I am a big fan of figures that show how various ideas relate to each other.
I use the “2×2 of goods” to explain how water should be managed by economic or social/political means.
I have set out how social sciences relate to each other and how underlying “truth” changes as you move from sciences to humanities. I summarised that difference in this post:
The humanities (language, history, philosophy) illustrate the diversity of human existence just as the sciences (biology, physics, etc.) illustrate our similarities. This explains how scientists can collaborate and agree on the “big picture” while failing to see the point of humanities studies that don’t seem to draw any conclusions (and sometimes seem locked in eternal battles over the “right” element drawn from a pile of subjective perspectives)
…and now I am back with a new figure that maps risk and uncertainty into a 2×2 that overlaps with objective (science) and subjective (humanities) views:
The reason for this figure, as with all my figures, is to highlight how “we” are often talking past each other when we make comments based on unstated assumptions.
Thus: “This cake is good” (lower left) is not the same as “this cake is fresh” (upper left), “this cake uses a secret recipe” (upper right) or “I’m not sure if we’re gonna get cake out of the oven” (lower right).
My one-handed suggestion is that every discussions and debate begin by establishing how each participant “sees” the topic at hand (subjective/objective? humanities/social science/science, etc.), as that reduces confusion related to mismatched baselines.
On September 12 2001, I wrote:
This events yesterday are indeed beyond our imaginations. Although it would be better if it had never happened at all, it seems that the best impact that it might have (as the perpetrators perhaps wanted), is for us (the USA, the Americans), to reconsider our positions and how we “project” power in the world – before we start bombing…
If the attack was Muslim (not domestic – like last time in Oklahoma), then start by acknowledging that Christians own and control most of the world. The Muslims get screwed quite often (with support from Christian/Western Governments). Perhaps that is fair (the Strong make the rules), but it hardly seems to be either “what Jesus would do” or “love thy Neighbor”.
[a long list of examples of Muslims being exploited in many countries]
Before we go off and start shooting (or nuking) all the “rag heads” (as Howard Stern’s listeners want), perhaps we should consider where the perpetrators are coming from in terms of their anger at what “America” has done to them. It’s too bad that US citizens are not called upon to make the decisions that the government makes for them, because, if we knew more of what was happening (there is a clear lack of coverage and bias in most of the US press/television – against Muslims), it is likely that the USA wouldn’t be responsible for as many messes as it is. One clear result of constraint would be a lessening of Israel’s current aggression, not possible without the support of the US government (current UN Racism conference in S. Africa, etc.)
Finally, it is interesting to make a note, when looking for those responsible (Bush’s “Evil” ones), of who gain’s from US anguish and anger. A US backlash against Muslims would strengthen Israel. Perhaps Mossad** is responsible?
Just a few thoughts on this so-predictable tragedy. My regrets to those who died for someone else’s opinion.
Reading this 20 years later, I can point at a few developments that (don’t) align with my predictions:
- Muslims are maybe (not) better governed.
- The biggest terrorist threat to the US comes from White extremists.
- The US invasions of Afghanistan and Iraq were complete failures. (I support Biden’s pull out, although the planning sucked.)
- Americans barely know much more about the world. This has a lot to do with the volunteer army not representing “average” Americans abroad.
- America has wasted $trillions on war and lost prestige as land of the free, let alone leader of the Free World.
- Israel has not made any sort of peace with the Palestinians, but former Arab allies have made peace with Israel.
- Social media and lying Republicans have made it much harder for people to understand what’s happening, to whom and why.
My one-handed conclusion is that Osama Bin Laden and Al Queda “won” 9/11 due to America’s self-harming (and freedom-harming) response, which was naive in the ways that many with experience outside the US could have predicted.
You cannot fight terror and ignorance with terror and ignorance. The only way is to use knowledge, dialogue and cooperation among freedom-loving nations and people’s. I hope the US learns this lesson before too long, but I am not optimistic.
I bought this book (subtitle The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life) immediately after hearing Rory Sutherland debate the relevance of economics to normal people’s behavior on EconTalk.
It was well worth buying, as I made more than 150 notes and highlights while I was reading. (Speaking of notes, Sutherland loves footnotes, and they are funny, so I recommend buying the physical rather than the digital version of the book soo you can enjoy the footnotes.)
