What matters most is not whether something exists but its circumstances.
For example, does God exist? This naturally leads to all sorts of circumstantial questions: If He didn’t, should we invent Him, thus upsetting the Genesis apple cart — man makes the Deity, not the other way around.
Another is: If God is both good and powerful, why does evil exist? If He is all-powerful, why does He need representatives on earth? Is it to deny accountability if this God-thing doesn’t work?
And why are so many of his representatives (monarchs, church leaders, etc.) so into enriching themselves in office? I can understand “Jesus saves,” but do we have to give our hard-earned income to religious leaders?
I raise these questions to suggest there are mysteries in theology.
Economics, a decidedly secular area of learning, is, in its own way, also full of mysteries. Take, for example, The Law of Supply and Demand. It says that the price goes up because of demand, or down because of supply. This very well passes the intuition test — most people would easily and instinctively accept this Law as valid.
But to make the Law useful, we need more than its existence. We need to make it meaningfully quantitative. We need to go further, and ask ‘By how much?’ in order to give it substance.
If there is dumb, there’s dumber; smart, smarter; thievery, plunder; good, saint; plain Jane, invisible; pretty, beauty; etc. The point is that we can use these gradations to better understand economics.
And here I would like to explore the nexus between the social order and the economy. In other words, should economists pay attention to this thing called ‘social order’?
Thorstein Veblen, who gave us the concept of Conspicuous Consumption, said yes, social order matters. When we do things for status, that’s the social order driving the economy.
But what kind of good is status? It’s not rival, because you can’t eat it; but it is exclusive. Is it a club good?
Citizenship is a club good. So is formal education. So is the opinion of your peers. We strive for and shed these things, depending. (Note to non-economists: Goods are either private or public. A private good is both rival and exclusive, where ‘rival’ means that it vanishes when consumed; and ‘exclusive’ means that the one owning the good can prevent others from ‘owning’ it, too. Public goods are, by definition, non-rival and not exclusive — think of national defense or the legal system. Somewhere in between is something called a club good; it is private as between club members and non-members, but public among the club members.)
And the fact that status is a motivating force in an economy (apart from the usual urge to make profits or to improve one’s situation through trading) makes the effect of social order on the economy understandable, though somewhat unpredictable. This unpredictability needs to be explained.
Perhaps status is an informal club good, akin to Groucho Marx’s favorite club (he famously said he wanted to join a club only if its members didn’t want him).
And as an informal club good, status is like fiat money, valuable only on the prevailing whim of the society that confers that value.
But unlike fiat money, status can’t just be created or printed. There is no central bank that can create status. Vloggers and influencers appear to create status, but they run instead on their audience’s hopes and fears.
This kind of thinking leads us nowhere, doesn’t it? Still, it seems better to know when we’re not anywhere, than to pretend we’ve arrived. If you sort of understood all this, welcome to the pool of natural talent in economics. (Who said economists are not elitists?)
But back to the original question: How does social order affect the economy?
Suppose we think of club goods as though they were private goods (the only difference is that those who will enjoy the goods are those who ‘buy tickets’ to ‘get in’).
If status goods are important to the economy, then a libertarian might say the market should be allowed to do its thing. Authoritarian types would disagree, and say we should regulate status (club) goods because they take away resources that would solve other (more important) problems such as extreme poverty or hunger.
I conclude that the question is reducible to what type of society we want: Do we want an economy that values status, or one that is more ‘inclusive’?
Economics seems to say that we cannot ignore the implications of the social order and the elements that create such an order. An extreme reliance on the market mechanism appears to ignore the social order, while also creating its own kind of social order (also known as ‘capitalism’ – that many find unappealing).
Throughout history, the excesses of capitalism (boom and bust business cycles, the prevalence of monopolistic behaviors, etc.) have spawned (literally) revolutions or political movements that produced authoritarian regimes. The pendulum could therefore swing to the other extreme, where ‘equality’ is set up as an almost absolute desideratum.
Unfortunately, this also destroys incentives to innovate or to work hard. A middle ground exists but it seems that no one can point to that with much precision, and this would seem to be an explanation of why the social order affects the economy in unpredictable ways.
If the social order can and does affect the economy, and if the vicissitudes of the economy can also affect the social order, we have an ‘infinite regress,’ something that is nigh unpredictable.
________________________________________________________
Author’s email: [email protected]; Twitter: @ORoncesvalles
