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Mainstream, VOL XLIX, No 26, June 18, 2011

Economic Theory: Its Applicability to Non-Humans

Monday 20 June 2011

by VINOD K. ANAND

Economics as a social science has progressed immensely from being a science of wealth (Smith, 1776) to a science of well-being (Marshall, 1920), to a science of welfare (Pigou, 1920), to a science of scarcity (Robbins, 1932), and then to a science of wantlessness (Mehta, 1959). At every stage its domains have enlarged to cover wider horizons. Beyond all this, there has occurred a revolutionary paradigm shift from its assumptions of ‘exogeneity’ to that of ‘endogeneity’ in respect of the role of the state. (Anand, 1998) This shift has not only given a new nomenclature of ‘New Political Economy’ to the science of economics, but has also enlarged its scope to areas that were hitherto ignored by the conventional economic theory. (Anand, 1996)

The focus of economic thought has changed a lot since ancient times, that is, from the old testament onwards to Greek philosophers (Plato and Aristotle), then to Roman social thought, and to the Middle Ages and canon law. With the appearance of “Wealth of Nations”, the pre-classical system of political economy made its mark. It focused on the rise of commercial capitalism (mercantilism), and the development of modern industrial capitalism as embodied in the works of Adam Smith and David Ricardo, including the body of economic theory called “physiocracy” that was developed in France in the eighteenth century. (Roll, 1956) Beyond that came the era of the neo-classicals, and the era of Keynes during the thirties that led to the Keynesian economics, the neo-Keynesians and the revival of the classical thought. (Levacic and Rebmann, 1982)

There has always been an in-built change in the development of economic thought. According to John Ralston Saul, a leading Canadian scholar, no grand economic theories have lasted for more than a few decades. He claims that ‘the wild open-market theory ended in 1929 just over three decades. Keynesianism that came in the wake of the Great Depression withered away in mid-1970s when stagflation came to dominate.’ (Mishra, 2005)1

Throughout its history economic thought has always been geared by what we call rationality (in terms of the axioms of completeness, transitivity, and continuity). Be it micro economics, macro economics, positive or normative economics, or even freakonomics2 (Levitt and Dubner, 2005), rationality is the basic force behind all economic thought.

This is not the end of the story. The science of economics has now obtained a multi-disciplinary flavour, and has sought the help of other social sciences like sociology, anthropology, political science, social psychology, and even socio-biology to understand human behaviour. In this context, Hirshleifer and Glazer (1993)3 say: ‘where does economics stop and these other sciences begin? The boundaries are rather indistinct, which provides a healthy intellectual situation, because the approaches of different disciplines can then compete over bordering territories.’ They further say that ‘economics has a definite focus, one that covers a limited range of human activity: rational behavior and market exchange’. Thereafter they observe that rational behaviour has two meanings which are in common and ‘often confused. The first meaning refers to method, the second to result. In terms of method, rational behaviour is action selected on the basis of logical thought rather than habit, prejudice, or emotion. In terms of result, rational behaviour is action that achieves the desired goals. The two are not the same. In the first place, good methods can lead to bad results.’ In essence they imply that ‘the seemingly inferior methods available to creatures with very limited capacity for thought often work very well’.

It can, therefore, be concluded that the boundaries between economics and other disciplines have become rather fuzzy and indistinct. Economics has, thus, gone beyond its tunnel vision of yesteryears.4 It has now become a universal science to the extent that it has gone beyond rationalistic individual behaviour and market interactions. An economic problem arises whenever there is a constraint of resources generating resource scarcity, and one has to choose amongst the various options subject to the law of scarcity. Human choices (including social and political as well) are neither limited to market interactions nor do they fully meet the precept of rationality.5 Economics has also become universal because it can very well explain the behaviour of non-humans. This is an interesting dimension of economics that is gradually emerging. The frontiers of economics, thus, appear to be endless, and they have now reached the world of the non-humans.

