(27 - 32) MicrOikonomia.

Notes on Robinson Crusoe, chapters 27 through 32. 

Aristotle,  Chrematistics, Oikonomia and Microeconomics, it's all on the island!

Economics is usually called the science of scarcity, which is a very proper definition concerning mainstream economics. Scarcity, put broadly, implies that people face trade-off when making choices. If we live in a world of scarcity, as we certainly do, people live below their “dream-bundle”. One may point that such a “dream-bundle” is unreachable, by definition. Philosophically, it could be argued that human beings are insatiable, and that provided to an agent his “dream-bundle”, automatically his “dream-bundle” would change into something else, even more expensive, probably out of his budget constraint. Aristotle’s distinction between “Oikonomia” and “Chrematistics” explores such idea. It’s ironic how the name Economics comes from “Oikonomia” but, actually, we live in a world of “Chrematistics”.  A world ruled by the monotonicity of preferences, meaning more is better.

In microeconomics we usually deal with two representative goods. In order to tackle the restrictiveness of these models, we define one of these goods as a composite good that stands for everything else, that is, the money left after you bought the actual good. If one of the goods is composite, than it’s hard to think that an individual will reach his satiation point, as Aristotle has shown. Satiation point, by the way, is the proper Microeconomic concept for what I have being calling “dream-bundle”, or, a bundle that has everything you want.

On the other hand, when we think of a finite number of real goods (by real I mean a non-composite good), the satiation point may be reached, according to Microeconomics analytical framework.

To place this discussion into Robinson Crusoe’s story, there are two different ways to answer whether or not Robinson Crusoe has reached the satiation point in the passage below:

 “Before coming to the island I had never milked a cow, much less a goat. I had never seen butter made, or even cheese. But I learned how to do everything of the kind. And now I had more butter and cheese than I could eat. After dinner it was my custom to go out for a stroll. How proud I was of my little kingdom! If you had seen me then, you would not have laughed. You would have been frightened. For a stranger-looking fellow you never saw. Be pleased to take a picture of me”.

For finite number of goods, or, in our story, considering the whole range of possibilities the island has offered Robinson, it can be said that Robinson has reached his satiation point, as depicted on the figure:

We have argued, however, that, in order to be more realistic, the model defines one of the goods as composite. In that sense, all other goods / states in the world should be included in the composite good. Thus, “leaving the island” is a desired good / state that Robinson has no idea how to pursue.

My point is that Robinson has reached the satiation point within the limits of the island / model. If we restrict the set of options it’s possible to conceptualize a satiation point. For instance, every day we reach our satiation point regarding hunger after lunching, or else we wouldn’t have stopped eating. But, as we loosen our model restrictiveness, expanding our bundle options, it becomes clear that such point is not reachable, prevailing, thus, monotone preferences.