Economics 012—Illustrating the
Core Insights of Economic Analysis
Bingyuan Hsiung

I thank the helpful comments of Patrick Gunning, Frank Lorne and Kenneth Chan.
Professor, Department of Economics, National Taiwan University, Taipei, Taiwan. E-mail address:
hsiung@ntu.edu.tw.

Economics 012—Illustrating the
Core Insights of Economic Analysis
Abstract
Economists generally agree that economic analysis constitutes a unique worldview,
but there seems to be no consensus about the worldview itself. This paper attempts to
outline a possible configuration of the worldview by proposing four fundamental
insights of economics. The insights satisfy two criteria: they should be compatible
with the mainstream of economics, and they should correspond to the daily
experiences of the general public and be useful to them. The four insights can be
represented by the numbers of 0, 1, and 2:
(1) ○>0 ;
(2) 1+1<2;
(3) 1+1>2;
(4) 0 0 。
First, ○>0; it means that man is rational and self-interested. Secondly, 1+1<2; it
suggests that whatever is is not necessarily efficient, but there is a reason for it. Third,
1+1>2; it argues that for something good to occur, the supporting conditions must be
in place. Fourth, 0 0; it implies that the meanings of something are fulfilled by other,
relevant things. Abstractly speaking, the first insight is the starting point of economic
analysis. The second and third insights represent respectively an unsatisfactory and a
satisfactory situation; for either situation, economic analysis can try to advance an
explanation. Finally, the fourth insight illustrates on the one hand the core concept of
opportunity cost and on the other hand how meanings of things are determined in
general. It also implies that given the status quo, a potentially better alternative can
and should be looked for consciously.
Keywords: worldview of economics, rationality, self-interest, equilibrium,
inefficiency.
JEL classification: A2, B0.
1
0. Introduction
The contrast between economics and the other social sciences is stark and
interesting. On the one hand, economics has been labeled as the queen of social
sciences, has moved beyond its traditional boundaries in recent decades, and has been
criticized as economic imperialism.1 By contrast, the other social sciences such as
sociology, political science, and law do not seem to share either a similar self-image,
an aspiration for outward expansion, or an irritating status.2 On the other hand,
economists seem to generally agree that their trade implies a unique perspective, one
that can be termed the worldview of economics. 3 There does not seem to be a
corresponding consensus among scholars in the other social sciences.
While there is general agreement among economists that economics is associated
with a unique worldview, there is no consensus about the worldview itself. There are,
however, some configurations of such a worldview. For example, the simplest way is
to summarize economics with a one-liner, so as to capture the spirit of the discipline.
Nobel Laureate Friedman’s famous quote that “There is no free lunch” is one such
expression; similarly, another laureate Modigliani suggests that “Don’t put all your
eggs in one basket;” and still a third laureate Buchanan indicates that “Bureaucrats are
no angels.” If economics is viewed as a pyramid, with practical problems as the base,
models and theories as the middle part, and core analytical concepts as the pinnacle,
then the three laureates have summarized the essence of the pyramid from different
angles. It would be an interesting exercise to reconcile the three summary remarks by
uncovering the presumably identical underlying logic. But the endeavor is not
attempted in this paper, through a possible hint for such an exercise is suggested at the
end of the present analysis.4
Compared with the laureates’ one-liners, there are alternative ways to outline the
worldview of economics. In particular, in a few popular textbooks of economics, the
authors would put forward ten theorems or twelve fundamental conclusions of
economics in the beginning of the book. 5 The core theorems/conclusions would
1
See Stigler (1984), Hirshleifer (1985), Demsetz (1997), and Lazear (2000) .
See the discussions in Swedberg (1990) and Miller (1997).
3
An interesting indication is the contrast between a book Becker published in 1976 and the Nobel
speech he delivered in 1992. The book, Becker (1976), is titled, An Economic Approach to Human
Behavior, and the speech, Becker (1993), has the title of “The Economic Way of Looking at Behavior.”
His confidence in the economic approach has obviously progressed with time.
4
Taylor (1995, p. 6) begins his economics textbook by stating that “Economics is a way of thinking.”
Frank (1991) has the first chapter of his textbook titled “Thinking Like an Economist.” The popular
one-semester economics textbook by Heynes et al. (2003) is simply titled The Economic Way of
Thinking.
5
See, for instance, Mankiw (2004) and Frank and Bernanke (2001).
2
2
include the following concepts: cost, scarcity, efficiency, equilibrium, comparative
advantage, etc. The concepts constitute the major analytical ingredients of economics,
and they have been used to illustrate the unique perspective of the economics
worldview.
The present paper attempts to illustrate the core insights of economic analysis
from a different angle. Specifically, four fundamental insights will be proposed as the
crystals to represent the economics worldview. Compared to the one-liners and the
ten/twelve conclusions, this is an intermediate approach. The approach is motivated
by two main considerations. First, the so-called fundamental insights must be
compatible with the mainstream of economics, as judged by the majority of
economists. Secondly, they must correspond to the daily experiences of the general
public and be comprehensible to them; as such the fundamental insights could be of
practical use to the general public. That is, in addition to the economists and
economics majors, the general public would be able to, through these core insights,
get hold of the economics worldview and apply it in their daily lives.6
To emphasize the linkage between the general public and the four insights is to
echo the position that economics implies a particular worldview. Economists
generally believe that economic analysis is capable of explaining social phenomena
effectively, and that it can further help improve the efficiency of resource allocation.
Economists, however, have always preached to the policy-makers, for if the powerful
policy-makers would accept policy recommendations made by the economists, public
policies would certainly become more effective. The number of policy-makers is
actually limited, and they often face cost/benefit considerations that are beyond the
grasp of economists. As such, chances are that they would accept economists’
preaching not very often. By contrast, a more practical target audience for the
economists may be the general public instead. If they could somehow accept the
worldview of economics, the increase in efficiency of resource allocation would
obviously be much more significant.7
Finally, the numbers 0, 1, and 2 in the title have two different interpretations. For
one, Economics 0 1 2 is similar to Economics a b c; the title refers to the basic
elements, or an introductory illustration, of economics. For the other, Economics 0 1 2
6
Lipsey (2001, p. 172) suggests that most of the major findings in economics are qualitative rather
than quantitative. In addition, Posner (1997, p. 14) indicates that “The heart of economics is insight
rather than technique.” As such, the core insights of economics should be compatible to the daily
experience of the general public. For a discussion of the nature of economics, see McCloskey (1985).
