AN ECONOMICS OF LOVE

by Frederic B. Jennings Jr., Ph.D.

In early 2024, I offered an online 12-week course called “An Economics of Love” under the auspices of Biodiversity for a Livable Climate. I hosted an introductory session to describe the content of the course, for which 83 people enrolled and a lesser number attended. Thirty people signed up for the course, and all classes were recorded so people could participate even if unable to attend each session. This paper is intended to document this course and what it covered.

Initially, I feared that people would encounter “An Economics of Love” as some sort of ‘hipster-flipster’ indulgence of flaky ideas, although those who enrolled showed no signs of any such dismissal, which was a relief for me. I designed and presented the course as an outline of the unfortunate consequences of very serious errors made in economics during the decades after 1939 and the advent of World War Two. These mistakes tipped the discourse in economics away from the efficiency of cooperation toward an exclusively competitive frame, with rigid doctrines adhering to decreasing returns, scarcity and opposition at the cost of including models embracing increasing returns, abundance and consilience. This is “An Economics of Love” that we all lost.

A Course Overview

I presented an ambitious outline, taking students through a whole series of topics and issues starting in Week One with the notion of ‘love’ and why love is so scarce in modern life as a topic in need of attention. Then, in Week Two, we looked at issues of ‘scarcity’ and ‘abundance’ with respect to the writings of Robin Wall Kimmerer, and tied them to two forms of social connection, substitution and complementarity, which are described as the difference of ‘either/or’ from ‘both/neither’ relationships. In other words, the notion of substitution implies that I choose between one good vs. another as alternatives or tradeoffs, while complementarity means I choose to buy both or neither of them, so I can use them together or not: thus such goods are joined.

In Week Three, we addressed the mistake: in 1939, after 17 years of raging debate in economics over how to incorporate increasing returns suppositions into economic theory – which were taken as a universal truth for all long-run analyses during these years – a young British economist, John R. Hicks, published a formative book, Value and Capital. Hicks asserted decreasing returns and summarily dismissed increasing returns as a futile exercise, saying: “At least, this getaway seems well worth trying” despite that “we are taking a dangerous step…” I call it ‘The Hicksian Getaway,’ and this false step pivoted a discipline away from realism and truth into abject fantasy.

This critical leap brought Paul Samuelson’s 1947 Harvard Ph.D. Dissertation called “Foundations of Economic Analysis,” based on the Hicksian model, out of which a whole series of General Equilibrium (GE) models were developed by Kenneth J. Arrow, Gerard Debreu, Frank H Hahn and others, all of whom were awarded Nobel Prizes for their work on this subject, which showed how rigorous economics should be done under accepted methods: increasing returns became a taboo realm of inquiry.

In Weeks Four through Six, we went on to explore the impact of this misstep in: its cultural effects on us; its shaping of economic methods; and its ethical impacts on social behavior. Each is addressed in more detail below. The last half of the course moved from theory to applications, once this underlying frame had been established.

Week Seven applied the ethical issues to business through a discussion of corporate social responsibility (CSR) and other related concerns; then in Week Eight we looked at how ‘The Hicksian Getaway’ affected education, pluralism and open-mindedness. Week Nine considered transportation phenomena as a way of illustrating a contrast between substitution and complementarity as alternative forms of social relation, to set up an ecological frame for economics in Week Ten in a study of fisheries issues. Week Eleven examined systems theories as a way of ‘thinking large’ about market processes and social incentive structures, and then in Week Twelve the whole course concluded with a look at the physical and mental health effects of competitive versus cooperative forms of social organization. That gives an overview of the entire course.

The Intellectual Challenges of “An Economics of Love”

Part One: Framing the Theoretical Issues

Weeks One through Six

Week One: “An Economics of Love” – In Week One, I posed a puzzle, based on my 2007 paper on “The Economics of Love,” in which I asked: Why is love so scarce in our culture, when it is virtually costless to produce and always in demand? A good question deserves an answer: mine raised a central theme in the course, that systems of competition are based on substitution assumptions of scarcity and tradeoffs, while love is one of our purest examples of complementarity in economics. Virtually all of our social systems stress competitive frames, which effectively work to suppress all outputs of complementary goods. So, this is why love is so scarce under competition.

Week Two: ‘Scarcity’ and ‘Abundance’ – In Week Two, we looked at two models of economics, one by Robin Wall Kimmerer and another in my horizonal frame, both of which suggest there is something profoundly wrong with an economics of scarcity applied to a natural world of abundance, reciprocity, gifts, generosity and gratitude. We discussed these two perspectives and how they might shape our social behaviors.

