November 27, 2008
I wrote the following in 2005.
In the early 1870s, Carl Menger, William Stanley Jevons, and Leon Walras simultaneously and independently discovered the principle of marginal utility. Their discovery transformed economic analysis.
They observed that value, like beauty, is subjectively determined. Value is imputed -- a familiar Calvinist theological concept -- to scarce resources by the acting individual. Other things remaining equal, including tastes, the individual imputes less value to each additional unit of any good that he receives as income. This is the principle of marginal utility.
This can be put another way. We can say that each additional unit of any resource that a person receives as income satisfies a value that is lower on that individual's subjective scale of value. He satisfied the next-higher value with the previous unit of income.
This provides a preliminary solution to the original question. I call this solution the declining marginal utility of thankfulness. People look at the value of what they have just received as income, and they are less impressed than they were with the previous unit of income. They focus on the immediate -- "What have you done for me lately?" -- rather than the aggregate level of their existing capital. They conclude, "What's past is past; what matters most is whatever comes next."
Modern economic theory discounts the past to zero. The past is gone; it is not a matter of human action. Whatever you spent to achieve your present condition in life is no longer a matter of human action. The economist calls this lost world "sunk costs."
There is a major problem in thinking this way. It is the problem of saying "thank you." The child is taught to say "thank you." He is not told to do this because, by saying "thank you," he is more likely to get another gift in the future. He is taught to say "thank you" as a matter of politeness.
I am sure that there is some University of Chicago-trained economist out there who is ready to explain etiquette as a matter of self-interest: "getting more in the future for a minimal expenditure of scarce economic resources." And, I must admit, people who never say "thank you" do tend to receive fewer gifts. Or, as Moses put it, "And thou say in thine heart, My power and the might of mine hand hath gotten me this wealth. But thou shalt remember the LORD thy God: for it is he that giveth thee power to get wealth, that he may establish his covenant which he sware unto thy fathers, as it is this day" (Deuteronomy 8:17--18). But Moses added an "or else" clause: "And it shall be, if thou do at all forget the LORD thy God, and walk after other gods, and serve them, and worship them, I testify against you this day that ye shall surely perish" (verse 19). Gary Becker would no doubt put it differently, but the point regarding reduced future income is the same: lower. Maybe way, way lower.
The problem is, we look to the present, not to the past. We look at the marginal unit -- the unit of economic decision-making -- and not at the aggregate that we have accumulated. We assume that whatever we already possess is well-deserved -- merited, we might say -- and then we focus our attention on that next, hoped-for "util" of income.
As economic actors, we should recognize that the reason why we are allocating our latest unit of income to a satisfaction that is lower on our value scale is because we already possess so much. We are awash in wealth. We are the beneficiaries of a social order based on private ownership and free exchange, a social order that has made middle-class people rich beyond the wildest dreams of kings a century and a half ago. Or, as P. J. O'Rourke has observed, "When you think of the good old days, think one word: dentistry."
About half of the Pilgrims who arrived in Plymouth in 1620 were dead a year later. The Indians really did save the colony by showing the first winter's survivors what to plant and how to plant it in the spring of 1621. The Pilgrims really did rejoice at that festival. They were lucky -- graced, they would have said -- to be alive.
So are we. Ludwig von Mises wrote in Human Action (VIII:8) that social Darwinism was wrong. The principle of the survival of the fittest does not apply to the free market social order. The free market's division of labor has enabled millions of people to survive -- today, billions -- who would otherwise have perished.
So, give thanks to God today, even if your only god is the free market. You did not obtain all that you possess all by yourself. The might of your hands did not secure it for you. A little humility is in order on this one day of the year. Yes, even if you earned a Ph.D. at the University of Chicago.
There is much to be thankful for. It takes a self-conscious act of will to do this.
Once a year, Americans give it a try. I don't think we are successful. But it's the thought that counts.
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