Overall Considerations in Dual Interest Theory
Virtues are swallowed up by self-interest as rivers are lost in the sea (attributed to La Rochefoucauld, in Hodgson, 1999, p. 139)
Technically speaking, Metaeconomics sees the reality of joint, nonseparable, interdependent Self&Other-interest arising due to nonallocable inputs in production and supply, and nonallocable goods in consumption and demand. Humans can influence the relative amounts they achieve, but cannot separate the interests out for individual consideration, due to the reality described in thermodynamics on the production side...every human production system is embedded within, and non-separable from, the natural system on this Spaceship Earth... and the reality of both self-interest&sentiments operant, and non-separable within the own-self... the mind/brain... on the consumption side. Every person is interdependent with other people, and each person is interdependent with Nature... the natural systems on Spaceship Earth. Each person is embedded within a Community of people and with all the other Systems/Communities on the Spaceship.
The contention is in direct contrast to the Microeconomics assumption (generally without empirical test, and, thus often without any basis in reality) of fully allocable inputs and allocable goods, and thus both production and consumption are separable and independent. each person is independent of every other person, and of natural systems on Spaceship Earth. Also, there is no attention to the Other-interest. Independent and separable producers and consumers (both within each category, and between producers and consumers) act on their own without ever walking in the shoes of the other, Empathizing, which if they did, could move the choice process beyond Ego based Self-interest only. In terms of the Figures, there is only the Self-interest set of isoquants for each Product, and the Self-interest set of indifference curves for each Good. Granted, Microeconomics is often "patched" to consider externalities; this patch, however, is generally not the best way to handle the reality that this is really about jointness and interdependence, non-separability, such that the patch really does not represent what is actually going on. And, in fact, for such obvious joint processes as represented in the classic example from Frisch (1965), that how a sheep internally allocates grain and hay between wool and mutton, a Microeconomist of the production economics ilk simply cannot address this case in a meaningful way, as Microeconomics presumes the sheep rancher can choose... actually presumes complete control over... how the sheep allocates the grain and hay. Similarly, a Microeconomist of the consumption economics ilk has to deal with the purchase of a good that has recycle content as producing only Self-interest payoff, and has no way to represent the reality that such goods also produce payoff in the domain of doing-the-right-thing, which is shared in the Other-interest.
Also, Metaeconomics posits that humans are inherently challenged in finding the best balance in the self&other-interest due to problems in self-discipline and self-control, as well as a wide array of human fallacies and shortcomings in the decision process, as documented in a wide array of research in behavioral economics, especially the economic psychology and psychological economics branches (see Tomer, 2017). There is also a tendency to slip back to the more hedonistic, primal Self-interest only path of choice, doing what we want to do, including ignoring what the systems in Spaceship Earth are doing in the background. This is often done unconsciously, even when one attempts to be mindful of the Other-interest (the moral dimension, the moral community, the ethical system, the conscience, the impartial spectator, the natural system) in the background. Being mindful of the Other-interest (including the shared Other-interest with the natural system), and tempering Self-interest with it, however, is essential to doing the right thing for one's Own-self.
Other pages in this Website (see especially Inspired, Overview) have gone into substantive detail on what this means, using words. We depict this trinity... self-interest, other-interest, and self-control in this figure, with the hope that a picture is worth a thousand words, like is often said. The economics trained reader will find this depiction quite familiar, as standard Microeconomics uses such isocurves in the Single Interest Theory (SIT, Self-interest only). The Metaeconomic difference arises from the reality of interdependence... which is represented in at least two sets of overlapping isocurves in every consumption and production process. For the non-economics reader, just stay with us... we will teach some basic Econ 101, really MetaEcon 101, as we briefly review how DIT works, and how it differs in substantive ways from SIT.