Sutherland’s main points are that (1) people are not the hyper-rational calculating machines that some economic models suggest and (2), marketing people are well aware of the many “irrational” ways people make decisions — and they use that knowledge to sell stuff. Claim (1) is not controversial among economists, but claim (2) is, as that implies a “free lunch” that some people can use and others (including economists) cannot.
Such a situation is no surprise for anyone observing the continued (and annoying) existence of advertisements and marketing, but it’s a bit of a surprise to anyone assuming that humans dislike being fooled and manipulated. That said, the entire field of “behavioural economics” (read my review of Thinking Fast and Slow) more or less tests and measures the degree to which we are reliably manipulated right in front of our eyes!
With that preamble, I’ll now give my (typical) series of notes and quotes (“loc” refers to location in my Kindle copy of the book). Oh, and I am curious to know which of these notes/quotes you find to be the most useful/insightful. Please leave a comment 😇
One more thing: Sutherland is far wittier and concise than Danny Kahneman (Thinking Fast and Slow) in discussing similar topics. Read this book first.
- “The opposite of a good idea can also be a good idea. Don’t design for average. It doesn’t pay to be logical if everyone else is being logical… A good guess which stands up to observation is still science. So is a lucky accident. Test counterintuitive things only because no one else will… If there were a logical answer, we would have found it.” Loc 113
- “Unfortunately, because reductionist logic has proved so reliable in the physical sciences, we now believe it must be applicable everywhere – even in the much messier field of human affairs. The models that dominate all human decision-making today are duly heavy on simplistic logic, and light on magic – a spreadsheet leaves no room for miracles.” Loc 141
- “It is difficult for a company, or indeed a government, to request a budget for the pursuit of such magical solutions, because a business case has to look logical.” Loc 174
- “This book is not an attack on the many healthy uses of logic or reason, but it is an attack on a dangerous kind of logical overreach, which demands that every solution should have a convincing rationale before it can even be considered or attempted. If this book provides you with nothing else, I hope it gives you permission to suggest slightly silly things from time to time. To fail a little more often.” Loc 322
- “Evolution, too, is a haphazard process that discovers what can survive in a world where some things are predictable but others aren’t. It works because each gene reaps the rewards and costs from its lucky or unlucky mistakes, but it doesn’t care a damn about reasons. It isn’t necessary for anything to make sense: if it works it survives and proliferates; if it doesn’t, it diminishes and dies.” Loc 391
- “The single greatest strength of free markets is their ability to generate innovative things whose popularity makes no sense.” Loc 457
- “It is impossible for human relations to work unless we accept that our obligations to some people will always exceed our obligations to others. Universal ideas like utilitarianism are logical, but seem not to function with the way we have evolved… And in reality ‘context’ is often the most important thing in determining how people think, behave and act: this simple fact dooms many universal models from the start.” Loc 476
- ‘At the federal level I am a Libertarian. At the state level, I am a Republican. At the town level, I am a Democrat. In my family I am a socialist. And with my dog I am a Marxist – from each according to his abilities, to each according to his needs.’ Loc 548
- “‘The trouble with market research is that people don’t think what they feel, they don’t say what they think, and they don’t do what they say.’ … we simply don’t have access to our genuine motivations, because it is not in our interest to know.” Loc 687
- “Science seems to fall short of its ideals whenever the theoretical elegance of the solution or the intellectual credentials of the solver are valued above the practicality of an idea.” Loc 889
- E-cigarettes and cognitive dissonance: “If you have spent the last 20 years as a public health advisor promoting policies designed to create shame, alongside colleagues who all believe the same thing, the last thing you want to hear is ‘Don’t worry about that, because a bloke in China has come up with a gadget which means that the problem to which you have dedicated your life and from which your social status derives is no longer a problem any more.’ Even worse, the inventor was a businessman rather than a health professional.” Loc 910
- “I am willing to bet that there are ten times as many people on the planet who are currently being paid to debate why people prefer Coke or Pepsi than there are being paid to ask questions like ‘Why do people request a doctor’s appointment?’, ‘Why do people go to university?’” Loc 982
- Water! “One of the great contributors to the profits of high-end restaurants is the fact that bottled water comes in two types, enabling waiters to ask ‘still or sparkling?’, making it rather difficult to say ‘just tap’.” Loc 1129
- “In maths, 10 x 1 is always the same as 1 x 10, but in real life, it rarely is. You can trick ten people once, but it’s much harder to trick one person ten times… Imagine you have ten roles to fill, and you ask ten colleagues to each hire one person. Obviously each person will try to recruit the best person they can find – that’s the same as asking one person to choose the best ten hires he can find, right? Wrong. Anyone choosing a group of ten people will instinctively deploy a much wider variance than someone hiring one person. The reason for this is that with one person we look for conformity, but with ten people we look for complementarity.” Locs 1270, 1298