7
Concerning teaching economics to both the students and the general public, see Becker and Watts
(1998), Boettke (1997), and Knoedler and Underwood (2003). Alternatively, Becker (2000) argued that
in teaching economics there are three questions to be answered: what to teach, how to teach, and
evaluations teaching. The present paper can be seen as an attempt to answer the first two questions.
3
implies that the numbers 0, 1, and 2 will actually be used to illustrate the core insights
of economics.
1. ０> 0
Theory
The first fundamental insight is expressed by two zeros of different sizes. In words,
the relationship refers to the simple observation that man is rational and
self-interested.
For economists, there are two different interpretations of the statement: a strong
form and a weak form. The strong form is that the statement is a factual observation;
the two characteristics actually capture the properties of man. The weak form, by
contrast, takes the statement as only an assumption. With the assumption as a starting
point, a powerful analytical framework can be developed. Those who stand for the
strong form would cite Dawkins (1976), The Selfish Genes, to back up their claim.
Being rational and self-interested would make man more competitive, and would
therefore increase the probability of survival in the game of nature. Given Darwin’s
iron law of survival of the fittest, the two characteristics are the product of a long
evolutionary process. Within the economics profession, the strong form is not without
its opponents, but their differences are only academic, having nothing to do with the
general public. What is relevant to the general public is not whether the position is
theoretically sound but whether it is useful. That man is rational and self-interested is
one position, and that man is sometimes rational, self-interested and sometimes not is
an alternative position; there are certainly still other positions. As such, if the
statement that man is rational and self-interested is taken as an assumption, a working
hypothesis that may not be literally true, then what is the good of taking this
assumption as the starting point? Put alternatively, what is the good of assuming the
weak form?
There are at least two obvious criteria to judge a theory. Nobel Laureate Friedman
(1953) famously stipulates that a good theory is one that predicts well, soundness of
the assumptions is not critical. Another laureate Coase (1978) argues that theory
“serves as a base for thinking,” implying that a good theory is one that helps one to
organize one’s thought and to reason. There is a subtle but important difference
between the two criteria, however. Friedman’s criterion implies that a theory should
be judged by whether it can make predictions ex ante, while Coase’s criterion implies
that a theory should be able to explain what has occurred ex post. For professional
economists, Friedman’s criterion may be more important, for the simple reason that it
makes more sense to be able to predict, say, that inflation is coming than to explain it
4
afterward. That is, a good theory is closer to a foresight than a hindsight.
For the
general public, by contrast, theory is in a sense more like conventional wisdom that
can help provide guidance when facing various situations. But one has to comprehend
the particular situation correctly first in order to respond properly; as such explaining
is more important than predicting for the general public in their daily lives. If by
starting from the proposition that man is rational and self-interested one is able to
better explain what one faces, then it is a good proposition/assumption. In this
interpretation, the criterion suggested by Coase seems to serve the general public
better.
Given the starting point that man is rational and self-interested, either as a fact or
as an assumption, economists have devised a utility function to represent the human
being, and have set some constraints on the utility function to capture the
characteristics of rationality and self-interest. Once the human being is represented, or
more precisely replaced, by a utility function, economists can then manipulate
mathematics to analyze human behavior and social phenomena. The elegance and
precision of mathematics seem to imply that to a significant degree at least the
analysis being carried out is describing an objective fact; when pushed to the roots,
however, both rationality and self-interest are subjective in nature.8
Specifically, being rational means that man is able to reason and will reason in
facing the environment. For those people who are drunk, who have serious brain
damage, or who are mentally ill, they are excluded from the category of being rational,
as they are not able to think properly. Their behavior would be more relevant not to
economists but to psychologists or neurologists. Other than these people who are
incapable of thinking, all other people are seen as rational, and therefore are the target
of economists’ analytical apparatus.9 Alternatively, being self-interested means that
man will pursue what he considers to be his well-beings. Concerning this human
characteristic, one common criticism is that, whether one is self-interested or not at
birth, one should be altruistic. The problem, however, is that once the proposition is
accepted, then how is one going to deal with various personal relations? For instance,
consider the following groups of people: family members, relatives, friends,
colleagues, and strangers. The fact that we treat these different groups of people
differently speaks for itself---the different groups illuminate indirectly how the
concept of one’s self has been structured. The closeness we feel towards people in
these different groups is different, implying that we actually arrange the altruistic
element based on self-interested considerations! On a deeper level, a belief that
8
Buchanan (1969) has a detailed discussion about the subjective nature of values.
There are some people in the mental institutions who claim that are perfectly normal, but their world,
as judged by others, is presumably an imaginary one.
9
5
something should be arranged in a certain way, once internalized, becomes a
behavioral rule that affects the degree of freedom in one’s behavior. By affiliating to
the rule, however, one reduces behavioral cost in thinking and in making decisions.
As such, the fact that one has moral beliefs can also be explained from the perspective
of one’s self-interested considerations. A more critical, interesting question one may
ask is why would man impose constraints on him? What purposes does it serve in
adopting the various constraints?
If man is rational, self-interested and behaves accordingly, then what is irrational
and/or non-self-interested behavior? Is the position becoming a tautology that while it
seems to be covering everything it is actually not covering anything? For this
legitimate query, one only has to think about two concrete choices one faces: to spend
the evening, one could be going to the movie or staying home and watching TV. If,
after some thought, it is decided that one would go to the movie, then the other
alternative of staying home simply disappears. As such, going to the movie is a
chosen, observable behavior, while staying home is a deserted, unobservable behavior.
This is turn implies that, for this individual, going to the movie has a higher degree on
his scale of being rational and self-interested. By contrast, the possibility of staying
home and watching TV does exist; the possibility has a lower reading on the scale of
rationality and self-interest, and it is not observable. 10
Evidence
Behaviorally speaking, with the characteristics of being rational and
self-interested, man would act in ways that are familiar to us all. Everybody would
like to live in a spacious and beautiful house, have a job that pays well but demands
little, and pick the bigger, sweeter, fresher, better-looking, and juicier fruits from the
fruit stand. Man would consciously and unconsciously behave in ways that hopefully
would enhance his utility.11
In essence, however, both rationality and self-interest are subjective characteristics.
Therefore, whether a certain behavior satisfies the two characteristics has to be
interpreted properly, i.e., from the perspective of the individual concerned. For
instance, devoting oneself to non-profit, volunteer work may seem extraordinary to
others, but the person may get a sense of satisfaction in so doing; similarly, Mother
Teresa’s deed is rational and self-interested in the sense that she is purposefully
Buchanan and Tullock (1962) suggest that “We do not have a theory for the world of angels.” Posner
(2003, p. 4) argues that the human begins are just “clever animals.” Both remarks illustrate that
economists tend to have a realistic perception about man.
