Confessions of an Economic Metaphor
February 10, 2009
The fruitful field
Laughs with abundance
[T]hat so far as it is a fallacy, it is always the sign of a morbid state of mind, and comparatively of a weak one.
Ruskin is writing about the pathetic fallacy in art: the treatment of inanimate objects as if they were human. Whether it is appropriate in art is perhaps a question of taste, what one believes is the purpose of art, or a weak and morbid state of mind. But in economics (and in speaking of production in particular), this kind of personification happens too often, in my opinion, and can cause very serious errors if taken literally.
I propose that the way we choose to talk about production can matter a great deal. The metaphor can affect the way we actually view production. In particular, it may affect how we make important legal determinations concerning the very structure of the firm; it ceases to be a metaphor and begins to affect our “state of mind”. If you commit the pathetic fallacy, the time has come to confess.
To illustrate the different views of production that you might come across, recall the legend of George Washington’s own confession¹:
- Active Inputs or Poetic View:
- “An axe cooperated with me to chop down the cherry tree.”
- Active Outputs View:
- “The chopping down of the cherry tree used up some of my labor and some axe services.”
- Passive or Engineering View:
- “Given an axe and some of my labor, the cherry tree was chopped down.”
- Humanistic View:
- “I used an axe to chop down the cherry tree.”
One of these things is not like the others. One of these things just doesn’t belong. Can you tell which thing is not like the others by the time I finish my song?
You can consider this taxonomy a field guide in your discussions about firms and production. You may never have noticed the difference before (or cared) but now you may not be able not to notice the difference. That is my goal.
At first, it might seem that it is just a matter of taste or semantics. But if you translate them into the language of accounting or law, you get very different results.
If you take the Active Inputs View, you would have reason to believe that capital, a thing, is partially “responsible” for the product. This would be a blatant instance of the pathetic fallacy. But it would be a good reason to argue for a distribution of shares in the product that go to both labor and capital. Since capital is a what and not a who, the capital owners are glad to step in and act as the agent for their capital’s “share”.
If you take the Active Outputs View, you are a very strange cat indeed. Here, the product somehow used labor and capital to bring itself about. This one is a rare bird, but I mention it just in case. Nevertheless, it still has the overall aspect of treating labor and capital as symmetric factors. It has the additional aspect of removing any human responsibility and, even worse, it leaves the liabilities to labor and capital owners (for the used capital services) up in the air. If that is how you like to roll, you might find this view useful in confounding your opponents.
The Passive View is a common alternative to the Active Inputs View. Here production is also washed clean of all human responsibility and all intention but without all the strangeness of the Active Outputs View. Instead there is a nice, neat black box. But black boxes don’t help when trying to ascertain the facts of the matter, e.g. in a legal dispute. It also leaves the liabilities unattached to any person. Therefore, this kind of talk simply sidesteps the important issues (which usually means protecting a presupposed argument).
If it is not already obvious, I am arguing that the Humanistic View is the only one that makes sense, does not commit the pathetic fallacy, and doesn’t sidestep the issues that are important for legal and economic considerations. In this view, only human beings are responsible for producing anything. It also clearly points to the human beings as responsible for the use of capital services so the liabilities are properly assigned to real people. It has the nice quality of not being strange. People using things is fairly uncontroversial, unlike things using people, things working alongside people, or some type of immaculate production.
A related metaphor and one equally insidious is the distributed shares metaphor. I’ve already alluded to it in describing the Active Inputs View. Benjamin Tucker was not a fan of this metaphor or the Active Inputs View:
“Whatever contributes to production is entitled to an equitable share in the distribution!” Wrong! Whoever contributes to production is alone so entitled. What has no rights that Who is bound to respect. What is a thing. Who is a person. Things have no claims; they exist only to be claimed. The possession of a right cannot be predicated of dead material, but only of a living person. “In the production of a loaf of bread, the plough performs an important service, and equitably comes in for a share of the loaf.” Absurd! A plough cannot own bread, and; if it could, would be unable to eat it. A plough is a What, one of those things above mentioned, to which no rights are attributable.
