in so doing restore universal optimality.One of the newer policy prescriptions is to establish a "marketforthe right to pollute" and then let the Invisible Handrestoreuniversaloptimality. It generally is asserted that "failure to reach mutualagreement . . . can be regardedprima facie evidence that . . . anet potentialPareto improvement s not possible." 16 But this is toomuchforeven the morecandidneoclassicaleconomists:"Rationalizingthe status quo in this way brings the economist perilously close todefending it."17The fantasticallyunrealisticassumptionsupon which the Paretiananalysis-cum-competitivequilibrium ests ledJ. De V. Graaf o declarethat "the measure of acceptance . . . [this theory] has won wouldbe astonishing were not its pedigree so long and respectable."18Furthermore, even if the analysis were not totally unrealistic, theethicalassumptionsunderlying he notion of competitiveequilibrium-


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Lemmingsand OtherAcquisitiveAnimals 345Paretoefficiency are questionable, at best.'9Joan Robinson calls thetheory an "ideology to end ideologies,"20 and S. S. Alexander notesthat it "grants our social institutionsimmunityfrom criticism otherthan on grounds of efficiency.""21The criticalcoup de grace (if such is, indeed, needed) comes whenone realizes that externalities are totally pervasive.22Most of themillionsof acts of consumption(and production)in which we dailyengage involve externalities. In a marketeconomy any action of oneindividualor enterprisewhich induces pleasureor pain in any otherindividual or enterprise and is unpricedby a marketconstitutes anexternality. Thus, if some guest at a formal dinner belches loudlyandcontinuously,and this belchingcauses discomfort to otherguests,then the economy is said to be in an inefficient state. Of course,we omit considerationof cultures where such behavior is taken asindicative of the superiorqualityof the meal.A more incisive example of externality is the upwindfactory thatemits largequantities of sulfuroxides and particulatematterinducingrisingprobabilitiesof emphysema,lungcancer, and other respiratorydiseases to residents downwind. This is clearly a case of undesired"consumption." The externality arises because the factory ownershistoricallyhave not had to bear the burdenof health and psychicdamageswhichthey cause.23 n effect, theiruse of the airas a mediumof waste disposal was (and in most areas still is) unrestrictedandfree.These ratherextreme examples underscorethe difficulty of deter-miningwhich social or privateactionscan be identifiedwithexternali-tiesandwhichcannot.Unless people inmodernsocietiesarecompletelyhomogeneous, self-servingrobots respondingonly to price and cost,practically any social behavior results in externalities. In fact, oneof the reasons cited for the founding of societies is the commonneed for protection.Yet protectionachieved by an individual hroughgroupparticipations a formof reciprocalexternality;I receive addedprotectionby yourpresence as you receive addedprotectionby mine.Such benefits of group participationare not priced at all or not bya well-defined market, but they are tantamountto identifying thesine qua non of societies in perhaps the most simplistic way! Onethereforecan arguethat externalities are a normaland inherentpartof societies and not some form of isolated, deviant behavior orexceptional outcome.Returning o our first question of the mechanisticor neoclassicalapproachto the "decision" of rats as to where to "rip it off," letus start with the assumptionthat the rat is basicallyunsatisfiedwith


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346 E. K. Hunt and Ralph C. d'Argeincome, Godgivenendowments,andsocialposition. The ratorlemmingis confronted with a zero-sum game: What you have, if I take partof it, will be your loss and vice versa. If the rat were a rationalself-economizing sort, with aversion to risk, he very well might optfor being a rebel without identifiableclaws. However, normallywemight expect the following behavior so that we denote this as ourfirst proposition:

I. Since economic behaviorwithin broad social normsandstatutes is determined by the marketplace, wages, andprices, the only way to advance oneself with some degreeof self-decision and control is throughnonmarket ransac-tions. Thus, a feasible goal is to maximize (for eachindividual) itherthe numberorexpectedvalue of nonmark-ket transactions subject to the initial allocation and con-sumptionof goods as dictated by formalmarkets.If propertyrightsare somehow obscure or flexible in interpretationin some area of potential nonmarkettransactions, then it pays (at

least for individual gain) for the consumer (or producer) to exploitit. The long history of court cases on fee simple land entitlement,mineralrights,nuisanceprovisions, zoninglaws and variances,specialtax rebates, and practicallyevery legal or jurisdictionaldecision canbe traced to origins of nonmarkettransactions. The market existsfor establishing egal rights with regard o realproperty,but excludedare political patronageand nonrecorded payments (commonly de-scribed rather homily as side-payments n economic circles, wherethewordbribe s disliked).Anyone who hasattendeda countyplanningcommission meeting on a zoning variance, observed the implicitrelationshipsamong judges andlawyers thatdecorate ourcourtrooms,or read about organized crime will not swallow easily the notionthat nonmarkettransactions do not pay. We all know that they do.Have you ever invested in stock without insideinformation,whetheror not correct? Even economists cannot be categorized as fools inthis sense. Those who know, win. But it might be added that ifeveryone knows, no one can win. Thus, we conclude that nonmarkettransactionspay for those exploiting them. In a society dominatedby a competitiveethic andpeckingorder withlittle chance for breakingout, which does the rebel do? If he is naive, like Abbie Hoffmanbefore 1971,he asserts "goodness" andrevolutionarychange. If not,if he lacks "Consciousness III," we would assert that if he werea self-maximizerhe wouldascribe to oursecond rather oose proposi-tion:


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Lemmingsand OtherAcquisitiveAnimals 347II. It is always in the interest of the self-maximizingindividual n a marketeconomy with incompletelyspecifiedproperty and user rights or differences in informationavailable to create as many (in terms of value) nonmarkettransactionsas are possible.24

Given acceptance of this proposition, we should like to offer athird.Whatarethe natureand texturalcontent of nonmarket ransac-tions? Some, if not all, arephysical, social, biological,or otherformsof interdependenciesamong individuals or groups where the markethas,at leastmomentarily,overlookedsuchrelationships.By definition,these are externalitiesof either a positive or negative sort.25Violentand nonviolent crimes are livid examples of such nonmarket in-terdependencies:

III. There will be a tendency in market economies withincomplete information and unclear ownership rights forthe value associated with the appearanceof nonreciprocalexternal diseconomies and economies to be maximized.Let us takeE. J. Mishan'scase of the individual'spowerlawnmowerthat disturbs a neighbor. The structureof incentives is as follows:Unless there are adequatelyspecifiednuisance ordinanceson decibelsof noise emission, it pays for the individual to mow his lawn inthe middleof the nightto create the strongest possible incentive forthe neighborto negotiate and offer a bribe. (We presume here thatthe neighborcannot effectively retaliatein kind.) Once the "externa-lity" appears or the neighbor is told of its potential existence, thereis, of course, a transfer of wealth and consumptionpossibilities.The transfer of wealth and consumption by "creating" externaldiseconomies for othersneedslittle furtherelaboration.Creating hesediseconomies, in effect, means "producing"a new good (or bad).The problem of such an incentive structure is its inherent abilityto negate any efficiency associated with marketeconomies. If throughcontrivance one man can impose an external diseconomy on other

men knowing the bargaining will make him better off, he clearlywill do so if he is a self-maximizing ype described in the traditionaleconomic literature. f all menattempt o impose externaldiseconomieson others for their own gain, then it cannot be said that the economywill be efficient since such imposed costs are marketdistorting,andthere is no organized market to trade external diseconomies. AsKenneth Arrow recognized, there are not enough market traders,including hirdparties, to sustain efficiency (with only the externality


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348 E. K. Hunt and Ralph C. d'Argegeneratorandrecipient)whenthereareinformationcosts and inherentdifferences amongintellectualcapabilities.26

These very brief remarks ead us to the followingproposition:IV. Withincentivesto generateexternaldiseconomiesandother potential nonmarket ransactionsin consumptionoruse of resources, the following efficiency principle willtend to be approximated:No one can be made moremiserablewithoutmakingsomeone else less miserable.Thismightaptlybe called the Paretomisery principle.

