Relativity of

On the relativity of the needs, wants

concepts of needs, wants,
scarcity and opportunity cost
49
Ernest Raiklin and Bülent Uyar
University of Northern Iowa, Cedar Falls, Iowa, USA

The concept of scarcity is the cornerstone of economics as a discipline. After all,

“Economics is the study of how societies use scarce resources to produce
valuable commodities and distribute them among different groups” (Samuelson
and Nordhaus, 1989, p. 5). What is more, the economics profession is rather
particular in distinguishing absolute from relative scarcity, and quick in
emphasizing that it is relative scarcity which defines economics. Most of the
current economic theory is derived from the law of (relative) scarcity which
“states that goods are scarce because there are not enough resources to produce
all the goods that people want to consume” (Samuelson and Nordhaus, 1989,
p. 26). Furthermore, scarcity “exists simply because it is human nature for
people to want more than they have” (Ruffin and Gregory, 1993, p. 3).
As self-evident as these statements appear to be, further consideration of the
underlying precepts reveals that the self-evidence is in part based on deliberate
simplification by economists of certain (philosophical, behavioural, ethical and
psychological) issues surrounding the concepts of needs and wants. This
simplification is due to the economists’ tendency to “reduce” problems to their
“essence”, as a starting point in economic analysis. The following statement
illustrates rather well how economists view and treat the concepts of “needs”
and “wants”: economics
must reckon with consumer wants and needs whether they are genuine or contrived.
Shakespeare’s King Lear said, “Reason not the need” – and economists do not; rather they
analyze how limited goods get rationed among whatever wants a society generates
(Samuelson and Nordhaus, 1989, p. 26).
This statement acknowledges that economists recognize that the two concepts
(needs and wants) are indeed different, and that the two words are not
synonyms. It indicates also that economists in general have chosen not to dwell
on the differences. There are two main reasons why economists have chosen to
overlook the differences. The first reason is that doing so has not at all
hampered the economics profession in developing a descriptive paradigm of
today’s developed capitalist economies, based on those economies’ experiences
since the industrial revolution. The second reason is that not dwelling on the
concepts of needs and wants has enabled economists to keep “interpersonal
comparisons” out of utility theory. This has meant also that the moral and International Journal of Social
social implications of such comparisons and discussions could be kept out of Economics, Vol. 23 No. 7, 1996,
pp. 49-56. © MCB University Press,
economic theory and analysis. 0306-8293
International Attitudes in philosophy, psychology and political science have been quite
Journal of Social different, however (see Fitzgerald, 1977a). Philosophers, political scientists,
sociologists and psychologists discuss the concepts of needs and wants, the
Economics differences between them and the ethical, social, political, and even the
23,7 economic implications of the differences. Some common themes in these
discussions have been understanding human nature, examining the creation of
50 socio-political institutions, the formation of the network of privileges, rights
and responsibilities and, perhaps most significantly from the viewpoint of
economics, the formulation of public policy. For instance, the distinction
between needs and wants is implicit in the concept of “social safety net” itself.
Public assistance programmes are “means tested”; therefore, they are based on
the same distinction between needs and wants, and on comparisons of utility
between individuals or classes.
In this paper, we discuss the concepts of needs and wants; in the process, we
review some of the views expressed concerning the differences between them,
the reasons for those differences, and the importance of the differences as
people’s “needs” and “wants” have evolved over time. Then, we extend the
discussion to the concepts of relative scarcity and opportunity cost.

