Fred Hirsch and ‘Positional Goods’
Critiques on orthodox economics
By HaiCuan, Ooi
ABSTRACT
Fred Hirsch, late Professor of International Studies, University of Warwick, previously was a senior adviser at the International Monetary fund and Financial Editor of the Economist. His publications include Money International (1967), Newspapers Money (1975), Social Limits to growth (1977) and other books and articles mainly in the field of international finance. He grouped his arguments under three main headings: the question of social scarcity, or the pursuit of positional goods; the commercialization bias of the market economy; and the depleting moral legacy of capitalism. He argues that Adam Smith’s invisible hand, bringing benign out of selfish actions in the economic arena, is no longer operative[1].
Why does Fred Hirsch argue the Adam Smith needs to be stood on his feet, and that in matters economic, getting what we want is increasingly divorced from doing as we like? Do ‘positional goods’ matter?
1. Introduction
In his important book, Social Limits to Growth, he brings up three issues to the center of economic debate. This three broad of questions listed the outset are puzzles or paradoxes when viewed in isolation.
In addition, he brings up various kind of absolute consumption scarcity. The first category comprises physical scarcities and the second classification of consumer scarcity is social. Previously, the discussion surrounding the physical limits to growth raised up by orthodox economics dominated the public debate. It was Hirsch who gave the debate a new dimension with his notion of the competition of positional goods.
2. The Three issues
As being mentioned above, he brings up three issues to the center of economic debate: a) the paradox of affluence, or the tip-toe paradox, b) the distributional compulsion and c) the reluctant collectivism.[2] A clue to their resolution is to approach them as interconnected products of a neglected structural characteristic of modern economic growth.
Under the paradox of affluence, advance in the society is possible by moving to higher place among one’s fellows, that is, by improving one’s performance in relation to other people’s performances. If everyone stands on tiptoe, no one sees better. When this kind of social interaction is present, individual action is no longer a sure means of fulfilling individual choice; the preferred outcome may be attainable only though collective action: a) the familiar dichotomy between individual choice and collective provision or b) competition between isolated individual in the free market.
Besides, under the issue of distributional compulsion, Hirsch argues that the economic growth and rising affluence enable increasing numbers of us to enjoy more goods, but wherever part of the enjoyment of the good is impaired by the presence of others doing the same, the will be a concomitant decline in the quality, leading to disappointment. Since there will always be some people who at the top of the pyramid, this disappointment will lead to efforts to be among there few. This leads to what Hirsch calls the ‘distributional struggle’ for higher income and to the acquisition of wasteful ‘secondary goods’. As he points out, to the extent that our striving for good is positional, it is rational to seek to earn more than other people rather simply to earn more, as positional struggle is by definition relative.
In the provision of reluctant collectivism, Hirsch argues that Locke and Smith were not actually wrong but it is just that they concepts are now outdated. Different institutional means are now needed to fulfill individual hopes. The satisfaction that individuals derive from goods and services depends in increasing measure not only on their own consumption but on consumption by others as well. Social scarcity is a central concept in this analysis as people increasingly desire on positional goods as their demands for material goods are met.
3. Physical Scarcity versus Social Scarcity
Figure 1[3] gives a summary of various kinds of absolute consumption scarcities and presents them in a simple categorization. The first category comprises physical scarcities where consumers derive at least part of their satisfaction just from the inherent characteristics rather than as object that are scare. The concept of physical scarcity was introduced and continued carried out in the orthodox economics before the raising of social scarcity in public debate.
A second classification of consumer scarcity is social where consumer demand is concentrated on particular goods and facilities that are limited in absolute supply not by physical but social factors, including the satisfaction engendered by scarcity as such. The social scarcity may be derived from psychological motives of various kind, notable envy, or pride. As Hirsch points up, if the sole or main source of satisfaction derives from the symbol rather than substance, this can be regarded as pure social scarcity. This limitation is socially derived, though the influence of fashion.
But, a social scarcity may also be a by-product, or incidental. A social limitation may be derived from influence on individual satisfaction that are independent of the satisfaction or position enjoyed by others and that are yet influenced by consumption or activity of others. Essentially the phenomenon of congestion or crowding is in that category.