11
As such, the ○>0 set-up is just a simplified expression; one would hope to have as little noise as
possible in one’s residential area. Similarly, for one’s weight it is not always true that bigger is better.
10
6
pursuing a goal chosen by herself. Alternatively, it is very true that drug addicts may
be aware of the long-term impact of their addiction, but immediate satisfaction carries
more weight than what is going to happen in the distant, uncertain future. People who
commit suicide are not irrational or non-self-interested; they simply consider the
burden of life to be too heavy to bear any longer, and therefore choose a measure to
rid themselves of the burden.12 For people who set fire on themselves or set off
bombs tied to their bodies, they are taking an extreme measure that is inconceivable to
most people; but for people who are pursuing a sacred goal and/or trying to be a
martyr, the extreme measure may become less onerous. Nevertheless, even for these
people who behave in very uncommon ways, there is an aspect often neglected. When
a person sets himself on fire, or jumps into a treacherous stream or rushes into a
burning house to try to save someone, he is not likely to be aware of the dangers
and/or pains he has to endure. If this person luckily survives the ordeal, he may very
well respond differently when facing the same situation for the second time. In a
sense, this is similar to the contrast that school children would keep watching cartoons
on TV or keep swallowing chocolate, while not many adults would indulge
themselves in the same way. The reason is simple. Both school children and
grown-ups are rational and self-interested, but they have been through different
experiences, accumulated different data sets, and thus adopted different modes of
behavior.
Interestingly, under certain circumstances, there seems to be a certain behavior
that violates the axiom of bigger being better or beautiful being better. It has been
observed that in front of the egg stand in a conventional market, there are people who
purposely pick not the bigger eggs but the smaller ones. This should make perfect
sense if one is a restaurant owner who will re-sell the eggs, by the number, for
breakfast. 13 In addition, a Ph.D. in economics has suggested that she would
occasionally choose the smaller, uglier fruits when shopping. When pushed for her
rationale, she came with up two considerations: First, sometimes she does not want to
go with the crowd; secondly, when picking the smaller and less attractive ones, she
would tell herself that to yield is to gain. The logic underlying these two
considerations is, without any exaggeration, highly rational and self-interested. 14
And one is to be reminded that she indicated that she would do so only occasionally;
one has to wonder whether she would go for the less attractive alternative in buying a
house or finding a partner!
12
Hamermesh and Soos (1974) provide an economic theory of suicide within the neo-classical
framework.
13
If one believes that smaller fruits are more tasty, then one would certainly pick the smaller ones. But
this only proves that man is indeed rational and self-interested.
14
It is interesting to ponder whether she is on the “to yield ” part or on the “ to gain” part in so doing.
7
The general public seem to have the impression or beliefs that rationality and
sentimentality, or reason and passion, are two conflicting characteristics of the human
beings that are fixed at birth. Frank (1988) has argued otherwise convincingly,
however. For people who are known to flush when telling a lie, not flushing is a signal
that he is telling the truth. As such, the emotional characteristic, once adopted,
becomes an asset that is generally speaking beneficial to the individual.15 The fact
that passions are controlled within reason can be illustrated with a more worldly
example. For boys and girls, they usually conduct themselves very differently for their
first date and for the tenth date---with the same person---concerning their facial
expressions, the words they use, etc. One straightforward explanation is that with
diminishing marginal utility, they would naturally have different behaviors in the two
occasions. But an alternative, one would say a more convincing, explanation is that to
err in the first date is human, but too costly. Moreover, if one errs in the first date, it is
not likely to have the tenth. Therefore, it is prudent, read rational and self-interested,
to control one’s emotions properly in the first date.
The degree of the rationality and self-interest characteristics may far exceed as
commonly understood. Cosmides and Tooby (1994) argue forcefully that, shaped by
the long evolutionary process, the structure of rationality and self-interest is actually
regulated by forces of rationality and self-interest at a higher level. Specifically, for
those incidents that occur on a daily basis, a person would have the corresponding
ability to respond properly and effectively; by contrast, for those incidents that rarely
occur or occur every ten, twenty years, or even longer, a person would not have the
ability to deal with the occurrence properly. The reason is simple. For those rare
incidents it does not make sense, i.e., based on rational and self-interested
considerations, to equip oneself with the ability and incur the maintenance costs.
Consequently, when finding oneself in an emergency, for instance, one’s car being hit
by another car or one’s house has caught fire, one often loses control and becomes
panic; by contrast, ambulance personnel and fire fighters would deal with the
emergencies calmly and professionally. It should be evident that it is reasonable for a
society to have professional fire fighters and ambulance personnel, at least in
relatively developed societies, but the study by Cosmides and Tooby suggests that it
may not make sense, abstractly speaking, to maintain fire fighters and ambulance
personnel within an individual.16 The contrast echoes the structure of rationality and
15
Frank (1988), titled appropriately Passions within Reason, contains a detailed analysis about the
relation between emotions and rationality. In addition, Frey (1992) discusses many relevant case
studies.
16
The term rationally bounded rationality, suggested by Buchanan (1994), delicately illustrates the
idea in a different way.
8
self-interest embedded in man, as seen in a long, evolutionary perspective. In short,
man is rational and self-interested.
2. 1+1<2
Theory
Given that man is rational and self-interested, what would be the scenario
resulting from interpersonal interaction? For economists, this is an intellectually
challenging question.
As is well known, one trademark of the Chicago school is the belief that whatever
is, is efficient.17 But if that is the case, would one describe ghettos and poverty traps
as being efficient? Cheung (2001, 2002), among others, has revised the position to
become whatever is, is constrained efficient. But, again, to describe rent seeking,
cronyism and corruption, phenomena that North (1990) termed low equilibria, as
efficient is to have a gross distortion of words or senses. By contrast, an alternative,
more persuasive position is not to touch on the efficiency issue directly, but to focus
on analyzing and explaining various phenomena. That is, when it is observed, for
instance, that one plus one turns out to be less than two, it is better not to advance a
value judgment first, but to try to explain what has happened and why. Whatever is is
not necessarily efficient, but there is a reason for it.