On the concepts of “needs” and “wants”

First, we must be able to distinguish between the concepts of “needs” and
“wants.” As Macpherson (1977, p. 27) states, “…the problem of needs and wants
is both an ontological and a historical problem…”. He points out that Hume,
Smith, Bentham and John Stuart Mill, among others, approached the issue of
needs versus wants more as an ontological one. As emphasized by Coombs
(1990, p. 1), “The contemporary economic system is an historical artefact”.
Thus, an understanding of the evolution of the cross-cultural and historical
differences between needs and wants is important; such an understanding
provides added insight to the concepts of relative scarcity and opportunity cost
which constitute the basis of modern economic theory.
Both “needs” and “wants” belong to the realm of personal consumption
which is the ultimate goal of the productive and distributive efforts of all
economic systems, capitalist or otherwise. Both needs and wants might be
characterized as desires of individuals to satisfy their quest for acquiring goods
and services. The desire itself stems from two sources: one is biological and the
other socio-cultural. Having the same origins, neither concept can be
understood without the other.

Needs
Needs are the desires which take the form of a “must” urgency in acquiring
goods and services in order to achieve satisfaction. Needs are a basic organic
part of wants.

The biological component of needs

The biological roots of the urgency lie in the biological origin of the species. To
exist and to function physically, sexually and mentally, humans as biological
organisms require a certain amount of food, medicine, clothing and shelter. (At Relativity of
the risk of oversimplification, it can be stated that these correspond to the first needs, wants
two “needs” in Maslow’s (1970) hierarchy of needs.)
The urge to satisfy these requirements is independent of the socio-cultural
dimensions of human existence. Whether a member of an ancient tribal society
or of the contemporary capitalistic society; whether currently a resident of
Russia or of the United States; whether an inhabitant of the China of several 51
millennia ago or of our day – the ability to satisfy for these four types of need
has been prerequisite for man’s survival throughout the ages and all over the
globe. These needs have been discussed in detail by anthropologists and also
economists in the context of human evolution as well as the lifestyles of the
surviving, so called, primitive, native tribal societies (see, for example, Sahlins,
1972).

