This is just a vague stab at a germ of an idea. It’s what I hope to work on in the future by looking at the history and philosophy of political economy. It’s not properly formed at all; I’m just getting the idea out there to be discussed by all the smart people who read my blog and have offered so much helpful advice in the past.
The basic claim I want to make is that the theory of individual preferences that lies at the basis of economic analysis, public choice theory, and other related social sciences, is wrong. Individuals don’t have preferences.
Start with consumer choice theory. Here is how Samuelson and Nordhaus (Economics, 2009, 84) define utility in that context:
In a word, utility denotes satisfaction. More precisely, it refers to how consumers rank different goods and services. If basket A has higher utility than basket B for Smith, this ranking indicates that Smith prefers A over B. Often, it is convenient to think of utility as the subjective pleasure or usefulness that a person derives from consuming a good or service. But you should definitely resist the idea that utility is a psychological function or feeling that can be observed or measured.
Here it is clear that “satisfaction” is no less a technical term than “utility”. To say that an individual is more satisfied by A than by B is not to say that A provides a greater feeling of satisfaction than B. So what does it mean?
In fact we can take the following sentence from the above passage as a definition: “If basket A has higher utility than basket B for Smith, this ranking indicates that Smith prefers A over B.” For A to have “higher utility” (or greater satisfaction) than B just is for A to be preferred over B. “Utility” basically just means “degree of preferredness”.
Well, what is preference? Hard-headed economists sometimes pretend to the view that preferences on their theory are nothing more than behavioural tendencies. But they can’t really mean it. In the first place, for all their protestations of value-neutrality, they can never forebear to attach positive value to the condition of people satisfying their preferences. But there is no reason to value the continuation of a mere behavioural tendency.
Secondly, they take behavioural tendencies to reveal preferences only under some descriptions. Suppose a consumer chooses a basket containing strawberries over one containing blueberries. Suppose he also, in the same choice, chooses a basket containing a prime number of fruits over one containing a composite number of fruits. One description is likely to be accepted as the description of a preference; the other is not. But both work equally well as descriptions of a behavioural tendency.
I think a preference can only be a rule. A person who prefers A over B is best described as following a rule specifying that A is to be chosen over B (with whatever relevant escape clauses must be added for realism). The rule must contain the relevant descriptions of “A” and “B”. But here the trouble begins.
If preferences are rules, and preferences govern behaviour, then Wittgenstein’s rule-following arguments suggest to me that it is impossible for a subject by herself to be consciously directed by her preferences. We have to ask: how is knowledge of a preference made available to the subject? Remember that the rule must contain the relevant descriptions of the things to which it relates. Suppose the subject is following the rule: “Always choose green Smarties over blue ones.” Then she says to herself: “Well, of course on Tuesdays blue Smarties count as green Smarties. That’s what the rule meant all along.”
Is it what the rule meant all along? If she is on her own there is nobody to challenge her judgement. As Wittgenstein puts it: “to think one is obeying a rule is not to obey a rule.” (Philosophical Investigations, 201) The most she can know through conscious introspection is that she thinks she is obeying the rule – following the preference.
But acting on a preference is obeying a rule, not simply thinking that you are obeying it. After all, if my preference for A over B leaves it completely open whether in any given circumstance I choose A or B (e.g. because I can always reinterpret what “A” and “B” mean), then it can’t be said that my preference is determining my behaviour. The preference becomes operationally insignificant. To adapt Wittgenstein, no course of action could be determined by a preference in this case, because every course of action can be made out to accord with the preference.
To continue with the example: maybe our subject has the rule written down somewhere and notices that it contains no special Tuesday provision. Is this enough for her to be able to be determined by the rule? No, because the rule she gave herself was what she intended to write down, not what she actually wrote down. If she made a spelling mistake in writing down the rule, she hasn’t thereby compelled herself, per impossibile, to choose ‘gren’ Smarties over blue. Anyway, there is always room for interpretation of what she wrote. If she wrote: “Always choose green Smarties over blue”, does the “always” mean that she should do nothing besides choose Smarties? Or was she compelling herself to live forever? In other words, there must be rules governing how to read the recorded statement of the rule, and if these rules also are recorded then we run to regress.
Our subject can, we might think, consult her memory to see if the intention behind the rule, when she first gave it, contained the special Tuesday privilege. But again we can say that to think that one remembers is not to remember. Checking what you think the rule is now against what you think you remember the rule being in the past is like, in Wittgenstein’s memorable image, buying a second copy of the newspaper to check that the first is accurate.
The upshot is that for an individual to act on a preference requires an external standard to confirm the rule defining the preference. This external standard can only be found in social interactions. The question is: what sort of social interactions?
Spinoza’s theory, especially prominent in Part Three of the Ethics, is that preferences work through mimesis (not his word). Naturally most of us don’t go around asking each other whether we are acting on our preferences. But what we do is look to others whom we believe to be similar to ourselves – to share our preferences. We make up our minds about what rules we are following by observing what rules they appear to be following. Now we have an external standard for what counts as following the rules – being guided by preferences.
Admittedly, it is not a very reliable standard, since the people we observe can always be breaking the rules. But the rules defining preferences are determined in an ongoing communal practice. The best analogy is with the meanings of terms in a language. Any individual can be simply wrong about the meaning of a word. But that doesn’t mean that meanings are objective in the sense of being independent of everyone’s beliefs about them. For a word to mean what it does, thinking makes it so – that is why meanings change over time. But it is the thinking of the linguistic community as a whole that makes it so, not the thinking of any particular member of the community.
Yes, ‘as a whole’ is tricky here. It isn’t a case of unanimity. And it doesn’t look like a case of majority rule either; it seems perfectly possible that most people should be wrong about what a certain word means. I can’t explain the analogy any better than it explains itself. In some sense the meanings of words are decided communally, and I am saying that preferences are communally decided in just the same way. And as we come to attach meanings to words by observing how others use them (even though any other person might be using any word incorrectly), so we come to determine what counts as acting on our preferences by observing the behaviour of those supposed to have the same preferences (even though any other person might be wrong about what counts as acting on any preference).
Put briefly: You can only prefer A to B by finding and interacting with somebody else presumed to prefer A to B, and that other person is in the same situation.
Veblen, Galbraith, Duesenberry, Fullbrook, Hodgson, and many others tried to incorporate interdependent preferences into the theory of economics. Gary Becker tried to develop a theory of what he called “social interactions”, and even Pigou wrote a couple of articles on interdependent preferences. That notion on its own plays havoc with the familiar idea of equilibrium. But this theory goes much further. Preference, on this theory, is inherently social. More bluntly: individuals don’t have preferences; only communities do.
If this is right, I believe that economics and public choice theory need to start afresh from a new foundation.