Thursday, November 24, 2011

give thanks to capitalism

An "In the News" excerpt in chapter 7 of Mankiw's Principles of Economics (4e) is titled "The Miracle of the Market" and begins with the following proposition:
An opinion columnist suggests that the next time you sit down for Thanksgiving dinner, you should give thanks not only for the turkey on your plate but also for the economic system in which you live.
The topic is Thanksgiving dinner and the argument is that we owe our Thanksgiving turkey to the division of labor, supply chains, and the pursuit of private gains. Of course, the article -- an opinion piece from the Boston Globe (does that count as "In the News" to you?) -- is meant to support the "argument" laid out over the previous 13 pages that "the price of turkey at the supermarket is fair", from a social efficiency standpoint, as long as free markets are the means by which scarce resources are allocated. Central planning would require vast amounts of information and time to do what a free market economy does completely on its own.

Fair point about central planning -- but why bring it up in the first place? Why does the author's argument about the coordinating miracle of the free market have to be compared to the extreme opposite of a completely centrally planned economy?

While we can never be certain of the author's intentions, let us offer a response: perhaps elements of a planned economy trickle into the author's story in ways overlooked or simply ignored by him. In other words, it appears to us as though the tactical use of attacking the "central planning" argument is to divert attention from more important and empirically relevant matters, such as the following:
Who determines the price of gasoline used by the trucks delivering the turkeys to the store? Oil cartels play an important role in determining prices at the pump. 
Who coordinated work at the factories which produce the feed and raise the turkeys? Most likely, these tasks were performed by a manager and other centralized authority figures. 
Who regulated the quality of the Turkeys or facilitated their transportation? Government laws and statutes were necessary for these things. 
Upon reflection, it seems that there does exist an essential economic planning element to your Thanksgiving dinner. Imperfectly competitive markets and the organization of economic activity which takes place in the firm are important examples of cases in which economic agents act collectively to plan and alter economic outcomes.

So this year, give thanks to capitalist social relations for the meal on your plate. While Mankiw has tried time and again to assert the universality of the "free market" model and its relationship to Thanksgiving, a simple look around at how economies actually function suggests otherwise.


  1. This reminds me of a great post by John Quiggin which you may or may not have seen:

    Milton Friedman was in fantasy land when he held that pencil up to the screen in free to choose - everything produced in a 'market economy' is a product of both the public and private sectors.

  2. Nice! I did indeed see that CT post by Quiggin. But thanks for reminding me of my (most probably subconsciuos) blog-ancestors :)

    The thing which strikes me so much about this argument is how incredibly easy it is to make. At UMass one professor I TA for teaches this argument to his introductory micro students. And as a few commentors on that CT post point out, it's an old yarn once you get out of Western Developed Capitalism.

    The nuance which I like to add but which takes a bit more explanation is the point about labor being planned by capitalists. To do that correctly, you need to note not only that capitalist social relations exist, but also, that they are historically contingent.

    But in my opinion, theory of the firm ought to be a main topic in intro micro, so one would already have had that covered...

    Anyway, thanks again for the comment!

  3. we should connect with those guys!

  4. you must be joking, there isn't any similarity between these two movements

  5. I find the purpose of this blog unclear. Perhaps one of the writers could help me understand. Here is my problem with the objective of this blog: I don't think you know what economics is.

    Economics, like physics, is an amoral science. It attempts to discover what is. For example, in a basic science class, students may learn about the gravitational pull of the planet Earth and what happens to a rock when it is dropped from a cliff of 1000 feet. There are no moral implications in this lesson. Blaming Mankiw for his teachings of basic economics seems to me like blaming physicists when a crazy person murders someone by throwing them off a cliff. Should morals be discussed and taught in the classroom? Of course, but that is not what economics is about.

    When moving on to more advanced classes, a student may learn, using the laws of physics, how a plane flies, or how mankind reached the moon. But a student who will one day go on to build a rocket ship must have mastery of the basic laws of nature. An economist who tries to delve into the causes of a credit expansion and collapse must have mastery of the basic laws of human action.

    So please clarify for me, are you anti-basic economics? Are you pro-morals in the classroom, and if so, do you really want them in a basic econ class?

  6. Thanks for your comment Edward, but I won't devote too much time to a response (since you think I don't know what economics is, I don't see us getting very far in an intellectual discussion):

    Economics is not like physics. One of the first things economists do when they think up a model is assume people behave a certain way. Fortunately, physicists don't have to do that because particles don't think. But people do, and that's an important difference.

    When we choose to assume that people are utility maximizers or self-interested, we are making a conscious choice that is not value-neutral. If we were to assume people had bounded rationality, or value collective action, or act based on love or altruism, those are all competing, political, assumptions about how people act. They reflect different value systems we might hold as economists or simply as citizens of the world.

    Furthermore, market principles are not value-neutral. Neoclassical economics originated in late-18th century political and natural philosophy in response to particular shifts in the political and economic climate of Western Europe. Markets are therefore not universal like how gravity is universal. Market centered views of society are historically contingent. Market centered views did not exist at one time, and now they do. But even now, they only somewhat exist -- since people are actively interested in demonstrating how other views compete with a market centered view, even in a capitalist economy.

    To wit: these people are still economists. They just aren't Mankiw's brand of economist.

    Thanks again for (trying) to foster a serious discussion.

  7. Edward it is a massive myth that economics is value free - something that is based so fundamentally on a study of human behaviour can never be value free.

    There is, in fact, some evidence that learning economics makes people behave more selfishly, due to the study and praise of 'rational self maximisers'.

  8. Hi Daniel,
    Thanks for the response. I think I am starting to understand you more. I wasn't trying to be insulting before, but I do think we may be speaking past each other with word definitions. For example, when most economists speak of self-interested individuals, they do not mean selfish individuals. It is simply an acknowledgement that different people have different values and each person will live their life in accordance with their own values. One man may be obsessed with money while another devotes spending as much time as he can with his family, but both are self-interested in an economic sense. Also, when I say amoral, I do not mean valueless, I just mean that economists don’t judge different people’s values.
    Let me throw out a couple definitions and you can tell me where you agree or disagree. That way we can argue with each other as oppose to past each other.
    Capitalism: Private ownership of all goods and resources and strict adherence to contracts.
    Socialism: Private ownership of consumer goods and government ownership of capital goods and resources.
    Communism: Abolition of private property.
    Marxism: The study of the process by which a society moves from capitalism to communism.
    Let me throw out one way which I think we may agree as a starting point. The old classical economic models were all developed assuming commodity money (gold/silver standard usually). Those current models applied today in a fiat money world do not work. However, I also think that basic economic models in a world with a fixed money supply must be understood before any person can possibly comprehend fiat money, credit bubbles, asset bubbles, leverage, derivatives, etc.

  9. Edward this is a massive subject so I don't want to be dismissive and simply refer you to a lot of reading, but I would recommend this:

    and *strongly* recommend a book called 'The Skeptical Economist'.

    A simple point is that when you make an assumption about people's behaviour and build a system around them based on it, they will alter their behaviour over time.