Economics and the non-believer

A week or so ago, the wonderful Hilzoy on Obsidian Wings had an entry on how her father taught her about money supply and inflation, aged eight or nine ( In many ways it sounds like a slightly more advanced version of my teaching L about the world around her. But though L has already got taught things ranging from the largest number I know to how to play chess (that was down to my husband), I suspect I’m not going to be teaching her economics, like Hilzoy’s Dad did. That’s not particularly because I don’t know much about economics (even though I don’t). I will do my best to teach her some physics, even though I’m fairly ropey at that. It’s my deeper problems with economics, which emerged as I read about how Hilzoy’s Dad was explaining to her why printing money is not a good idea:

Dadzoy said: imagine that you and I are the only people in the world, and I have a candy bar, and you have a dime. Also imagine that there is nothing else in the world that you want to buy, and no other money. How much would you pay me for my candy bar? Cleverly, I said: The whole dime! Right, said Dadzoy. Now suppose that right before you were going to offer to buy my candy bar, you found another dime. Now how much would you pay me for my candy bar? I said: I’d only offer you one dime. Dadzoy said: but if I knew that you had two dimes, I might ask for both of them. I thought for a while, and finally allowed as how I would pay both dimes for the candy bar.

So, said Dadzoy, do you think that finding that second dime made you any better off? Yes, I said: I had more money! — But, said Dadzoy, even though you had twice as much money, you could still only buy one candy bar. Having twice as much money just made the candy bar more expensive.

As Hilzoy admits, she questioned her Dad about various aspects of this several times. It’s at those questions I would come unstuck. Because L (I suspect) would sooner or later raise the point that ‘it’s not fair for you to charge me more for the same candy bar’. At which point, I am revealed as the economics non-believer that I am. I would have to agree – it’s not fair. Deep down, I do not accept the underlying morality that says a good’s only value is what someone is prepared to pay for it. And unless you either believe that that axiom is right, or that you can just ignore moral issues in economics, then you’re stuck.

My economic model (which I admit is a deeply naive one) is that there is a ‘just price’ for goods, based on production costs (including overheads etc) plus profit. It doesn’t seem to me moral to assume that a producer is entitled to charge whatever the market can bear, regardless of his/her own costs. But equally, it doesn’t seem moral to me that the customer should expect something for nothing. When L starts getting pocket money, she will have to learn that if she hasn’t got enough money, she can’t buy something. She can’t expect a shopkeeper to give her something for less than it’s worth, just because she wants that to happen. But the fact is, that’s what supermarkets and the like do all the time to their suppliers, and that’s seen too often as just good business practice.

I’m not sure yet what I will tell L about economics, but I doubt she going to get an accurate account of it from me, any more than an atheist is likely to give a good account of a particular religions’s beliefs. (Still, at least I hope L will get a moral education that’s more effective than Robert Mugabe’s was).


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