Given that man is rational and self-interested, either as a fact or an assumption,
each and every individual will behave accordingly, taking action in ways that they
believe would serve their interest. Behaviors based on separate, individually rational
and self-interested considerations, however, may not lead to a satisfactory outcome in
the aggregate. That is, individual rationality does not necessarily lead to group
rationality. This is one of the most important insights of economics, and has been
verified by social scientists through numerous studies. Just to give a few well-known
examples: the study of the tragedy of the commons by Hardin (1968), the work on the
logic of collective action by Olson (1965), the inquiry of the emergence of joint
property rights by Libecap (1989), and the case study of common pool resources by
Ostrom (1990). The issues may assume different configurations, but the underlying
rationale as well as the conclusions reached have essentially been the same. The major
contribution made by the social scientists has been to identify the link between macro
phenomena and the micro foundations, and to explain the reason why the link often
tends to be weak and fragile.
17
Peltzman (1976) is representative of the Chicago school; he argues that various regulations are in
fact an equilibrium brought about by the demand (the special interest groups) and the supply (the
government agencies).
9
The examples just mentioned are mostly related to the issue of public goods, of
which free-rider usually occupies an important place. Alternatively, similar and
seemingly puzzling phenomena have been studied in a different context that is related
to information. Information economics has become an active research area since the
1960s and has produced fascinating results. What seems to be an odd measure or a
strange phenomenon can often be given an intuitive and straightforward interpretation
from the perspective of information. A study of the dysfunctional mechanism provides
a telling example. When asymmetric information or incomplete information is
prevalent, Arnott and Stiglitz (1991) reach three major conclusions about economic
activities. In particular, first, even with potential buyers and potential sellers,
transactions may not take place; this echoes the findings of Akerlof (1970) about the
lemon market. Secondly, even when transactions do take place, there may be unusual
measures such as quotas, rationing, or ceilings on price/quantity; this corresponds to
the characteristics of the job market identified in Spence (1973). Third, to overcome
the transaction barriers on price and/or quantity, non-market measures would be
developed, but good intentions do not always lead to satisfactory results; these
non-market measures are often dysfunctional. They tend to do more harm than good.
It is very true that economists have not solved all the puzzles concerning human
behavior or social phenomena, as many challenges are waiting to be answered. For
instance, in elections the chances that one casts the deciding vote are extremely slim,
and going to vote would incur practical costs, but still a significant percentage of the
electrode would turn out and vote. The cost of voting seems to outweigh its benefit by
a wide margin, so why bother to vote? This is the famous voting paradox and
economists are still looking for a satisfactory answer that would command general
consent.18 However, whatever is is not necessarily reasonable, but there is a reason
for it. The responsibility of the economists is to try to find out, taking as the starting
point that man is rational and self-interested, the missing link between micro behavior
and macro phenomena.
Evidence
If one is able to account for what one observes, however unusual, odd, or even
weird it may be, then one has less need to resort to emotions in response. In the
sociological literature, stereotyping is often given a negative connotation, as it means
that one is labeling other people unfairly or incorrectly.19 Economic analysis, however,
18
See, for example, the discussion in Feddersen (2004).
For instance, the sociologist Halsey (2004) argues that “The notion of a stereotype is generally
negative. … It is narrowly rooted in prejudice and irrational fear.” However, in discussing the uses and
misuses of economic reasoning in sociology, sociologists Oberschall and Leifer (1986, p. 245) state
clearly that “Stereotyping﹝can be﹞viewed as a cheap way to avoid the high costs of obtaining
19
10
would suggest a neutral and straightforward interpretation about stereotyping.
Specifically, when facing the environment, one has control over only limited
information, and as such forming a first impression (an alternative way of describing
stereotyping) is beneficial to the individual concerned. More precisely, stereotyping
involves three steps: perceiving a person, an incident, or an item; assigning meanings
to the person, the incident, or the item; and then having a behavioral response.
Interpreted in this way, virtually everyone is stereotyping almost continuously in one’s
daily life. Consider a very ordinary occurrence: while walking along the pavement, a
person comes towards you. It is only natural that you assume that the person is just a
normal pedestrian and not a gang member who is going to rob you with a knife. You
stereotyped the person as a normal pedestrian and it worked in almost all such cases.
Consider further that a large part of the people we meet in our lives may just be a
one-shot experience and not a repeated game, it is reasonable to form a skin deep
perception about these persons who are likely to be inconsequential. In fact, it is often
the case that an individual has no way of telling whether he is going to meet the
person he is dealing with again, or whether he would have the opportunity to revise or
modify his impression about this person in the future; what is important, however, is
to deal with the current situation properly, and stereotyping is arguably a very
efficient way to accomplish the task. What is is not necessarily efficient or reasonable,
but there is a reason for it.
The public goods problems are also quite prevalent in our daily lives. Imagine a
scenario that, to get tickets for a post-season playoff game, a long line has been
formed in front of the box office. All of a sudden, a person coming from no-where
appears and jumps the queue. There are no police or security personnel around to
intervene. If the person is small in size, then understandably voices would be raised to
force the person to back out. If, however, the person is seven-foot tall, weighs three
hundred pounds, and wears a vicious smile on his face, a similar thought might go
through many people: If only someone else speaks out, I would immediately join in;
but I would not be the first to speak out. The reason is fairly simple. The first person
who speaks out is going to bear the direct cost of confrontation, not to say some
potentially harmful consequences, while the others could simply free ride. As such,
the cost of being the first to speak out is high while the benefit (discounted by the
free-riders) is low; why would one be a fool to take the bunt? It might be suggested
that regardless of the queue-jumper’s size, if one were present, one would definitely
speak out; or it might be suggested also that in Western countries, the rule of law has
been deeply ingrained so the queue-jumper would always be sanctioned by the other
people in the line. Queue jumping, however, is just an example, as there are many
accurate information.”
11
similar scenarios one faces in one’s life or in work. Are there not always a few people
around whose behaviors are either against the law (e.g., taking drugs or hiring illegal
immigrants) or against the generally accepted modes of behavior (e.g., violating the
dressing code or behaving indecently)? Facing these queue-jumpers, how many
people would disregard personal cost and be the whistleblower consistently? The
three women who brought about the downfall of Enron became the cover story of
Times for good reasons. Therefore, the perhaps not very pleasant fact is that for the
injustice that is occurring in distance, it is easy for one to be vehement and indignant;
but for the injustice that is showing up nearby, one tends to be more accommodating.
