Robbins and Greaves on the Fundamental Postulates of Economics

Stated by Lionel Robbins in An Essay on the Nature and Significance of Economic Theory (1935):

“The propositions of economic theory, like all scientific theory, are obviously deductions from a series of postulates…The main postulate of the theory of value is the fact that individuals can arrange their preferences in an order, and in fact do so. The main postulate of the theory of production is the fact that there are [sic] more than one factor of production. The main postulate of the theory of dynamics is the fact that we are not certain regarding future scarcities. These are not postulates the existence of whose counterpart in reality admits of extensive dispute once their nature is fully realised. We do not need controlled experiments to establish their validity: they are so much the stuff of our everyday experience that they have only to be stated to be recognised as obvious (pp. 78-9).”

Enumerated below he have:

1. Individuals can arrange their preferences in an order, and in fact do so.

2. The fact that there is more than one factor of production.

3. The fact that we are not certain regarding future scarcities.

Note: In (2) I changed “are” to “is” because I think it was a grammatical error.

 

Greaves in Understanding the Dollar Crises (1973) gives these postulates in different forms explained in pages 27 through 29:

1. All men seek to improve their situation from their viewpoint.

2. The factors available for improving men’s situations are scarce.

3. Men make mistakes.

 

I think Robbins’ formulation of the first two postulates are worse than Greaves. Regarding (1), individuals don’t actually have an arrangement of preferences in their mind at all times. When they act deliberately, they always only choose between two options in each instance. During an instance of action, they don’t consult and refer to their psychological preference scale. They decide on the merits of each individual instance (I am speaking from introspection).

Therefore, a person is only presented with an individual option in each case. After the presentation, the choice is made between the old option and the new option. After the choice, one option remains as the person’s necessary reality. There is a sequence of events across time:

1. Presentation of new option

2. Choice between two options

Now across time, nothing is 100% ceteris paribus. However, we may pretend that it is ceteris paribus as a thought experiment. Lets say someone is doing A and they are presented with option B. Option B may be present in the subject’s memory, or it may be presented by their sense, either through observation or by another person informing them. At this time point, they choose option A or B, so either A is above B or vice versa.

Let’s say A is above B. Now they are presented with C and they choose A again. Now given these conditions, we now know that A is above both B and C. However, we don’t know whether B is above C or if C is above B. We can never know this given these conditions. Furthermore, if we rid ourselves of the ceteris paribus condition, then at this point in time, B could now be above A. Things could have changed during the time elapsed when the person is presented with option B and when they are presented with C.

All in all, constructing scales is contingent on the ceteris paribus (CP) condition. If valid, then we can know that A is above both B and C. Now, let’s say when presented with C, the person chooses C. We can now construct their full scale of A, B, and C. It would be, C is above A, and A is above B. The ordinal preference scale would be:

1. C

2. A

3. B

The point is that preference scales can only be constructed given the CP condition and the conditions regarding the actual choices taken by the subject. At least three specific conditions went into constructing this preference scale: ceteris paribus, A was chosen above B (choice 1), and C was chosen above A (choice 2). So far we have one CP condition and two choice conditions.

These conditions are not even sufficient for universalizing the construction of scales. Remember we could not construct this scale when A was chosen above C, since we then cannot know the relation between B and C. After the initial option gives the relation between two preferences, if presented with a third option, the person must choose this new option for the construction of the scale to continue. This is the final condition required for the construction of value scales. Stated differently, under every choice after the first choice, the person must choose the new option. We can now universalize these conditions for any construction of preferences scales.

To construct a preference scale of n preferences, it requires the CP condition, n-1 option conditions, and the condition that after the first choice, the new option is always chosen.

Greaves’ first postulate is far more modest. We said earlier that a person is presented with the new option, then they make a choice. His postulate gives us the ability to say:

When a person chooses, this person prefers the option chosen over the option not chosen.

Robbins’ postulate doesn’t justify us doing this. Greaves’ postulate gives this justification and is therefore a more fundamental postulate. One thing that should be noted is that Greaves’ postulate does not take time into consideration. In reality, a person can make a choice and regret their choice upon reflection, because in reality, things are not ceteris paribus. Therefore, this postulate is only strictly universally valid for the brief instance of time when choice is made. Sometimes, a person could potentially regret their decision even after a millisecond.

Let’s say a person is drunk in Vegas. They are gambling and decide its a good idea to spend a lot of money for very low odds. They spend their money and immediately regret their decision. However, it still takes time, however brief, for them to regret their decision. During the instance of the choice, they preferred the low odds over their money.

 

Robbins’ second postulate is much different than Greaves’ second postulate. They are opposites in a certain sense. Robbins says there is always more than one factor, while Greaves says there is never an infinite number of factors. Robbin’s postulate is false in many instances, only Greaves’ postulate is universal for all instances.

Let’s illustrate Robbins’ example with haircuts. We have a small isolated town with one barber. Let’s condition this scenario making it impossible that anyone can move out of the town. He then enjoys a monopoly in this small town. Strictly speaking, however, this is not true. Hazlitt explains in Free Market Economics: A Basic Reader (1974),

“There has been a tremendous literature within recent years deploring the absence of perfect competition; there could have been equal emphasis on the absence of perfect monopoly. In real life competition is never perfect, but neither is monopoly.”

You see, even if this barber is the only place trading haircuts for money, they still may choose the option of cutting their own hair. They also may choose the option of just not cutting their hair. Therefore, the barber is still competing with the feasibility of self grooming and the feasibility of not grooming.