To see why thisprinciplehas some validity, note that a self-orientedindividualwillmaximize he value, to him,of participatingnorganizedmarketsandcreatingnonmarket ransactions.Taking his "productionpossibility"set for creatingexternaldiseconomies,he will select onlythose with a higher return than he could earn by engaging n markettransactions.But by so doing, he will maximize the "cost" to othersin that his gain is someone else's loss. All individualsactingindepen-dently to maximizethe "cost" imposed on others will yield a "maxi-mum" of these "costs" or paymentsto society, that is, by selectingonly highly productive external effects. The recipient of contrivedor inadvertentexternaldiseconomies will undertakedefensive expen-ditures or pay bribes until the usual marginalconditionsof efficiencyare fulfilled. Thus, the recipient's "cost" will be minimized for eachexternaldiseconomy,andan "efficient" patternof externaldisecono-mies will emerge.But if external diseconomies, in terms of value to the generator,are maximized in the society and if they are efficiently contendedwith by recipients, then we have a mirror image of consumptiontheory and Paretoefficiency. That is, instead of allocationof a goodto its highestvalue use with its productioncosts minimized,we haveallocationof a "bad" (externaldiseconomy)to its most costly impact,with the impact being minimizedin terms of recipientcost as wellas productioncosts. The economy, of course, is efficient butefficientonly in providingmisery. To paraphrasea well-knownprecursorofthis theory: Every individualnecessarilylaboursto renderthe annualexternalcosts of the society as great as he can. He generally,indeed,neitherintends to promote the public misery nor knows how muchhe is promotingit. He intendsonly his own gain, and he is in this,as in many other cases, led by an InvisibleFoot to promote an endwhich was no part of his intention.Nor is it any better for societythat it was no part of it. By pursuinghis own interesthe frequently


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Lemmingsnd OtherAcquisitive nimals 349promotes social miserymore effectuallythan whenhe really intendsto promoteit.

External economies also offer incentives for individualgain, butthe incentive structure here is basically different than for externaldiseconomies. Without iabilityor nuisance rules that establish socialresponsibility, it is in the interest of both generator and recipientto negotiateon externaldiseconomies.However, with externalecono-mies the recipientgains more by attempting o be a free riderexcept,perhaps, at the margin. In consequence, the incentive for creatingorproducingexternaleconomies is less than that for external disecon-omies, except perhaps for altruists. The policy presumptions forresolvingexternal diseconomies by assigningproperty rightsor usinggovernmentaltaxing and subsidy powers are doomed to failure or,at best, limited success unless the viewpoint of contextual wholesis adopted and one analyzes all aspects of the underlyingincentivestructure n the competitive system. It appearsto be an impossibletask to develop legal rights on every type of physical, biological,and social interdependence,or a rational taxation system that willeliminate external diseconomies. Rather, to move toward a betterefficiency of the economic system the incentive system itself needsalteration.We have three suggestions utilizingthe contextualist approachasregardsresolution of externalities problems in consumptionor useof goods. (I) The appearanceof externalities should be recognizedas a never-endingprocess unless certaintypes of external diseconomygenerating aws or ethical values are introduced to stop it. (2) Lawsand property rights systems not only must be designed to controlbehavior within the marketbut also must consider expectations onthe valueof nonmarket ransactions.(3) Nonmarketeconomicsshouldbe concerned not only with the question of liability, which the richcan bidagainst,but also withthe contextual content of rules systems,liability,andthe basic incentive structure or nonmarket ransactions.

