The artificial nature of grants has political importance because it means that political conflict rests to a large extent on universal ignorance about consequences, since the people benefited by any given act or policy are rarely the ones who opposed it. This could be called the “law of political irony.”
While the general concept of an economy of implicit grants is clearly relevant and meaningful, its definition is difficult, since it requires establishing a “grant-free” price system as a standard, with divergences from that standard forming the economy of implicit grants. In the concept of the opportunity-cost structure, we have something that comes close to such a standard: that is, the quantity of good A that must be given up in order to produce one more unit of good B.
If the resources released by not producing one of Adam Smith’s famous beavers could then be used to produce two deer, there would not only be a strong tendency for two deer to exchange for one beaver in the market, but, if market prices were not in that proportion, one of the two sectors would be more profitable and resources would be transferred to it from the other.
Therefore, we may have some confidence in assuming that if, through government regulations or other circumstances, the relative price of the beaver were kept higher than this and the relative price of the deer lower, the resulting changes in income distribution would represent an implicit grant from the producers of deer to the producers of beavers. Nevertheless, measuring these implicit grants is a very difficult empirical and statistical problem.
One of the curiosities of the concept of the grants economy is that it seems to arouse great anxiety and hostility among many traditional economists. I admit that I am somewhat puzzled by this, since the grants economy seems to me a very natural and evident extension of the existing framework of thought in economics and in the social sciences in general.
In fact, the whole concept seems so obvious that it is difficult to believe it was not developed earlier. However, the very hostility the concept provokes suggests that it contains enough novelty at least to unsettle those whose economics is strictly confined to the concepts of the exchange economy.
Naturally, the only proof of the pudding is in the eating, and I hope this introduction will demonstrate the usefulness of considering the concept as a natural evolution of the existing conceptual framework in economics and the other social sciences.
In recent years, we have observed great interest, especially among political scientists and sociologists, in the theoretical framework of the exchange economy, and several fruitful attempts have been made to apply this framework to the broader field of all social and political relations.
I have sometimes called this movement the “imperialism of economics,” since at times it seems like an attempt by economics to take over all the other social sciences. It would be disastrous if the social sciences were unified only around the concept of exchange without recognizing that exchange, even in its most general form, is only one of the social organizers, and that the grant, as an organizer, becomes even more important as we move from economics toward sociology and political science.
The dynamics of the grants economy — the processes by which it grows, declines, or changes its form, sources or recipients — are complex enough to encompass the dynamics of society as a whole, and specific dynamic models are unlikely to be very useful for this problem.
Nevertheless, we can observe certain patterns and at least sketch some hypothetical relationships. Thus, the perceived efficiency of grants is likely to be an important variable. Efficiency is the relationship between the benefit perceived by the recipient and the costs perceived by the donor.
Thus, if by sacrificing one dollar I perceive that someone’s position improves by four dollars, my perceived efficiency of the grant is 4. If I perceive that, by sacrificing one dollar, another person’s position improves by only fifty cents, my perceived efficiency is 0.50.
Clearly, the greater the perceived efficiency, the more likely we are to expand the total amount of our grants, and we are also likely to expand them in the direction in which we perceive the greatest efficiency.
In reality, the inclination to make grants depends on two main factors: first, the perception of the efficiency of the grant; and second, the degree of identification with the recipient’s welfare, that is, the degree of benevolence toward them.
But the processes through which we grasp malevolence or benevolence, and from which we derive our perceptions of efficiency, are complex and mysterious and cannot be reduced to any simple model.
