Philosophical Economics

Philosophical Economics

Economics tells us that an economic transaction involves the sale (or exchange) of “goods and services”. This phrase invites conceptual scrutiny. It is notable that an evaluative term is used to describe the commodities sold: goods are good.  [1] Services also are inherently valuable: you don’t perform someone the service of executing or robbing him (disservice, yes). What kind of good do goods possess? Not a moral good, evidently, since you can’t sellsomeone a moral act or benefit—that would nullify the morality of it. There are no shops where you can go and purchase a moral favor or pay for a moral obligation to be met. Moral goods are trans-economic. Altruism is not a commodity to be bought and sold, on pain of not being altruism. No, goods in the economic sense are goods forsomeone: an economic good is good for its recipient—it does the recipient some good. Thus food, furniture, flowers, and phones: they are purchased because of the personal benefits they afford. But are they really distinct from services? Aren’t all goods imbued with service? Typically, they are manufactured, or at least harvested or mined—they involve skilled human labor. They are not independent of human work, but an expression of it. So they are shaped by “service”, unlike volcanoes or seas or trees (unless cultivated). I would say that all economic goods involve service in this sense; they are not just lying around for anyone to pick up (why pay for them then?). Goods imply services. But what about vice versa? A service is a type of human action with a certain result deemed desirable—say, a massage or a waiter bringing food. But don’t these involve goods? The goods would be muscular therapy and relaxation via pressure, or food being on the table. A teacher supplies the good of information while performing the service of teaching.  A lawyer provides the good of contracts. A doctor provides the good of health by prescribing medicine. Something worthwhile results from the service provided: these are the goods we purchase. A service is no use unless it produces a tangible good. So services involve goods. If someone provides you the service of fixing your fence, he has at the same time given you something good—an intact fence. There is no separating goods and services; there is no essential duality here. There are not two types of entity in an economic transaction, but a mixture of the human act and natural raw material. Conceptually, we could unite goods and services under a single heading—say, “products”. People sell products of different types, which might be called “goods and services”. Goods come modified by service, and services are mingled with goods.

            What is it that we are ultimately purchasing when we engage in an economic transaction? What is it that we desire when we hand over money? Is it other people’s actions and the physical things they produce? No, what we are purchasing are states of mind—that is the point of the whole transaction. If actions and things had no impact on our state of mind, we would have no interest in buying them. We buy things for pleasure, security, pride, company, joy, excitement, comfort, satisfaction, etc.  [2] That is what we are ultimately purchasing—goods and services are just the means to achieve these desirable states of mind. Economic value is psychological value. We could summarize this list by saying that we are buying happiness (though this concept is obscure and includes many disparate psychological states). And what do we offer in return? We hand over money obviously, but why does the vendor want our money? To buy happiness, of course: money is what we use to buy goods and services that produce (we hope) happiness. So we buy happiness by offering happiness in return (this is even more obvious when bartering is involved). An economic transaction is thus an exchange of (hoped for) happiness, i.e. psychological states deemed desirable. An economic system, such as capitalism, is a means of generating and exchanging happiness. Goods and services are happiness-vehicles, external means to an internal end. The price of a product is ultimately determined by the happiness it can produce in the purchaser. The entire material substructure is a just a means to allocate happiness through economic activity. The basic commodities are states of mind. The speech act that defines economic exchange is: “I will give you this happiness if you will give me that happiness”. The thing about goods that is good is precisely their effect on mental states—they improve psychological wellbeing. For example, if I exchange with you a guitar for a surfboard, I have traded one sort of happiness for another, giving you happiness in return—the happiness associated with a guitar or a surfboard. There would be no point in the exchange otherwise. Thus economics is psychology in a very direct sense—it is trading in mental states.

            Interestingly, no animals operate with an economic system, despite having quite sophisticated mental abilities (such as mind-reading). Animals don’t buy goods and services from each other, though they may exchange goods and expect favors in return. The concept of money is alien to the animal mind. Presumably humans developed economies at some specific period of history, where there was none before. How that happened is shrouded in mystery, but clearly it requires sophisticated social consciousness. When do children begin to understand economic exchange? Economies are biological adaptations with biological payoffs and must have arisen by mutation and natural selection. Perhaps we have an innate economics module in our brain (“the economic gene”). It sits next to our theory of mind module. It requires a tacit understanding of how minds work and how they relate to the material environment, as well as an appreciation of evaluative concepts. Economic transactions now constitute a large part of human interactions, and they shape the way we think of others (perhaps too much). We are always thinking of how to improve our state of mind by entering into economic exchanges with other people, which requires thinking about their state of mind too. We monetize the mind—put a price on it.

            It is useful to keep these points in mind when running a business. We need to remind ourselves of what we are really buying and selling—what the true meaning of the phrase “good and services” is. It isn’t the object as such that is important but its effect on the consumer—what good it will do for the consumer, psychologically speaking. It is the meaning of the product that matters. And it isn’t just what is really good for the customer that counts but what the customer believes is good: if the customer doesn’t think that something genuinely good is really good, he or she will not buy it. This is why persuasion is always part of a functioning economy. Savvy advertisers know this very well, so they draw attention to the psychological benefits to be derived from a particular product—not its physical characteristics. A successful business must therefore be psychologically astute and psychologically attuned. It should also have a clear philosophical understanding of what it is up to.

  [1] We speak of “dry goods” but we don’t speak of “wet goods”. Why?

  [2] We also buy things to protect our lives, but we only value our lives because of the states of mind they make possible.