Much effort is put into making economics “tractable,” as the mathematical economists like to put it. In 1977, two neoclassical economists, Gary Becker and George Stigler, wrote a famous paper entitled “De Gustibus Non Est Disputandum.” In this paper, the authors contend: “Tastes neither change capriciously nor differ importantly between people. [Tastes] will be there next year, too, and are the same to all men.”
This is certainly a startling interpretation of tastes. In common speech, if I liked chocolate ice cream last year but vanilla this year, I would say, “Well, my tastes have changed.” Now, Becker and Stigler are both, by all evidence, quite intelligent, and they do not intend to dispute the fact that any particular person may prefer A now, but B later on.
What they have done is to define changes in taste out of existence by modeling everything we would commonly regard as a change in taste as a change in “consumption capital,” which alters the way a person tries to satisfy these hypothesized—but never visible!—constant tastes.
In essence, people have one preference for . . . well, we could name it anything, so let’s call it “tractability.” Now, the authors do talk about various “commodities,” such as euphoria and music appreciation, but since, per their assumptions, each taste for each commodity exists in a constant relationship to all other tastes, we can reduce them all to units of our hypothetical entity, tractability. Rather than their tastes altering, actors instead build up a stock of consumption capital specific to various forms of tractability, making for a higher yield from certain “consumption investments” than from others.
Becker and Stigler use their theory to model, among other things, what they term positive and negative addictions. In positive addictions, such is an acquired taste for music, the “price” of appreciating music drops as more skill as acquired in listening to it. In negative addictions, such as the need for heroin, the “price” of euphoria rises as more heroin is consumed.
Becker’s and Stigler’s model reflects—but does not explain—the fact that music lovers gain more “music appreciation” from each hour spent listening to music, while heroin addicts gain less euphoria from each quantity of heroin consumed. However, their model suggests a much greater mystery.
If both the heroin users and the music lovers have the same tastes, as Becker and Stigler assume, why in the world do the heroin users continue to pursue the diminishing euphoria from each dose of heroin when they could use the time instead on increasing returns in music appreciation? If the answer is that even these increasing music-investment returns provide less tractability than the diminishing heroin-investment returns, then why aren’t all of the music lovers out doing heroin? A fundamental given of economics—that different people do differ from each other in evaluating the world—has simply been pushed from “tastes” out into other variables.
Becker and Stigler say, “…addiction to heroin—a growth in use with exposure—is the result of an inelastic demand for heroin, not, as commonly argued, the cause of an inelastic demand.” Inelastic demand means that as the cost of consuming heroin rises, the user reduces the quantity demanded very little.
The Becker–Stigler theory says that the heroin addict isn’t willing to pay almost any price for heroin because he wants heroin so much, but that he wants it so much because he is willing to pay almost any price! What “causes” his behavior is a mathematical abstraction, his demand curve. This formulation leaves completely unanswered a number of salient questions, such as: Where does a heroin addict’s inelastic demand curve come from, if not from a strong taste for euphoria?
Why do addicts have this inelastic demand, while the vast majority of heroin users do not become addicted (i.e., they are not willing to pay almost any price for more heroin)? Why will one addict, in the face of this inelastic demand, stop at a certain point of use, while another addict (who, as Becker and Stigler posit, has all of the same tastes as the first fellow) will continue well beyond the first addict’s stopping point?
The founder of the Austrian School, Carl Menger, held that the task of theoretical economics is to grasp the essential nature of economic phenomena, to explain the reason why prices, profits and money exist, why rent and wages are paid. These reasons lie completely in the importance humans place on elements of past experience in aiding in the realization of future, currently only imagined, experiences.
In our progress toward understanding economic phenomena, we may define new terms and specialized uses of vernacular terms. But since what we are attempting to elucidate is the way in which human meaning creates the phenomena of economics, we would like to be able to relate our usage back to any prior common usage, and to show why it is of cognitive value to have refined the common definition somewhat. As Mises says in The Ultimate Foundation of Economic Science (2.8):
The methods of scientific inquiry are categorically not different from the procedures applied by everybody in his daily mundane comportment. They are merely more refined and as far as possible purified of inconsistencies and contradictions.