The focus of this paper is on non-human behaviour which, due to many reasons, appears to be more rational than human behaviour. This is based on the fact that nothing is fully perfect in the world, and so is the concept of rationality too. One can never be fully rational due to many reasons, both exogenous and endogenous. Given the same conditions, the degree of rationality (or irrationality) may vary from person to person.

The validity of economic theory and its prescriptions in human systems is subject to a number of exogenous constraints/ assumptions/parameters, determined by all kinds of man-made systems like political set-ups, economic and social structures, religions and rituals, public ethos, family environment and so on.

A recent study (Hindustan Times, 2005) by Janis Dickinson of the University of California, Berkeley and co-authored with the UK-based Andrew McGowan, that appeared in late 2005 in the proceedings of the Royal Society, draws unique ‘parallels between human and bird families (of Western bluebird breed) while studying the evolution of delayed dispersal, or natal philopatry—the tendency for offspring to stay at or near home rather than look for new place to live and breed’. According to this study, ‘accumu-lation of wealth brings family stability’, especially for this breed of birds, just like the humans in terms of the fact that ‘the female fledglings fly off on their own in late summer, but their brothers hang around through the winter and into the next breeding season, living off the bounty of their parents’ larder, and when the “wealth” (in terms of mistletoe berries, a winter food) runs low, the kids split’. This experimental research maintains that such a precept of close-knit families is common among cooperatively breeding birds of the given breed as well as humans, subject of course to the assumption that there occurs a continuous accumulation of wealth. This parallel is based on the fact that ‘animals, including humans, can stay in one place to accumulate resources and also because of the benefits of access to accrued resources’. It can, thus, be concluded that family stability comes either through ‘inherited wealth’ or ‘continuous accumulation of wealth’ or through both, especially when the family groups (humans or non-humans) are mutually cooperative.

The applicability of economic principles to non-humans is well demonstrated (poetically) by Singh (2005),6 who is a zoologist by profession, and a poet at heart. His poem is entitled “Honeybee”. It is about honeybees and their daily routines.

“Honeybee starts early in the day

And follows the direction of the sun

It knows best its priorities in life

Knowing where to stop and when to run.

There is division of labour in the colony

A worker is busy in collecting pollen

A drone is to mate with the only queen

The queen lays eggs having tapering abdomen.

Dancing in circles it tells of food close to the hive

And recognises the odour of a flower on way

Performs tail-wagging dance for food at a distance

Working ceaselessly during the whole day.

In the honeycrop nectar is converted into honey

It communicates in the language it knows

It can sting you on disturbing the hive

It works very hard, never begs or bows.”

There is another example that supports the focal point of this paper. In a recent study (Amar Ujaala, 2006), undertaken by the Université Libre de Bruxelles of Belgium, as published in the online issue of the proceedings of the National Academy of Science, it has been reported that cockroaches have a much better concept of living as a strong household, with the motto of ‘one for all, and all for one’, indicating the precept of ‘family decision’, as motivated by ‘Pareto Optimality’. Such an outcome of this research is based on a group of 50 cockroaches for which three distinct nearby places were arranged. It was observed that the whole group settled at only one place. Later, these places were changed in terms of space in a way that only 40 cockroaches could stay in any one place. It was then seen that the group got itself divided into two sub-groups of 25 each, and got settled at two different places. Such a way of living together brings in collective wellbeing of the group in various ways. This is also applicable to other non-humans like ants, fish, and birds of various breeds, to a large extent.

THE parallel between humans and non-humans is also demonstrated in a study (Hindustan Times, 2006) in terms of the simplest grammar which is historically regarded as one of the skills that separates man from beast. It is thought that ‘while many animals can roar, sing, grunt or otherwise make noise, linguists have contended for years that the key to distinguishing language skills goes back to our elementary school teachers and basic grammar. Sentences that contain an explanatory clause are something that humans can recognise, but not animals.’ In other words, it means that ‘recursive grammar is uniquely human’, as maintained by the famed linguist Noam Chomsky on the basis of an experiment performed a few years back in this context on ‘tamarind monkeys’ that, despite thorough training, failed to recognise the most basic of grammar in terms of differentiating between a regular sentence and one containing a clause of another sentence. A similar experiment was recently done with about 15,000 training attempts on songbirds for about a month or so by a psychology researcher, Tim Gentner of the University of California at San Diego, and the result was surprisingly different from that of Chomsky in terms of the fact that ‘after training, nine out of 11 songbirds picked out the bird song with inserted phrases about 90 per cent of the time’ whereas ‘two continued to flunk grammar’. This experiment clearly shows this—although language and animal cognition is a lot more complicated, yet it can be achieved to some extent.

