Disaster Capitalism

The Price of Everything:  A Parable of Possibility and Prosperity
by Russell Roberts
(Princeton University Press, 2008, 224 pages)

Imagine:  a natural disaster befalls a neighbourhood teeming with people in the middle of the night, and you and your partner make it out unscathed.  Your house has lost power and with no candles, matches or petrol fuelled generators at your disposal, you both decide to brave the treacherous conditions and visit your nearest convenience store in the hope of purchasing a few essentials, including a torch and batteries.

As you venture towards your destination, your partner crosses her fingers in the hope that not only is the store still standing but it has what you need.

The closest store is left intact after the disaster, but its supplies are bare after a rush by survivors to grab a hold of anything they could think of.

You decide, in your desperation, to go to the next store and test your economic fortunes amidst the wreckage left behind by nature's fury.  What happens next is portrayed by George Mason University Professor of Economics Russell Roberts in his latest novel, The Price of Everything:  A Parable of Possibility and Prosperity.

Roberts sets the scene for Ramon Ramirez, son of a Cuban immigrant, Stanford University political science student and emerging tennis player, and his partner Amy, an undergraduate enrolled in an economics class.

Ramirez becomes enraged by his first hand experience of inflated prices at the Big Box convenience store, just after a major earthquake.  With the CEO of the merchandise giant also a major benefactor of the university, Ramirez organises a protest at his campus with a disparate bunch of anti-capitalist radicals.

It is at this point that Ramirez meets Amy's lecturer in economics, professor Ruth Leibler.  What follows in The Price of Everything is a conversation between Leibler and Ramirez about the foundations of economics, including price formation, market innovation, competition and the profit and loss mechanism.

It is fair to suggest that Ramirez possesses deeply ingrained beliefs, sentiments and biases about how markets work, perhaps shared by many who lack a formal training in economics.  For Ramirez, selling products at higher than regular prices is an "injustice" wreaked by "greedy business owners and corporate moguls" who "worship money".

Using her experience of teaching thousands of students over many years, Leibler patiently and lucidly explains that the decision of Big Box to increase prices all round after a natural disaster is part and parcel of the coordinative function of the market:

When Big Box raises the price of flashlights, someone who had candles at home decided to do without the flashlight and left it there for you on the shelf.  No one had to interview either of you.  The higher price induced both of you to act as if you had been interviewed.  The person with the candles, by refusing to buy the flashlight at the higher price was saying, I'll pass on the flashlight.  I'll leave it for someone else who needs it more ... The higher price made sure you got the flashlight.  That seems pretty just to me.

The nub of The Price of Everything is that no central planner is involved in deciding what goods and services are produced, and how these products get allocated amongst the multitude of people wanting to be fed, clothed, housed, transported and entertained.

There are no czars involved in the production, distribution and exchange of bread, pencils, iPhone, home and contents insurance, let alone any other good or service provided by private sector economic agents.  Yet, our market-based economic system has had an unparalleled record of delivering astronomical increases in living standards for more people in Australia and around the globe.

It becomes quite clear almost from the outset that Leibler is not giving Ramirez a quick fire economics lecture as a way to discourage him from leading a protest against the Big Box franchise.  To the contrary, the protest goes ahead, albeit with catastrophic results that Ramon had not intended.

Rather, Ruth Leibler's conversations on economic theory are aimed to equip a young man, with an unquestionably bright, future, with a logical framework to understand the sheer complexities of the world of acting, yet fallible, people surrounding him.

Creative Commons 2.0 | flickr.com | galaygobi

Russell Roberts' latest literary effort has received many positive reviews on the basis of the quality of the storyline alone.  However, the hidden beauty of The Price of Everything is that it underlines the value of using fiction as an alternative medium to explain the basic concepts of economics.

The use of alternative media for the dissemination of economic ideas had been sorely underutilised by the economics profession for many years.

Until a few years ago the communication channel of choice for economists were through textbooks and formal journal articles, although Milton Friedman made a household name for himself with the help of regular Newsweek columns.

However, economists are beginning to use different media to diversify their messages to students and the general public.

The number of internet blogs used by economists has become its own growth industry.  Russell Roberts has gained a reputation as a world class economics educator through his use of blogs, podcasts and fiction writing.

Some economists, such as Nobel Prize winner Vernon Smith, even conduct "laboratory" sessions with students to illuminate some of the fundamentals of economic behaviour.

In many ways, associated intellectual travellers who regularly delve in economic concepts and applied public policy debate, such as free market think tanks, have led the way in the communication of economic concepts to the public.  My weekly email newsletter already has an extensive readership of 20,000 people, and its video podcasts are reaching out to people in ways considered unachievable a few short years ago.  The diversification of economic education reflects, in part, a growing acceptance of the notion that different individuals are receptive to different ways of receiving knowledge.

My mind is receptive to receiving messages about economic thought published in the journals Constitutional Political Economy or Review of Austrian Economics, but you might prefer to get your messages from the latest post on the blog Catallaxy (www.catallaxy.com).

Similarly, economists are coming to appreciate that communicating with the general public requires them to go one step beyond the dry academic language to which they are accustomed.

According to Nobel Prize winning economist and father of public choice theory, James M. Buchanan, "scientific evidence, on its own, cannot be made convincing;  it must be supplemented by persuasive argument that comes from the genuine conviction that only those who do understand the soul of classical liberalism can possess."

Finally, there is a growing school of thought emphasising that market economies are complex, dynamic institutional structures that unfold over time much like a text would.

As the Austrian economist Peter Boettke explains, "when we try to communicate economic ideas and economic history, we tell a story and this is as it should be because the economy really is an unfolding story and learning economics is ultimately how to read that unfolding story."

To be sure, the way in which economic education is changing is unlikely to displace the stock standard academic tools of economic teaching through the highly formulaic written text.  For example, Friedman and Savage's classic 1952 Journal of Political Economy article will possibly remain on microeconomics course reading lists for some time to come.

Nonetheless, the idea that the communication of economic concepts to undergraduates and the public requires at least a more narrative form of argument than just the formal academic standards is well and truly taking hold within the economics profession.

While there is plenty of scope for others to follow Russell Roberts and write fiction as a way to explain economics, it is well known that novels have already played a powerful role in propagating economic thought.

Showing how entrepreneurs often undergo years of self-sacrifice and toil to produce a dizzying array of goods and innovations making life easier and more enjoyable for the masses, The Price of Everything is a must read for anybody interested in how market capitalism works.