Week Three: ‘What Went So Wrong in Economics?’ – In Week Three, we turned to ‘The Hicksian Getaway’ and how it has shaped economics since 1939. There came another moment in the 1960s when Hicks’ misstep could have been reversed, when a 1958 paper by Armen Alchian addressed the relation of cost to time, arguing longer time-periods lead to lower unit costs, which Jack Hirshleifer saw as a threat to the orthodox theory of cost based on decreasing returns, stating his goal of “rescuing” this approach from Alchian’s ‘increasing returns’ to time. Hirshleifer’s 1962 paper claimed to prove that unit costs of production will always ‘eventually’ rise with more output. I call it ‘The Hirshleifer Rescue’ of decreasing returns and orthodox theory, both of which rest on this claim. The problem is that Hicks’ view was based on mere assertion against almost 20 years of general acceptance of increasing returns (falling unit costs), and my 1985 Ph.D. dissertation included a disproof of ‘The Hirshleifer Rescue’ as simply asserted as well based on an improper argumentative frame. In the 1970s, Nicholas Kaldor, a senior British economist, published a series of papers reestablishing a case for increasing returns, rejecting orthodox equilibrium theories.

Week Four: The Cultural Implications of Horizonal Theory – In Week Four, the course unfolded into the broad cultural implications of this tragic mistake by looking at where economics might have gone in its absence. Armen Alchian had it right that the key issue lay in the relation of time to unit costs, which my work addressed in terms of ‘horizon effects’ (which denote changes in the planning horizons implicit in every decision). ‘Time horizons’ are one dimension of multidimensional planning horizons, which expand through knowledge and stability and retract with inadequate self-confidence and/or increased volatility. Because any sharing of information or knowledge, like love, involves complementary yields of mutual benefit, they call for cooperative systems to flourish and grow without limit. Competitive systems stifle complementary yields of learning, love and community values, so a horizonal story demands cooperation to extend horizons. Competition is spawning a myopic culture in dangerous self-destruct mode, as shown by evident ethical and ecological losses.

Week Five: The Methodological Implications of Horizonal Theory – One of the things that Nicholas Kaldor made clear was that an economics of increasing returns is an economics of complementary connections or, namely, an economics of love. No equilibrium models appear in realms of ongoing change and adaptation, where economic analysis is more like an unfolding ecology than a mechanical clock. These are implications that call for a fully holistic systems approach to economic analysis.

Week Six: The Ethical Implications of Horizonal Theory – Accepting increasing returns and complementary interdependencies will lead us into an ethical economics, since cooperative frames – as demanded by increasing returns and complementarity – emphasize the importance of trust as the glue which holds social systems together. The whole process of organization entails social connections that must be honored to avoid interpersonal stress, conflicts and fragmentation, by promoting higher-order human needs in Abraham Maslow’s sense of that term. Ethical linkages matter a lot.

Weeks Seven through Twelve

Week Seven: Corporate Social Responsibility and Horizon Effects – Week Seven took us into the practical aspects of ethics in economics, asking how well economics has succeeded in inculcating ethical behavior into our social cultures. The readings for this class suggested both good and bad news: some companies have worked hard to incorporate social and ecological impacts of their business decisions into all they do, while other companies show an outright contempt for any inclusion of ecological or social issues in their business plans. ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue’ opened the doors to Milton Friedman’s view that only profits should matter.

Week Eight: Horizon Effects and Pluralism in Education – Week Eight opened us up to the larger effects of a wrong system of social organization in our educational processes. As exchanges of information are complementary and inclusive, they want sharing and cooperation to flourish. If this is the case, then our competitive systems of schooling have the effect of institutionalizing a fear of learning into their victims; we can directly observe these impacts throughout our economic cultures in the forms of widespread denial and a more general avoidance of human diversity in our society. With mistakes a part of learning, an avoidance of error limits all educational success.