Metaeconomic Analysis of Isoquants for Two Products
We start with production, supply, and isoquant considerations. We focus on the inputs x1 and x2 (see Figure 1), with x2 being a bundle of inputs like seed, fuel, fertilizer and land, and x1 a bundle of conservation related inputs like conservation tillage. These inputs are used to produce wheat q1 for the Market on path 0G and to produce wildlife q2 for general use by everyone, such as hunters, bird watchers (with these uses reflected generally by Government), using the same farmland, on path 0M (Figure 1). Producing at the least cost, maximum profit point A in response to the feedback from the Market, i.e. maximizing (Self-interest) profits, results in supplying a large quantity of wheat represented in isoquant IG3 (same amount of wheat along that entire isoquant), and a very small amount of wildlife (much less payoff in the Other-interest) represented in isoquant IM1 (same amount of wildlife along that entire isoquant). In contrast, if this farm worked to maximize Wildlife, the result would be point C, with a large amount of wildlife represented in IM3, a large payoff in Other-interest, and very small amount of wheat represented in IG1, a very small payoff in Self-interest. There would be little to no monetary payoff at point C, in that hunting and bird watching are not generally Market goods...no individual owns the wildlife... and the Government, as representative of the common/public property owner, does not generally supply wildlife at a price. So, what will the farmer do?
Well, it depends upon the larger context, what signals are coming out of the Market (Price) and/or the Government (Value), as demonstrated in Figure 2, with overall preferences for these two goods represented in the IGM isocurves, which are on a higher plane of interest. The possibilities frontier R0R0 in Figure 2 is derived from moving along the capital constraint curve R0R0 in Figure 1; notice how areas outside of the elliptical area defined by paths 0G and 0M ( Figure 1) are irrational, as depicted by the positive slopes on the R0R0 possibillities frontier (Figure 2). We also now see that if the Value of wildlife is essentially zero, then IGM1 is the driving force in the balance of interests on this higher plane; this suggests point A in both Figure 1 and 2.
In fact, Microeconomics always suggests point A. Very little wildlife would be produced, even though there is generally, when people are asked, a shared Other-interest in having some wildlife traveling with the farmers and food consumers on this spaceship earth. So, what do? Microeconomics pointing as it always does, implicitly, to pure capitalism... everything privately owned... would call for creating private property in the wildlife, with said owners then negotiating with the farmer, and paying the farmer the price for having wildlife in the wheat fields. In this case, we would see a Price evolving for both wheat and wildlife, shifting the higher interests toward some IGM2 in Figure 2, resulting in some choice like B in Figure 1. Even more intriguingly, Microeconomics due to seeing only a single interest at work, does not even have the IM set of wildlife production curves in the analytical lens, unless the resource is privately owned, even though these are joint products, inherently a common/public property in the beginning. Rather, a Microeconomics framing, using Single Interest Theory, rather presumes, implicitly, without empirical test (or reality) that the inputs on a farm would be completely allocable between these two processes, presuming complete independence between wheat and wildlife production.
Metaeconomics would lead in a quite different direction, especially due to seeing that wheat and wildlife are joint products, due to nonallocable inputs, and that another Value system may also be at work. The natural system, in effect, causes the two processes to be interdependent, inputs allocated within the natural system, with the farmer having very limited control, in that both products use the same spaceship earth system, simultaneously. Also, real people have Values beyond the Prices expressed in Markets, and, often prefer keeping such things as wildlife as a common/public property.
So, with this starting point, Metaeconomics might point, empirically, to offering some government programs, payments to farmers (reflecting the Value reflected in the shared Other-interest between farmers and everyone else), to provide for some wildlife habitat on their farms. Given enough political attention to the problem (and the willingness to pay the price/taxes by hunters and bird watchers to produce the money for the farmer payment), the Government could in effect reflect the Value of wildlife relative to the Price of wheat. With payments reflecting shared Value, the farmer might shift a bit toward path 0M, perhaps moving to path 0Z, and arriving at point B. In fact, if the payment for wildlife habitat is high enough, reflecting the high Value hunters and bird watchers often place on using this aspect of the private property, in effect the common property in wildlife, overall profits coming from the Market price&Government payments could be identical at both points A and B.
Another scenario also suggested as an empirical question by Metaeconomics would have the Government require, mandate wildlife production, without any financial compensation, at point B. That is, Government as a representative of the public interest in the level IGM3 (Figure 2) might mandate that farmers move at least to point B (Figure 1). Profit would be considerably less, with hunters and bird watchers having a "free ride" while the farmer pays all the cost. Farmers would likely not be very pleased, either, as liberty and freedom have been sacrificed for wildlife production.