The socio-cultural component of needs

The satisfaction of the biological urges of man for clothing, medicine, food and
shelter can happen only under certain circumstances. Man is not just a
biological creature. He is also a social and cultural being; he and his urges are
defined and confined by the conditions of a specific country, with a specific
social and cultural structure, during a specific period of time.
Three factors are included in this statement. First, different forms of society
which exist at different times in the same country circumscribe different
quantities, qualities and types of food, medicine, clothing and shelter required
for the satisfaction of biological needs. One classic example is the change in
housing conditions (and all the accompaniments implied by the term “housing
conditions”) as the United States evolved from an agricultural society to
industrial capitalism in the early nineteenth century and, then to modern
technological capitalism in the twentieth century. The emergence, for example,
of electricity, running water and assorted appliances as necessities in the
twentieth century, replacing lamps, candles, wells, etc., typifies that
evolutionary process.
The second factor is that the cultural differences between contemporary
societies, which are at the same level of socio-economic development, might
bring about different types of need. While some such differences may be
gradually disappearing with cultural globalization, still others continue to play
significant roles in various countries; the interplay of nature and man continues
to shape culture and also guard against total cultural homogenization. Consider
some modern societies of democratic, mixed capitalism: the role of rice and sea
products in the Japanese diet and of meat and potatoes in the American; of
living in structures of Swedish styles and materials as compared to those of
France – these and many others are examples of cultural diversity in the needs
of people which might be exhibited in otherwise economically identical
countries during any given period in time.
The third factor is that, at a given point in time, different quantities and
varieties of need might result from the developmental differences between
countries which have the same form of capitalism and are of relatively similar
International culture. For instance, Great Britain and the United States have a common
Journal of Social cultural heritage. Yet, such items as food, clothing, shelter and medicine, while
necessities in both countries, are available in different varieties, exhibit
Economics differences in quality, and are consumed in different amounts.
23,7 The socio-cultural factors reveal that necessities are not determined as bare
necessities; they are not minimum amounts of what is needed for the simple
52 maintenance of biological life. They are defined not in absolute terms but rather
in relative terms. At any given time, what is considered to be a necessity in one
country might well be regarded a luxury (above what is required by the
“necessity”) in another country or sub-subsistence (below what is required by
the "necessity") in yet another country. Thus, an automobile is a necessity in the
United States but a luxury item in Russia. In addition, as time progresses, what
was a luxury might well become a necessity in the same country; as mentioned
earlier, cars, electricity, TV sets, computers are all examples of this process.
How do these social, cultural and historical differences in the amount and
variety of needs come about? What changes their levels from one country to
another and for the same country over time? It is the productive capacity of a
society that creates the socially and culturally defined and accepted amounts
and types of necessities required to satisfy needs. In class societies where there
is a societal “division” by wealth and income, in order to become necessities, the
goods and services have to be “filtered” down the social strata, from the affluent
few to the masses. The evolution of the pattern of automobile ownership in the
United States offers an example. At the beginning of the twentieth century,
private cars were afforded only by a few very wealthy people in the United
States. By the 1920s, the upper-middle class was also able to afford it. Finally,
since the middle of the century, the private automobile has become an
indispensable part of life in the United States. The automobile has been
transformed from a luxury into a necessity, through the trickle-down process.
The levels and the types of necessities continuously change over time and
differ across countries. With such changes and differences, there is also a
change in the way people “define” themselves and their “place”, both socially
and also psychologically. The ultimate gauge of self-esteem becomes how much
of what types of goods and services a person has in relation to others. (Some
“need theorists” would say the process traps people at the level of Maslow’s
lesser-needs, and prevents them from ever attaining the highest stage of self-
actualization, self-development. For a discussion, see Fitzgerald (1977b, pp. 36-
51) and Maslow (1970, Chapters 10, 11.))
Easterlin (1973, p. 4) states that “Individuals assess their material wellbeing
not in terms of absolute amounts of goods they have, but relative to a social
norm of what goods they ought to have.” By definition, such a never-ending,
self-perpetuating process is a feature of a class society; it is in a class society
that the possibility of having what others already have becomes a reality and is
actualized. The process simply has gained momentum in the modern
democratic, capitalistic, economic systems.
This brings us to the concept of “wants” and the resulting “tyranny of
things” (Coombs, 1990, p. 59).
Wants Relativity of
Wants include needs but go beyond them; wants are needs plus some residual needs, wants
desires that do not correspond to needs. Heilbroner (1962, p. 135) makes this
distinction when he states: “Consumer demand is no longer driven to essentials
but hesitates before a whole range of possible luxuries and semi-luxuries.”
Hence, at any period of time, wants are the longings of the population to satiate
the desire for necessities which are affordable by the vast majority of the people, 53
and also for the “residual” which is affordable only by some.
The gap between wants and needs and, hence the amount of luxuries and
semi-luxuries produced in an economy, depend on several factors. Historically,
the more important factors have been the prevailing modes of production,
patterns of ownership, and the resulting socio-economic structure. Slaveholding
and feudal societies were self-sufficient economies, with a rather undeveloped
social division of labour; such economies produced almost exclusively for the
consumption of the master (the slave owner or the feudal lord) and the subjects
(the actual producers). These were relatively undeveloped and slow progressing
societies wherein the gap (the “residual”) between needs and wants was as
