By Annavajhula J C Bose, PhD
Department of Economics, SRCC
The dominant paradigm in economics—mainstream economics—is criticised as loveless. It is economics without feelings. Absolutely correct. For the “main story economists tell of how their society works is cold. ‘Economic Man’ is a heartless, smart calculator; caring only about his own material gain and not that of others, he sees everyone else merely as a potential trading partner and/or a potential competitor.”
However, this view suffers from selection bias, so to speak. It has ignored or missed out on the fascinating research work of Frijters and Foster (2013). Gigi Foster (pictured above), along with Paul Frijters, has integrated ideas of (a) love, (b) groups, and (c) networks with ideas of greedy individuals. And this merger has led to a full, holistic mainstream construct of human behaviour.
What follows is a summary of this, which may induce you to generate similar new theories of greater predictive power by integrating clusters of ideas backed by ground realities. This is the art of multipronged grounded theorization—assembling a bundle of interrelated concepts that explain phenomena of recognised importance and grafting those concepts onto the existing stylized story.
In the mainstream story of a market economy, there are greed-oriented individuals. They are driven by nothing but materialistic incentives. They engage in peaceful competition with each other. They specialise in what they are individually best at. And they agree amongst themselves about the most efficient public institutions to support their behaviour. This story is predicated on three beliefs. There is the presence of some unknown glue that leads individuals to play by the rules of the game. There is an absence of a role for group identity or group power. And there is the presence of some unknown manner in which all individuals in the market economy form an anonymous network with each other, so that each knows everything about everyone else.
However, this story is incomplete. It abstracts from three other determinants of human behaviour.
First, there are many empirical instances of individuals forming strong emotional bonds of love or loyalty with each other and also with the inanimate, which lead them to be interested in the welfare of others. Individuals have an innate tendency to expect reciprocity. “In the case that one individual desperately wants something from another but cannot force the other to provide it, this innate tendency leads the one individual to start to see the other as part of his self-image. In the case that one individual desperately wants something from a non-human entity such as the weather, this innate tendency translates itself into an anthropomorphism of the unknown followed by the same bonding: humans give the unknown a name, imbue the entity with human characteristics, and start to behave towards that entity as if it were reciprocal. This explains the worship of a god of rain, a forest spirit, the world’s environment, and an array of other abstractions.”
Second, historicized humanity presents an empirically guided characterization of five archetypal groups. There is the hunter-gatherer band that dominated humanity’s past. It is the ‘small reciprocal group’. Then there is the ‘small hierarchical group’ as exemplified in unequal gender relations. The ‘large reciprocal group’ refers to nation states, mass religions, and mass causes, which have come to currently dominate the group landscape. The ‘large hierarchical group’ refers to a layered bureaucracy or a large private enterprise wherein a small reciprocal group gains authority over a larger population via layers of hierarchy. Finally, there is the emotion-free anonymous trade network, such as seen in perfect markets, wherein interactions must be sanctioned by some outside power of the rules of the game. “History has seen a slow progression, starting with hunter-gatherers who were organised in small reciprocal groups, through the feudal era characterised by large hierarchies but featuring increasingly large networks of merchants and other contact makers, to the current era, where activities in nation states occur within large circles of reciprocity that tolerate other group forms (such as private enterprise) if they are perceived to be in the overall interest of the whole group.”
Third, there are trade networks at the heart of markets. They are a prime input into the overall production of a society. Larger trade networks allow for more specialisation and lower transaction costs. Several associated economic institutions that come into existence are essentially about lowering the cost of networking, such as the institutions of trust, the institution of rules governing market transactions, the institution of contract law, and so forth. They have an unintended effect in that they automatically function as embryonic large circles of reciprocity, and in that way, they enable the quick emergence of powerful new group entities. This is precisely what happened in the 16th to 19th centuries in Europe, where the contact makers adopted the ideals that eventually overthrew the monarchies and other large hierarchies that previously dominated Europe.
Now, when we join Homo Economicus (the greedy individual) of standard economics with the three main additional elements of love and loyalty, groups, and trade networks, we arrive at a picture of humanity constantly in the grips of the forces of greed and love, with group formation as the main instrument of those forces. The interplay between greed and love can then be grasped as follows:
“Greed leads individuals to abandon their previous informal ties with family and clans for more anonymous ties with supermarkets, clients, and employers. Greed leads individuals with common material interests to set up new collectives in order to prevent other greedy individuals or groups from dominating them. The collectives then start to lead a life of their own, loved by the weaker ones within them and by those with a strong wish to have a cause. Love is also what underpins friendships and teams, which are crucial components of anything humans do. Greed leads individuals to set up hierarchical groups that serve their private interests. Love continuously erodes the power of any individual leader, in that it supports the genesis of the many small reciprocal groups that develop individual agendas within any large hierarchy. The interplay between greed and love, both of which are used within groups, has led to the incredibly complex mosaic of human relations we witness around us every day. In its simplest form, love provides the constraints under which greed must abide. At the individual level, greedy wishes clash with the demands of love, such as when pursuing our lucrative careers clashes with caring for our children. At the intermediate level, greed again clashes with love, such as when the wishes of special interest groups to erect trade barriers are counteracted by the free-trade institutions that the whole reciprocal group has set up to neuter those special interests. At the macro-level, greed again clashes with love, such as when the desire of the presently living to use more and more of earth’s resources clashes with the desire of some part of humanity to preserve a world for our children that is worth living in.”
Foster and Frijters illuminate not only humanity’s history but also suggest ways forward for policies today, in areas as diverse as poverty reduction and tax compliance, on the basis of this holistic conceptualization. They make predictions on schemes to avert or adapt to climate change; the plight of the poor in Western countries; the potential for democratic reforms in the Middle East; the tension between truth and popularity in political debates; economic coordination problems within the Eurozone; and many other areas of socioeconomic debate. And they encourage the reader to verify whether these predictions have come true!
In sum, I have taken up here an authentic economic theory that students can accept as not dry and boring. It is indeed an innovative attempt at “combining a detailed look at the inner lives of individuals with the question of how the whole socio-economic system works” in complicated ways.
References
Paul Frijters and Gigi Foster. 2013. Economic Theory of Greed, Love, Groups, and Networks. Cambridge University Press.
Arthashastra 