Interests, preferences, and the evaluation circularity

The evaluation circularity

To recognize that preferences, including ulterior preferences, are not simply given, but develop in a particular social context, is to open the door to a problem area that is still more serious for the interest-regarding optimization and evaluation in and of economic systems, as they have been conceived so far, than are the problems identified in the discussion of rationality. The problem area is that of feedback effects from the institutions and processes of production and distribution to the preferences that serve as the basis for identifying interests.

The significance of these feedback effects for optimization and evaluation is here described by the term “evaluation circularity.” It refers to the partial means–end inversion that is involved when the means (that is, the system of production and distribution or particular processes in it) that are to be optimized or evaluated with respect to the end (that is, the fulfillment of preferences that represent interests) shape the composition of this end. What is being evaluated determines, in part, the criterion by which it is being evaluated. It is as though the gauge to be used for measurement were to be calibrated, in the process of measurement, on the basis of characteristics of the particular object being measured.

The want-satisfaction principle and calculus requirements

Although the focus of this book is the constitutive principle of consumer sovereignty and alternatives to it, calculus questions that have therefore been largely omitted so far cannot be ignored altogether. If a constitutive principle is not measurable in some way, then no matter how attractive it is conceptually, it is useless for the optimization and evaluation of economic policies, institutions, and systems. Thus the measurability of want satisfaction has to be considered to determine the attractiveness of want satisfaction as a constitutive principle. This is an issue parts of which economists have explored in great depth. The treatment here will, therefore, be merely in the nature of a brief review of some important positions concerning the measurability of want satisfaction. The point of the discussion in this chapter will be to reveal the limits to the measurability of want satisfaction that arise from the subjectivity of want satisfaction as a constitutive principle.

There are various approaches to measurement. Some measures capture directly the magnitude of what is to be ascertained, whereas others are more in the nature of proxy measures that indicate the magnitude of certain symptoms, correlates, or causes of the variable that is of concern. Moreover, some measures are cardinal, whereas others are merely ordinal. Thus whether a variable is measurable or not is not usually a question that can be given an unqualified yes-or-no answer.

Consumer sovereignty is a central normative principle in contemporary assessments of economic policies and systems. It underlies discussions of optimization and evaluation regarding the design and performance of economies and their constituent institutions, and in particular of the coordination mechanisms in economic systems, such as markets and collective planning. It has been referred to as the “Archimedian point of reference” in economic evaluation (Worland 1967:205). There is certainly no question that it is the core value of welfare economics. In Western industrially advanced nations – of both the conservatively capitalist and the social-democratic variety – it also underlies several of the most central goals guiding actual economic policy.

Given this normative centrality of the principle of consumer sovereignty, one would expect that it would have received considerable attention in the literature. In fact, it has not. It has been explicitly analyzed only to a very limited extent. (Hutt 1936:ch. 12; Fraser 1939; and Rothenberg 1968 are noteworthy in this respect.) At the same time, however, much normative discussion in welfare economics, political theory, and social philosophy has concentrated on ideas that are part of or overlap with the notion of consumer sovereignty.

Whether consumer sovereignty is an appropriate principle for the optimization and evaluation of the design and performance of economic systems is a question that is posed by economics, but it can, by and large, not be answered within economics. Instead, the exploration undertaken in this book pursues issues raised by this question into the territories of moral and political philosophy, of sociological role theory and socialization theory, of clinical psychology and the sociology of mental illness, and of the literature on indicators of the “quality of life” and of deprivation. The areas within economics that are traversed are, apart from conceptions of consumer sovereignty, primarily welfare economics and the economics of income distribution. Writings that bridge two or more of these diverse areas have been particularly emphasized. It should be noted, however, that I refer not so much to the recent literature that has straddled specifically political philosophy and neoclassical economics as rather to writings that take cognizance of sociology's central idea of socialization.

