Theories of the Economy
We all need material resources. On the most basic level, physical survival requires the
big three: food, shelter, and clothing. But an adequate quality of life requires much
more, including transportation, communication, education, medical care, and enter-
tainment. A vast array of goods and services is available to meet these needs: cars,
cell phones, college classes, day care, diapers, DVD players, magazine subscriptions,
microwave ovens, postage stamps, and psychiatric appointments. One person or
household could never produce everything, so we must organize collectively to
produce and distribute resources. The result is an economy.
Aneconomyis a set of institutions and relationships that manages natural
resources, manufactured goods, and professional services. These resources, goods,
and services are called capital.The major economic theories of the world diverge
on the question of whether the people serve the economy or the economy serves the
people. British empiricists like John Locke (1676) and Thomas Hobbes (1658)
pointed out in the seventeenth century that resources are limited, and no economy
has yet been able to ensure that every member of the society has food, shelter, and
clothing, let alone everything necessary for an adequate quality of life. Therefore
people must compete with each other. We are motivated by rational self-interest, a
desire to meet our own material needs even though we see others going without.
Economies form when individuals band together to protect their common resources
from outsiders or to make their competition more congenial and predictable. If
asked why they work, they will answer, like the janitor and sales clerk: for the
money.
Locke and Hobbes stressed separation, competition, and individual isolation as
results of rational self-interest. But other theorists, like Adam Smith (1776), argued
that social life involves much more than individuals striving for social gain: People
cooperate as often as they compete. There are many good samaritans, many altru-
istic acts, many collective struggles over fairness and justice. If you ask them why
they work, they will answer, like the photojournalist and the trial lawyer: for the
satisfaction.
Karl Marx (1848) believed that both answers were true—and therein lay the
problem. Marx believed that an economic system based on private property divided
people into two unequal and competing classes: The upper class worked because they
achieved satisfaction by owning all the goods and services and controlling politics and
social life. The working class worked because they had to—because they were, in
effect, slaves to the upper classes. Eventually, he believed, if the workers controlled
and owned everything, everyone would work for the pleasure of it.
Max Weber ([1904] 2001) believed that capitalism originated in a desire for
personal spiritual fulfillment and to “make the world a better place,” while
Émile Durkheim ([1897] 1997) argued that in modern societies, we are all inter-
dependent: Every person must depend on hundreds or thousands of others for
goods and services. Thus, economies are not an isolating, divisive force at all, but
a unifying force. They foster strong social ties and create social cohesion, or organic
solidarity.
There is some truth to all these theories. Every economic system requires some
degree of competition and some degree of cooperation. An economy is essential to
the common good, but it also serves to emphasize or exacerbate the gap between rich
and poor, middle class and working class, having a house and having an apartment,
driving a car and taking the bus. It produces both identity and inequality.418 CHAPTER 13ECONOMY AND WORK