- “Metrics, and especially averages, encourage you to focus on the middle of a market, but innovation happens at the extremes… It’s true that ‘what gets measured gets managed’, but the concomitant truth is ‘what gets mismeasured gets mismanaged’… I have never seen any evidence that academic success accurately predicts workplace success.” Locs 1351, 1360
- “Nicholas Taleb applies this rule to choosing a doctor: you don’t want the smooth, silver-haired patrician who looks straight out of central casting – you want his slightly overweight, less patrician but equally senior colleague in the ill-fitting suit. The former has become successful partly as a result of his appearance, the latter despite it.” Loc 1380
- “We may be more prone to ascribe ‘outsider status’ to someone of a different ethnic background, but this does not mean that we cannot easily adopt anyone of any ethnic background into an ‘in group’ in a different setting.” Loc 1398
- “Architectural quality comes low on the list – and is further devalued because it isn’t quantifiable [such as floor area]. If you can convince yourself to value something which other people don’t, you can enjoy a fabulous house for much less.” Loc 1479
- “A nervous and bureaucratic culture is closed-mindedly attaching more importance to the purity of the methodology than to the possible value of the solution, which leads us to ignore possible solutions not because they have been proven to be wrong, but because they have not been reached through an approved process of reasoning.” Loc 1527
- “The more data you have, the easier it is to find support for some spurious, self-serving narrative. The profusion of data in future will not settle arguments: it will make them worse.” Loc 1628.
- “I asked them what they did to make their telephone operators so good… ‘To be perfectly honest, we probably overpay them.’ The call centre was 20 miles from a large city; local staff, rather than travelling for an hour each day to find reasonably paid work, stayed for decades and became highly proficient. Training and recruitment costs were negligible, and customer satisfaction was astoundingly high. The staff weren’t regarded as a ‘cost’ – they were a significant reason for the company’s success.” Loc 1641
- “The market mechanism is loosely efficient, but the idea that efficiency is its main virtue is surely wrong, because competition is highly inefficient… The reason this inefficient process is necessary is because most of the achievements of consumer capitalism were never planned and are explicable only in retrospect, if at all.” Loc 1695
- “We don’t value things; we value their meaning. What they are is determined by the laws of physics, but what they mean is determined by the laws of psychology.” Loc 1743
- “If you declare something highly exclusive and out of reach, it makes us all want it much more – call it ‘the elixir of scarcity’. Frederick knew this and so posted guards around his potato patch to protect his crop, but gave them secret instructions not to guard the patch too closely. Curious Prussians found they could sneak into the royal potato patch and could steal, eat and even cultivate this fabulously exclusive vegetable.” Loc 1822
- Framing and gender: “A course previously entitled ‘Introduction to programming in Java’ was renamed ‘Creative approaches to problem solving in science and engineering using Python’. The professors further divided the class into groups – Gold for those with no coding experience and Black, for those with some coding experience. They also implemented Operation Eliminate the Macho Effect, in which males who showed off in class were taken aside and told to desist. Almost overnight, Harvey Mudd’s introductory computer science course went from being the most despised required course to the absolute favourite.” Loc 1878
- “In Belgium and the Netherlands, he (or she) simply explains I can’t drink tonight, I’m Bob’ – a Dutch acronym* for Bewust Onbeschonken Bestuurder or ‘deliberately sober driver’… creating a name for a behaviour implicitly creates a norm for it.” Loc 1896
- “Knowledge of the human physique is considered essential in designing a chair, but a knowledge of human psychology is rarely considered useful, never mind a requirement, when someone is asked to design a pension scheme, a portable music player or a railway. Who is the Herman Miller of pensions, or the Steve Jobs of tax-return design?” Loc 1966
- “We naturally assume that something that only does one thing is better than something that claims to do many things… Google is, to put it bluntly, Yahoo without all the extraneous crap cluttering up the search page, while Yahoo was, in its day, AOL without in-built Internet access. In each case, the more successful competitor achieved their dominance by removing something the competitor offered rather than adding to it.” Loc 2007, 2018
- On asymmetric information: “Trust is always more difficult to gain in cities because of the anonymity they afford, and [medieval] guilds help to offset this problem. If it is costly and time-consuming to join one, the only people who enter are those with a serious commitment to a craft. Guilds are also self-policing; the upfront cost of being admitted adds to the fear of being ejected” Loc 2060. Guild members also recover those costs via higher charges.
