CHAPTER 2 CONTEXT AND BACKGROUND INTRODUCTION TO EFFORT AS AN ECONOMIC VARIABLE This set of essays postulates that wealth, opportunity, and the relationship between them, constitute a key influence on the economic behavior of individuals and nations, and largely determine whether people accept or reject economic opportunities. The relative importance of material incentives in determining human activity has always been the subject of large disagreement. Varying views on the issue have affected many practical aspects of life; for example, the practice of labor relations in the U.S. has been strongly influenced by the Hawthorne experiment, which purportedly1 showed that factors other **** than wages explain much of the variation in productivity. Views about the importance of material incentives, and reactions to the concept of "economic man," also have affected attitudes toward various bodies of thought--for example, the distaste of many persons for classical economic theory which supposedly assumes (though it does not) that people aim only to acquire more money. The need for an effort concept appears often in economic analysis. An illuminating example of how the absence of the effort concept affects analysis is seen in the context of foreign aid. According to the fundamental definition of economic welfare, a gift to a person increases that person's welfare because the gift increases the person's "endowment," that is, the person's purchasing power. But even the best of ecomonists may be heard to say that giving food as foreign aid is usually bad. What explains this apparent logical contradiction: if the weather gives us more wheat, we are better off, but if we give the wheat to Mexico, they are worse off? In the case of market agriculture, a satisfactory explanation can be framed in standard terms, though the explanation lacks the logical precision usually demanded of economics: Reduction of the market price caused by the gift leads farmers to reduce agricultural activity, which causes reduction in physical and human investment, which will have bad effects after the aid has ended. If the aid will go to a subsistence farmer, the need for an effort concept is plainest: the gift causes reduction in effort by the farmer, which leaves the farmer less prepared (and less well learned) to exert effort later when there is no aid.2 *** Writers as various as Mandeville (1705-1962), Hume (1953), Marshall (1920, p. XV), McClelland (1961), Hoselitz (1960), Kristol (1978), Bell (1973), Gilder (1984), Novak ( ), Katona ( ), Inkeles ( ), and Maital (1982), with perhaps Schumpeter (l942/l950) and Weber (1923/1961) and various anthropologists in the background, argue that various elements in people's thinking which affect economic behavior (aside from productive know-how) differ from individual to individual, from group to group, and from one situation to another. Mandeville wrote: Man never exerts himself but when he is roused by his desires; while they lie dormant, and there is nothing to raise them, his excellence and abilities will be forever undiscovered, and the lumpish machine, without the influence of his passions, may by justly compared to a huge windmill without a breath of air (p.120). Bauer (1981) goes so far as to suggest that _o_n_l_y institutions and the contents of people's minds matter economically, and physical circumstancesare not important; he cites Hong Kong as his example. McClelland has evenattempted to implement this general view with experimental alteration of asample of Indian businessmen's outlooks and motivations, and he observed(though the finding is controversial) important changes in their business behavior as a consequence of the training that he gave them. M. and R. Friedman write as follows about the effect of the payoff upon the effort exerted: If Red Adair's income would be the same whether or not he performs the dangerous task of capping a runaway oil well, why should he undertake the dangerous task? He might do so once, for the excitement. But would he make it his major activity? If your income will be the same whether you work hard or not, why should you work hard? Why should you make the effort to search out the buyer who values most highly what you have to sell if you will not get any benefit from doing so? (l980, p. l5). In a discussion of economic policies -- as distinct from a discussion of economic theory -- economists typically suggest "privatising" economic activities and resources, and "internalizing" costs, in order to provide "incentive" for hard and diligent work. But the term "incentive" invariably goes undefined, usually just a synonym for money, on the assumption that people prefer more to less purchasing power. No distinction is made between persons as to the motivating incentive power of a given sum of money; no method of measurement of incentive is offered. When writing theory, however, most economists implicitly take the view that aspirations and motivations either do not differ much among groups and among periods of time, or else that aspirations and motivations are sufficiently flexible as to change almost immediately when the relevant economic conditions change.3 De Allessi states as one characteristic *** of neo-classical theory that "the entrepreneur's choice between income and leisure is independent of income" (l983, p. 65). A single example from Schultz writing of entreprenurial activities: The supply of services from these abilities depends upon the stock of a particular form of human capital at any point in time and on the costs and the rate at which the stock can be increased in response to the rewards derived from the services of these abilities (l975, p. 834). When economists discuss variations in work propensity, they often do so in a casual manner, in sharp contrast to the precision common in the treatment of standard economic concepts. Let us take Samuelson as an example; given that he received a Nobel prize for raising the level of economic analysis, this is no straw man being attacked. He is quoted as follows4 in explaining the l970's slowing of productivity and growth: *** "Mr. Samuelson thinks a key factor is the demise of the work ethic, a deterioration fostered by affluence and by a host of well-meaning, but excessive income support programs" (New York Times, October 31, 1982, p. 24F). The concept of "work ethic" goesundefined in such discourse, and indeed has no place in contemporary economic theory. Some writers have speculated that individual human qualities have becomeless important in the modern economy than they were in subsistence agriculture or early capitalism. Schumpeter, for example, wrote an entire chapter on "TheObsolescence of the Entrepeneurial Function," saying: This social function is already losing importance and is bound to lose it at an accelerating rate in the future even if the economic process itself of which entrepreneurship was the prime mover went on unabated. For, on the one hand, it is much easier now than it has been in the past to do things that lie outside familiar routine-- innovation itself is being reduced to routine. Technological progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it work in predictable ways. The romance of earlier commercial adventure is rapidly wearing away, because so many more things can be strictly calculated that had of old to be visualized in a flash of genius. On the other hand, personality and will power must count for less in environments which have become accustomed to economic change--best instanced by an incessant stream of new consumers' and