Tuesday, February 21, 2006

Revealed Preferences

Economics has an advantage over the other social sciences because it recognizes that people reveal their preferences through their actions. If a person is confronted with two options, Option A and Option B, and the person chooses Option A, then we know that he prefers Option A to it's alternative.

This does not mean that Option A is the ideal choice in a world of no scarcity or even that it is an enjoyable choice. It may be the best from a set of bad options. Economics simply recognizes that given the individual's set of preferences (based on subjective valuation), he preferred one over the other.

While this may seem a rather trite topic for those immersed in economics, it is often completely overlooked by scholars in other disciplines. For example, Bruce Shelley writes in his book on church history about the changing fortunes of the workers during the Industrial Revolution:

The Industrial Revolution greatly increased the wealth of mankind, but it brought a host of evils for the workers massed together in the ever expanding factories of European and American cities.
Shelley goes on to list a variety of "social ills" such as dangerous working conditions, low pay, cramped living quarters, long hours, etc. I gladly grant that these are generally not preferable. Most people, including myself, don't want to work fifteen-hour days in a dirty, dangerous factory for a pittance. However, that doesn't automatically make such a situation an "evil" one.

There was, as Shelley notes, a great immigration into cities from the rural area during this time, and this should tell him something very important. That is, although factory work and city life was not ideal, it was better than the alternatives according to the preferences of the workers. They believed that they were better off in the city than if they had stayed in the country.

Seen from the individual's perspective, these "social evils" evaporate into thin air. In actuality, it was these social evils that were making the everyday worker better off.

1 comment:

David said...

A lesson sorely needed for patronizing westerners who decry the advance of factory and warehouse jobs for people in developing countries.