Consumptionand ExternalitiesConsumptionto a rat or lemming is another ounce of grain. Tohumansin modernsocieties it is anotherXKE, Firebird, solid wastecompacter, or deviant sexual act. All are costly and all are statussymbols, either displayed n the parking ot or in the office for discreetviewers. All contribute o the GNP, but ina success-orientedeconomy,it is hardto argue that each contributesto the social welfare. Withgross nationalproductper capitaof morethan $5,600andgross nationalwaste per capita of about 11,000 pounds per year per capita, it is


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350 E. K. HuntandRalphC. d'Argenot hard to contrast us with Nero. What we have is too much tobe appreciated,beyondadequateperceptionyet within ourpurchasingpower at leastpartiallybecause of the exploitative use of externalities.Ourconsumption s almost totally conditionedby an insatiabledesirefor individualadvancement, nvidiouscomparisonsof the class imme-diately above, or a rat-likeattempt at dominationand sublimation.The result is a spiralingset of preferencesconditionedby the surrealacts in TV and movies portrayingdesirableconsumption.Everyoneshould have his (or her) San Simeon or Hyannis Port. What a Martianwould perceive is not only an infinitedesire for goods but an infinitedesire gone mad! There is no longer a value to solitude or individualcontemplation,health or humancreativity.Consumptionformerly meant food, clothing, shelter, and a fewamenities. No longer. Anyone travelingthe streets of Georgetownor Beverly Hills will realize that consumptionin the GNP accountsis a misnomer. Conspicuous demonstration,perhaps, but not con-sumption. What we see is a consumptionpattern oriented towardexternalityyieldingservices of the followingkinds:drugs;specializedprostitutioncurrentlycalled "massageparlors";fast cars on crowdedfreeways; guardedapartmentswith stereos, educationaltelevision,andother equipmentwhich makethe home a self-contained"culturalcenter"; and a renewal of individualrights toward the principleofmaximization of individual nonmarket negotiation or involuntaryexchange. What we suggest is that, at least partially,the realizationof the value that can be obtained fromexternaldiseconomies or otherforms of involuntaryexchanges has swamped the earlier value ofexternaleconomies andcooperation.Thischange n incentivestructuremanifests itself in what is consumed and how it is consumed.

ConclusionThecontextualist rameworkdoes notprovideany a priori, dogmaticanswers to the problemsof externalities.Yet, it does providea frameof reference which seems to us to offer greaterpotentialfor comingto grips with the issues. The starting point in contextualistanalysisis the recognitionthat both consumption and production are socialactivitiesinvolvingthe entirephysicalandsocial milieuand allpersonswithin it. The basic cause of externalities is that, whereas the costsand benefitsof economicactivityaresocial, the lawsof privatepropertybestow the privileges and benefits on particularindividualswhileimposing only a part (and often a small part) of the social costson these same individuals.


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Lemmingsand OtherAcquisitiveAnimals 351Moreover, the contextualist analysis of change stresses the factthat quantitative increases inevitably result in qualitative changes.The rates at which additionalconsumptionwill add to social benefitsand social costs are bound to change. Furthermore, he changes willbe qualitative;totally new kinds of social costs will be encountered.Some may involve irreversible damages. Orthodox economics hastended to ignore the ethical problems of inequalityin the belief thatcontinued economic growth would make everyone better off andobscure the inequitiesof the system.Finally, contextualism rejects the notion that the government isa neutral deus ex machina which can be expected to charge excisetaxes, bestow subsidies, or establish new markets which will curethe problems. The primeresponsibilityof government s the enforce-ment of private propertyrights, one of the most important sourcesof externalities. By forcingthose who derivedisproportionate enefitsfrom production, by virtue of their ownership of capital, to pay alargershare of the social costs of production, the governmentwouldbe biting the hand that holds its financial reins. If the bite weresevere (as it would have to be to makesignificantprogressin cleaningup our environment), the audacious administration hat initiated thisprecipitousaction surely would find that its financial support (thelifebloodof American politics)would be swiftly withdrawn.The contextualist approachdoes show that to obtain satisfactorysolutions to the problem of externalities there must be some wayof alteringthe powers of private property and the vested interests.This may necessitate sweeping changes in the nature of propertyrights-the very foundation of a capitalist economy. The alternativesare violent self-destructionor the slower societal suicide of environ-mentaldestructionbroughton by acquisitive, lemming maximizers.

