Kenneth Arrow Quotes

The conventional view among economists is that education adds to an individual's productivity and therefore increases the market value of his labor. From the viewpoint of formal theory, it does not matter how the student's productivity is increased, but implicitly it is assumed that the student receives cognitive skills through his education. Educators, on the other hand, have long felt that the activity of education is a process of socialization, with the latent content of the process—the acquisition of skills such as the carrying out of assigned tasks, getting along with others, regularity, punctuality, and the like—being at least as important as the manifest objectives of conveying information. This last doctrine has been revived by radical economists, though with a negative rather than a positive valuation. But from the viewpoint of economic theory, the socialization hypothesis is just as much a human capital theory as the cognitive skill acquisition hypothesis. Both hypotheses imply that education supplies skills that lead to higher productivity. I would like to present a very different view. Higher education, in this model, contributes in no way to superior economic performance; it increases neither cognition nor socialization. Instead, higher education serves as a screening device in that it sorts out individuals of differing abilities, thereby conveying information to the purchasers of labor.

The problem I have with utilitarianism is not that it is excessively rational, but that the epistemological foundations are weak. My problem is: What are those objects we are adding up? I have no objection to adding them up if there's something to add. But the one thing I retain from utilitarianism is that, basically, judgements are based on consequences. Certainly that's the sort of thing we do in the theory of the single individual under uncertainty; you make sure utility is defined only over the consequences. I view rights as arrangements which may help you in achieving a higher utility level.

There is also one particularly needed elaboration of the model (which is not to say that it doesn't cry out for elaboration in many other directions). This is the relation between college filtering and on-the-job filtering. Once an employee has been hired, the employer can gradually draw on more directly obtained information to determine his productivity. However, this filtering may be costly. To the extent that the employer does filter and does so accurately, the Value of the college filter is reduced. The employer pays the average product of a group with given educational achievement only during the period before his own filter has become effective. Conversely, however, an increase in the college population will mean (and has meant) a depreciation in the quality of non-college students (this is not necessarily the same as a decrease in the quality of college students).

It is this thinking which I think gives rise to the greatest tragedies of history, this sense of commitment to a past purpose which reinforces the original agreement precisely at a time when experience has shown that it must be reversed.

In addition to ignoring game aspects of the problem of social choice, we will also assume in the present study that individual values are taken as data and are not capable of being altered by the nature of the decision process itself. This, of course, is the standard view in economic theory (though the unreality of this assumption has been asserted by such writers as Veblen, Professor J. M. Clark, and Knight) and also in the classical liberal creed. If individual values can themselves be affected by the method of social choice, it becomes much more difficult to learn what is meant by one method’s being preferable to another.

There is little warrant for the belief that we know the laws of history well enough to make projections of any great reliability. Most of the turning points of history, great and small, were surprises to both their participants and the analysts of the day, whatever their doctrine.

I want, however, to conclude by calling attention to a less visible form of social action: norms of social behavior, including ethical and moral codes. I suggest as one possible interpretation that they are reactions of society to compensate for market failures. It is useful for individuals to have some trust in each other's word. In the absence of trust it would become very costly to arrange for alternative sanctions and guarantees, and many opportunities for mutually beneficial cooperation would have to be, foregone.

There are many other organizations beside the government and the firm. But all of them, whether political party or revolutionary movement, university or church, share the common characteristics of the need for collective action and the allocation of resources through nonmarket methods.

Unfortunately, the word 'learning' is a very general word. It isn't a very specific theory and we can have a lot of learning models, and it's unlikely that any one is going to track. When you talk about learning, you talk about the human mind adapting to conditions, and we haven't nailed that down very well. This is always an objection to the whole idea of bounded rationality. Not that it's wrong, but if it's right, it doesn't actually tell you what to do. Rationality is unique. That isn't really quite true, but at least under many circumstances it is. To say that we're not at the top of a hill gives you a lot of variety as to where you might be. So the problem with bounded rationality is not that it's wrong. On the contrary, I think it's very apt to be correct. It's just that its predictions are a lot more vague than those implied by rationality. At the moment, I don't know what to do about that.

The creation of knowledge that constitutes an innovation is in turn dependent on the acquisition and application of existing knowledge; information is an input into the production of information. This background knowledge and the ability to use it are the most important elements of the social context of individually motivated innovation.

Gibbard's work was a bombshell. That was very exciting. I didn't know about Satterthwaite's work for a couple of years, but it was very much the same thing. I had taken the liberty of abstracting from manipulability in my thesis and I never went back to that issue. What's surprising is not really that there is an impossibility of non-manipulability, but that the issues should be essentially the same. That strikes one as a remarkable coincidence.

Ever since I encountered Hicks’s Value and Capital while I was still a graduate student, I had the aim of completing and extending his vision of the economic system in its purest form. This was not because I believed that the economic world was perfectly competitive or that it was clearly self-equilibrating; after all, Chamberlin, Robinson, and Keynes were dominant intellectual influences, and I had the even more powerful influence of the facts of massive unemployment and large corporations. But the idea that the economic world was a general system, with all parts interdependent, seemed (and seems) to me to be an essential of good analysis. I regret what appears to be a revival of single-market thinking both among monetarists and among some of the younger empirical analysts. Then as now, the only game in town that offered a general system of economic interdependence was general competitive equilibrium, an idea to which the name of Leon Walras is imperishably linked. At least, such a system would provide a starting point for analysis of the market’s imperfections.

If the total number of alternatives is two, the method of majority decision is a social welfare function which satisfies Conditions 2–5 and yields a social ordering of the two alternatives for every set of individual orderings.

While economic theory in general may be defined as the theory of how an economic condition or an economic development is determined within an institutional framework, the deals with how to judge whether one condition can be said to be better in some way than another and whether it is possible, by altering the institutional framework, to achieve a better condition than the present one.

Ironically, the current conservative model explaining the supposed association of capitalism and democracy relates to the Marxist as a photographic negative to a positive. It too suggests that the political “superstructure” is determined by the “relations of production.” The conservative model contrasts the dispersion of power under capitalist democracy with its concentration under socialism. Political opposition requires resources. The multiplicity of capitalists implies that any dissenting voice can find some support. Under socialism, the argument goes, the controlling political faction can deny its opponents all resources and dismiss them from their employment.
This theoretical argument presupposes a monolithic state. It is something of a chicken-and-egg proposition. If the democratic legal tradition is strong, there are many sources of power in a modern state. Adding economic control functions may only increase the diversity of interests within the state and therefore alternative sources of power. It is notoriously harder for the government to regulate its own agencies than private firms. Socialism may easily offer as much pluralism as capitalism.
The overpowering force in all these arguments is the empirical evidence of the Soviet Union and the other Communist countries, and it is strong. But the contrary proposition, that capitalism is a positive safeguard for democracy, is hardly a reasonable inference from experience. The example of Nazi Germany shows that no amount of private enterprise prevents the rise of totalitarianism. Indeed, it is hard to see that capitalism formed a significant impediment. Nor is Nazi Germany unique; Fascist Italy, Franco’s Spain, and the recurrent Latin American dictatorships are illustrative counterexamples to the proposition that capitalism implies democracy.