Metaeconomics would also, on another empirical path, suggest the farmer could be nudged to become mindful of the IGM3 (Figure 2), the overall shared other(internal to the farmer, but shared with others "downstream" of the farm)-interest this farmer has in a viable, sustainable spaceship earth system. It is possible the farmer, too, sees wildlife as part of the aesthetics, the environment in living on the farm, made better by having wildlife on the land, too, in addition to the wheat. Acting on gains in the other-interest, this farmer might voluntarily move over from path 0G to path 0Z (Figure 1), sacrificing a bit of wheat production on IG2 < IG3, while increasing wildlife production to IM2 > IM1. This farmer may find a more peaceful existence, a more fulfilling life, less amiss... at point B rather than point A (in both Figures 1 and 2), perhaps feeling less Phoolish (after Akerlof and Shiller, 2015): In fact, in our research experience on conservation practices (see Lynne et al., 2016, for a summary) we often found farmers disappointed that "the Market made me do it", i.e. the Market sends only price signals for wheat and sends no signals about wildlife, so, to survive, point A is chosen, even though point B is preferred.
Also, as the quote at the start suggests, the virtues can be swallowed into the Self-interest, too, as in path 0M being swallowed into the new path 0Z, which now appears like a Self-interest path, albeit now a virtuous path. In effect, path 0G and 0M converge into one path 0Z... the two sets of isoquants converge into one set... which Frisch (1965, p. 273) referred to as complete coupling. If the two isoquants have converged, it will appear as in Microeconomic renditions, as though there is only one set of isoquants; unfortunately, it would be very misleading to in effect "hide" the Moral Dimension.
Notice, too, that in the three Metaeconomics styled analyses, wildlife are retained as a common property, with the Government bringing the Value of wildlife into the mix, involved in the first case with payments, voluntarily accepted or not; controlling, in the second case, with the farmer not having a choice; and, with complete liberty and freedom on the part of the farmer in this third case. That is, in this last case, Government nudging (or, specific nudging by the hunters and bird watchers themselves) could bring about free choice by the farmer, or not, in producing some wildlife. Metaeconomics suggests these kinds of cases need to be examined with an empirically based approach, and pragmatism brought to bear in the end.
In fact, the reality since the 1930s, here in the US, has put us into all three Metaeconomics approaches. Government has been operating to represent the overall societal interest of IGM2, and using tax dollars/prices paid for wildlife through taxes consumers pay, through the US Farm Service Agency, to bring about point B outcomes. We have also dabbled a bit with controls, as in conservation compliance to get crop subsidy payments, requiring point B choices. Government, through the US Natural Resource and Conservation Service and the US Cooperative Extension Service, has also engaged in encouraging farmers through technical support and educational programming to become conservation farmers.
Also, we have not, historically, since the formation of the US in 1776, favored the Microeconomics approach which requires absolute, private property ownership in wildlife. So, why do we cling to Microeconomics, when we have this Metaeconomics alternative that, practically speaking, just works better in explaining what is ongoing, and suggests what to do about it, in realistic terms, based in empirical reality for what is pragmatic? it seems in reality that both farmers and consumers have viewed the Value of wildlife on a higher plane from the Price for wheat, as depicted at points like B in Figure 2, and have preferred that some public/common property in wildlife works better, pragmatically speaking. This does not mean that some private property in such products, goods like wildlife is not desirable, but it does put it into perspective. Metaeconomics raises an empirical question(s) about the best mix of private&public(common)-property, the best mix of market&government, as related to the question of the best balance in wheat&wildlife-production, without presuming which way is best. Lynne et al (2016) points to how balance in self&other-interest, market&government has resulted in farmers adoption of soil and water conservation practices, as well as providing solid empirical support for Metaeconomics. For the Mathematical Metaeconomics of jointness represented in overlapping isoquants, see Lynne (1988; 2006b).