Week Nine: Transportation as a Model of Economic Interdependence – I framed my Ph.D. Dissertation on a study of the British Canal System, from its early origins in construction during the late 18^th century, through its operations phase into the mid-19^th century, to its sudden systemic collapse during the 1840s. The most important lesson of the British canals was that interdependence comes with two flavors and not just one, while ‘orthodox’ economics stresses substitution with virtually no attention paid to complementary interdependencies, due to ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue’ and their effects. The orthodox substitution and scarcity models of competition in economics stand on decreasing returns suppositions, while what is being ignored in this discipline is any balancing influence of complementarity here. The problem is that both forms of interdependence are at play in economics, which revealed to me a glaring inadequacy in every model of how economics should work that I was taught as an undergraduate and graduate student at Harvard and Stanford, despite their stature as two of the most reputed U.S. academic research institutions. In order to analyze the independent pricing decisions of individual canals in a fully interconnected network of transport routes, it was necessary to construct an entirely new model of interaction in a setting of increasing returns and public goods divorced from standard ‘market’ distinctions. The history also was helpful: it shouted ‘myopic behavior’ at me in a long-term investment context of very durable infrastructure. Its construction phase saw two ‘canal manias’; the operations phase signified constant conflict with entry barriers, when network expansion would benefit everyone; and a collapse phase with canals blackmailing railroads into buying them out: in which fully one-third of a 3,000-mile network went into railroad ownership in only 3 years. My thoughts turned to planning horizons as a key determinant of economic growth.

Week Ten: Managing Fisheries in Open Ecological Systems – Transport systems provided a lot of insight on generalized interdependence in Nicholas Kaldor’s sense of that term, based on increasing returns and an inclusion of both forms of economic connection (substitution and complementarity). An open ocean ecology without any system boundaries to refine or restrict the interaction of species in diverse food webs served to extend the transport network concept into a larger realm. The whole intent of fisheries management is to regulate human behavior within an ecological context that tolerates few excessive intrusions, while human greed reveals no upper bounds. The currently-preferred method of commercial fisheries management is a scheme of privatization based on Individual Transferable Quotas (ITQs) as ownership shares in the Total Allowable Catch (TAC) of a regulated species of fish. In a 1999 Greenpeace Report on this subject, I examined this proposal, put forth by the National Research Council (NRC) as a national fisheries policy recommendation, discovering that this research panel of national fisheries experts addressed this topic based on an orthodox model of economics with nary a single mention of systems theory in their analysis. My Greenpeace Report took them to task on this issue, where they had dealt with an ecosystem management problem with linear models of no relevance to this subject. My report looked at ITQs from three economic perspectives: neoclassical orthodoxy; institutional economics (emphasizing power and control); and ecological economics (emphasizing the tightness of feedback control loops), finding that the other vantages than those of standard economics (based on wrong assumptions about this situation) created strong negative findings on the alleged virtues of ITQ fisheries management. Once again, ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue’ had distorted their analysis of fisheries management solutions sufficiently to lead to wrong conclusions.

Week Eleven: Thinking Larger on Systems and Market Incentives – The course, in Week Eleven, opened up to even larger issues with regard to systems theories and the role of market-based incentive structures in shaping our social behavior. If social relations (economic interdependencies) entail a delicate balance of substitution and complementarity, then – unless we can determine which is dominant in any situation – we have no institutional standard by which to choose which form of organization will be more efficient: competition or cooperation. We do know competition fosters efficient growth of substitutes, but that it also stifles complementary outputs, just as cooperation encourages complements while repressing substitutes. The resolution of this dilemma of institutional choice must then be based on other considerations. Here horizon effects save the day, as whatever fosters horizonal growth leads to greater efficiency across social relations. An extension of horizonal range comes from better learning, which in turn arises from cooperative systems, as informational exchanges are realms of complementarity and abundance; they are not realms of substitution, tradeoffs and scarcity. Orthodoxy in economics treats competition as synonymous with efficiency, based on its substitution assumptions which in turn depend on ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue’ that I have shown quite tragically mistaken. With horizonal growth as an alternative standard of efficiency outcomes, within a broader view of connection, cooperation becomes our source of efficiency.

Week Twelve: The Health Effects of Our Systems Designs – I ended this course on the health effects of our systems of organization, because a surfeit of writings in neurophysiology and neuropsychology indicate that competitive fears and stress are the cause of many forms of physical and mental pathologies that are having radically harmful impacts on human well-being. Economists ignore these issues since they do not fit with their models favoring competitive frames, based on these serious errors. A more objective vantage on the nature of economic relations is very enlightening.