Oh! but we see. “Suppose one man spends his life in making ploughs to be used by others who sow and harvest wheat. If he furnishes his ploughs only on condition that they be returned to him in as good state as when taken away, how is he to get his bread?” It is the maker of the plough, then, and not the plough itself, that is entitled to a reward? What has given place to Who. Well, we’ll not quarrel over that. The maker of the plough certainly is entitled to pay for his work. Full pay, paid once; no more. That pay is the plough itself, or its equivalent in other marketable products, said equivalent being measured by the amount of labor employed in their production. But if he lends his plough and gets only his plough back, how is he to get his bread? asks Mr. Babcock, much concerned. Ask us an easy one, if you please. We give this one up. But why should he lend his plough? Why does he not sell it to the farmer, and use the proceeds to buy bread of the baker? See, Mr. Babcock? If the lender of the plough “receives nothing more than his plough again, he receives nothing for the product of his own labor, and is on the way to starvation: Well, if the fool will not sell his plough, let him starve. Who cares? It’s his own fault. How can he expect to receive anything for the product of his own labor if he refuses to permanently part with it? Does Mr. Babcock propose to steadily add to this product at the expense of some laborer, and meanwhile allow this idler, who has only made a plough, to loaf on in luxury, for the balance of his life, on the strength of his one achievement? Certainly not, when our friend understands himself. And then he will say with us that the slice of bread which the plough-lender should receive can be neither large nor small, but must be nothing.²
I will leave my discussion of different metaphors here for now. I challenge everyone to check themselves and others to see if they can detect these views in in their thinking. I also challenge you to take your favorite organizational theories (e.g. the shareholder model) and try to fit it with the Humanistic View without smuggling in one of the other views. You might find that you have a hard time keeping the theory consistent.
I began this essay with John Ruskin. I had every intention of bringing the Tucker essay into the fray but I had forgotten something very interesting: John Ruskin was quoted in that same essay! It turns out that Ruskin was a major influence on Tucker’s view of labor’s relation to capital. The very same man who pointed out the pathetic fallacy in art, leading me to find it relevant in attacking different views of production, also happened to actually talk about production in a completely unrelated context. I had never before made the connection. I’m not sure if Ruskin himself ever made the connection but let’s take a look at Tucker’s discussion of him in the previously quoted essay:
We refer Mr. Babcock to one of his favorite authors, John Ruskin (in “Letters to British Workmen,” under the heading: “The Position of William”), who argues this very point on Mr. Babcock’s own ground, except that he illustrates his position by a plane instead of a plough.
Mr. Babcock replies by denying the similarity, saying that Ruskin “concludes that the case he examines is one of sale and purchase.” Let us see. Ruskin is examining a story told by Bastiat in illustration and defence of usury. After printing Bastiat’s version of it, he abridges it thus, stripping away all mystifying clauses:
“James makes a plane, lends it to William on 1st of January for a year. William gives him a plank for the loan of it, wears it out, and makes another for James, which he gives him on 31st December. On 1st January he again borrows the new one; and the arrangement is repeated continuously. The position of William, therefore, is that he makes a plane every 31st of December; lends it to James till the next day, and pays James a plank annually for the privilege of lending it to him on that evening.”
Substitute in the foregoing “plough” for “plane,” and “loaf” or “slice” for “plank,” and the story differs in no essential point from Mr. Babcock’s. How monstrously unjust the transaction is can be plainly seen. Ruskin next shows how this unjust transaction may be changed into a just one:
“If James did not lend the plane to William, he could only get his gain of a plank by working with it himself and wearing it out himself. When he had worn it out at the end of the year, he would, therefore, have to make another for himself. William, working with it instead, gets the advantage instead, which he must, therefore, pay James his plank for; and return to James what James would, if he had not lent his plane, then have had – not a new plane, but the worn-out one. James must make a new one for himself, as he would have had to do if no William had existed; and if William likes to borrow it again for another plank, all is fair. That is to say, clearing the story of its nonsense, that James makes a plane annually and sells it to William for its proper price, which, in kind, is a new plank.”
It is this latter transaction, wholly different from the former, that Ruskin pronounces a “sale,” having “nothing whatever to do with principal or with interest.” And yet, according to Mr. Babcock, “the case he examines (Bastiat’s, of course) is one of sale and purchase.”²
At some point, I will have more to say about this passage, but this post is long enough already. I just wanted to point out the neat historical trivia and the always-satisfying coincidences that can unexpectedly find their way into a project. Yet I have to imagine it is more than simple coincidence that Ruskin held both of these ideas.
¹ Ellerman, David, Property and Contract in Economics: The Case for Economic Democracy. Cambridge MA: Basil Blackwell Inc. 1992. pp. 26-30
² Tucker, Benjamin R., “Capital, Profits and Interest”, Individual Liberty: Selections From the Writings of Benjamin R. Tucker, Vanguard Press, New York, 1926, Kraus Reprint Co., Millwood, NY, 1973.