- “Solving a problem for a customer at your own expense is a good way of signalling your commitment to a future relationship.” Loc 2144
- “Bits deliver information, but costliness carries meaning. We do not invite people to our weddings by sending out an email… Imagine you receive two wedding invitations on the same day, one of which comes in an expensive envelope with gilt edges and embossing, and the other (which contains exactly the same information) in an email. Be honest – you’re probably going to go to the first wedding, aren’t you?” Loc 2187
- Water! “The psychophysicist Mark Changizi has a simple evolutionary explanation for why water ‘doesn’t taste of anything’: he thinks that the human taste mechanism has been calibrated not to notice the taste of water, so it is optimally attuned to the taste of anything that might be polluting it.” Loc 2197
- “It is therefore impossible to generate trust, affection, respect, reputation, status, loyalty, generosity or sexual opportunity by simply pursuing the dictates of rational economic theory. If rationality were valuable in evolutionary terms, accountants would be sexy. Male strippers dress as firemen, not accountants; bravery is sexy, but rationality isn’t.” Loc 2233
- “Economists tend to dislike the idea of branding and are inclined to see it as an inefficiency, but then they might view a flower as an inefficient form of weed. The reason they might not understand the flower’s extravagance in squandering its resources on producing scent and colour is that they don’t fully understand what it is trying to do or the decision-making and information-transfer context in which it is trying to do it” Loc 2344 NB: I oppose advertising (read more) but not branding. Brands, as Sutherland explains, are costly to produce and defend. Advertising is cheap talk that “does whatever it takes” to sell the good. What’s the difference? A brand helps you find a product you know. Advertising induces you to try a product you don’t.
- Why does Coca-Cola advertise? It’s in an “empty-promises” arms race with Pepsi. Related: “We find that almost all brands seem to be over-advertising, and that they are earning a negative R.O.I. from advertising in an average week” and “Online advertising wears the emperor’s new clothes” [it’s often worthless].
- “Modern environmentalists also suggest that status-signalling competition between humans [e.g., flying into space] is destroying the planet… the widespread conviction that humans could be content to live without competing for status in an egalitarian state is nice in theory, but psychologically implausible. Yet the status markers for which we compete don’t have to be environmentally damaging; people can derive status from philanthropy as well as through selfish consumption.” Loc 2436
- “Most people will avoid giving credit to sexual selection where they possibly can because, when it works, sexual selection is called natural selection… Why are people happy with the idea that nature has an accounting function, but much less comfortable with the idea that it also has a marketing function?” Locs 2472, 2481
- “The Soviets soon found that, without a maker’s name attached to a product, no one had any incentive to make a quality product.” Loc 2528
- “Notice that ordinary people are never allowed to pronounce on complex problems. When do you ever hear an immigration officer interviewed about immigration, or a street cop interviewed about crime? These people patently know far more about these issues than economists or sociologists, and yet we instead seek wisdom from people with models and theories rather than actual experience.” Loc 4147 [Seems I stopped highlighting for many pages. Now you have to read the book, to uncover what I censored 😉 ]
- “You attend a meeting with the UK Government, no biscuits are provided. It saves something like £50m a year. The hidden cost is that every meeting takes on a slightly unpleasant timbre by violating the most basic principles of hospitality. I don’t even like biscuits, but it still pisses me off. Chatting in the absence of biscuits feels less like a cooperative meeting and more like being interrogated by a Serbian militia. Under any Sutherland regime, scones will be mandatory.” Loc 4224
- “Having various gods and goddesses of fortune – Ganesha, Tyche, Fortuna, etc. – ancient religions were perhaps more objective than modern rationalists, since they were not inclined to attribute all outcomes to individual human rational agency.” Loc 4363
- “Strictly speaking these [“pocket”] radios were not pocket-sized, but in an early manifestation of his genius, Morita ordered shirts with outsized pockets for his employees. If you can’t make the radio smaller, make the pocket larger.” Loc 4459
- “Modernism isn’t particularly efficient as an architectural style, by the way. Arches are better than beams for supporting a load, and flat roofs are awful in engineering terms. But modernist architecture, like economics and management consultancy, is good at creating the appearance of efficiency.” Loc 4519
My one-handed conclusion is that this book is worth your time, whether you’re an economist or normal person, as we need to better understand our “irrational but powerful” desires and impulses, lest someone else take advantage of our misunderstanding them. FIVE STARS.