The only way in which Robbins’ postulate is invalid is if there is absolutely no other options. For example, Robinson Crusoe lives on an island and has no tools for cutting his hair and its not possible for him to make these tools. In this instance, there is absolutely no other options. Since there is only a single option, there can only be a single reality. However, this either rests on Crusoe being aware and convinced that no other options exist or completely oblivious to other options, i.e. his subjective determinations or subjective experience. Therefore, Robbins’ formulation is contingent on one of these conditions.

On the other hand, Greaves’ second postulate is a statement about the objective, and is not contingent on any subjective determinations or experience. Its statement is equivalent to the physical conservation laws accepted in academia, e.g. energy may not be created or destroyed. If true, our universe has a total supply of energy. The amount of useful energy may seem almost infinite to us now, but is subject to ultimate limits. In most instances, we usually consider scarcities that are prevalent. Most people are unaware of the ultimate scarcity of energy, but many people are aware about the amount of useful electrical energy personally available to them.

 

Robbins’ and Greaves’ third postulate is about subjectivism. I think Robbins formulates this postulate better than Greaves. In my opinion, the uncertainty about future scarcity is based on a more fundamental statement about certainty. Certainty is a modal determination about the future. Either something in the future is necessary, possible, or impossible.

The law of causality tells us that certain causes produce the same effects under the same conditions. These give us necessary causal relationships, e.g. under the correct conditions, gravity always causes things to fall, or water is formed through the chemical combination of hydrogen and oxygen under the correct conditions.

Scientific principles give us impossibilities. For example, the Pauli exclusion principle says its impossible for two identical fermions to occupy the same quantum state simultaneously, or the conservation of energy tells us that its impossible for the total energy of an isolated system to change.

All other predictive statements are mere possibilities. These can be quantified as probabilities. However, probabilities are of two kinds, viz. probabilities based on historical measurement and probabilities based what Nancy Cartwright terms “singular causes.” These are probabilities like the wave functions describing the quantum state of a system of particles. These wave functions are calculated from the fundamental properties of the particles themselves.

The other kind of probability is taken from the measurement of historical occurrences. Since these probabilities are statements about history, they are not predictions and hence not statements about future possibility. These kinds of probabilities only serve to support predictions made by the former kind of probability derived from singular causes. I quote Cartwright from Nature’s Capacities and Their Measurement,

“My position is opposed to the tradition of Hume. I begin with the assumption that the causal language of science makes sense, and that causality is an objective feature of our scientific image of nature. That does not yet separate me from the Humean tradition. Hume too took causal claims to have an analogue in reality. He began with singular causal claims, looking for some special connection between the individual cause and its effect, a connection that would be strong enough to constitute causation. He failed to find anything more than spatio-temporal contiguity, so he moved to the generic level. This marks the first stage in the Hume programme: (1) for Hume, singular causal facts are true in virtue of generic causal facts. But the programme was far bolder: at the generic level causation was to disappear altogether. It was to be replaced by mere regularity. This is the second thesis of the Hume programme: (2) generic causal facts are reducible to regularities. This book challenges both theses. It begins with the claim that, even if the association is law-like, neither regular association nor functional dependence can do the jobs that causality does. Working science needs some independent notion of causal law. What kind of a concept could this be? I maintain that the Hume programme has things upside down. One should not start with the notion of generic causation at all. Singular causal claims are primary. This is true in two senses. First, they are a necessary ingredient in the methods we use to establish generic causal claims. Even the methods that test causal laws by looking for regularities will not work unless some singular causal information is filled in first. Second, the regularities themselves play a secondary role in establishing a causal law. They are just evidence—and only one kind of evidence at that—that certain kinds of singular causal fact have happened.” (page 1)

Therefore, the third postulate says that predictions about scarcity are always uncertain, i.e. they are always to do with future possibility, and never to do with future necessity or impossibility. Since measurements of historical occurrence tell us nothing about any primary, singular, causal facts, they give no statement about the future at all. They are “just evidence.”

Tying in Greaves’ formulation, since predictions about scarcity are always uncertain, mistakes are possible. However, it doesn’t follow that men will always make mistakes. It follows that sometimes, men make mistakes. In certain situations, men rarely make mistakes, e.g. people don’t usually make mistakes about the supply of money in their bank account. In other instances men often make mistakes, e.g. their supply of money as valued by their stocks.

Greaves nor Robbins tell us why the predictions about scarcity are always uncertain. The reason is that the singular causal mechanisms behind choice have yet to be fully elaborated by cognitive science or psychology. Scarcity is ultimately a judgment made by a person using a supply as a factor for their purposes, e.g. a supply of food is low because it will not last for a desired time. Many philosophers are adherents of libertarianism, which posits the existence of free-will. This means choice is not subject to any singular causal mechanisms, rendering prediction about future scarcity impossible, since scarcity depends upon the supply used for a chosen purpose.

Entrepreneurs can use certain general notions, e.g. Henry Ford knew his customer’s would buy cars because people generally like things that make life more convenient. That’s a pretty safe bet. He knew cars were scarce, because mass produced cars did not even exist until that point. Now, coming out with a new car is not guaranteed to sell unless you are satisfying a new niche market previously suffering from scarcity. This is why hybrid cars and Tesla Moters became successful. However, these general notions are far from universal and businesses often fail even if they follow them.

Suppose it were even possible to determine the causal mechanisms behind the choices of individuals. It may still be impossible to keep these measuring devices inside people’s brains across any given time where a prediction is relevant. In order to have any large scale economic benefit, multiple people would need to be probed for extended periods and monitored. This raises ethical dilemmas. Also, the probes may alter the subjects behavior in undetermined ways. Therefore, the third postulate rests one out of three contingencies.

1. The existence of free-will

2. The impossibility of determining the causal mechanism behind choice

3. The impossibility of ever measuring these causal mechanisms for any group of individuals for any extended period of time where prediction is useful.

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