Metaeconomic Analysis of Indifference Between Goods
As suggested in Inspired, the work by Frisch (1965) stirred the imagination about how jointness in production arising from the reality of nonallocable inputs could also perhaps exist in consumption as arising from the real possibility of nonallocable goods. Lynne (1995) demonstrates, for the first time, how this might work, with two sets of overlapping indifference curves. The set of indifference curves IG representing the self-interest are shown as overlapping with the set of indifference curves IM representing the other(shared with others, and internalized within the own-self)-interest (Figure 1). The set IG evolves out of the egoistic-hedonistic tendency in humans. The set IM evolves out of the empathy-sympathy-sentiments tendency in humans. Also, the set IM, then, reflects the moral dimension, the moral community arising out of the larger ethical system. Also, in terms of attaching these ideas to the notion of an ethical system, the set IG represents the virtue of prudence; the set IM represents especially the virtue of temperance, but also includes the other virtues represented in courage, justice, faith, hope and love. The set IM, then, evolves out of a continually evolving moral community reflecting these virtues, which also evolve in content over time.
The notion of set IM also means there could be many sets IM, many different sets of other-interest, competing for individual attention and consideration. There could easily be dozens of set IM indifference curves in this space, e.g. the sets associated with immediate family, extended family, work associates, club memberships, religious affiliations, political party, state, nation, all travelers on spaceship Earth, to list a few. Dual Interest Theory sees the individual charged with rationally considering how to respond to each such set while seeking balance on some path 0Z.
Just like in microeconomics with only set IG, metaeconomics also posits that individuals maximize their own-interest. This theory is still about the individual seeking their outcomes for themselves, not for others, just as in microeconomics. The difference is the own-interest now involves not only self-interest represented in set IG but also the interest one shares with others as reflected in set IM. This set IM is still entirely within the own-self, internal to the individual. This has nothing to do with other-regarding preferences, or interdependent utility, notions that have been offered as "fixes" to the microeconomics focus on only IG. The own-interest is just now broadened to reflect both tendencies in human nature; like Angyal (1941; 1965) pointed out, we humans have the tendency to want autonomy (i.e. ego driven self-interest) and homonomy (i.e. empathy driven other-interest, connectivity with something outside the self-interest). Angyal also adds that we often face heteronomy, too, when outside control is asserted, working to limit our freedom and liberty to choose our own balance in autonomy&homonomy, self&other-interest.
For purposes of understanding how maximizing self&other-interest might work, think of a good q1 having recycle content and good q2 as being produced only from new resources (this case was examined in Kalinowski, Lynne, and Johnson, 2006). Each good gives payoff in both the domain of self-interest IG and other-interest IM. For example, at the Microeconomics based solution to this choice, given income level R0R0, the consumer maximizes self-interest only at point A (Figure 1). This is usually best achieved without buying much in the way of recycle content goods, due to p1/p2 being relatively lower; at point A, the consumer enjoys level IG3 of payoff in the self-interest, but also receiving some payoff in the other-interest represented by IM1.
Metaeconomics suggests, however, that many consumers would not be happy at point A, having not paid attention to their conscience, their impartial spectator as Adam Smith describes it. That is, other Values on a higher plane are at work, as depicted by IGM3 in Figure 2. That is, moving along R0R0 in Figure 1, we can generate the R0R0 consumption possibilities frontier R0R0 in Figure 2. The impartial spectator within the consumer, the conscience concerned with recycling, would be represented by the Value in the isocurve IGM3, which suggests that not only p1/p2 (and the absolute prices of both) is relevant to the choice. Indeed, using the Smith notion, after having being in the state of the impartial spectator (basically empathizing with the need to recycle), the consumer chooses instead to move to point B (in both Figures 1 and 2). A bit of self-interest is sacrificed, as is the other-interest (as it is not maximized, either), now enjoying IG2 and IM2. In effect, Metaeconomics points to maximizing the joint self&other-interest, while sacrificing a bit of each interest (new meaning of altruism, which is now more than just sacrifice in self-interest) at point B. Substantively more good q1 with recycle content is purchased, even though the p1/p2 ratio (and absolute levels of each of p1 and p2) suggests buying very little to none. This kind of choice was empirically documented in Kalinowski, Lynne, and Johnson (2006, see especially Table 1), with this tendency increasing as consumers identified more fully with shared interests in recycling. For the Mathematical Metaeconomics of jointness represented in overlapping indifference curves see Lynne (2006a).
