How many different "economicses" are there? And do they have "laws" that are in some sense "invariant"?

Let us start by reading some snippets:



Readings:


Writing Assignment:

Write 200 or so words on whether we are better off presuming that there is one economics common to all societies, or alternatively that there are many--that different types of economies follow different economic laws of motion. At least 18 hours before the class--by 6 PM PST on January 26, 2010--email your paper to delong@econ.berkeley.edu and post it as a comment at http://delong.typepad.com/economics_210a_spring_201/2010/01/econ-210a-uc-berkeley-january-27-2010-one-economics-or-many.html.

You might, as you write your essay, think about the following question:

"Formalists" would say that all economies are pretty much alike--that people make stuff and distribute it in a social process, and that this social process is or can be fruitfully and conveniently modeled as one of reciprocal exchange of commodities at market prices. I contract with the Bay Alarm Company to provide security for my house: they install, monitor, and respond to a burglar alarm, and I pay them valuable money. Similarly, Hrothgar (Roger) the Scylding, King of the Danes "contracts" with warriors to provide security for his villages: they acquire weapons, train until they are skilled in their use, and follow him into battle against raiding bandits who want to steal the cows and rape and kidnap the women of the Danes; he in return feeds them dinner, plies them with alcohol, entertains them with skalds, and gives them places to sleep every night in his great hall of Heorot. These are, the formalists would say, fundamentally the same thing: the "purchase" of security services in exchange for value at an "equilibrium" price.

"Substantivists" would say that economies are very different: that there is next to nothing in common between the business conducted by the Bay Alarm Company on the shores of San Francisco Bay early in the twenty-first century and the business conducted by Prince Beowulf of the Geats and his companions on the shores of sixth-century Jutland. The "prices" at which the reciprocal obligations that make up social life are "exchanged" or "bought and sold" are not set by equalizing a supply and demand themselves the results of utility, scarcity, opportunity, and capabliity but are instead determined by overpowering sociological forces--fear, force, custom, command, bureaucracy, and honor--combined with a generalized human desire to return good for good and evil for evil alongside a sense of shame if the flow seems to be too one-way. The economic is thus "embedded" in the sociological and the political.

An example. Back in 1997 there was on two-week period in which my wife and I hired three babysitters: a 22 year old recent graduate of Berkeley who was also our children's swimming teacher who we paid $10 an hour as a babysitter (and $40 an hour as a swimming teacher); a 16 year old just moved to Bayarea from Mexico city for her last two years of high school whom we paid $7 an hour as a babysitter; and a 13 year old living in our neighborhood who put up a sign at the local playground whose mother would not let us pay her more than $4 an hour. In none of these cases were the terms and conditions of employment determined by anything like supply-and-demand equilibrium in a competitive auction market. In all of these cases what we pay is determined much more by what we feel is an appropriate level of earnings for someone of her age and skill. Economic conditions--scarcity and opportunity--do enter, for where do beliefs about appropriate wages come from?, but they enter only at one remove, for we pay different people different wages for the same work.

Clearly even the most "substantivist" of situations has a formal element: when Grendel shows up very few of Hrothgar's warriors stick around because the food and drink is not worth having your arms torn off. And even the most "formalist" of situations has a substantivist element: we don't have the cartoon of oatmeal tested by a biochemist before we pay for it at Safeway, but rely (most of the time) on the Safeway workers' belief that their social role is to sell food rather than garbage and (most of the time) we are right. But to say that the truth is in the middle is unsatisfactory. So: to what degree should we lean toward the "formalist" or the "substantivist" end in doing are economic analyses? To what degree should we presume that there is only one economics?

Thoughts, Notes, and Questions:


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Additional and Optional Readings:

  • Richard Ericson, "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives 5 (Fall 1991), pp. 11-28, http://uclibs.org/PID/1011
  • M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," _Economic History Review_, New Series, Vol. 18, No. 1, Essays in Economic History Presented to Professor M. M. Postan), pp. 29-45 http://www.jstor.org/stable/pdfplus/2591872.pdf
  • Michael Kremer (1993), "Population Growth and Technological Change: One Million B.C. to 1990," _Quarterly Journal of Economics_ 108 (August), pp. 681-716. http://www.jstor.org/stable/pdfplus/2118405.pdf