Notes1. Stephen C. Pepper, World Hypotheses (Berkeley: The University of

CaliforniaPress, 1961),pp. 1-348.2. Ibid., pp. 186-231.3. Ibid., pp. 232-79.4. David Hamilton,EvolutionaryEconomics(Albuquerque:The Universityof New Mexico Press, 1970), pp. 19-20.5. Ibid., p. 22.6. MiltonFriedman,"On Paul Samuelson," Newsweek, 9 November 1970,p. 80.7. The following threeparagraphsare from the introduction o E. K. Hunt


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352 E. K. Hunt andRalphC. d'Argeand Jesse G. Schwartz, Critiqueof Economic Theory London:PenguinBooks, 1972).8. The Portable Veblen,ed. Max Lerner (New York: The Viking Press,1948), pp. 232-33.9. Pepper,Hypotheses,p. 233.10. The terminologyused is Pepper's.11. Jean-PaulSartre,Search or a Method New York:RandomHouse, 1963),p. 25.12. Pepper,Hypotheses,p. 208.13. See, forexample,KelvinLancaster,MathematicalEconomics New York:The MacMillanCo., 1968), pp. 174-83. For a strong objection to thisset of premises, see the article by R. C. d'Arge and K. C. Kogiku,"EconomicGrowthand the Environment,"Reviewof Economic Studies(forthcoming).14. Alvin L. Marty, "The Neoclassical Theorem," American EconomicReview54, no. 6 (December1964):1027.15. By using theadjectivedirectwe arefollowingE. J. Mishan,"ThePostwarLiterature n Externalities:AnInterpretative ssay," Journalof EconomicLiterature (March1971):2. Excludedare "indirecteffects" which obtainthroughchangesin relativeprices (orothermeans)in a Walrasiangeneralequilibrium ystem.

16. Ibid., p. 17.17. Ibid.18. J. De V. Graaff,TheoreticalWelfareEconomics(Cambridge:TheUniver-sity Press, 1957),p. 142.Fora survey of the objections to the neoclassicaltreatment of externalities see S. K. Nath, A Reappraisalof WelfareEconomics (New York: Augustus Kelley, 1969);R. C. d'Arge and E.K. Hunt, "EnvironmentalPollution,ExternalitiesandConventionalEco-nomic Wisdom: A Critique,"EnvironmentalAffairs 1 (June 1971);andHunt andSchwartz,Critique.19. See d'Arge andHunt, "EnvironmentalPollution."20. JoanRobinson,EconomicPhilosophy GardenCity:Doubleday,AnchorBooks, 1964),p. 64.21. S. S. Alexander, "HumanValues and Economists' Values," in SidneyHook, ed., Human Valuesand EconomicPolicy (New York: New YorkUniversityPress, 1967),p. 111.22. See d'Argeand Hunt, "EnvironmentalPollution."23. There have been, of course, a few extreme exceptions. Edward I onceexecuted a coal burningviolator in his politicallyand socially expedientbut economically unsoundattemptto reduce air pollutantemissions in

London. The attempthadno long-term mpact.24. Actually, Samuelsonand others forecast this proposition n some sensewith their recognition that any public good would involve problems of"free riders" unless preferenceswere sufficientlyaltruistic.25. Foran argument hatCoase and his predecessorshad, at least implicitly,informationalbarriers or costs in mind in defining the existence ofexternalities, ee R.C. d'ArgeandW. D. Schulze,"The CoaseProposition,Information,and Long Run Equilibrium,"AmericanEconomic Review(forthcoming).


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Lemmings and Other Acquisitive Animals 35326. See Kenneth Arrow, "The Organizationof Economic Activity: IssuesPertinentto the Choice of Market Versus Non-MarketAllocation," in

The Analysis and Evaluation of Public Expenditures: The PPB System,Sub-Committee n Economyin Government,JointEconomicCommittee,U.S. Congress, vol. 1 (Washington, D.C.: U.S. GovernmentPrintingOffice, 1969).

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