János Kornai

A Joyful Economist

Tibor Scitovsky (1910-2002)

 

Tibor Scitovsky, a pre-eminent figure in 20th century economics, has died. When Mark Blaugh, the leading English historian of economic theory, compiled his book Great Economists Since Keynes, he placed Scitovsky among them, classing him as one of the true greats.
Scitovsky had a perfect knowledge of his field, but that might equally be said of many others. What distinguished him above all from other highly qualified colleagues was his originality-his ability to see with fresh eyes a phenomenon that others had already discerned or a problem that many had already addressed, and think it out in a new way. Ideas, wit, premonition and inspiration are among the qualities associated with his thinking.
As an example, let me mention a well-known creation of his, one of the intellectual tools of welfare economics, which has entered the history of theory as the Scitovsky Criterion. It is rare for an economic policy to work to everyone's advantage, or at least, not to cause loss to anyone. As a rule, there are winners and losers. The test proposed by another figure Hungarian economics can be proud of, Nicholas Kaldor (Miklós Káldor, later Lord Kaldor), became known as the Kaldor Criterion. Are the winners willing to reimburse the losers sufficiently to make them feel they have been compensated? For instance, if a new airport is built and the noise intrudes into the lives of people around it, the value of their property is reduced. Can the noise-induced loss to the people in the district be covered by the extra profit from air traffic generated by the new airport? Scitovsky put a witty intellectual twist on this question. How big is the "bribe" with which the potential losers can deter the potential winners from their intention?
This polemic says a great deal about the outlook of Scitovsky (and in the context of this debate, of Kaldor). Social welfare is not a formal category, not a W function whose maximum we can try to attain. Behind the concept of "social welfare" stand living people, groups, conflicts of interest, and distributive and redistributive battles. A general rise in welfare does not simply entail sacrifices. It is accompanied for many people by suffering, upsetting of their way of life and injuries to their interests. Can these conflicts be settled in a peaceful, civilised manner, by financial incentives instead of furious demonstrations and political duels?
Another example of Scitovsky's innovatory talent and originality was his contribution to price theory. Traditional microeconomics assumes that buyer and seller are partners of equal rank. Both the buyer and the seller make repeated attempts at price bargaining. An excessively high offer from a seller follows an excessively low offer from a buyer, and the two sides reach a symmetrical situation after successive attempts. Scitovsky introduced a pair of concepts: price maker and price taker. Few remember that this distinction derives from Scitovsky's theory. It was enough to identify, describe and name the phenomenon, and thereafter, everyone found it selfevident. "I already knew that," many said. They knew it in one sense and not in another. That is just where intellectual greatness lies. There is an important phenomenon under our noses. Everyone knows about it but no one notices it, until a truly scientific mind lights on the essence of the phenomenon and turns it into a usable tool of thinking. Scitovsky made it an important subject of price theory to clarify how there happen to be more active and more passive participants in price setting. Price setting follows different specific rules among price-making economic units from those that occur when those concerned cannot and often do not want to bargain over the price. They are forced to take the price offered because they have no alternative, or else seek another partner rather than indulge in price bargaining.

Scitovsky was not a combative intellectual revolutionary. He innovated simply by doing something different from other people. As an illustration, let me recall the book that to my taste is his most exciting work, The Joyless Economy. This gives an idea of Scitovsky's radiant intellectual capacities as it were in condensed form. He "wonders" at American society. Here is this fantastically productive economy producing phenomenally rapid development and overwhelming competitiveness. This is said to be the truest embodiment of a "consumer society", where every technical change serves the higher demands of consumers. Yet somehow this is a joyless economy.
I remember having a private conversation with Scitovsky, in which, with the quiet irony habitual to him, he described a paradoxical phenomenon in the American way of life. People are constantly devising machines that spare them physical effort in their daily activity. There is no need to cut bread with a knife because there is a bread-slicing machine. There is no need to squeeze an orange because there is an orange press. There is no need to hand-grind coffee because there is an electric grinder, and so on and so forth. We move vertically by lift or escalator and make every horizontal move by car. Life really does become easier, but our muscles slacken and our organisms go soft. Then comes the work-out, physical training, if need be, with machines again, to simulate walking, cycling and the useful lifting of heavy weights, through the mechanical movements of a machine. Scitovsky in this book returns to the psychological base of economic theory. How weak and in many respects dilettante this base is, for instance in taking satisfaction to be the main criterion of joy, whereas at least as great a part or greater in the pleasure of life is played by what precedes satisfaction: feelings of preparation, stimulation and expectation of joy. The hope is often finer and more inducive of happiness than its fulfilment ...