Intriguingly, it is also possible, as the quote at the beginning suggests, that the virtues represented on path 0M could be "swallowed" by the new, more virtous self-interest on path 0Z. In effect, as a person works to do the right thing, set IG and set IM converge into new set, lying completely on top of each other. It would appear like in Microeconomics, that the consumer has just one set of indifference curves. It would be very misleading, however, as the underlying Moral Dimension that moved the old self-interest to the new set of indifference curves associated with path 0Z would be hidden from view. In effect, the Moral Dimension, and the Community that would produce it, would be hidden in the analytical system. Hiding the Moral Dimension leads to the rightful claim that Microeconomics is at best Amoral.
On Dual Interest Theory and Smith (1759, 1776)
Dual Interest Theory (DIT) is based in the notion... going back at a few hundred years, back at least to Aristotle and Plato... especially starting with one of the most prominent and best known of the moral philosophers, for economists at least, the "Father of Economics" Adam Smith (1759; 1776). This theme of duality, and even a trinity, is also found in religion. Intriguingly, it is now supported in empirical science from modern psychology, neuroscience, neuroeconomics, and behavioral economics: Humans have two tendencies in their evolutionary nature. This is referred to in Metaeconomics as the tendency to Self-interest (Smith, 1776) and the tendency to Other(shared with others, but internalized to own-self)-interest (Smith, 1759), with Self-interest more primal.
Also, Smith (1759) clarifies that the Sentiments (Empathy) were to temper the Self-interest (Ego), which Smith (1776) sees as the driver for Making Wealth, accomplished by pursuing Self-interest, but not being good for the individual or the capitalism based system unless the individual is paying attention to the Impartial Spectator. By paying sufficient attention to the Impartial Spectator within (brought within through Empathy), the individual could achieve contentment, peace within Own-self, and peace, contentment, happiness within the capitalism system writ larger (see Roberts, 2014). The individual, through the Impartial Spectator, would look to the moral dimension, the conscience, the moral community, which would then Temper the more primal Self-interest. As Smith (1759) said it (quotations cited in Roberts, 2014, p. 40),
What so great happiness as to be beloved, and to know that we deserve to be beloved? What so great misery as to be hated, and know we deserve to be hated?
Man naturally desires, not only to be loved, but to be lovely
Using the Metaeconomics way of thinking about these matters, first, to be loved, one must avoid maximizing Self-interest only on path 0G. Second, path 0M is all about "being lovely", i.e. having empathized, evolved the sentiments, on the shared Other-interest path 0M, Third, this is all resolved... peace, contentment and happiness emerge... on path 0Z, where one not only is beloved but deserving to be beloved, due to a bit of sacrifice in the payoff in both domains of interest. As the title of the Roberts (2014) book would have it, "How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness", the guide is to Temper the Self-interest with doing the right thing, the latter meaning operating in the moral dimension, considering the moral community through the vehicle of the Impartial Spectator, putting us on path 0Z. Maximizing Self-interest, like Microeconomics teaches, generally does not result in achieving happiness, while it does achieve maximum wealth on path 0Z; maximizing Self&Other-interest, like Metaeconomics teaches, holds the potential to also produce happiness, in addition to plentiful, more than adequate wealth... albeit this is an empirical question which Metaeconomics asks of every economic choice.
We can also address the matter of commensurability, and the real possibility that these dual interests are incommensurable, in the old debate about "pushpins and poetry." Microeconomics based in Neoclassical Economics, which in turn rests in Utilitarian Philosophy, sees the material world (pushpins) no different from the less tangible world (poetry), and thus an individual can simply do the tradeoff along some possibility frontier R0R0, arriving at whatever point A, B or C that emerges from the tradeoff analysis. If we put goods q1 and q2 on the axes, the tradeoff is strictly decided in the market by the p1/p2 ratio; in the Utilitarian view, the problem is solved, which also leads to claiming that Price is Value, and Value is Price, with everything completely commensurable.
Other philosophies see this quite differently, seeing generally a hierarchy of incommensurable value, with Value (poetry) not on the same plane as Price (pushpins). In fact, higher order Value might work to in effect trump the Price value evolved in Markets (the Market Forum), with the Value coming out of higher order, Other Forums, like perhaps that represented in the US Administrative, Legislative and Judicial branches of Government. In this kind of philosophy, Value in the Other Forums works to temper and condition the Price in the Market. We might suppose, too, that Price in the Market could influence the Value in the Other Forum(s), but they would not be commensurable, measurable on the same terms.
For the formal Mathematical Metaeconomics, see.
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