The hedonistic assumption in economics
The economics profession is a powerful institutional force for the status quo and its orthodox views must therefore be confronted if our goal is radical progressive change. One of the profession’s key orthodoxies is the hedonistic view of human motivation in which an individual’s sole goal is seen as pecuniary gain. This, of course, fits very well within the logic of capitalism but there’s volumes of psychological and organizational research which clearly demonstrate money is not a prime motivator. We are motivated to a far greater degree by things like security, camaraderie, pride in good work, recognition, and status.
Paul Krugman demonstrates today that orthodox hedonism is well entrenched within center-left economics. He attempts, through calculus no less, to determine how hard an individual will work given the economic theory that effort is solely dependent on after tax income.
“So I thought it might be worth thinking about this question in terms of a simple model of labor supply. Think of an individual facing a marginal tax rate t; and think of the amount this individual produces as depending on effort, which in turn depends on how much of his or her income the individual gets to keep at the margin, i.e., 1-t. Then a little calculus will show that whether a tax hike increase raises or lowers revenue depends on whether the elasticity of effort with respect to earnings — the percentage change in effort from a 1 percent rise in 1-t, the after-tax return to effort — is less or more than (1-t)/t.”
Keynes had a good comment relating to this: “Too large a proportion of recent ‘mathematical’ economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allows the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.”