Here are all my reviews.
Hopefully, I am away on vacation when this post goes up.
The title asks the question. I want your answers.
But first, let me deconstruct the question, in 3 parts:
- “Panty-dropper” is a paternal, hetero-normal phrase for something that gets a girl so excited she wants to have sex on the spot. I’m not talking about sex (or boys-girls) with this phrase. Rather, I am trying to evoke that sense of excitement that leads to immediate action. I’d love to have a neutral term, so tell me if you have one. The question is aimed at any and all genders and orientations 😉
- With “your,” I am asking about things (or smells or words or whatever) that get you excited OR that you use to get others excited.
- I’m not really asking about sex, as that’s kinda boring (unless you’re a smooth P.U.A.). So it’s about exciting — emotional, intellectual, physical — which can refer to your mother’s praise, solving a crossword, or climbing a tree.
My one-handed reason for asking is that excitement is what makes our life worth living, what gets us out of bed in the morning.
After 18 months of reading and commenting on every single chapter (except the mathematical appendix) Alfred Marshall’s (AM’s) Principles of Economics (1920), I read some essays on what others thought about AM.
NB: My overall impression is that PoE was worth my time, but probably not worth the time of anyone except those interested in the history of economic thought. Yes, it’s interesting to read how AM explained and explored elasticity, the role of time, the representative firm, and so on, but I doubt that those benefits justify the time it takes to read 70+ chapters on topics that can be found in (over)simplified forms in modern textbooks. That said, I think that anyone looking into canonical concepts in economics should read what AM had to say about them. (NB: AM sometimes uses different terms so “control F” won’t help you!)
Here are my notes and some excerpts from five commentaries:
- This 60-page biography, published a few months after AM’s death, offers many insights into AM’s upbringing and thinking. He was planning to become a priest but turned to mathematics and then economics. His respect for history and the idiosyncratic details of “the everyday business of life” meant, in today’s jargon, that AM was more institutionalist than modeller.
- Every summer, AM walked in the Alps, to clear his head and strengthen his body. His long life attests to those vacations.
- The socialists assumed human nature would change with the ownership of capital. AM was skeptical. He studied actual business and workers.
- AM published very slowly. Most of his ideas were known (via his lectures) well before PoE appeared. Jevons (according to JMK) was impatient and shallow compared to AM. Mixed speeds and energies meant that some people misattributed discovery.
- AM was first to popularise mathematical diagrams for explaining economic ideas, but he hesitated to lean too much on mathematical descriptions of real life:
- Page 333:
Marshall… always felt a slight contempt from the intellectual or aesthetic point of view for the rather “potty ” scraps of elementary algebra, geometry, and differential calculus which make up mathematical economics.1 Unlike physics, for example, such parts of the bare bones of economic theory as are expressible in mathematical form are extremely easy compared with the economic interpretation of the complex and incompletely known facts of experience,2 and lead one but a very little way towards establishing useful results.
Footnote 1: Mathematical economics often exercise an excessive fascination and influence over students who approach the subject without much previous training in technical mathematics. They are so easy as to be within the grasp of almost anyone, yet do introduce the student, on a small scale, to the delights of perceiving constructions of pure form, and place toy bricks in his hands that he can manipulate for himself, which gives a new thrill to those who have had no glimpse of the sky-scraping architecture and minutely embellished monuments of modern mathematics.
