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Thursday, April 2, 2009

The Price of Everything: A Parable of Possibility and Prosperity

The primary characters in The Price of Everything are Ruth Lieber, an economics professor and provost at Stanford University, and Ramon Fernandez, a Cuban immigrant tennis prodigy studying there. Ramon is saturated with hostility toward the market process, while Ruth has a strong appreciation of markets and liberty. Their conversations—serves and volleys of economic ideas—form the core of the book.

Whereas The Choice explained the economics of international trade, largely in response to early-1990s hysteria over competition from Japan, and The Invisible Heart explored the morality of capitalism, Roberts’s primary interest in The Price of Everything is spontaneous order. That order can emerge without human design (indeed, that human design is antithetical to order) is a difficult concept, but Roberts’s exposition is first-rate. He offers schools of fish, flocks of birds, and language as readily observable examples of emergent order. And Freeman readers will delight in Roberts’s homage to Leonard Read’s “I, Pencil”: Ruth uses artifacts from a visit to a pencil factory as show-and-tell items while leading a class discussion of how manufacturing pencils illustrates emergent order.

Since planning is often useful in conducting our daily lives, it’s only natural for students such as Ramon to press Ruth for a deeper understanding of how order can emerge with an invisible hand instead of a central plan. Here Roberts explains the crucial role that prices play in conveying “the particular circumstances of time and place” and coordinating the disparate plans of individuals. (Just as Ricardo and Smith inspired Roberts’s two previous novels, Hayek underlies The Price of Everything.) An especially clever analogy between ant pheromones and prices as efficient mechanisms for disseminating information among beings that cannot possibly acquire or process all available knowledge helps Roberts illustrate this challenging idea.

Just as prices are fundamental to the market process, Ruth explains that the dynamism and entrepreneurial discovery embodied in emergent order are necessary for increasing human productivity and prosperity. On a micro level Ruth explains to Ramon that productivity enhancements such as gravity-fed food and watering systems have made it possible for the average worker on an egg farm to produce a staggering 120 million eggs per year. (As an aside, Ruth tells Ramon that if he’s uncomfortable with modern industrial agricultural techniques, the market also caters to his taste by offering free-range chickens.) On a macro level Ruth asks Ramon to think how favorably the standard of living of a typical person today compares to even the wealthiest people who lived a century ago. That even people of modest means now have running water, modern appliances, and vastly improved medical care relative to yesterday’s richest people testifies to the wealth-generating capability of the market process.

While explaining prices, emergent order, and prosperity, Roberts works several other economics topics into Ruth and Ramon’s conversations. Among them are so-called price gouging (when Ramon leads a protest against Big Box after the fictitious retailer doubles its prices in response to an earthquake), alleged exploitation of workers by Wal-Mart, and the fallacy that labor markets share the zero-sum nature of a game of musical chairs (the fixed-number-of-jobs fallacy). He also has Ruth address common caricatures that economists are “pro-business” and assume people care only about money. (Readers familiar with Roberts’s previous works will recognize his humane brand of economics.) It’s noble work, and Roberts does it admirably.

Although Roberts turns back caricatures of economists, one can also—at the risk of overanalyzing—detect criticism of the current state of economics instruction. Ramon has taken an introductory economics course. He recalls that supply and demand curves look like an “X” and is quick to suggest that government can improve on “market failure” arising from pollution. Nonetheless, Ramon’s semester of economics apparently has not exposed him to Hayek and the notion of emergent order, nor has it dispelled any of his misguided thinking about the market process. Fortunately, there is an easy way for instructors to rectify such deficiencies in their teaching—adopt The Price of Everything for their courses.

Tyler Cowen, Roberts’s colleague at George Mason, calls The Price of Everything “the best attempt to teach economics through fiction that the world has seen to date.” That’s high and well-deserved praise.

  • Russell Roberts the host of the weekly podcast, EconTalk and co-creator of the Keynes-Hayek rap videos. His latest book is How Adam Smith Can Change Your Life. He is also a John and Jean De Nault Research Fellow at Stanford University"s Hoover institution.

  • Frank Stephenson is a professor of economics at Berry College in Rome, Georgia.  He holds a B.A. from Washington and Lee University and a Ph.D. from North Carolina State University.  His research interests lie primarily in public choice and sports economics, and he has published in scholarly journals such as Public Finance Review, Public Choice, the International Journal of Sport Finance, and the Journal Sports Economics.  He has also contributed to Regulation and The Freeman and has taught at IHS and FEE summer seminars.