The driving force is still cost/benefit considerations, for man is rational and
self-interested.20
Alternatively, it has been observed that the average age of getting married has
increased in recent decades, especially in the metropolitan areas. Concurrently, the
number of singles, of both sexes, is steadily increasing. An intuitive and
straightforward explanation is that in a traditional society, an agricultural village for
example, husband and wife are partners in all ranges of activities. They spend most
the time together and do most of the things together. They seem to be natural
companions, but appearances can be deceiving. In a metropolitan area of the
twenty-first century, both man and woman have many opportunities to meet people of
either sex. As a result, some enterprising men and women have gradually developed
for themselves a number of what can be termed functional partners. To prepare for
exams, one has a few friends who work together for the exams; for career, there is a
different group of close friends; for leisure and entertainment, still another group of
friends would share the many happy hours together. For different activities, one has
different partners. Resources, both material and human, in the metropolitan area have
enabled one to have not just one but many partners, each as a companion for one or
more activities. The term partner has been given new meanings, implying a high
degree of specialization and division of labor.
Finally, in oriental societies, business is often developed along, and constrained by,
the personal web. In addition to family relatives associated by blood, acquaintances
from the same village, the same schools, the same county, or even the same province
constitute importance business contacts. Dealing with friends is profitable and prudent,
for among friends terms can be flexible and problems solvable.21 Moreover, it is also
common for one to have pseudo-parents, literally termed Dry-father and Dry-mother
20
Coleman (1990) discussed a famous case in the sociological literature. A young woman walking
alone late at night was attacked by a man. As she was repeated stabbed, she cried out for help.
Hundreds of people living nearby heard her cries for help but no one called the police. See also Manski
(2000).
21
Landa (1994) has a detailed discussion about the prevalent practice.
12
in Chinese. Dry parents are similar to God parents in the West, but there are
differences. The dry parents in the East are almost identical to natural parents, both in
assuming responsibilities and in enjoying respect as well as emotional rewards. But
why would one have only dry parents and not dry uncles or dry aunts? The reason
should be obvious. If one is to find a tool, it certainly makes sense to get oneself a
better tool; dry parents are more handy and useful than dry uncles/aunts. Whatever is
is not necessarily reasonable, but there is a reason for it.
3. 1+1>2
Theory
A major reason for studying inefficient, unreasonable, or unsatisfactory
phenomena is that hopefully an efficient, reasonable, or satisfactory scenario would
appear instead. For good things to come about, however, the supporting conditions
must be in place.
One of the most important insights of economic analysis is that through an
uneventful transaction, mutual gains are realized by the parties. In an abstract, if not
literary, sense, it is a situation of one plus one being greater than two. Moreover,
through voluntary transaction, resources would gradually flow to the most-valued
destination. Voluntary transaction, however, is only part of the whole range of
economic activities. In his Nobel speech, Coase (1992) chose to illustrate the
importance of “The institutional structure of production;” he preached to the
economics profession that in analyzing firms, economists should not limit their
attention to the firms only, for firms are obviously influenced by laws, regulations,
trade customs, and other factors in conducting their business. To really understand
firms, one has to go beyond the production functions, easily depicted on the
blackboard with symbols, numbers, and equations, and to study firms as they actually
are in the real world.22 Coase’s insight can be combined with that of North concerning
his study of institutions and economic development.
In particular, after working on the subjects for decades, North (1990) has come to
the conclusion: What determines whether a society would prosper, stagnate, or decline
in the long-run is not the natural resources, capital, or technology it has, but the
institutional matrix that has been developed over time. With a good institutional
matrix, people would be willing to engage in productive activities; economic growth
will be maintained, and members of the society would all enjoy the fruits of prosperity.
22
Even though Coase argues forcefully for empirical studies, he himself does not seem to have been
involved in many fieldworks; his classic on the lighthouse was based on the historical data he studied
in the library.
13
By contrast, without a satisfactory institutional matrix, people would not be attracted
to productive activities and the society would stagnate or even decline. As such,
North’s insight can be seen as calling for attention to studying the institutional
structure of economic activities or even more generally the institutional structure of
human behavior. The underlying logic should be evident. To reap delicious fruits, a
fertile soil, abundant sunshine, and sufficient rainfall would be needed. Only with the
supporting conditions in place would a beneficial outcome be achieved. Moreover,
this understanding actually points to a unique but powerful analytical approach.
Specifically, in both economic and non-economic spheres, if a certain state is
stable and repeats itself, then it is in equilibrium. Regardless of the equilibrium’s
particular configuration or size, one could move one level lower to identify the major
supporting conditions for the equilibrium. If it is a high equilibrium, or a good
equilibrium more plainly, then the major conditions thus identified constitute the
pillars that support and sustain the satisfactory state. A change of one or more of the
pillars may modify the equilibrium or even destroy it. If it is a low equilibrium, then
the major supporting conditions are the foundations in sustaining the unsatisfactory
state. Unless someone has control over enough resources to affect one or more of the
foundational blocks, however, the equilibrium will persist, even it is perceived to be a
non-satisfactory one. The analytical approach just suggested is in essence a backward
approach, and is in contrast to the forward approach as normally practiced or taught,
for example, in economics textbooks. The forward approach is to directly stipulate,
perhaps through a definitional equation, the major components of a structure. For
instance, in studying the economy, national income is defined first as the sum of
consumption and investment, i.e., Y=C+I; add the government (G) and international
trade (X-M), then the structure of the whole economy is properly explained.
Retrospectively speaking, identifying the structure of the economy and its major
components has been the result of a long series of studies, and the end product of the
forward approach and that of the backward approach are in fact identical. When
bringing the analytical framework of economics to the general public, nevertheless,
the backward approach is evidently more relevant, and its process as well as the
underlying rationale should be properly illustrated and emphasized.
Before moving to the examples below, one final argument would amply illustrate
the above reasoning. Coase (1959, 1998) first proposed the measure of auctioning off
broadcasting and TV frequencies several decades ago. At the time, the proposal was
seen as “some kind of a joke” by the policy-makers, a theoretical conjecture invented
by some egg-head living in the ivory tower. A few decades later, however, the US
government is conducting auctions for not only electronic frequencies but also
14
pollution rights. The auctioning measure has many advantages, an obvious if not the
most important one is that it brings in significant revenues for the US government.
The morale of this is that the supporting conditions for auctioning were not present a
few decades ago, but they are fully in place presently. Coase’s proposal is not a joke
now, but a valuable lesson! For something good to emerge, the supporting conditions
must be in place; good things would not simply occur in a vacuum or drop from the
sky!