There is no dearth of such specific studies. For example, Hirshleifer and Glazer (1993),7 while discussing the optimising behaviour, say that ‘Birds Do It! Beers Do It!’. They give an illustration (Charmov, 1976) to show that ‘Biologists have discovered that the decisions of animals can often be interpreted in marginal terms. Consider a bird foraging for seeds or insects that are distributed in patches. The bird must decide when to leave its current patch and fly off to look for another. As it continues to exploit the current patch, food becomes sparser and sparser there; the bird’s marginal “ revenue” (energy intake) per unit of time spent in the patch is falling. But if the bird abandons its current patch, it loses energy intake in the dead time before it locates a fresh patch. Bioeconomic reasoning in this situation says that the bird should continue to exploit its current patch until the marginal “revenue” per unit of time spent there falls to equality with the average “revenue” it can attain elsewhere, allowing for the dead time between patches.’ They further mention that ‘field studies confirm that foraging birds do indeed behave as if they solve this economic problem’. In this context the laboratory studies of Cowie (1977) in the case of birds, and Hodges and Wolfe (1981) in the case of bumblebees are very relevant.

Hirshleifer and Glazer (1993)8 mention another example revolving around the law of demand where they refer to the work of Lea (1978)9 reviewing ‘a wide variety of demand studies including animal experiments, retailing experiments, and econometric investigations’. In the case of 18 animal experiments, it has been found that the law of demand was supported in 15 (83.33 per cent) experiments, contradicted in one (5.55 per cent), and there were mixed or uncertain results in two (11.11 per cent) experiments. This is just indicative of the fact that the law of demand is also applicable in its own way amongst the non-humans.

In terms of what we have said above, it very clearly appears that economics is progressing very well to its endless frontiers. This is really amazing! There is no doubt that in times to come its horizons would widely expand and it would surpass all knowledge in a way that it will become an “infinite” science.

REFERENCES

Aiyar, Swaminathan S. Anklesaria (2002), ‘Nobel Prize Insights’, The Times of India, Chandigarh, October 20.

Anand, Vinod K. (1996). ‘On New Political Economy: An Overview’, The Indian Journal of Economics, Vol. LXXVII, Part II, No. 305, October, University of Allahabad.

Anand, Vinod K. (1998), ‘Conventional Wisdom in Economics: Focus on Contemporary Thinking’, The Indian Journal Economics, Vol. LXXIX, Part I, No. 313, October, University of Allahabad.

Amar Ujaala (2006), March 31, Allahabad, UP.

Charmov, Eric L. (1976), ‘Optimal Foraging, The Marginal Value Theorem’, Theoretical Population Biology, v. 9, April.

Colander, David., (2001), The Lost Art of Economics: Essays on Economics and the Economics Profession, UK: Edward Elgar Publishing Limited.

Cowie, Richard J. (1977). ‘Optimal Foraging in Great Tits’ (Parus major), Nature, v. 268, July 14.

Dow, Sheila C. (2002), Economic Methodology: An Enquiry, UK: Oxford University Press.

Galbraith, John Kenneth, (1987), Economics in Perspective, Boston: Houghton Mifflin Company.

Hirshleifer, Jack, Glazer, Amihai (1993), Price Theory and Applications, Fifth Edition, New Delhi: Prentice-Hall of India Private Limited.

Hodges, Clayton M., Wolfe, Larry L. (1981), ‘Optimal Foraging in Bumblebees: Why is Nectar Left Behind in Flowers?’, Behavioural Ecology and Sociobiology, Spring.