producers' goods--and which, instead of resisting, accept it as a matter of course. The resistance which comes from interests threatened by an innovation in the productive process is not likely to die out as long as the capitalist order persists. It is, for instance, the great obstacle on the road toward mass production of cheap housing which presupposes radical mechanization and wholesale elimination of inefficient methods of work on the plot. But every other kind of resistance--the resistance, in particular,of consumers and producers to a new kind of thing because it is new--has well-nigh vanished already. Thus, economic progress tends to become depersonalized and automatized (1942/1950, p.325). Lenin, too, assumed that accountants and clerks routinely carry out the important activities of business in machine-like fashion with entrepeneurial effort: Accounting and control--these are the _c_h_i_e_f things necessary for the organizing and correct functioning of the _f_i_r_s_t_ _p_h_a_s_e of communist society. _A_l_l citizens are here transformed into hired employees of the state, which is made up of the armed workers. _A_l_l citizens become employees and workers of _o_n_e national state "syndicate." All that is required is that they should work equally, should regularly do their share of work, and should receive equal pay. The accounting and con- trol necessary for this have been _s_i_m_p_l_i_f_i_e_d by capi- alism to the utmost, till they have become the extra- ordinarily simple operations of watching, recording and issuing receipts, within the reach of anybody who can read and write and knows the first four rules of arithmetic. Possony (1966, p.208) (italics in original) Marshall was a forceful countervoice, emphasizing the primacy of a non- mechanical view of human nature for the purposes of the economist: The main concern of economics is thus with human beings who are impelled, for good and evil, to change and progress. Fragmentary statical hypotheses are used as temporary auxiliaries to dynamical--or rather biological-conceptions: but the central idea of economics, even when its Foundations alone are under discussion, must be that of living force and movement (1920, p. xv). And Marshall explained the opposite tendancy of the classical writersas follows: For the sake of simplicity of argument, Ricardo and his followers often spoke as though they regarded man as a constant quantity . . . It caused them to speak of labour as a commodity without staying to throw themselves into the point of view of the workman; and without dwelling upon the allowances to be made for is human passions, his instincts and habits, his sympathies and antipathies, his class jealousies and class adhesiveness, his want of knowledge and of the opportunities for free and vigorous action. They therefore attributed to the forces of supply and demand a much more mechanical and regular action than is to be found in real life (1920, pp.762-763). The view of economic motivation and behavior that underlies thinking has major policy implications for a nation, affecting narrowly-economic forecasts and expectations and plans, as well as decisions about how schools and other institutions are to be run. EARLIER THEORY It is a basic tenet of economic theory that if the potential reward is increased, businesses and individuals will supply more goods and services to the market. For analytic purposes, the market price is the central motivating element. Contrary to popular notion, however, this tenet does not mean that classical economics asserted that the drive for material goods is the main motive of human beings. Smith made clear that the regard of one's fellows is our most important motive. And before Smith, Mandeville put the matter as follows: The meanest wretch puts an inestimable value upon himself, and the highest wish of the ambitious man is to have all the world, as to that particular, of his opinion: so that the most insatiable thirst after fame that ever hero was inspired with was never more than an ungovernable greediness to engross the esteem and admiration of others in future ages as well as his own; and (what mortification soever this truth might be to the second thoughts of an Alexander or a Caesar) the great recompense in view, for which the most exalted minds have with so much alacrity sacrificed their quiet, health, sensual pleasures, and every inch of themselves, has never been anything else but the breath of man, the aerial coin of praise (1705/1962, p. 48). Marshall pointed out that the opportunities for choosing a level of effort are greater than might be thought, and are chosen by mobility if no other way: ...there are scarcely any trades, in which the amount of exertion which he puts into his work is rigidly fixed. If he be not able or willing to work up to the minimum standard that prevails where he is, he can generally find employment in another locality where the standard is lower; while the standard in each place is set by the general balancing of the advantages and disadvantages of various intensities of work by the industrial populations settled there. The cases therefore in which a man's individual volition has no part in determining the amount of work he does in a year, are as exceptional as the cases in which a man has to live in a house of a size widely different from that which he prefers, because there is none other available (1920, pp. 527-528). Hicks (l932) expanded the formal analytic apparatus to include the individual's desire for leisure as a second motivating element. This apparatus helps explain why an increase in the price of labor could sometimes lead to less rather than more labor being supplied by given individuals. (A section in Chapter 5 aims to give new precision to theidea of the backward-bending supply curve of labor using the central analytical mechanism of this book.) Another theoretical improvement occurred when Fisher (l932) and Modigliani (l966) formalized the obvious fact that a person's wealth affects the person's decision about how much to save and how much to consume within a given period: more wealth, less saving. They placed the saving-consumption decision in the context of the remaining segment of the person's lifetime, and they analyzed the intended allocation of the person's assets over that period. Some writers, Feldstein (1974), for example, have discussed the work-versus-leisure decision in the same context, but I have not traced the intellectual history of that idea to its roots. Earlier, Chayanov (l923/l966) formally modeled how differences in circumstances, such as different numbers of children, affect the work decisions of the subsistence farmer. His analysis, postulating particular indifference relationships between goods and leisure, fits the case of any working person having variable work opportunities. Similar theory was later reinvented by a number of writers including Mellor (l963) and Sen (l966). Becker (l965/l976) expanded the theory of economic motivation with a richer analysis of the relationships among wages, wealth, and work time. He introduced as a variable the time-intensivity of the various goods which additional income would buy, and he traced the effect of that variable upon the work-leisure decision. He also (l976) placed work and savings decisions in the context of the remainder of the life-cycle and the expected amounts of lifetime, wealth, and earning power. In Becker's analysis, as in Chayanov's, greater wealth per person in a family (speaking a bit loosely for now) implies fewer earnings opportunities, _c_e_t_e_r_i_s _p_a_r_i_b_u_s. But Becker's main interest is not the effects of the individual's economic behavior upon total economic production, but rather the individual's behavior in general. The widening of the focus to include more than economic behavior is seen in the title of Becker's l976 book, _T_h_e_ _E_c_o_n_o_m_i_c_ _A_p_p_r_o_a_c_h_ _t_o_ _H_u_m_a_n_ _B_e_h_a_v_i_o_r. In contrast, the subject of the present essay, playing upon Becker's title, might be The_Human_Approach_to Economic_Behavior. The analysis of risk as another aspect of motivation came into economicanalysis mainly by way of von Neumann and Morgenstern (l947; Knight's earlierwork, l92l/l965, did not enter formal theory). This theoretical strand seemsat first to have the opposite implication from Drive-Effort analysis. If a newrisky investment opportunity appears, the person with greater wealth will bemore likely to invest a given sum of money than will the person of lesser wealth, because of differences in risk aversion. And if the opportunity requires work participation by the investor as well as capital, and if the restof the individual's life cannot be rearranged for the moment but rather is properly treated as fixed, the richer person may be more likely to do the additional work that goes with the investment than will the poorer person. But if the investment is primarily "sweat equity," the poor person will bemore likely to accept the opportunity. That is, though it is common to assertthat the poor are more averse to risk than are the rich, and hence the utilityfunction of the poor is more concave than that of the rich, this observationshould be understood to refer only to monetary investments unconnected withtime, effort, or bodily risk. For example, a poor person is more likely tovolunteer for a particularly risky job than is a rich person. In such a situation the effect of wealth through risk works in the same direction as itdoes in other aspects of motivation; that is, it is consistent with the Drive-Effort analysis. And the analysis presented here would seem to be quite compatible with the observation of similar behavior to risk measured as a proportion of wealth, for persons with different levels of wealth, as the literature shows.5 *** Leibenstein (l980, p. 7) emphasizes the importance of what he calls "the effort decision." Much of his discussion of the topic is helpful and interesting. But the effort concept discussed here is quite different from Leibenstein's concept. For Leibenstein, "The effort-utility relation reflects an individual's personality" (p.108), and he also mentions "pressure" (including group relations) as an influence on effort; both have the drawbacks that they are not easily measurable for this sort of purpose, and are outside the set of ordinary economic variables. In contrast, the influences on effort in the framework presented here are entirely economic: initial wealth, and the size of earning opportunity, which are mostly objective and measurable. And the intensity of effort is similar to Becker's time input (1965) as an economic variable, though somewhat harder to measure in most cases, probably. Also, Leibenstein suggests that for most people, additional effort "has greater utility" in the range of low effort, and his function changes direction at higher effort. In contrast, implicit in the formulation used here is that less effort is always preferred to more effort.6 *** Pencavel made a valiant attempt to attract the attention of economists to variations in effort, noting that "analytical work in economics of a more recent vintage has tended to ignore the intensity of work effort" (1977, p. 225), though managers treat the effort of their work forces as an important variable. But there has been no rush of interest to the topic. Hall discussed systematic variation in effort over the business cycle as one of the implicit elements in the long-run wage contract. There is, he says, "an implicit or explicit agreement that employees work harder when there is more work to do (1980, p. 93) ... Workers put in extra effort during booms and take it easy during slumps." (p. 95). He ingeniously calculates the components of the (deviations from the trend of) changes in total output during the two contraction periods of 1970-71 and l974-75, finding that decreased intensity of work effort caused 1.1 percent change (out of 7.3 per cent total change), and decreased hours per worker caused another 2.6 per cent change. So decreased work effort accounted for more than half the change in total output. (The employment rate and the participation rate accounts for the rest). And decreased work intensity -- less output per hour -- accounted for 1.1/7.3 = 15 per cent of the change (p. 96). It is change in opportunity that accounts for the change in effort in Hall's analysis. The change in opportunity is at the level of the firm, and the effect is transmitted to the workers through the long-run wage bargain Hall is analyzing. Opportunity is one of the two elements in the Drive-Effort Measure for effort that is suggested in this book. Social scientists other than economists have offered a variety of explanations for the amount of effort put forth. For example, Toynbee offered his challenge-and-response mechanism to explain various occasions in history when nations and groups have made exceptional efforts. However, the hypothesis of this book that greater opportunity evokes greater effort seems to run exactly counter to Toynbee's notion of challenge-and-response, which states that more severe conditions--that is, lesser opportunities-- evoke greater drive: We have ascertained that civilizations come to birth in environments that are unusually difficult and not unusually easy; and this had led us on to inquire whether or not this is an instance of some social law which may be expressed in the formula: "the greater the challenge, the greater the stimulus" (1962, p. 259). Mixing together endowments and opportunities into the single independent variable "challenge" accounts for this confusing proposition of Toynbee's. And indeed, many of the historical examples that Toynbee (p. 274) cites in support of his theory--Venice, Holland, and Switzerland, for example--fit more neatly with a theory using both opportunity and endowment as explanatory concepts than they do with Toynbee's combination variable "challenge." McNeill (l963, p.56ff) posits social instability, political fragmentation, market orientation, and openness to new ideas as the causes of Europe showing intellectual and physical vigor not seen in Asia in centuries past. Hagen (l962) and others have put forth a variety of psychological factors (some related to self-selection), including discrimination and social derogation, as causes of immigrants working harder than natives. Weber (1923/1961) and other sociologists have suggested that values--such as the "Protestant ethic," or the Confucian family relationships and child training--influence aspirations and work behavior. But whether or not such mechanisms are operative and important, none of them can immediately or easily be conjoined with standard economic theory in such manner as to take advantage of the insights they may offer. Concerning the biological-psychological nature of what is here called "effort," psychologists from at least James and Dewey have made clear thatthere are physical correlates of effort as consciously experienced. Jamesdescribed effort as follows: The various degrees of `effort' actually felt in making the same movement against different resistances are all accounted for