Evidence
The idea that 1+1>2 can be illustrated with a few homely examples. To begin with,
if a person wants his office to be tidy, it will not be difficult to cultivate such a good
thing. It takes perhaps only fifteen minutes everyday to clean up the place. A slightly
more complicated scenario is that a couple hopes to have an intimate relationship, a
close bond. Compared to the case that only a single individual is involved, the
situation is a bit difficult now, as two individuals are involved. To bring about the
close relationship hoped for, then, is to construct the supporting conditions needed. In
addition to taking care of one’s own business, each cares about the other and stands by
ready to give a helping hand. With such efforts by both sides, striking and maintaining
an intimate bond between the couple is not going to be too difficult a task. Consider
next the case that a large family has, say, eight members living under the same roof.
For them to be a seamless group is certainly more demanding. Then imagine a
company or an agency having twenty colleagues working together, a residential
building of two hundred units, a community of two thousand residents, a metropolitan
area of six-million people, and finally a planet of fifty billion population. As more
people and larger geographical areas are involved, the supporting conditions for a
satisfactory state become more and more difficult to come by. As such, for good
things to come about, the supporting conditions are needed. The more refined an
equilibrium is, the more delicate the supporting conditions are needed.
This insight has practical implications for both a person and a society. In particular,
for an individual, one faces various dimensions in his life: work, family, health,
friendship, etc, and each category can be further divided into more detailed
sub-categories. Given this structure, one can ask oneself that, of all these categories
and sub-categories, which category or categories would one consider to be the most
satisfactory, the most successful, or the most shinny? What are the reasons, or
supporting conditions, that would enable one to enjoy the fruits? By identifying the
underlying reasons, one would be able to verify the insight implicit in the 1+1>2 setup,
and it also reminds one to make choices more consciously. The implication is
straightforward. The fact that some of the categories are not in a satisfactory state
15
indicates that there must be some corresponding factors to sustain the unsatisfactory
state. With a careful analysis, following the backward approach as discussed
previously, one might reach the conclusion that, for the resources (time and energy)
one has under control presently, it is not likely that one would be able to turn around
the unsatisfactory state; consequently, one might decide that maintaining a minimal
level of attention might be warranted. Instead, one can shift one’s attention to the
categories that one is better at, and devote one’s energy to those areas.
Alternatively, the insight that good things and the supporting conditions come
together also has implications for a society. Take McDonald’s and the American style
democracy as examples, for they help illustrate the insight acutely. As popular as the
Coke, the McDonald’s enjoys great popularity all over the world. Its branches are
spreading across all continents, with over 31,000 stores in 121 countries presently. 23
When the McDonald’s entered the Third World and developing countries, it brought
about an immediate and significant impact to the traditional restaurants and food
services. As the McDonald’s has a well-developed standard operating procedure, its
quality control of food, seating arrangement, and even the way to greet customers
have influenced the local practices, and for the better. As such, the McDonald’s has
unintentionally become a factor that initiated a silent revolution for the food services
in many localities. It is a clear-out case that a good value has gradually been formed
and spread.
By contrast, the American style democracy has told a very different story. After
the Second World War, a number of African countries have been able to throw away
the colonial past and become independent. Once they had their fate in their own hands,
it was decided that the American style democracy should be adopted, i.e., holding free
elections and having representative bodies. It took only a few years, however, for
troubles to emerge and take over; one by one, either civil war erupted or a strong man
has become a dictator, or sadly both. The contrast is alarming as well as appalling.
The American style democracy has fostered a superpower in North America; in other
parts of the world, however, it has often failed miserably and has actually become a
source of problems. The reason is in fact simple. It took the US several hundred years
to develop not only its institutional structure but also the way of thinking of the
general public to support democracy. In other parts of the world, the traditional, and
generally accepted, governance structure might have been aristocracy or regional
tribes. Concerning both the institutional structure and the people’s corresponding way
of thinking, the discrepancy between the American style democracy and the
traditional political structures is simply too great. A forced transplantation is likely to
23
See http://www.mcdonalds.com.tw
16
be short-lived, and for good reasons.24
The sharp contrast between the McDonald’s and the American style democracy
echoes the insight about a good value and its supporting conditions. Culinary
practices and customer services are, relatively speaking, practical and limited in scope;
a change of the practices/services is easy to come by. The expansion of the
McDonald’s inadvertently provides an impetus for the change, resulting in an
improvement. A society’s political structure, in comparison, involves a very wide
range of modes of behavior, way of thinking, traditions and customs. Through a long
development process of a few centuries, the American style democracy has blossomed
beautiful flowers in the US; in other soils, however, it is not easy to reap the same
fruits in a relatively short period of time. For something good to occur and sustain, the
supporting conditions must be in place.
4. 0 ~ 0
Theory
In economics there are numerous analytical concepts, with equilibrium, efficiency,
and maximization as obvious examples. If, however, the economists are asked to
name one, just one, single most important concept in economics, it is a fair guess that
a majority of the economists would pick cost as their choice. They would argue that
the concept of cost can best capture the unique perspective of economic analysis. The
essence of cost can be illustrated with two zeros; in words, it means that the meanings
of something are determined by other, relevant things.
In the little book Buchanan (1969) published over three decades ago, he had an
insightful, detailed discussion about cost, and broke new ground in interpreting the
concept. Specifically, he argued that when facing a choice situation of, say, to dine out
at restaurant A or restaurant B. If it is decided to go for restaurant A, then the
possibility of going to restaurant B simply disappears. Alternatively put, from the
economic perspective the cost of going to the restaurant A is going to restaurant B
instead. Since the choice of going to restaurant B has been given up, it is by nature
unobservable. As such, Buchanan argued that cost is in essence a subjective concept;
it relates to something that appears only in one’s mind but not in reality. The
reasoning gives a figurative interpretation of the idea of opportunity cost, and if one
makes a step further, it follows naturally that the meanings of something are fulfilled
by other, relevant things. The meanings of any person, any item, or any phenomenon
are essentially empty; they do not have any intrinsic or objective meanings. All the
24
See the vivid description in French (2004). In addition, Putnam et al. (1992) argued that unless there
is close social network it is difficult to sustain democratic institutions.
17
meanings are fulfilled, assigned, and given by man. When facing a particular situation,
one would consciously and/or subconsciously call up similar and relevant experiences,
and then perceive the situation with respect to the other experiences.