Footnote 2: Professor Planck of Berlin, the famous originator of the Quantum Theory, once remarked to me that in early life he, had thought of studying economics, but had found it too difficult! Professor Planck could easily master the whole corpus of mathematical economics in a few days. He did not mean that! But the amalgam of logic and intuition and the wide knowledge of facts, most of which are not precise, which is required for economic interpretation in its highest form, is, quite truly, overwhelmingly difficult for those whose gift mainly consists in the power to imagine and pursue to their furthest points the implications and prior conditions of comparatively simple facts which are known with a high degree of precision.
- AM: “Economics is not a body of concrete truth, but an engine for the discovery of concrete truth.” But his desire to do good meant that (according to JMK) “he had an inclination to undervalue those intellectual parts of the subject which were not directly connected with human well-being or the condition of the working classes…” and thus slow intellectual progress [pp 344-5].
- AM’s inclusion of time and (dis)economies of scale really fleshed out the reality of production in economics.
- AM’s understated writing style reduced his wow-factor with some but also helped his ideas spread among non-academics and skeptics.
- AM’s lecturing style was far less refined or formal than his writing style. AM wanted students to “think with him” (page 359) rather than copy complete thoughts. This style challenged under-prepared students but spurred the curious to explore the material. (I try to teach in this way, but now it’s called “co-creation.”)
- AM wrote in favor of allowing women to work and contribute to society but opposed giving them degrees (!). He also wrote in favor of economics as a separate study from politics, i.e., splitting departments of political economy. It’s easy to see the error in his perspective on women (or eugenics), but I am still in the minority in calling for more political economy.
- AM was lucky to have a best-selling book in his final years, as he had not saved enough money to retire. (Pensions were not a thing in the early 20th century!)
- “AM was one of the first economists to realize that economics is an evolutionary science” [p 237]. This observation or claim is important when it comes to understanding the differences between economists who focus on equilibrium [the destination] and those (like AM) who focus on the processes affecting movements (in any direction) and/or goals [the journey].
- AM’s focus on the engine of analysis rather than the truth of the destination meant that his ideas could be used by anyone, at any time, to understand more about an economic topic.
- AM, playing the role of guide, suggested ideas or paths worth pursuing. Those who followed him could fruitfully spend years tying up the loose ends he uncovered.
- AM’s ideas on returns to scale, substitution, competition and time (evolution!) have endured. His focus on facts, quantification and results helped make economics useful.
- AM wrote “an apologia for economics… a kind of Counter-Reformation” to demonstrate the underlying value of economics, which had been buried in obscure theories. AM wanted economics to “deal with man as he is, seen in the round” [p 310].
- AM discussed long-term supply and demand, but he put little weight on equilibrium, since underlying tastes and technologies changed too fast for stability to endure.
- AM established a third era of economic thought that built on earlier Classical (Smith) and Ricardian (Ricardo).
- AM developed the idea of bidding for monopoly rights that is — in the case of water utilities — one way that markets can discipline monopolistic industries.
- AM understood and discussed problems with imperfect markets, although later economists contributed more to this topic.
- AM argued, from a biological-evolutionary perspective, that it was “better to be vaguely right than precisely wrong,” but later economists (see 1944 and 1946 links in the footnote at the end of this post) would revert to the security of precise (and wrong) mathematical equilibria.
- That said, others have embraced AM’s manner of using statistics and data to check theory — methods that have exploded in popularity with econometrics and (better, IMO) experimental economics.
- AM’s caution in regard to equilibrium would have been helpful in dealing with the Great Depression and WWII. Keynes escaped the suffocating assurance of supply=demand, but many other economists could not.
- Post-AM economists brought much-needed attention to the dynamics inherent to negotiations among players with major market power and the role(s) of money and finance in the real economy. AM built the foundations they needed.
- Plenty of other challenges (e.g., group-action, heterogeneous agents, collective control and mass bargaining) still need attention. It got attention from Samuelson (public goods, 1954), Vernon Smith (experimental markets, 1955/1964), Olson (collective action, 1965), and the Ostroms (common-pooled goods, 1977).