stable as it was visible. The “transformation” of luxuries and semi-luxuries was
a drawn-out process. In these economies, where tradition and primogeniture
defined each person’s place in the social order, once and forever, as though
preordained by divine decree, the quest of the vast majority was the satisfaction
of needs.
The industrial revolution and the emergence of capitalism brought about an
enormous development in productive capacity. The ability to produce for
exchange and, thereby consume what one did not or could not produce, gave
impetus to monetization. Acquisition of money, as the medium of exchange,
became the immediate goal of economic activity; this helped remove the
restraints which the self-sufficient, pre-capitalist, socio-economic systems had
imposed on the transformation of luxuries and semi-luxuries into necessities.
On the one hand, the ability of the capitalist economy to produce increasing
amounts of existing (“old”) goods and services shortened the time during which
luxuries and semi-luxuries were transformed into needs. This has narrowed the
gap between wants and needs. On the other hand, the capacity of the capitalist
economy to produce an increasing variety of “new” goods and services
lengthened the time during which luxuries and semi-luxuries were transformed
into necessities. This has widened the gap between wants and needs.
In either case, in answering the desire for more and better, the pace of
technological change has been most sensitive to the human propensity to
convince oneself of the indispensability of most of what is produced. This has
rendered the difference between wants and needs increasingly ambiguous. In a
sense, then, such ambiguity is a feature, a correlate, of a dynamic socio-
economic paradigm. In the process, the gap between what the different classes
in the society are able to afford and enjoy is perceived and presented
increasingly as unmet “needs”. As stated by Galbraith (1984, p. 128), this is
when “one man’s consumption becomes his neighbor’s wish”, generating a
demonstration effect. Such unmet “needs” become insatiable, perpetuating “toil,
International aggressiveness, misery and injustice” (Fitzgerald, 1977a, p. xi). It is at this stage
Journal of Social that the concept of scarcity, so fundamental to economic theory, emerges.
Economics Scarcity
23,7 The relentless pursuit of satisfaction of wants, beyond a mere satisfaction of
needs, implies a growing “wish list” of goods and services. The list is defined
54 increasingly “… by law, convention, fashion or advertising rather than the
requirements of health, morality or livelihood”(Coombs, 1990, pp. 18-19. This
point is also emphasized and discussed by Macpherson (1977)). Thus, the
“residual” desires are created more and more by forces outside the individual. In
this regard, Galbraith (1984, pp. xvi-vii) points out that in modern capitalistic
economies “production depends on the creation of demand by producers and
that demand proceeds from the emulative tendencies of a culture”, and
emphasizes among other factors the role of advertising in this process. This
point is discussed in great detail by Leiss (1976, pp. 17-22) as well. Heilbroner
(1962, p. 135) states how businesses no longer “merely ‘fill’ the wants of
consumers. They themselves help to create” them. Coombs (1990, pp. 18-19)
observes the importance of advertising in transforming luxuries and semi-
luxuries into necessities in order “to stimulate the scale and profitability of
commercial enterprises”. Finally, Galbraith (1984, p. 128) again states that “the
process by which wants are satisfied is also the process by which wants are
created. The more wants that are satisfied, the more new ones are born.”
These points underscore both the psychological aspect of the concept of
“relative scarcity” and also the paradox which that concept has come to embody
as a result of the evolution of the modern capitalistic economies. The more
advanced a class society is, and the more and better it is able to produce, the
more “wants” that society develops. Therefore, the richer a class society
becomes, the scarcer are the resources which are needed to produce the goods
and services for the satisfaction of wants. In summary, the paradox is that
scarcity – when viewed as “the disparity between our wants and our
capacities’’(Leiss, 1976, p. 30) – becomes an increasingly important and urgent
problem the faster the pace of technological change is, the more efficient the
production process becomes, and the wealthier the society as a whole becomes.
Heilbroner (1962, p. 5) points out that so long as possessions influence relative
social standing, “…‘scarcity’ as a psychological experience and goal becomes
more pronounced as we grow wealthier”. This is the scarcity of abundance,
which Coombs (1990, p. 85) defines as the “problem of progressively
intensifying scarcity”. Therefore, scarcity is a relative concept. It is relative to
our wants within the framework of a class society, and its significance is
exacerbated in a capitalistic class society. At any point in time, only the wants
of a few are satisfied by the enormous productive capacity of the capitalistic
modes of production, while the majority are perpetually wanting.
The foregoing discussion does not at all preclude absolute scarcity which
manifests itself during times of social disturbance, economic crisis, revolution,
war, or as a result of natural disasters; this is when the system fails to produce
adequate amounts of items needed for survival. The experiences of Russia and
the east European countries since the end of the 1980s, for instance, fall in this Relativity of
category. The point is that absolute scarcity is not the raison d’être of needs, wants
economics; relative scarcity, the paradoxical scarcity of abundance, is. In such a
situation, people by and large want what they have come to perceive as being
indispensable simply because there are others who already have it.
What is more, the issue is important enough that it cannot be dismissed
simply as “the romantic point of view’’[1] from which to examine economic 55
problems in general, or scarcity in particular. After all, the point is not denying
scarcity at all but rather distinguishing relative from absolute scarcity by
examining the concepts of needs versus wants. Keynes (1932, p. 365) made the
same distinctions and emphasized their importance when he stated:
Now it is true that the needs of human beings may seem to be insatiable. But they fall into two
classes – those needs which are absolute in the sense that we feel them whatever the situation
of our fellow human beings may be, and those which are relative in the sense that we feel them
only if their satisfaction lifts us above, makes us feel superior to, our fellows. Needs of the
second class, those which satisfy the desire for superiority, may indeed be insatiable; for the
higher the general level, the higher still are they. But this is not so true of the absolute needs.