If there are no similar or relevant experiences, then one would simply not be able
to perceive (assign meanings to) what he faces. Even if one assigns this particular
item, say, to the category of unperceivable or unrecognizable, the meanings of the
concepts of unperceivable and unrecognizable are still determined by those that are
perceivable and recognizable. A simple example would help. Consider the scenario
that Luciano Pararotti is the only person in the world who can sing, then is it possible
for the rest of the people to tell how good his singing is? If all the rest cannot sing,
and there are no sounds made by dogs, birds, cows, or lions, then the others would not
be able to perceive what Paravotti is doing. It is because of the very fact that there are
all kinds of sound and noise and all sorts of singers, that people all over the world
have come to know how good his voice is, how skillful his singing is, and how
expensive his performance can be.25
The point can be elaborated further. Generally speaking, ordinary people tend to
believe that a bird is a bird, a rock is a rock, and various emotions are clearly
differentiated. From the perspective of economic analysis, however, this is not the
case. For any particular situation (involving a person, an item, or a phenomenon),
there are different ways to perceive it; when one of the ways is chosen, it follows by
definition that alternative ways of perceiving it have been given up. Of all the
alternatives ways being given up, the one that is closest to the one actually chosen
determines the meanings (or value) of the particular situation one faces. This is a
unique perspective, but is the essence of economic analysis. The nature of this
particular perspective as well as its validity would depend on a comparison with
respect to other perspectives---the meanings of something are determined by other,
relevant things.26
Since the meanings of something are fulfilled by other, relevant things, it implies
that this particular thing concerned assumes its meanings with respect to a certain
reference framework. It then follows that it is meaningful to ask the following
questions: Among the various possible reference frameworks, which one has been
adopted in particular? Why has this reference framework rather than any other been
chosen? For economists as well as the general public, all kinds of value judgment are
made on a daily basis, and it certainly makes sense to be able to answer the two
25
Posner (1986, p. 6) argued that if a resource has only one use, then its cost is zero. It is a unique way
of illustrating the concept of opportunity cost.
26
Posner (1995, p. 527) quoted Protagoras as saying that “Man is the measure of all things.”
18
questions concerning the judgments made.27
Two examples will show clearly what has been suggested so far. In economic
analysis, efficiency and equality have been seen as conflicting values, with efficiency
being associated with the size of the pie and equality the way to divide the pie. One
should be able to explain how the choice between the two has been made: Under
certain conditions, the size of the pie is more important; under certain other conditions,
the way the pie is divided is more important; and under still other conditions, the two
are equally important. 28 The reason for the choice is obviously related to the
benchmark that has been relied on to make the decision. Alternatively, in studying
legal issues, efficiency and justice represent different ways of thinking. Efficiency is
again related to the size of the pie, while justice is often related to moral theories such
as taking fundamental human rights as given. In numerous cases, the conclusions
reached by starting from these two concepts are essentially the same, but in some
other cases they are different. Either scenario, however, illustrates clearly that
arguments based on efficiency and justice are made with respect to the rationale or
beliefs underlying the two concepts. 29
Evidence
Compared to the previous three fundamental insights, the fourth has the most
straightforward operational implications, for both the economics majors and the
general public.
Specifically, given that value judgment is subjective by nature and that man is the
entity that makes value judgment, the fourth insight points to the need to examine
carefully how a particular value judgment has been made. Since the meanings of
something are determined by other, relevant things, one could, and arguably should,
choose the other, relevant things consciously and properly so as to fulfill the meanings
of the subject concerned. That is to say, one could make a conscious effort to select
the relevant elements by which the meanings of the subject concerned are fulfilled.
Even though the phenomena one observes seem to be objective and the experiences
one goes through seem to be real and concrete, both the phenomena and the
experiences ultimately assume meanings as given by the person involved. The person
would give meanings to the phenomena and experiences based on his moral beliefs or
value system; the moral beliefs and value system, however, are in turn choice
variables to be determined by the person. As such, a person should examine
27
For discussions of benchmark, see Hsiung (2001, 2004 a, b).
Okun (1975) is still a classic in discussing issues related to efficiency and equality. Obviously, the
meanings of efficiency have evolved over time; see Zerbe (2001).
29
For relevant discussions, see Posner (1990, 1998) and the case studies in Elster (1992, 1995).
28
19
consciously the moral beliefs and value systems he would believe in, and then
carefully choose the particular reference framework that he would adopt. For instance,
a person’s attitude towards life can be seen as a spectrum, with one endpoint being
optimistic and out-going, the other endpoint being pessimistic and reserved, and there
are countless points lying in between. Of the various points on this spectrum, a person
can choose the point that is best for him; and when there is a change is the relevant
conditions, he can reexamine his current position and assess whether an adjustment is
warranted.
The second operational implication of the fourth insight is even more practical.
Consider that the two zeros of the insight are replaced by an A-A’ set-up. A refers to a
person, a thing, or a choice; it in turn consists of B1, B2, C1, and C2, with Bs and Cs
being the benefits and costs implicit in A. For simplicity, only two Bs and two Cs are
included. By contrast, A’ is the alternative person, thing, or choice, and it implies B3,
B4, C3, and C4. Therefore, the A-A’ setup can be expressed concisely as follows:
A: B1, B2; C1, C2.
A’: B3, B4; C3, C4.
The setup has several straightforward interpretations. To begin with, for any person,
any thing, or any policy, there are many aspects concerning the person, the thing, or
the policy, and the various aspects are usually a mixed bag of both pluses and
minuses.30 Secondly, the meanings of A are not determined by its own ingredients or
components; rather, the meanings of A are determined by a similar, relevant A’. The
merits of a particular policy A are related to its alternative A’. Third, if A is chosen,
then one is going to reap the benefits of B1 and B2, and has to endure the costs of C1
and C2 at the same time. Concurrently, when A is chosen, one will not be able to enjoy
the advantages of B3 and B4 as implied by A’, but one will also be able to avoid the
disadvantages of C3 and C4. The A-A’ setup delicately and straightforwardly captures
the spirit of economic analysis, as it illustrates both the ideas of choice and trade-off.31
Moreover, in addition to A and A’, there are conceivably A’’, A’’’, etc; therefore, the
setup of A-A’ also implies that of all the alternatives, A’ has the highest value and it is
thus the opportunity cost of A. Fourth, if A is the current state of affair, the current
policy, or the current product, then A’ stands for a potential alternative that has not
been captured or realized, be it a new state of affair, a new policy, or a new product. A
successful politician is to come up with a new platform (a new combination of
policies) that would be more attractive to the voters than the current one; a good
30
Lancaster (1966) illustrates forcefully that a product contains many characteristics. The term of a
mixed bag has been used by North (1990) to suggest that an institutional matrix often contains both
positive and negative incentives for economic activities.