by the incoming feelings from our chest, jaws, abdomen, and other parts sympathetically contracted whenever the effort is great. (l890/l983, p.368) Dewey (1897) put it this way: ... I have yet to find a student who, with growing power of introspection, did not report that to him such sensations seemed to constitute the "feel" of effort. Moreover, the cumulative force of such statements is very great, if not logically conclusive. Many state that if they relax their muscles entirely it is impossible to keep up the effort. Sensations frequently mentioned are those connected with breathing -- stopping the respiration, breathing more rapidly, contracted chest and throat; others are contraction of brow, holding head fixed, or twisting it, compression of lips, clenching of fist, contraction of jaws, sensations in pit of stomach, goneness in legs, shoulders higher, head lower than usual, fogginess or mistiness in visual field, trying to see something which eludes vision, etc. (in McDermott, ed., pp.150-151) ----------------------- INSERT II-12B Einstein said that at least some of his ideas "are, in my case, of visual and some of muscular type. Conventional words or other signs have to be sought for laboriously only in a secondary stage..." Albert Einstein, Ideas and Opinions (New York: Bonanza Books,----) -------------- A variety of evidence to substantiate the point -- the sense of effort felt by paraplegics trying to move paralyzed limbs is one of the most interesting phenomena -- were summarized by Ferrier7 in 1886 *** (pp. 383-390). The physical nature of effort is not of concern here. But it is important to recognize that there are some physical correlates, so that it is appropriate to think of effort as exerting some physical "cost" upon the body. (But this does not imply that the sort of cost-benefit analysis that we apply in a variety of business situations is approprate in thinking about effort; I think it is not helpful, and is likely to twist our thinking in this context.) Dewey's unusual definition of effort is worth noting: Practically stated, this means that effort is nothing more, and also nothing less, than tension between means and ends in action, and that the sense of effort is the awareness of this conflict. (in McDermott, ed., p.154) This implies that the greater is the opportunity, or the greater is something like the objective correlates of the Drive-Effort measure, the greater the effort. In recent years, along with the shift away from introspective evidence, psychology has focused on aspects of effort other than the relationship to incentives, and therefore seems to bear little upon the subject discussed here. (See Kahneman, 1973, for an excellent review of the literature). THE VIEWPOINT OF THIS BOOK This book aims to increase the power of economic theory to _s_y_s_t_e_m_a_t_i_c_a_l_l_y explain the amounts and types of work done. The key idea is that the response to a work opportunity depends upon the relationship between the payoff to the individual's perceived opportunities and his/her present wealth (assuming that Becker's analysis reveals the appropriately specified relationship to be "positive"). But the measure of motivation is not simply an arithmetic difference between potential and "endowment," because the same arithmetic gap between the "before" and "after" states does not elicit the same change in behavior in a rich person as in a poor person. (In contrast, in Becker's system the effect of a given change in wealth on the amount of time worked does not depend on wealth position). Therefore, a function is proposed which makes the difference proportional to the wealth. This function is similar in form to the geometric function often suggested for the curve of diminishing marginal utility of money, and to the shape of the Weber-Fechner psychophysical function. Involved in an individual's response to an opportunity requiring work are such factors as energy, fatigue, pain, and social constraints which are difficult to model . But because all of these additional factors can be lumped together in the analysis, the net cost in increased size of the theoretical structure is the addition of only one portmanteau variable, to be called "Drive-Effort" ("DrEf" for short). And because the intellectual strategy used is to proceed sequentially in two steps--first Becker's analysis as a filter, followed by the Drive-Effort analysis--there are no additional complications in the existing theoretical machinery. ILLUSTRATIONS OF THE NATURE AND IMPORTANCE OF VARIATION IN EFFORT Because the concept of effort is not part of economic theory, the importance of variations in effort is likely to be underestimated by economists. Let us therefore review some observations by business people, journalists, and others which confirm -- unless all these first-hand observers are mistaken, or unless the behavior they refer to is subsumed in some other economic category -- that effort really does vary, and that the concept of effort can improve our understanding. Two main types of evidence are on the one hand, introspection, and on the other hand, observation of others. There is also some physiological evidence which will be cited first, after which comes evidence concerning DrEf and innovation, DrEf and attention, and then some general observations. Physiological_Evidence_for_DrEf. Anyone who has exhorted her/himself to "try harder" physically or mentally in a sporting match or examination, or who has "racked the brain" in trying to solve a problem, implicitly believes that the outcome does not depend only upon the inputs of time and money. The same is true for circumstances in which you have "driven yourself"--a telling term--to intensify effort despite unpleasant sensations of pain from fatigue or injury or sickness; also the experience of exerting self-discipline, the essence of which seems to be a capacity to absorb pain for a purpose. We have felt how our capacities to drive ourselves and to exert self-discipline vary with the circumstances, including how much we feel we need the payoff at risk. We feel how we drive ourselves harder for a crucial point in a sports match, or when we are "hungry" for victory (another revealing term). Systematic studies of athletics show variation among persons in willingness to exert this sort of effort: Endurance performance...is governed by both the physiological capacity of the athlete and the will of the athlete to tolerate pain and the daily sacrifices that are dictated by rigorous training...marathoners perform approximately 75 percent of their maximal aerobic power with the actual range being from 64-90 percent of maximum. Maximal aerobic power, or maximal oxygen uptake, is defined by exercise physiologists as the highest oxygen uptake an individual can attain during activity. The decision to perform at a level above 75 percent, as opposed to a level below, is certainly a function of will and the ability to cognitively process the cues associated with the pain costs inherent in such a decision. (Silva, 1983, pp.32-33) The related phenomenon of mental alertness also has recently been traced to physiological origins: There is a limit to how mentally alert one can stay. Students burning midnight oil, soldiers on patrol, bankers closing a transatlantic deal all force them- selves to work harder and longer than usual, only to collapse in fatigue when the pressure is off. Once they relax, it is difficult to reach such high levels of mental activity again soon. One possible reason is that the brain requires a resting period before it can resume