To Buy or Not To Buy
7. How realistic is the neoclassical theory of demand?

Maria: This whole story seems unrealistic. The talk of utility and marginal and total utility is not something I think about when I go to the store!

Ziliak: Quite right. It is not literally true but a metaphor. Remember the word from your English courses. A metaphor gives a perspective on one thing while using the language or characteristics of another thing. "Man is a wolf" means that men can be wild and vicious. But it does it does not mean that men are covered in beautiful fur or howl at the moon. We economists say that you behave often as if you are one of Bentham's pleasure and pain machines, calculating your marginal and total utility. We do not claim that you are a robot.

McCloskey: The metaphor of calculation applies all over the place. It works. Consumers do not literally have to act like the metaphor of calculating machines. All that's required is that they get uneasy when they are buying "too much" gasoline, and think of cutting back.

Bayla: In my marketing course we talk about advertising, social class, fashion, and that sort of thing. Those are what affect me.

Rodney: Especially social class. The economist's theory of the consumer acts as though consumers were all middle-class people with budget sheets and clipboards in their hands. That has nothing to do with the people I know. Some of them don't even have the income to buy food.

McCloskey: I think I could convince you that income, wealth, and the relative prices are important even for the poor - maybe especially so - and even by comparison with social influences. When you get down to which of ten equally-priced deodorant you'll pick off the shelf I admit that we economists don't have a lot to say. The marketing people have a much richer theory, useful for their purposes. But our purpose is to understand the bigger forces in markets. The big forces are too much of a good thing (diminishing marginal utility), rich and poor (the income and wealth effects), the context of other goods (substitutes and complements), and in the midst of it all, price.

Maria: I'll need convincing, especially about price. I buy what I want and can afford.

Klamer: That word "afford" is one of McCloskey's Forbidden Words.

McCloskey: You mean I haven't persuaded you, Maria, that what you "want" is a matter of marginal utility and what you can "afford" is a matter of budget constraints?

Maria: Well . . . maybe in theory.

Klamer: It's not a good theory if it doesn't work in practice.

McCloskey: I - and you, Arjo, on your good days - think it does work in practice.

Ziliak: Your banter about works/doesn't work reminds me of the strange rhetoric of "statistical significance"-a technique in statistics that many students discover by their sophomore year. What we really want to know is "how much?" That is, given some big change in the price of X, what magnitude of effect do we observe in purchases of X? And who cares?

McCloskey: Steve, you know I agree. The science comes in finding out how much. But the ideology, what the great Austrian economist Joseph Schumpeter called "vision," affects the science: "In every scientific venture," he wrote in a book published in 1954, "the thing that comes first is Vision. . . . [We] acquire 'intuitively' a preliminary notion of how [things] hang together."

If the neoclassical theory of demand doesn't work "in practice" it doesn't work at all. If you're not convinced read the chapter again to see if the examples don't fit your experience. You try more or less carefully to get the maximum of satisfaction with the limited resources you have. Why wouldn't you?