4. Material Economy versus Positional Economy
Material economy, can be defined as, the output amenable to continued increase in productivity per unit of labor input. It is assumed that a continued increase in the materials productivity of product, that is, in final output obtained per unit of raw material input, will be sufficient to contain emerging shortages of raw materials as a result of technological progress, which is broadly what has happened up to now.
On the other hand, positional economy relates to all aspect of goods, services, work positions, and other social relationship that are either a) scare in some absolute or socially sense or b) subject to congestion or crowding through more extensive use. By positional goods, Hirsch means those goods the enjoyment of which is dependent on their non-possession by others. This may happen either a) because satisfaction is derived directly from the fact that others do not have the good, or b) through the phenomenon of crowding or congestion[4].
Therefore, in the positional economy, the demand for a good has potentially two components: an intrinsic one for the good as such, and a positional one, which is the demand to be able to enjoy it without congestion. But, in the case of large numbers of goods, such as potatoes and newspaper, we can ignore positional quality. It is very much different with the concept carried by orthodox economics that the demand for a good only made up by intrinsic part.
5. Hirsh versus Free-Market doctrine
To a large extent Hirsch is pointing to the ineluctable hopelessness of much human striving, to the folly of pretending that material effort can produce human happiness. Hirsch does show some of his strikes at some key tenet of free market doctrine: first, he shows that competition will not always have the productive consequences claimed for it and the expenditure on secondary goods which positional competition generates is wasteful; second, the injunction of defenders of market forces and their consequent inequalities that people should look to the overall size of the cake, and not worry about the size of individual slices, is shown to be futile; third, the claim that the free market, by improving efficiency and therefore growth, will realize many of man’s wants, is shown to be limited in scope as the intensity of markets competition of possession only sharpens the appetite for positional goals which must always prove elusive for the many[5].
6. Examples (Leadership Position)
In the positional economy, the demand for the leadership position is increasing and so do the supply. Therefore, if there is a growth in the number of leadership positions, we must ask: do these occupy space which used to be monopolized by existing sources of power, or do they open completely new areas of organizational activity with which existing sources had been entirely unconcerned? If it is the former, the congestion of leadership space will occur; only the latter constitute the opening of new arenas. Existing leadership groups will experience less room for autonomy; the newcomers will find less scope for wielding power than they had expected on the basis of their prior observation of the behavior of existing power-holders.
But the opening of new arenas for leadership activity does occur. The biggest single example was probably the settlement and government of colonies during the eighteenth and nineteenth centuries. However, similar problems occur as with the more physical examples of attempts to relieve congestion. First, fields of leadership will be ranked. Second, and probably more important here, even groups in different areas of life are competing for some important resources; membership and member’s time, money, political attention, publicity within established media.
7. Conclusion
Hirsch’s books have many massages, but the one which is most important and gave public debate a new and wider dimension, is his arguments on social scarcity and positional goods. None of his arguments make possible a blanket rejection as they are not only sound logic theoretically, but also highly support by perhaps, history evidences in the market processes.
Reference List
1. Econ1100 Course Note
2. Reisman, David A. Theories of collective action: Down, Olson, and Hirsch. Macmillan, 1990
3. Adrian Ellis and Krishan. Dilemmas of liberal democracies: studies in Fred Hirsch’s ‘Socials limits to growth’. Tavistock Publications, 1983
4. Hirsch, Fred, 1931- Social Limits to growth. Routledge, 1995
5. Fred Hirsch and John H. Goldthorpe, The Political economy of inflation. Martin Robertson, 1978
6. Jack Bakunim, The failure of Individualism (http://www.religion-online.org/showarticle.asp?title=1179)
[1] Jack Bakunim, The failure of Individualism (http://www.religiononline.org/showarticle.asp?title=1179)
1. [2] Hirsch, Fred, 1931- Social Limits to growth. Routledge, 1995: pg 1-3
2. [3] Hirsch, Fred, 1931- Social Limits to growth. Routledge, 1995: pg 20 - 25
[4] Adrian Ellis and Krishan. Dilemmas of liberal democracies: studies in Fred Hirsch’s ‘Socials limits to growth’. Tavistock Publications, 1983: pg 185 -189
[5] Adrian Ellis and Krishan. Dilemmas of liberal democracies: studies in Fred Hirsch’s ‘Socials limits to growth’. Tavistock Publications, 1983:pg 190-198
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