production of the stimulating neuro- transmitters. (Newsweek, Feb. 7, 1983, p.46.) DrEf_and_Attention. Attention, as H. Simon somewhere pointed out, is an important factor of production. The attention of top management often is the bottleneck constraint in an organization, especially where major changes are involved. The amount of attention devoted to a job sometimes is simply a matter of the amount of time that is devoted to a task, as in the case of top management's attention. But sometimes attention depends upon the intensity of effort expended within a fixed work time--for example, where there may be a larger or smaller proportion of daydreaming on the job rather than concentration on the appointed task. Either way, however, it is not easy to increase the amount of needed attention by buying more of it at a constant or declining cost the way a firm can usually buy more building supplies or envelopes. Here are a couple of illustrations: (l) Limited, Inc. took over the Lane Bryant chain of women's clothingstores: The task of resuscitating the 207-store chain, catering to larger and taller women with budget-priced apparel, is occupying "about 90%" of top management's time. Leslie H. Wexner, chairman and president said in an interview. (_T_h_e_ _W_a_l_l_ _S_t_r_e_e_t_ _J_o_u_r_n_a_l, October l2, l982, p. 24.) (2) One of the advantages claimed for operating a manufacturing operation with very small inventories of input materials which are delivered on a precision schedule (the "just in time" method attributed to the Japanese) is that it draws attention to weak points in the operation: The immediate result is work stoppages. Plenty of them. Production comes to a standstill because feeder processes break down or produce too many defectives-and now there is no buffer stock to keep things going. This is exactly what is supposed to happen. For now the analysts and engineers pour out of their offices and mingle with foremen and workers trying to get production going again. Now the causes--bad raw materials, machine breakdown, poor training, tolerances that exceed process capabilities--get attention so that the problem may never recur. (_T_h_e_ _W_a_l_l_ _S_t_r_e_e_t_ _J_o_u_r_n_a_l, November l5, l982, editorial page) Because attention increases in unit cost as increasing amounts of it are exerted, it has the key property to which the DrEf analysis is addressed. James makes a great deal of the connection between the concepts of effort and of attention. He writes: Volitional_effort_is_effort_of_attention_..._The essential_achievement_of_the_will,_in_short,_when_it_is most_"voluntary,"_is_to_attend_to_a_difficult_object and_hold_it_fast_before_the_mind_..._Effort_of attention_is_thus_the_essential_penomenon_of_will_... This strain of the attention is the fundamental act of will ..._Consent_to_the_idea's_undivided_presence,_this is_effort's_sole_achievement. (1890/1963, pp. 393-395, underlining in original). James also connects the concepts of effort and attention with decision-making. After a delicate dissection of various kinds of decisions, he describes the final and most deliberative type as follows: ... we feel, in deciding, as if we ourselves by our own wilful act inclined the beam: in the former case by adding our living effort to the weight of the logical reason which, taken alone, seems powerless to make the act discharge; in the latter by a kind of creative contribution of something instead of a reason which does a reason's work. The slow dead heave of the will that is felt in these instances makes of them a class altogether different subjectively from all the four preceding classes. What the heave of the will betokens metaphysically, what the effort might lead us to infer about a will-power distinct from motives are not matters that concern us yet. Subjectively and phenomenally, the feeling_of_effort, absent from the former decision, accompanies these. Whether it be the dreary resignation for the sake of austere and naked duty of all sorts of rich mundane delights; or whether it be the heavy resolve that of two mutually exclusive trains of future fact, both sweet and good and with no strictly objective or imperative principle of choice between them, one shall forevermore become impossible, while the other shall become reality; it is a desolate and acrid sort of act, an entrance into a lonesome moral wilderness. If examined closely, its chief difference from the former cases appears to be that in those cases the mind at the moment of deciding on the triumphant alternative dropped the other one wholly or nearly out of sight, whereas here both alternatives are steadily held in view, and in the very act of murdering the vanquished possibility the chooser realizes how much in that instant he is making himself lose. It is deliverately driving a thorn into one's flesh; and the sense of inward_effort with which the act is accompanied is an element which sets this fifth type of decision in strong contrast with the previous four varieties, and makes of it an altogether peculiar sort of mental phenomenon" (pp. 379-380). DrEf_and_Innovation. The creation of new ideas that may increase output--that is, the creation of new technology for production and organization--also fits with the DrEf scheme. There would seem to be two major ingredients of idea creation: the urge to attempt creating a new idea, and a range of information that may be synthesized into new knowledge. Discussion of the latter factor will be deferred to another occasion;8 the former is of interest here. ***** Ever since at least Hicks (1932/1963, pp.125-127), economists have distinguished between autonomous and induced inventions. It is quite clear, as Schmookler (1966) especially has shown,9 that the ***** extent of the economic opportunity (the amount of investment, in Schmookler's empirical work; change in relative prices, in Hicks's theorizing) induces some inventions, and hence it seems reasonable to liken that factor to the extent of Drive. And autonomous inventions also are likely to depend on some urge to astonish the scientific world, or to advance one's career, or to improve mankind's lot, rather than being the result simply of curiosity uninfluenced by economic or psychological needs. Hence it probably is reasonable to include autonomous inventions in the discussion, though there is no necessity to do so here. Change of any kind, including adjustment of one's ideas and institutions, requires effort. As Veblen (l890/l953, p. l37) put it, "All change in habits of life and thought is irksome," and "any innovation calls for a greater expenditure of nervous energy in making the necessary readjustment than would otherwise be the case" (p. 140). Veblen well described how wealth reduces the propensity to make such adjustments: If any portion or class of society is sheltered from the action of the environment in any essential respect, that portion of the community, or that class, will adapt its views and its scheme of life more tardily to the altered general situation; it will in so far tend to retard the process of social transformation. The wealthy leisure class is in such a sheltered position with respect to the economic forces that make for change and readjustment. And it may be said that the forces which make for a readjustment of institutions, especially in the case of a modern industrial community, are, in the last analysis, almost entirely of an economic nature. (p.134) The members of the wealthy class do not yield to the demand for innovation as readily as other men because they are not constrained to do