Harper Business • 340 pages + xi pages • 1996 • $25.00
Mr. French is a vice president in commercial real estate lending for a bank in Las Vegas, Nevada.
Anyone who has met David Friedman knows he is a man looking to pick an argument. Only the naive or foolish will attempt to joust with him. Careful study of Friedman’s new book, Hidden Order: The Economics of Everyday Life, will make the reader a better thinker and a more skilled debater, whether the topic is economics, politics, crime, or love and happiness.
Economics is not just the study of satisfying insatiable wants with limited resources, as so many Econ 101 textbooks contend. Economic science encompasses all human behavior: people acting rationally to reach objectives. Those objectives include such everyday dilemmas as deciding which checkout lane at the supermarket will be fastest, dating and finding the right person to marry, voting, and protecting one’s property.
Friedman is at his best in the book’s second half, analyzing everyday situations. For instance, the public is outraged, believing that criminals are getting off lightly because of plea bargaining. But Friedman points out that punishment is more severe because of plea bargaining. How?
Defendants must decide whether they wish to roll the dice by going to trial with only a 10 percent chance of acquittal, or take the sure bet of some jail time. Rational criminals will accept the plea bargain if it makes them better off. The district attorney’s limited budget can then be spent convicting those who won’t take a deal. As Friedman points out, [a]ll criminals would be better off if none of them accepted the DA’s offer, but each is better off accepting.
Ever notice how many religious radio stations there are? A bunch. By comparison, the number of religious magazines, books, and newspapers is a small percentage of all print media. Why the difference? Radio broadcasts are a public good. And because people who listen to religious programs are religious, believing that donating money is virtuous, the religious broadcaster is better able to get the listener to pay for them. The religious publisher has no corresponding advantage over the secular publisher.
Friedman also explores whether stricter enforcement of drug laws increases or decreases violence. He concludes that no matter what, [a]ll [possibilities] imply that legalizing drugs would eliminate drug-related crime.
What’s behind the decline in American marriage? A decline in family values? Hardly. It used to be that a man would marry his baker or brewer, someone who could cook and clean while he toiled in the fields. Moreover, a high infant mortality rate required that a woman produce children continually, so that the couple might see two or three survive to adulthood. Today’s conveniences and low infant mortality rate make being a housewife a part-time job. Thus, as Friedman points out, [w]ith fewer children and less spouse-specific capital, the costs of divorce are much lower than they were a few generations ago.
Unfortunately, before Friedman gets to the fun stuff, he spends a third of the book getting bogged down with David Ricardo’s debunked labor theory of value, which Karl Marx embraced. Friedman writes: price equals both cost of production and value to the user, both of which must therefore be equal to each other. Subjective value, the insight of the Austrian school, is never mentioned. If value exactly equals price, why would anyone ever make the trade? Besides, what I pay for an item or service, does not depend on how much it cost to be produced, but the value I place on the item at that particular moment.
Despite those shortcomings, Hidden Order is a book spiced with jokes, anecdotes, and riddles that will keep the reader laughing, learning, and (especially) thinking.