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Monday, March 14, 2011

Exchange as Teamwork

A common tool in explaining economic theory is to start with the story of Robinson Crusoe, the main character from Daniel Defoe’s book of the same name. Crusoe is stranded alone on an island, but he is still subject to the scarcity of time and resources. Economists use this story to show how individuals make choices subject to constraints. Should Crusoe fish? Or build shelter? Or rest? Even alone, individuals always face trade-offs. The economic theory is of course further built up by adding more people.

As a thought experiment Crusoe economics is certainly useful, but it often misses the main point about economic theory, namely, that economics is a social science. The Crusoe example treats economic theory as a science of household management, where individuals optimize their utility subject to constraints, instead of explaining how individuals interact with one another through exchange. As economist Richard E. Wagner often says, utility maximization posits Crusoe as society, where interaction between individuals is lost within the individual’s utility function. While the exchange paradigm posits Crusoe in society, where interaction between individuals is front and center. Thus, the latter should be at the center of economic theory.

In today’s document, a short unpublished essay on golf and curling written in 1955, Leonard E. Read illustrates the importance of keeping exchange at the forefront of economic thought. The conventional wisdom is that golf depends on individual performance while curling depends on team performance. Read, who was an avid golfer and curler, begs to differ. In his opinion both sports rely on individual performance and teamwork, the only difference is a matter of time and space.

On the golf course it comes down to the player’s club swing, but prior to that there was a necessary team effort. Read points out that (as he would similarly point out three years later in his famous essay “I, Pencil“) thousands of people cooperated in making the clubs the player swings and the golf balls he hits, and maintaining the course he plays. The golfer relies on the performance of those who made all that goes into his game. Similarly, the outcome of a curling match relies on all members of the team. If someone doesn’t perform his or her task, the outcome of the game very well could be affected. Both sports come down to individual performance and teamwork.

Read’s point is not solely about sports but about the importance of uninhibited exchange. Human beings are social creatures who rely on each other. The wealth we create is a result of exchange. Yes, individual performance matters, but it is through the division of labor, specialization, and exchange that we amass the wealth we have. We need to be free because we depend on our creative energies (individual performance) and the interaction and cooperation of those energies (team play)

  • Nicholas Snow is a Visiting Assistant Professor at Kenyon College in the Department of Economics, and previously a Senior Lecturer at The Ohio State University Economics Department. His research focuses on the political economy of prohibition.