so. (p. 138) General_Introspective_Evidence. Consider these extracts from an article headed "Some Japanese Balk at Overseas Jobs": The trend [of Japanese executives refusing overseas assignments] seems to symbolize...the "diminishing fighting spirit" of Japanese businessmen, particularly younger businessmen. Unlike their seniors, who put loyalty to the company above all else, many of these younger men seem to care most about their family lives and other per- sonal concerns, it is said. One personnel chief says establishing the loyalty of younger employees is the crucial challenge for Japanese companies in the 1980's. (_T_h_e_ _W_a_l_l_ _S_t_r_e_e_t_ _J_o_u_r_n_a_l, July 9, l982, p. l4.) Another example comes from interviews with young Japanese executives studying at Stanford: American training may help Mr. Abe and his fellows to manage an increasingly leisure-minded Japanese work force. Says a Japanese classmate of Mr. Abe's: "We still feel we belong to the company, but that is lessening. Young people in Japan now like to leave the office at 5 o'clock. American management has been dealing with worker independence for a long time, and being here will help us deal with it when we return." (_T_h_e_ _W_a_l_l_ _S_t_r_e_e_t_ _J_o_u_r_n_a_l, October 20, l982, p. l6) It would seem plausible that the trend of increasing well-offness with passing years explains an important part of the Japanese executives' behavior. This passage comes from Cahan's famous novel-from-the-life, _T_h_e_ _R_i_s_e _o_f_ _D_a_v_i_d_ _L_e_v_i_n_s_k_y: There are moments when I am overwhelmed by a sense of my success and ease. . . . I recalled other people whom I used to fear and before whom I used to humiliate my- self because of my poverty. I thought of the time when I had already entered the cloak business, but was strug- gling and squirming and constantly racking my brains for some way of raising a hundred dollars; when I would cringe with a certain East Side banker and vainly beg him to extend a small note of mine, and come away in a sickening state of despair. (quoted by Rischin, 1965, pp. 209-210) This is testimony by a football player about himself and colleagues on one of the most successful professional teams of all time: "[S]o many of us were living proof that deprivation was a great motivator" (Jerry Kramer, quoted by Jonathan Yardley in The Washington Post, Oct. 23, 1985, p. C2, from Distant Replay, Putnam, 1985). General_Observational_Evidence. With respect to other persons' behavior, we not only observe that effort varies with the circumstances, but as consumers and employers we also act upon that observation. We offer extra pay to a taxi driver to "try" to make the airport in time for the plane. We give bonuses for superior performance in business and in professional athletics. Sellers will literally pay prospective buyers to "try" new products.10 People demand extra compensation to do *** work which may besmirch their reputations, such as crossing a picket line; the other side of the same coin is that people will pay to receive "honors" such as titles of nobility, or the opportunity to perform some religious ritual (the auction of high-prestige roles in the Torah-reading ceremony in orthodox synagogues used to be a fascinating drama of pride and charity). Purchase of honors is consistent with Adam Smith's assertion that our reputation in the community is the good of most importance to most of us. The premium paid for effort is not very different from the premiumpaid for bodily risk. This is seen when the taxi driver racing to theairport not only suffers the stress of trying but also braves thedanger of a painful crash. The same must be true of a Sherpa portercarrying baggage in a difficult and dangerous Nepalese mountain ascent.(Such danger to life and limb surely goes beyond the risk to one's humancapital and future stream of income.) The exertion of effort, with its concomitant elements of pain, fatigue, ego, pride, and so on, is one of the biggest differences between the robot and the human as factors of production. Both require energy to operate. Work time is a variable to both. Both can be programmed to check their physical conditions and to make repairs if indicated. But a robot has no ego, and it does not suffer mental or physical pain.11 (Of course, *** one might translate pain into a physical deterioration, but this would blur our understanding rather than contribute to it.) Here are some comments on the effect of hard times in increasing firms' effort in cost-cutting and marketing: The president of United Airlines: In difficult economic circumstances such as we have experienced in the past few years, there is a temptation to sacrifice quality to reduce costs or increase profits ... American businesspeople, lulled into complacency by an extended period of dominance in world markets, have allowed quality to deteriorate in a misguided effort to catch up when they realized our nation had fallen behind." (Ferris, 1982) About the "smokestack industries" in recent recessions: Pessimists who have been lamenting the passing of the nation's basic industry were premature. The economic recovery is starting to show up in big profits for smokestack plants ... painful cut-backs have lowered heavy industry's break-even point ... and are a major reason for the return to acceptable profits. "Everything is lean and mean about this company except its chairman," says Richard J. Jacob, the bulky chairman and chief executive officer of Dayco Corp. (The_Wall_Street Journal, "Streamlined Smokestack Industries Are Beginning to Show Big Profits," March 28, 1984, p. 35) From a German executive of a company that had been close to bankruptcy: "The struggle for survival triggers many energies" (Detlev Rohwedder, "A Panel of European Business Executives Sees Narrowing of Gap with U. S., Japan", The Wall Street Journal, June 26, 1985, p. 30) A poll on the subject in a Wall_Street_Journal article was entitled "Executives See Some Benefits In Recession:" Now that it's over, business executives don't have such bad things to say about the recession. "We had sloppy habits that had to change," says the chairman of an oil company. Says the chairman of a manufacturing company: "It put a dose of reality into our lives -- sharpened us up. It was an educational tool." Adds the president of a retailing concern: "It got economic sense into us." These are among the findings of a Wall Street Journal/Gallup survey of 822 executives. The survey shows that more than seven in 10 top executives at large and medium-sized companies think the recession was a good thing for the country. Only about two in 10 thought it was a bad thing ... Here is a sampling of what executives had to say about whether the slump was good or bad: "People are more realistic. Workers are more realistic about the value and quality of their labor and the value of competition. It woke business executives up to realize their irresponsible wage and labor practices. In short, everyone was scared to death." --- the chairman of a large company "It was a well-justified adjustment. We were wasting money at the federal level. It still isn't corrected totally, but it has improved." --- the chairman of a real estate company "Hardship on people is not a good thing. Perhaps it was medicine we need, although I hate to say it." --- the chairman of a company that recycles scrap metal "We were all at a point in this country where everyone was satisfied, businessmen in particular. We had gotten to the point where we weren't concentrating on things as we should, and this helped