31
It corresponds in an interesting way to the plaintiff-defendant relation is legal studies.
20
entrepreneur is to take the current production process or product as the basis, and then
come up with a more efficient production process or a better product. 32 The two
criteria for granting applications for patent are assessing whether the inventions
proposed are different and better as compared with the existing ones, thus echoing the
structure of A-A’. A is the current measure, and A’ represents the better alternatives
that are to be invented, discovered, and/or realized.33
In addition to intellectual interest, economic analysis has very practical goals, an
important one of which is to improve the efficiency of resource allocation. There is,
however, a significant gap between discussions about measures to improve utility or
social welfare in both professional journals and textbooks on the one hand and
policy-makers and general public on the other hand. By contrast, the set-up of A-A’
provides a simple and clear tool; it illuminates the essence of economic analysis, and
it is applicable in essentially all circumstances. The perspective as implied by the A-A’
set-up is to be compared, and in competition, with other perspectives. The meanings
of something are indeed fulfilled with respect to other, relevant things.
5. Conclusion
In the economics literature, the idea that economics implies a worldview has been
suggested by many authors. And economists in general believe that economic analysis
does have a unique way of thinking, or a special perspective in looking at things.
What exactly constitutes the worldview of economics, however, has attracted less
attention.34 The present study attempts to provide a configuration of the economics
worldview by suggesting the so-called four fundamental insights of economics, and a
summary of the theorems at this point seems warranted.
(1) ○>0 ;
(2) 1+1<2;
(3) 1+1>2;
(4) 0 ~ 0 。
First, ○>0; it means that man is rational and self-interested, the starting point of
32
Competition expert (Porter, 1980, 1985) argued that each enterprise faces five different competitions,
of which the most important one is whether the enterprise can be successful in looking for potential
alternatives. Grove (1996) cites Porter in recounting his own experience with Intel.
33
The criteria used in practice are that the inventions must be novel, non-obvious, and useful. For a
relevant discussion, see Lee (1995).
34
One way to make connections among the laureates’ one-liners as stated in the beginning of the paper
is the following. Friedman’s remark that “There is no free lunch” is closely related to the core concept
of cost. As bureaucrats are people’s agents, and the interests of the agent are not in perfect harmony
with those of the principals; Buchanan’s remark that “Bureaucrats are not angels” can be interpreted as
“There is no free lunch in having bureaucrats, as they are no angels.” Since they are no angels, it
therefore makes sense to follow Modigliani’s advice that “Don’t put all your eggs in one basket.”
21
economic analysis. Secondly, 1+1<2; it suggests that whatever is is not necessarily
reasonable, but there is a reason for it. For seemingly unsatisfactory or strange social
phenomena, one does not have to make an immediate value judgment; it is better to
try to find out the reasons why the unsatisfactory state has come into place. Third,
1+1>2; it argues that for something good to occur, the supporting conditions must be
in place. For a satisfactory state of affair to come about and for a good equilibrium to
be sustained the corresponding conditions must be in place; in analyzing social
phenomena, one can try to identify the underlying conditions that support the
phenomena observed. Fourth, 0 ~ 0; it implies that the meanings of something are
fulfilled by other, relevant things. Regardless of things, people, or social phenomena,
their meanings are assigned subjectively by the person concerned, by calling upon
other, relevant things, people, or social phenomena. In addition, the present state of
affair can always be taken as a basis to look for better alternatives.
Abstractly speaking, ○>0 is the starting point of economic analysis; 1+1<2 and
1+1>2 represent respectively an unsatisfactory and a satisfactory situation. For either
situation, economic analysis can, from the starting point, try to advance an
explanation; 0 ~ 0 illustrates on the one hand the core concept of opportunity cost and
on the other hand how meanings of things are determined in general. To recall, there
are two main reasons why the numbers of 0, 1 and 2 have been employed to
summarize the essence of economic analysis. In particular, the first reason is that for
economists the four insights illustrate the main conclusions of economic analysis, and
they correspond to the spirit of the economic perspective. As such, hopefully the four
insights would be acceptable to most economists. Alternatively, the second reason is
that the four fundamental insights as represented by 0, 1 and 2 are clear and simple;
consequently they are likely to be accepted and employed by the general public. Sir
Alec Cairncross (1985, 1986), the late President of the Royal Economic Society,
remarked more than once that for policy-makers, the most useful part of economic
analysis consists of only a few simple ideas. The present inquiry shows that this is not
only true for policy-makers, it is very true for the general public also.
There remains one question that has not been dealt with until now. In particular, is
it true that the so-called worldview of economics is simply one of the worldviews
such as those conjectures of an elephant suggested by various blinds touching on
different parts of the elephant? Or is the worldview closer to the equation of 1+1=2
that commands universal consent? As argued previously, concerning the statement
that man is rational and self-interested, there are two possible interpretations: one
takes it as a factual description, and the other takes it as just a useful assumption. It is
similar concerning the economic worldview. On the one hand, whether depicted as a
one-liner, ten/twelve conclusions, or the four fundamental insights suggested in this
22
article, it has been derived from economic analysis. As the perspective is derived from
economic analysis, it is just one possible worldview, an economic worldview. On the
other hand, however, since the 1960s and following the lead of Becker, Buchanan,
Coase, and North, among others, economists have moved into the areas of sociology,
political science, law, and history, and have accomplished significant results. The
expansion shows that economic analysis can indeed be applied extensively. In
addition, the general public have relied on the value system that they have learned
through the socialization process to deal with issues in their daily lives. The value
system and its implicit moral beliefs concerning right vs. wrong, etc have been shaped
by customs and conventional wisdoms. Consequently, the worldview as implied by
such a value system is in essence based on experience. By contrast, economic analysis
has developed a powerful behavioral theory. The four fundamental insights have been
derived from the behavioral theory; being clear, simple, and having a sound
theoretical basis, the insights can actually become the basis of a value system.
Therefore, while economists have derived the worldview of economics from
economic analysis, it has exceeded far beyond the boundaries of economics. What the
economists have proposed is a persuasive worldview and not just an economic
worldview.
Coase suggested once that economists are like sellers of ware who are trying to
sell their products. Therefore, the worldview advanced by the economists is
competing with other worldviews; their product is to be compared with other
products---The meanings of something are fulfilled by other, relevant things.
23
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