Private wants

The first challenge to be considered here to the starting definition of consumer sovereignty, that is, the market version of the interest conception, is the question how well it covers individuals' private wants that are relevant to production and distribution. “Private wants” here refer to those wants whose satisfaction the individual enjoys privately, as opposed to collectively. They exclude wants concerned with social interaction for its own sake, which are left for the following chapter. (To avoid confusion, it is important not to regard private wants as synonymous with wants for “private goods,” as that term has come to be used in welfare economics. Private wants include wants for many kinds of “collective goods.” To the extent that the latter involve the collective use of such goods for private enjoyment, we are dealing with private wants for collective goods. An example is a highway, which is used jointly, but for private ends.)

This challenge involves, in particular, the questions whether, first, wants regarding personal producer interests, such as the amount and kind of work to be performed, and, secondly, wants regarding environmental amenities and conditions should be included in the conception of consumer sovereignty or not. The latter raises a more general question, which is whether the free-market-choice requirement is to be retained, given the existence of market failures and alternative modes of preference expression.

Social wants and the constitutive conception of interests

Social wants

Private wants have been conceptualized as excluding social wants, and the latter now need to be brought into the picture. Social wants do not need to be given a very precise definition. They are simply nonprivate wants, that is, wants that are not merely for some form of individually private enjoyment, but involve the behavior, feelings, or interests of others. That social wants are part of the interests of individuals is self-evident. What does deserve to be emphasized, though, is that they are also interests relevant to production and distribution. Some examples of wants that have this relevance will suffice. First of all, there are social wants that individuals satisfy by using economic goods, that is, goods involving opportunity costs; such goods may be groceries for a dinner party or purchased gifts. Secondly, in a market economy entrepreneurs provide profit-making opportunities for sociability, such as dating services and facilities and programs for socializing in highrise apartment buildings. Finally, governments and nonprofit organizations provide sociability facilities such as community centers and churches, and these clearly involve economic costs. These are social wants that have obvious economic relevance, and nothing very striking is done by the inclusion of such wants in the appropriate extension of the economic concept of normative sovereignty.

Socioeconomic coordination mechanisms and deprivation

The nature of the illustrative evaluation

In order to show some of the implications of a basic-needs approach for economic evaluation, and particularly the more ambitious kind of evaluation that is involved when economic systems are considered, I offer here an illustrative evaluation of a set of prototypical economic systems. My purpose is not to provide a definitive evaluation, but merely to indicate the kinds of considerations that enter this type of evaluation. This caveat needs to be emphasized because there are some important limitations to the following discussion.

The first is that it is not actual economic systems that are being considered, but specifically prototypical mechanisms for the coordination of production and distribution. Actual economic systems are much too complex to consider in what is merely an ancillary analysis. Pure kinds of coordination mechanisms have a certain simplicity that makes it much easier to generalize about their effects. Other features of systems, such as the pattern of ownership, are not dealt with directly, although the motivational pattern is considered to a certain extent.

A second limitation is that the evaluation of the systems is not based on a comprehensive and integrated set of basic needs and on tradeoffs between them. Instead, I have selected a small number of basic needs and their corresponding forms of deprivation and will provide a separate evaluation for each of them.

The rationalistic conception of interests

Having established in the previous chapter that the most appropriate conception of interests is essentially prudential and self-regarding but not private, it is now necessary to look at the possibility of prudential errors in this range of wants. The relevant feature in the notion of interests that identifies such errors is rationality. Most theorists who have dealt with the concept of interests and who have not adopted an objective, impersonal conception of interests, such that the distinctiveness of the individual is not relevant to the articulation of his interests, have made rationality of one form or another a critical requirement. Errors in wants are irrationalities that must be removed from the wants before they appropriately represent interests. This requirement is the core of what can be referred to as the rationalistic conception of interests.

The introduction of the rationality requirement is different from the previous modification in the conception of interests, as reflected in the various sovereignty conceptions. Whereas the latter, that is, “consumer sovereignty,” “private sovereignty,” and “personal sovereignty,” as well as the market, core, and constitutive conceptions of each of these, have referred to certain ranges of types of wants, what rationality indicates is a certain quality in wants, regardless of what types of wants are involved. The issue here is one not of inclusion or exclusion, but of acceptance or correction.