bring us back to reality." --- the president of a petroleum-shipping company "It made us bite the bullet and realize what Japan is doing." --- the president of an advertising company "It weeded out a lot of fat in the industrial complex, but it's unfortunate that it had to happen." --- the president of a coal company "From a cold-blooded economic stand-point it was good, but what a human tragedy." --- the president of a petroleum jobber "It put us all in our place. Taught us the value of a dollar and made us appreciate what we've got. Also, it made us realize that it could be a hell of a lot worse. I never heard of anyone go without a meal." --- the president of a paint and wallpaper store (The_Wall_Street_Journal, January 13, 1984, p. 25) A journalist's observation about the effect on AT&T of operating with competition: New York -- Part of American Telephone & Telegraph Co.'s effort to reach out in new directions is an intensifying program to trim a work force that in the old days was as stable and secure as AT&T's own profits and dividends. The old stability ended with the breakup of AT&T on Jan. 1, which plunged the company into a fast-track battle for computer and tele-communications markets in this country and worldwide. In this race, AT&T quickly found it could not carry its old overhead and employe costs, its officials say. "It's a difficult adjustment, but it is very much a part of the competitive world we're entering," said Francis J. Heffron, executive vice president for planning and administration at AT&T Technologies... It is a painful process ...(The_Washington_Post, "The Painful Downsizing of AT&T," September 2, 1984, p. G1) And the drop in oil prices: Big U.S. oil companies, once fat and happy, have been eliminating jobs by the tens of thousands, and white-collar employees have been hit hardes. One reason why Exxon Corp.'s earnings rose a healthy 19% last year was that the company eliminated 17,000 positions in 1983 -- 10% of its entire worldwide work force. It cut another 7,000 jobs in 1982. "We needed to go on a diet and exercise program," says George B. McCullough, Exxon's vice president for employee relations. "We needed to get down to fighting trim." Most big oil companies, faced with keener competition because of sagging prices and demand, are thinking the same way... "We were fat in a lot of areas," says a Sun spokesman. When you have some very, very prosperous years, you're sometimes not as careful as you should be." (The_Wall Street_Journal, "Major Oil Firms Are Slashing Jobs As Takeovers Rise, Demand Sags," April 19, 1984, p. 33) Foreign competition caused General Motors to examine all parts of its operation to cut cost: At "Scrub U.," GM's Janitors Learn Latest Ways to Get the Dirt Out ... Even the mundane can't escape the visionary gaze of General Motors Corp. management these days. And it is hard to get much more mundane than mopping floors. In fact, just as GM's new Saturn Corp. is meant to revolutionize car-building, the company's new Industrial Cleaning Technology Center here is meant to turn the world of cleaning commercial dirt and grime upside down. If cleanliness is next to godliness, then "Scrub U."- as it is known throughout GM - is almost heaven ... "To regain competitiveness we have to attack absolutely every area of the business that generates cost," says Robert J. Eaton, vice president of advanced product and manufacturing activities. (Wall Street_Journal, May 2l, l985, p. 33). Even some economists use the vocabulary of effort: Edward Denison of the Brookings Institution ... says "the fear of Japanese competition" is driving both management and labor to look harder for cost-saving efficiencies. and "We are seeing cost-cutting in the business world the likes of which hasn't taken place since the 1930's," says A. Gary Shilling, a New York consultant. Because of the expectations of slow economic growth, weak exports and foreign competition, he adds, "cost-cutting is going to be one of the motifs of business for the rest of this decade. And cost-cutting has as its counterpoint unemployment for somebody." (The_Wall_Street_Journal, May 9, 1983, p. 1) A student of the economics of research and development uses an effort concept in describing the effects of government intervention: Why face the uncertainties of a new technology and the inconveniences of change if the State stands ready to guarantee markets, or to make up deficits incurred in trying to hold a position with inappropriate products or methods? (Carter, ). ****** Managers as well as industrial psychologists believe that a worker's effort is influenced by his or her "motivation." We read accounts of the effect of the recession of the early 1980's about the auto industry: Unions Say Auto Firms Use Interplant Rivalry To Raise Work Quotas ... Locals Call It 'Whipsawing,' Complain That It Works Because of Layoff Fears. (The_Wall_Street_Journal, November 7, 1983, p. 1) And this one about a truck parts firm: Like many other companies, Eaton has also increased its emphasis on employee motivation. "We assume that people want to make a contribution and that we have to create an atmosphere to permit them to make the contribution," says Mr. Stover. "That includes everything from eating and parking facilities to first-line supervisor relationships." (The_Wall Street_Journal, March 28, 1984, p. 35) And this about a tiremaker: Firestone is putting new emphasis on employee motivation. "We were no better and no worse than other companies," says John J. Nevin, Firestone's chief executive, "but only about 1,000 of our employees were permitted to contribute everything they could. Tacitly, we said to the rest, 'We're not buying your brains; we're buying your body.'" Now, Firestone is trying to harness that "underutilized asset -- the brainpower of its employees," Mr. Nevin says, through a wide-ranging program to involve them in cutting costs and improving product quality. (The_Wall Street_Journal, May 11, 1983, p. 22) One of the very most difficult choices that every society, other than the most brutal of them, must make is the tradeoff between what we may dub "character" (or discipline) and "compassion" (or caring, or pity). All but the most blindly devoted mothers and fathers recognize that giving people economic resources instead of requiring that they obtain them through work may reduce the propensity for work. This idea is at the core of Murray's recent Losing Ground (1984). Or consider this statement of the effects of want on a young Hispanic American: ... my only out was to promise myself that these hands were never going to harvest tomatoes, not for anybody. White people can go to hell in a handbasket -- they can go to Burger King and not have it their way, for all I care --- I was not going to harvest lettuce. That somehow, I was going to make it. (The_Washington_Post, "Where Anglos Fear to Tread," March 6, 1984, p. C11). Abraham Lincoln wrote to his brother thusly in 1851: Your request for eighty dollars I do not think it best to comply with now. At the various times when I have helped you a little you have said to me, "We can get along very well now"; but in a very short time I find you in the same difficulty again. Now, this can only happen by some defect in your conduct. What that defect is, I think I know. You are not lazy, and still you are an idler. I doubt whether, since I saw you, you have done a good whole day's work in any one day. You do not very much dislike to work, and still you do not work much, merely because it does not seem to you that could get much of it. This habit