Keen, Steve (2002), Debunking Economics, Australia: Pluto Press.

Lea, S.E.G. (1978), ‘The Psychology and Economics of Demand’, Psychological Bulletin, v. 85.

Levacic, Rosalind., Rebmann, Alexander. (1982), Macro-economics: An Introduction to Keynesian-Neoclassical Controversies, Second Edition, London and Basingstoke: The Macmillan Press Ltd.

Levitt, Steven D., Dubner, Stephen J. (2005), Freakonomics, Penguin.
Marshall, Alfred (1920). Principles of Economics, Eighth Edition, London: Macmillan.

McCloskey, Deirdre. (2003), How to Be Human though an Economist, United States of America: The University of Michigan Press.

Mehta, J.K. (1959), Lectures on Modern Economic Theory, Allahabad: Chaitanya Publishing House.

Mishra, Girish. (2005), “Whither Globalisation”, New Delhi: Mainstream, Volume XLIII, Number 39, September 17.

Pigou, A.C. (1920), Economics of Welfare, London: Macmillan.

Robbins, Lionel. (1932), An Essay on the Nature and Significance of Economic Science, London: Macmillan and Co. Ltd.

Roll, Eric (1956), A History of Economic Thought, London: Faber and Faber Limited.
Singh, H.R. (2005), I Have No Mirror, Kolkata: Dasgupta & Company (Pvt.) Ltd.

Smith, Adam (1776), An Inquiry into the Causes of the Wealth of Nations, Cannan Edition, Methuen.

Staveren, Irene van. (2001), The Values of Economics. London: Routledge.

Hindustan Times (2005), ‘Birds Show Family Ways Like Humans’, IANS, Lucknow, October 27.

Hindustan Times (2006), ‘Songbirds Learn Grammar, Surprise Linguists’, AP, Lucknow, April 28.

FOOTNOTES

1. See page 3.

2. Freakonomics is different from prescriptive economics which means taking positions on the basis of what is happening, but if it lacks moral values, it is called freakonomics. Economics is about the real world and morality is its idealized version. Economics uninformed by moral purpose is Freakonomics.

3. See page 6.

4. For getting a better idea of how and why Economics has immensely changed, and what are its values see Colander (2001), Dow (2002), Galbraith (1987), Keen (2002), McCloskey (2003), and Staveren (2001).

5. In this context it is interesting to mention that Daniel Kahneman, who shared the 2002 Nobel Prize with Vernon Smith, for showing that human beings are irrational. Aiyar (2002) sums up the findings of Kahneman by saying that ‘an economist (“CODED ECONOMIST”) is one who observes that something works in practices, and then finds a way of proving it in the theory. A successful theory predicts not only obvious but also unsuspected consequences, and so can greatly improve policy-making.’ It is further interesting to see that Smith proved the opposite: ‘That people do indeed exhibit the rational behaviour assumed in classical economics.’ Smith ‘pioneered controlled experiments to test human behaviour. He gave groups of people actual cash which was theirs to keep, and then tested how they respond to various market incentives and disincentives. These experiments showed that people typically respond rationally to market incentives.’ Aiyar (2002) has very well reconciled the findings of Smith and Kahneman by saying that (a) ‘irrational decisions by individuals often go in opposite directions and cancel out, so the behaviour of an entire market can be fairly rational even if that of several individuals is not’, and (b) ‘irrationality is most pronounced in certain circumstances, for instance when people have to calculate odds or are driven by fear or euphoria’.

6. See page 27.

7. See example 2.9, pages 45-46.

8. See example 4.5, page 104.

9. See page 447.

The author was earlier placed at the National University of Lesotho, Southern Africa, as a Professor of Economics. Prior to that he was a Fellow at the Indian Institute of Advanced Study (IIAS), Shimla, and even earlier he was a Professor and Head of Economics at the University of North West in Mmabatho, Republic of South Africa, and the University of Allahabad in India.

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