A Summary Overview of the Course and its Insights

The goal of this course was to introduce people to a new view of economics with an array of unfamiliar implications for social organization and human interactions. The course unfolded from some basic principles and insights about how we are connected in our economic relations, through an inappropriate turning point in the discipline in 1939 with ‘The Hicksian Getaway’ (followed by ‘The Hirshleifer Rescue’ in 1962), into a range of valuable lessons about what we have all been taught about economics that seems to be wrong, or at least incomplete. The course had two levels of readings, labeled ‘basic’ and ‘advanced’ along with a set of ‘additional’ articles that expanded upon the issues addressed, followed by 2-hour weekly recorded in-class discussions. My current hope is to process these course materials into a MOOC (Massively Open Online Course) people can take at their own pace, either free (with no participation by me) or for a small fee (with access to feedback and discussion by me during what will be a designated time for my ‘office hours’ on Zoom). Please be patient, as course materials may take a significant amount of time to assemble. I’m a very busy person!

But the most provocative question posed in the course is how our culture would have developed under an economics of love instead of the economics of conflict resulting from adopting decreasing returns, substitution, scarcity and opposition as a means to protect competitive equilibria from more realistic challenges based on increasing returns, complementarity, abundance and consilience. Within this alternative frame, instead of conflicts of interest we find concerts of interest demonstrating a welcome alignment of values and needs under which we will look out for each other as that is what best serves our own economic interests, instead of opposing each other with a competitive frame. An economics of love favors cooperation as a more efficient way toward human well-being, in which we share understanding, knowledge and material goods. Our whole conception of how to behave toward each other is shifted by this correction toward mutual caring and inclusive compassion, and away from conflict. In other words, ‘The Hicksian Getaway’ has poisoned our economic culture, making it emphasize the wrong kinds of behavior over what would have been better for us.

In my view, there are two issues that have been obscured by the long-term, enduring effects of ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue.’ The first is that we were deprived of where, I think, economics would have developed without this error: into what I prefer to call “An Economics of Love” or of complementary social links. The second involves what I call “A Horizonal Economics.” We end on those points.

As noted above, the case for increasing returns in production that drove 17 years of economic debate from 1922 to 1939 yields an economics based on complementarity in all long-run contexts. That, in turn, unfolds into an efficiency case for cooperative systems, suggesting the much-touted efficiency case for competition is only a special exception to a more general case for cooperation. The efficiency case for competition is founded on substitution and decreasing returns suppositions, against the realities of increasing returns and complementarity, a claim denied in 1939 and reinforced in 1962 by ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue.’ This economics of complementarity that we all lost is better seen as “An Economics of Love.” In this conception, our economic well-being is mutual: rising and declining together like all boats on a tide. Here, our fates are linked in a positive way, making it in our collective interests to care for each other. Your wellbeing and mine dance in a concert rather than working in conflict, with this very costly error dividing rather than joining us.

The other aspect of economics that did not develop due to ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue’ – with the denial of increasing returns – was a horizonal view resting on notions of ongoing time that were rejected at the same moment. The direction that economics was going, having embraced increasing returns as a general truth in all long-run theory for those 17 years, was toward a proper recognition of time horizons as a resolution of the ‘increasing returns dilemma.’ But longer time horizons are achieved through more complete and accurate understanding of how the world truly works, on which all decisions rely. The means for us to see further ahead in time is achieved through learning as the route to a broader planning horizon, defined as the multidimensional range of imagined projections of the effects from every choice we make. The more accurate our understanding, the further ahead and around us can we see. Our horizons spread or retract, based on internal and external conditions such as self-confidence, energy or stability in our decision environment.

Longer and broader planning horizons make everything work better, and they join instead of divide us, since we connect and care about each other rather than sharing indifference or distance under competition. ‘The Hicksian Getaway’ along with ‘The Hirshleifer Rescue’ upheld a wrong view of competition deemed to be efficient, with cooperation seen as suspicious. The actual truth was turned on its head by this error.

We need a new economics focused on learning incentives, love and awareness. That will open up planning horizons and teach us a far better way to live with each other. This understanding will lead us to join with each other to share our knowledge and goods, because that is the way to benefit all. The conflict that we have learned within a competitive world is not serving us well; it does not reflect the consilience of our needs, dreams and desires. A misguided view that competition makes us efficient in our endeavors through rivalrous struggle has led to a fractious and divided society, where we remain alienated from and fearful of each other. The error is profound and calls for radical changes in our social culture to overcome myopic concerns within a more complex social culture of personal learning and change far more consistent with human nature that will allow planning horizons to extend into a far better world.