of uselessly wasting time is the whole difficulty; it is vastly important to you, and still more so to your children, that you should break the habit. It is more important to them, because they have longer to live, and can keep out of an idle habit before they are in it, easier than they can get out after they are in. (Tarbell, 1911, p. 13, as quoted somewhere by Novack). And Mandeville wrote acerbically that: Pity [by which he means the urging of compassionate acts without regard to their full consequences], though it is the most gentle and the least mischievous of all our passions, is yet as much a frailty of our nature as anger, pride, or fear. The weakest minds have generally the greatest share of it, for which reason none are more compassionate than women and children. It must be owned that of all our weaknesses, it is the most amiable and bears the greatest resemblance to virtue; nay, without a considerable mixture of it, the society could hardly subsist: but as it is an impulse of nature that consults neither the public interest nor our own reason, it may produce evil as well as good. It has helped to destroy the honour of virgins and corrupted the integrity of judges; and whoever acts from it as a principle, what good soever he may bring to the society, has nothing to boast of, but that he has indulged a passion that has happened to be beneficial to the public (l705/l962, pp. 49-50). I hope that you the reader are by now sufficiently convinced of the importance of the effort concept in understanding economic action that you will proceed to the formal statement of it in the next two chapters. D/l36A,#285- 35 Effort2 10-10-85 Footnotes 1The validity of the Hawthorne conclusion has been the subject ofhot controversy in the recent sociology literature (Carey, ---, --- , Schlaifer, and also the important early treatment by Viteles, 193- ). 2The dynamic effects of exerting effort are an important topic in themselves, which are not treated in this book but deserve future attention. 3I hope it is not reaching to as afraid to offer the following quotation from Berlin: ... because the life which Churchill so loves presents itself to him in a historical guise as part of the pageant of tradition, his method of constructing historical narrative, the distribution of emphasis, the assignment of relative importance to persons and events, the theory of history, the architecture of the narrative, the structure of the sentences, the words themselves, are elements in an historical revival as fresh, as original, and as idiosyncratic as the neoclassicism of the Renaissance or the Regency. To complain that this omits altogether too much by assuming that the impersonal, the dull, the undramatic, are necessarily also unimportant, may well be just; but to lament that this is not contemporary, and therefore in some way less true, less responsive to modern needs, than the noncommittal, neutral grass and plastic of those objective historians who regard facts and only facts as interesting and, worse still, all facts as equally interesting -- what is this but craven pedantry and blindness? 4The possibility of misquotation must always be considered, and hence this should be taken as exemplary rather than as a commentary onSamuelson. 5Haim Levy informed me that this is the current state of knowledge in the finance literature. 6I do not doubt that the exertion of effort often is preferred to noexertion, as seen in many unpaid activities such as sports, and in the activities of young children and pet dogs. But I do not think that this affects the analysis offered here, for the purposes to which it is directed. 7I am grateful to Jay Russo for sending me this source. 8 A single note on this topic: A faster rate of change in the environment over the individual's lifetime is likely to produce a widerrange of informational stimuli. And migration--which constitutes achange of environments by the individual--also is likely to increase therange of such informational stimuli. 9See also: Scherer, 1982. 10Seen in the newspaper ten minutes after this sentence was written: SYNERGY DEPT.: In East Palestine, Ohio, a dental clinic and a Ford dealership team up to promote themselves. A dental chair will be put in the auto showroom. Persons who test-drive a car will get their teeth cleaned free. (_T_h_e_ _W_a_l_l_ _S_t_r_e_e_t_ _J_o_u_r_n_a_l, August 26, l982, p. l) 11Robots could fire people for non-performance, or foreclose mort- gages for non-payment, but would not agonize over the decision the waya person does. This vignette about rural bankers refusing rolloverloans to overextended farmers brings out the point: The financial logic may be clear, but bankers say such decisions aren't easily made. Refusing a loan may mean ending what has been a way of life for generations. In others, it means cutting loose young men who have little hope of finding work in a weak economy. The process is especially painful for rural bankers in close-knit farm communities. "These guys sit next to you in church," says Bryant Wackman, a bank president in Brooklyn, Wis., who may have to decline loans for two of his customers. "You've cooked all those chicken barbecues, eaten the smoke with them for years. It's difficult."( ) Hofstadter observes that under appropriate circumstances humans will always get bored and frustrated but computers do not (unless programmed to do so). This leads humans to think about the task (to move up a hierarchical level of thinking), which is a crucial characteristic of human thinking, in his view: [I]t is possible for a machine to act unobservant; it is impossible for a human to act unobservant....if somebody says that some task is "mechanical", it does not mean that people are incapable of doing the task; it implies, though, that only a machine could do it over and over without ever complaining, or feeling bored. (l979, p. 37) 3Mandeville, Fable of the Bees, p. 120. 8In Possony, Stetan T. (ed.), The Lenin Reader (Chicago: Regnery, 1966) p. 208. 9 Marshall, Alfred, Principles of Economies, 1920, p. xv. 10 i.b.i.d., pp.762-763. 13Leibenstein, 1980, p. 7. 14i.b.i.d., p. 108. 15McNeill, William H., The Rise of the West (New York: Mentor, 1980) p. 56ff. 16Silva, 1983, pp. 32-33. 21Hicks, l932/l963, pp. l25-l27. 25Extracted from Rischin, M., ed., The American Gospel of Success (Chicago: Quadrangle Books, 1965, pp. 209-2l0. 27Veblen, Thorstein, The Theory of the Leisure Class (New York: Mentor, 1890/l953), p. l37. 28i.b.i.d., p. l40. 29i.b.i.d., p. 134. 30i.b.i.d., p. l38. 31Toynbee, Arnold J., A Study of History: The Genesis of Civilizations, Part Two (New York: Oxford University Press, l962)Vol. 2, p. 259. 32i.b.i.d., p. 274. 36Ida M. Tarbell, ed., Selections from the Letters, Speeches, and State Papers of Abraham Lincoln (Boston: Ginn and Co, 1911), p.13. Quoted by Novak?, p.75. 37Mandeville, 1705/1962, pp. 49-50. 47McDermott, John J., The Philosophy of John Dewey: The Structure of Experience, pp. 150-151. 48i.b.i.d., p. 154. ---------------- from chap 2 to ch 4 p 13 The concept of property rights fits nicely with the concept of effort. The assignment of property rights affects the opportunity numerator in the Drive-Effort (DrEf) Measure, and therefore the amount of effort exerted, just as is implicitly assumed in all discussions of property rights. --------- to somewhere The appearance of new opportunities may be fortuitous. Changes in wealth might therefore constitute a self-determined cycle affecting aggregate outcomes including the rise and fall of empires, as well as much individual economic behavior.