We should be suspicious of theories that attempt to define elemental aspects of our problem out of existence. We might attempt to refine the vernacular definition of “tastes,” but Becker’s and Stigler’s position renders “tastes” a meaningless term; since they are the same across all humans, we might as well simply designate that we are dealing with people in our discussion and drop tastes entirely. Tastes, as Becker and Stigler define them, will never be relevant in the discussion of any economic issue.
If tastes as defined by Becker and Stigler were really just a more refined version of our common usage, it would be amazing that we would have such word in English at all. Why would we take the least note of a “phenomenon” that never has any effect on our experience? We have a word for tastes precisely because we do notice that ours change. When we mention that our tastes have changed, it seems unlikely that what we really mean is that we have recalculated our predicted return on investment in various types of consumption capital and now conclude we will get a higher return from chocolate ice cream than vanilla.
There is no need for economic theory to change ordinary English definitions to this extent. Tastes are a useful concept to economics as a signpost marking the border of our field and that of psychology. Exercises such as Becker and Stigler propose, or laboratory experiments on simulated market situations, might prove useful in exploring the psychological factors at work behind market behavior. They are unnecessary, however, for the elaboration of the essentials of economic theory, where we can take tastes as exemplified by the human actors themselves, as a choosing of A and a setting aside of B, and explain the operation of the market based on the fundamentals of human action.
One justification for such a radical alteration in the definition of tastes is given by Landsburg in Price Theory. He says that economists should favor explanations that do not rely on changes in taste because such changes are “unobservable.” This is not a valid criterion for rejecting economic explanations because, after all, what differentiates economic phenomenon from the rest of reality is “unobservable” in the same sense. Becker and Stigler, in fact, simply introduce a new unobservable—consumption capital—in place of tastes. Mises points out that, without accepting the unobservable entity “meaning,” we could not even recognize an economic realm in need of elucidation:
The question we have to deal with is whether it is possible to grasp human action intellectually if one refuses to comprehend it as meaningful and purposeful behavior aiming at the attainment of definite ends. Behaviorism and positivism want to apply the methods of the empirical natural sciences to the reality of human action. They interpret it as a response to stimuli. But these stimuli themselves are not open to description by the methods of the natural sciences. Every attempt to describe them must refer to the meaning which acting men attach to them.
We may call the offering of a commodity for sale a “stimulus.” But what is essential in such an offer and distinguishes it from other offers cannot be described without entering into the meaning which the acting parties attribute to the situation. No dialectical artifice can spirit away the fact that man is driven by the aim to attain certain ends. It is this purposeful behavior—viz., action—that is the subject matter of our science. We cannot approach our subject if we disregard the meaning which acting man attaches to the situation, i.e., the given state of affairs, and to his own behavior with regard to this situation. —Human Action (I.6)
Imagine someone suggesting that the best way to gain understanding of literature is by focusing only on observable phenomena. We could watch lots of people reading, follow them around in bookstores, study the chemical composition of the books themselves, and so on. But we would never explore what these books meant to anyone—including ourselves—because this is an “unobservable.”
The fact that a focus on observable, physical events has been a successful strategy for understanding the observable, physical world is really not too surprising when you think about it. But the phenomena of economics, literature, religion, and so on are mental phenomena, and we have no reason to believe that this same technique should work for increasing our understanding in these areas. The techniques employed are chosen because they mimic those of the physical sciences, not because they deepen our comprehension of the phenomena in question. If we only think of people as acting in an entirely different way than our own, human experience tells us they act, then our mathematical models will “work” better.
Mises says:
The epistemologist who starts . . . from the analysis of the methods of the natural sciences and whom blinders prevent from perceiving anything beyond this field tells us merely that the natural sciences are the natural sciences and that what is not natural science is not natural science. About the sciences of human action he does not know anything, and therefore all that he utters about them is of no consequence.
It is not a discovery made by these authors that the theories of praxeology cannot be refuted by experiments nor confirmed by their successful employment in the construction of various gadgets. These facts are precisely one aspect of our problem. — The Ultimate Foundation of Economic Science, 4.9
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Gene Callahan, who writes frequently for Mises.org, is working on a book called Economics for Real People. See his Archive or send him MAIL