Consumer sovereignty and interests

The interest conception of consumer sovereignty

As a starting point for the discussion of various conceptions of consumer sovereignty, let us consider a particular conception that both constitutes a widely held interpretation of consumer sovereignty and offers at least initial promise of being suitable to economic evaluation and optimization. This conception is the principle that what is produced, how it is produced, and how it is distributed are to be determined by consumer preferences expressed through individual choices in a free market. A free market is one where there is no collective control over what is produced or over how the output is distributed. (This is intended merely as a definition of what is conventionally meant by “free market,” not as a justifiable conception of economic freedom nor even as the only possible meaning of “free market,” since the latter could conceivably also refer to the market's freedom from monopoly power, from control by the capitalist class, etc.)

The basic reason for treating this conception as potentially more suitable than others is that consumer preferences expressed through free-market choices can be taken to be an initially plausible representation of the interests of individuals in relation to production and distribution. This interpretation implies that interests are taken to be the supreme determinant of production and distribution.

Human sovereignty

Human sovereignty and alternative conceptions of human interests

In order for the representation of interests to be suitable to the more ambitious tasks of evaluation and optimization, interests have to be formulated so that they are free from the inadequacies that afflict the want-satisfaction principle when used in that role. That formulation should not be subject to irrationality, it should transcend the evaluation circularity, and it should be measurable in such a way that the levels of interest fulfillment can be compared across individuals, situations, and systems. I will use the term “human interests” for those conceptions that meet these requirements. Human interests are those interests that are not contingent on particular economic systems, but apply regardless of the structure and process of production and distribution. In that sense, they are universal. (The aim here is to attain a perspective analogous to Rawls's [1971:260–3] “Archimedian point” for evaluating social practices, i.e., an evaluation that is “not contingent upon existing desires or present social conditions.”) When economic policies, institutions, or systems serve interests in this sense they will be said to serve “human sovereignty,” in distinction to consumer, private, or personal sovereignty. An economic system in which human sovereignty prevails is a system that serves human interests before any other goals.

However, before these comments raise excessive expectations or suggest that the impossible is being attempted, let me quickly add that no effort will be made to move beyond certain limits to comparability and thus to the systemic noncontingency of interests.

An understanding of the determinants of the demand for intercity freight transportation has been a necessary input into economists' analysis of positive and normative issues in freight transportation such as the welfare effects of rate deregulation, the benefits of railroad mergers, and the potential demand for new freight modes. The freight demand models that have been used to address these issues have focused on the determinants of the choice of freight mode but ignored other important transportation or production decisions that may be related to this choice. These decisions include the quantity of a commodity to ship (shipment size) and the frequency of shipments. Consequently, the theoretical characterization of the freight transportation decision-making process that underlies previous freight demand models is incomplete. Further, estimates of key magnitudes like market elasticities and shippers' value of time that have been derived from these models may be flawed if the mode choice is only part of a larger joint decision process.

The purpose of this chapter is to provide a theoretical characterization of the freight transportation decision-making process that enables one to analyze the mode choice decision jointly with the shipment size, shipment frequency, and production decisions. This characterization is particularly relevant for analyzing shippers' behavior in the recently deregulated freight transportation environment as it has been widely recognized that firms will make greater efforts than they have under regulation to coordinate their production and transportation decisions in order to take advantage of the variety of price and service offerings that have emerged under deregulation.

Since airline deregulation began in 1978, there have been many changes in fares, services, and markets. Moreover, in the relatively brief time since deregulation occurred, economists have undertaken several extensive studies of the effects of airline deregulation. These studies have concerned themselves with fares, route structures, services offered between different types of cities and city pairs, entry of new firms, and other topics. Most of the economic studies of deregulation have arrived at very favorable conclusions – deregulation has, by most economists' measures, improved the functioning of airline markets.

Yet some important questions remain. Long before airline deregulation occurred, some of its strongest advocates predicted benefits from it in the form of substantial unrestricted fare reductions on high-density routes (see especially Keeler 1972, 1978, but also Jordan, 1970). While there is plenty of evidence of restricted fare cuts, the existence of such unrestricted cuts has yet to be documented in much detail. Second, there remains considerable controversy about whether the changes in fares and services occurring immediately after deregulation represent permanent or transitory changes. Third, and closely connected to the first two questions, is an issue of more general economic interest: How does the behavior of airline firms and markets during deregulation relate to the economic theory of market behavior?