Opportunity cost
At any stage of economic development, the availability of a ready-made pool of
goods is a prerequisite for the emergence of the distinction between needs and
wants. The paradox of scarcity recognizes that in a dynamic, capitalistic, class
society, the majority will forever aspire to what a relatively few already have at
any point in time. This leads us to what is perhaps the most fundamental
concept in economics – the concept of “opportunity cost”. It is said that
“opportunity cost can only arise in a world where the resources available to
meet wants are limited so that all wants cannot be satisfied” (Pearce, 1983,
p. 322; italics added). The concept implies that the society has to sacrifice
something in absolute terms in exchange for more of something else.
The discussion in this paper indicates that the failure to properly distinguish
between “wants” and “needs” imparts a circularity to the concept of
opportunity cost. The concept becomes relevant only under the conditions of
“scarcity of abundance” which are inherent in a capitalistic class society.
As Bay (1977, p. 3) states, for most economists and policy makers who
operate “in a liberal-democratic civilisation it remains a vexing problem, to be
sure, how to achieve a serviceable definition of ‘need’ in relation to ‘want’,
without being cast in the role of an authoritarian…”. Yet, as mentioned earlier,
all public assistance programmes are based on such a distinction. It is as
though there is a tacit agreement that it is acceptable to distinguish “need” from
“want” – but only for certain issues and social classes, and even then without
explicitly acknowledging it.
If Marx’s hypothesis were to ever materialize, the class distinctions would
disappear. In a classless society, wants and needs would become identical.
There would be no paradoxical scarcity of abundance because there would be
no classes and, therefore, no “residuary” of luxuries and semi-luxuries to create
the divergence between “needs” and “wants” within the available pool of goods.
International As a result, while choices would still have to be made, they would be reduced
Journal of Social instead to, and within, a set of necessities and would entail no absolute
sacrifices. The concept of opportunity cost based on absolute sacrifices would
Economics cease to be relevant.
23,7 On this point, it is worth invoking Keynes (1932, p. 366) again: “This means
that the economic problem is not – if we look into the future – the permanent
56 problem of the human race” [italics in the original]. It will disappear with the
disappearance of the concepts of scarcity and opportunity cost in the
framework of the wants-needs dichotomy, contrived and perpetuated in the
context of a class society.
Note
1. This is the view expressed by Fuchs (1983, pp. 9-10) who states: “The romantic point of
view denies the existence of scarcity or blames it on some convenient scapegoat such as
communism, capitalism, unions, advertising, or defense spending. Unfortunately, the
problem of scarcity cannot be solved by denying its existence. For all our affluence, we still
live in a world where our wants exceed our ability to fulfill them, and so far as anyone can
see, we always will.” As this statement reveals, Fuchs also overlooks the implications of
distinguishing between wants and needs.

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