- AM’s PoE was “still a standard textbook” in 1952, but CWG advised students to skip most of AM’s (now outdated) moralising about behavior and society. This advice might have made reading less boring, but it seems to have been costly, if we look at the contemporary amorality of many economists. (I didn’t find AM’s writing too boorish, but the 1950s were go-go years…)
- AM focussed on partial-equilibrium analysis because general-equilibrium was far too unstable to ever arrive:
The Marshallian world is a more complex matter. It is not in the least static – it is in fact a world of ceaseless movement and change. Population is increasing (or it might be diminishing), capital is growing, tastes are changing, technique is altering. Some industries are expanding, while others are contracting, and the same is true of the individual firms within each industry. Not only is there seasonal and frictional unemployment of labour (the ins and outs) but there is also structural unemployment due to changes in tastes and demand on the one side, and in technique and inventions on the other. But the aggregate volume of unemployment is not so large as to indicate an overall shortag of effective demand. [p 115]
- CWG gives (p 123) a nice summary of the short vs long run:
In the case of the market we are dealing with a stock of goods that are already in existence and which are the fruits of past production.
In the case of the short period we are dealing with a flow of output from a substantially fixed stock of specialised instruments of production.
In the case of the long period we are dealing with a flow of output from a flow of all the factors of production that are required to produce that output.
- As promised, Coase uses most of this (short) article to discuss AM’s methods, which were mostly NON-methods, i.e., AM “would have nothing to do with controversies between deductive schools, inductive schools, historical schools and so on. There was work for all, and he welcomed all. Constructive work was what he wanted” [p 27].
- What about inductive vs deductive? AM states his ideas in a letter (~1903) to Keynes’s father [pp 26-7]:
… You make all your contrasts rather too sharply for me. You talk of the inductive & the deductive methods: where as I contend that each involves the other, & that historians are always deducing, & that even the most deductive writers are always implicitly at least basing themselves on observed facts… It is a mere question of arrangement: but I think it is a very important one practically. I think the right order is first to emphasize the mutual dependence of induction & deduction, & afterwards to show in what kinds of inquiry the economist has to spend the greater part of his time in collecting arranging & narrating facts, & in what kinds he is chiefly occupied in reasoning about them & trying to evolve general processes of analysis & general theories which shall show the Many in the One & The One in the Many.
My second point is that you continually use the word theory where I shd use analysis. This seems to me in itself to cause confusion wh is increased by the fact that later on you exclude modern facts from history; & yet you do not boldly say that theyare part of theory. If they are then I agree with you that a study of theory shd come before a study of history. But I do not myself like to put the case in this way.
My own notion is [and here Marshall is I take it describing how economics should be presented to students]
i. Begin with analysis, which is an essential introduction to all study of facts whether of past or present time, with perhaps a very short historical introduction.
ii. Go on to call to mind the students knowledge of the economic conditions wh he lives. Show the relations in wh they severally stand to one another & carry analysis further, making it more real & concrete.
iii. Build up a general theory or process of reasoning applicable to Value Money Foreign Trade etc, with special reference to the conditions in wh the student lives, & pointing out how far & in what ways, it can be made to bear on other conditions.
iv. Give a general course of economic history.
vi. Consider economical conditions in relation to other aspects of social life.
vii. Treat of the economic aspects of practical of practical questions in general & social reform in particular.
- As Coase observes, AM was primarily concerned with understanding and explaining the real economic system that people live, not the abstract, theoretical system beloved by academics. Indeed: “Though a skilled mathematician, he used mathematics sparingly. He saw that excessive reliance on this instrument might lead us astray in pursuit of intellectual toys, imaginary problems not conforming to the conditions of real life: and, further, might distort our sense of proportion by causing us to neglect factors that could not easily be worked up in the mathematical machine” [p 30].
- Thus, Coase arrives [p 30] at my favorite advice from AM (1906):
- Use mathematics as a shorthand language, rather than as an engine of inquiry.
- Keep to them till you have done.
- Translate into English.
- Then illustrate by examples that are important in real life.
- Burn the mathematics.
- If you can’t succeed in (4), burn (3). This last, I did often.
…and that ends my summary of commentary by five major economists on Alfred Marshall.
My one-handed conclusion, after 18 months of reading Marshall, is that he was one of the truly great thinkers, practitioners and expositors of economics.
This post is the last in a series for the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.