Economic Efficiency & Human Good

In the very first chapter of The Wealth of Nations, Adam Smith talks about the division of labor in the production of pins. He contrasts the probable output of "a workman not educated to this business ... nor acquainted with the use of the machinery employed in it" with the output of a process of specialization in which "[o]ne man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head," so that "the important business of making a pin is ... divided into about eighteen distinct operations." In the first case, that of the "workman not educated to this business," Smith avers that he "could scarce ... make one pin in a day, and certainly could not make twenty," while on the other hand, ten men working according to even an imperfect division of labor "could make among them upwards of forty-eight thousand pins ... in a day."Securing an adequate supply of pins, of course, was not what Smith was concerned about here, but as he himself says, with the principle of the division of labor, and with the resulting increase in output, of which the production of pins was only one example. "The division of labour, however, so far as it can be introduced, occasions, in every art, a proportional increase of the productive powers of labour." In general this is true, of course, and such division has been a means of multiplying the productive capacities of human labor. If we increase the "productive powers of labour" so that the resulting output is greater, we are said to increase economic efficiency, to get a larger output from the same input, as when we go from ten lone workmen who might altogether produce fewer than a hundred pins a day to ten working according to a division of labor who could make "upwards of forty-eight thousand pins" in the same time.When we subdivide the process of making pins or do anything else to increase economic efficiency, we do so (so it is claimed) for the sake of the material benefit of the human race, for human welfare. One of Adam Smith's modern followers, Paul Samuelson, gives the following justification for economic efficiency: "Given unlimited wants, it is important that an economy make the best use of its limited resources. That brings us to the critical notion of efficiency." The division of labor, then, and more broadly, everything that contributes to economic efficiency as a means for increasing production, is premised upon the notion of "unlimited wants" and of a necessarily finite amount of resources and goods to fulfill those wants. This is the condition known as scarcity.Almost the entire field of economics is dominated by the idea of scarcity and the resulting mandate for economic efficiency. But what if these foundational principles of economics are in fact incorrect?What if there were another way of understanding man's need for goods and the best use of his economic resources?Economics, as that has descended from Adam Smith, makes, it seems to me, several fundamental errors with regard to the twin ideas of scarcity and economic efficiency. Both the notions of scarcity and that of efficiency suppose that an ever-increasing supply of goods and services not only meets the desires of mankind but that supplying those goods and services constitutes a genuine benefit. But in the first place, is it true that people really have "unlimited wants"? This is not easy to determine definitively, but it is a fact that many cultures have been content with a limited and reasonable amount of goods and that the American notion that we need an ever-increasing supply of stuff is by no means characteristic of the whole world. No doubt nearly everyone can be taught to desire more and more, can have his tastes corrupted or inflamed by materialistic advertising, just as nearly everyone can be taught not to be content with one spouse but to actively seek sexual satisfaction with as many partners as possible. For like our material wants, our sexual wants can also be looked upon as "unlimited," and people can be taught in both cases to see these desires as fundamental and legitimate needs. But it is in part our cultural mores that teach us that we have "unlimited wants" for stuff and that these wants are so important as to justify the whole apparatus of modern economies and modern economics, and equally it is cultural mores that make us dissatisfied with one spouse. It is true that in both instances such desires are rooted in our fallen human nature, but we have the choice either to inflame such desires, e.g., via advertising or pornography, or to use cultural and other means to promote contentment and satisfaction instead.But even if it is true that the entire human race naturally and consciously strives after "unlimited wants," would it really be in the interest of mankind to supply all those wants? Even if mankind does have unlimited wants, do we really have unlimited needs? Surely the "unlimited wants" as conceived by economists include wants for many things which at best distract us from more important preoccupations, and at worst are actually harmful. Can a Christian who has before him all the warnings and cautions in Holy Scripture about the pursuit of riches simply concur with Samuelson that since our desires are infinite, we should attempt to fulfill them by making our production as great as possible?My point here is not that we should seek economic inefficiency. Rather, it is that by equating economic efficiency with an imperative to produce as much stuff as possible, we assume both that mankind has "unlimited wants," and that fulfilling these is an economic, if not an ethical, imperative. Thus anything that gets in the way of economic efficiency or economic growth becomes suspect. Environmental regulations, for example, are often criticized for their adverse effect, real or imagined, on economic activity or industrial productivity. Of course, sometimes an environmental regulation can be stupid or ill-conceived or produce little real benefit. But the charge that a certain regulation harms economic activity or job creation is meaningless unless the regulation in question can be shown to be silly or of limited value. For it is surely absurd to think that the only thing that matters is whether or not we have increased production and that we do not need clean water or clear air as long as we can go on producing more gadgets of some kind or other. It is not much of a benefit to produce goods or even provide jobs in exchange for living in unhealthy surroundings. If the only way that our society can provide jobs to its citizens or provide us with the necessities of life is via processes that harm the environment in which we must all live, this surely argues that something is fundamentally wrong with our industrial economy. That is what needs to be addressed, instead of seeking a cheap way out by offering society the choice of two evils, unemployment or filthy air and water.Mankind surely needs external goods. But these are needed not as ends in themselves nor, since man's needs are finite, can our need for goods be infinite. If by economic efficiency we mean not wasting our resources, not polluting our world, well and good. But if economic efficiency is understood as an imperative to produce as much as possible to fulfill our alleged "unlimited wants," then there is every reason to question it. And even if man truly has "unlimited wants," as Samuelson believes, those wants are not necessarily worthy of respect, any more than someone's desire for multiple sexual partners is. But by making their concept of economic efficiency one of the foundations of economics, economists are telling us that the vain attempt to fulfill the allegedly "unlimited wants" of the human race–even if these are for mere baubles–is at the apex of social goods. Just as we would rightly reject a sociology that made our desire for unlimited sexual pleasure its foundation, so we ought to reject an economics that makes our desire, whether real or imagined, for unlimited goods its foundation.