Economics is not just money and shopping


Economic choice is about time, effort, loyalty, guilt, same – not just money.

Too often, when I appear on the radio or TV and talk about the perverse incentives of some new government policy, I'm accused of being an 'unfeeling economist' who 'reduces everything to money'. Well I ain't. And that view misunderstands what is actually about. Economics is the science of choice. True, many of the choices we make involve giving up money to get something we want. But many more choices hinge on giving up other, non-monetary things – like our time and effort.

Should I go out with friends, or stay at home reading my book? I cannot do both. Should I mow the lawn, or offer to help out at the school fete? No money is involved in these decisions, and yet they are properly 'economic' decisions. How do I juggle scarce resources, like my time and effort, to yield the biggest benefit for me? And I don't just think of my private benefit. I might figure that my friends would like to see me, or that the teachers would welcome my help at the fete. Sure, it makes me feel good that I have helped others, and to that extent I derive some benefit. But it is a psychological, not a monetary, benefit.

Some studies suggest that when you pay people to give blood, fewer donors come forward. That is because people give blood to help others, not for financial gain. Offering payment suggests that you think they are doing it for their own benefit, without thought to the benefit of others, whereupon the delicate psychology of the activity is broken. Likewise, I find that I go to the doctor a lot more now that I have moved from a free NHS doctor to a private one. The reason is that I always felt guilty going to a free doctor, because I imagined that there were others who needed medical help more than I did (well, that and the long waits). Now I'm financially poorer, but I don't feel any guilt. Similar effects have been discovered when nursery schools fine parents for picking their kids up late – more of them arrive late, because they regard the fine as compensating the teachers for the inconvenience of having to stay on, whereas before they would have felt shame in being late.

Yes, there is a lot more to economic choices than mere money. People do things for reasons of love, honour, self-respect, or loyalty – and don't do things out of guilt, shame, idleness, or criticism. Indeed, most, by far, of our 'economic' decisions don't involve money at all.

Dr Butler's book The Rotten State of Britain is now in paperback.