Boulding regarded the exchange system as the traditional domain of economics. This includes the exchange of favors in a non-market setting as well as commodity exchange organized through the market. The other two systems involve one way transfers. The term 'threat' makes clear the reason for transfers in the threat system. Boulding's greatest fascination is with the integrative system which involves things like legitimacy, respect, affection, and love. One can obviously define these three systems to be exhaustive, but an attraction of this taxonomy is the that they are naturally exhaustive categories of the exchange of privately held assets.
In his view, the system of threat, deterrence, or force (e.g., slavery) was a dominant form of social organization in previous millennia. Except for international systems of deterrence and some remaining authoritarian regimes, he argues that it has been replaced, to a considerable extent, by the exchange system. Part of his characterization of progress is that integrative systems replace exchange systems which replace threat systems.
Grant economics began as an effort to quantify the integrative system. He later recognized one-way transfers as occurring under both integrative systems and under threat systems, as reflected in the title of his book, The Economy of Love and Fear: A Preface to the Grants Economy (1973).An early result of Boulding's enthusiasm around the issue of one way grants, was a national study (James Morgan, et al., 1962), begun at the University of Michigan, to determine the persistence of poverty and an examination of income maintenance programs. Boulding's role in stimulating this work and the results of this study are reported in Morgan (1976). Boulding was always attracted to a progressive income tax and as well as a negative income tax.
Boulding (1969) has argued that the part of U.S. GNP reflected in charitable or unselfish behavior rose from about 3% in 1910 to 10%-20% of GNP a half century later. This large percentage attributed to 'grants' was criticized by Manor Olson (1973) since much of Boulding's measure was government expenditures on public goods. Since public goods are non-excludable, they are not exchangeable like private goods and, therefore, fall outside of Boulding's classification scheme.
Olson's criticism was initially put forward at the meetings of the Public Choice Society in February, 1970. At those meetings Boulding replied that
The theory of public goods cannot simply assume that there is a public. Why the publics are what they are is part of the problem not part of the assumptions. A public requires some sort of organization, an organization implies a community, a community implies some kind of clustering in the benevolence function. This is true whether the organization or the community consists of the national state, a corporation, a profession, a university, a trade union, a church or a family. ... the very concept of public goods ... denies the assumption of independent utilities. (1970, p.9)Olson (1976) took Boulding's call for explaining the "publics" seriously, but his effort was to explain the "public" or the "collective" making behind public/collective choice theory without using appealing to benevolence or using Boulding's integrative or threat systems. In our opinion, his theory of what constitutes the "public" in public economics fails to undermine Boulding's argument that a community, held together by an integrative system (or perhaps a threat system) is essential for explaining "the public".* Despite this disagreement between, Olson offered unstinting praise of Boulding's work:
He [Boulding] has shown better than any other writer that I know about, how the systems of market exchange must be understood in the context of a comprehensive conception of the social system that subsumes governments and families, threats and gifts, hate and love. ... even if all the criticisms of the grants-economy idea offered in this [Olson's] paper were totally accepted, that would not deny that Boulding has beautifully posed some inescapable problems that economists have shamefully neglected, and even provided some of the concepts needed to solve these problems. (Olson (1976), p. 85)Boulding (1969) regarded "public choice and the grants economy to have strong overlapping interests" (p. 1) and he was on the editorial board of Public Choice. But his call for the cessation of independent utility functions goes unheeded. We end this section with the first paragraph of the lengthy paper that Boulding delivered to the public choice meetings in 1970.
It will no doubt be one of the great puzzles for future historians of thought as to how economists in the middle of the twentieth century managed to devise a whole discipline of welfare economics based on two absolutely preposterous assumptions. The first of these is the assumption of selfishness, that is, that the utility function of one person does not depend in any way on his perception of the welfare of another. The second even more preposterous assumption is that preferences and the utility functions which express them are simply given, are not learned and cannot be changed. (1970, p.1)