Sunday, 16 December 2012

What The Dickens? - Two Kinds of Miserliness

Reading my Christmas edition of The Spectator that arrived this weekend, I came across an article by Toby Young entitled "Dickens and the profit motive" in which he says the following about Dickens's feelings towards the ills of capitalist businessmen:

"In virtually all of his books, from Great Expectations to Hard Times, capitalists are depicted as mean and heartless* - men whose humanity has been eaten away by their relentless desire to make money. Ebenezer Scrooge is a case in point.  When the Ghost of Christmas Past takes him back to his youth, we see Scrooge actively choose his love of gold over his love of Belle, a beautiful young woman"

The trouble is, Toby Young is only focusing on one half of the situation and overlooking the other half.  Plus, regarding the half on which he is focusing, he has rather misunderstood the effects of the actions.  In economics, people are negatively affected not by other people's hoarding of money, but by other people's spending or use of resources.  In terms of how Scrooge's behaviour affects everyone else's financial well-being, he is the opposite of "mean and heartless" because he is hoarding his bank notes and not spending them on resources - which leaves more for everyone else**.  This is because people aren’t rich by having money; they are rich because of what that money buys (goods, free time, holidays, etc).  Scrooge is the opposite of what he is accused of being, because he has the money to be rich, but he keeps it in the attic, away from the many goods, free time, holidays, etc that he could consume.

A hat tip to Steven Landsburg here, but when Scrooge earns a bank note and doesn't spend it, the rest of the world is one bank note richer, because Scrooge produced one bank note's worth of goods and didn't consume them. By not using fuel, there is more for everyone else; by not having a big mansion there is more bricks and mortar for everyone else; by not having servants there are more employment opportunities for those who might wish to employ servants themselves.

I said that in hoarding his bank notes and not spending them on resources, Scrooge leaves more for everyone else.  How are those extra resources shared around?  Well it depends on how the savings are made.  If Scrooge puts £1 million pounds worth of banknotes in his attic and never touches them then everyone else is better off by £1 million pounds, which they'll find by having the prices of goods driven down.  If Scrooge takes his £1 million pounds out of the attic and puts it in his bank, he will bid down interest rates to the tune that others will be able to afford £1 million pounds worth of goods or services.  Conversely if he buys £1 million pounds worth of timber he will bid up the price of timber for everyone else, and reduce the supply too. 

So although Scrooge’s character is "mean and heartless", his effect on the economy is just the opposite – it is full of gains for those who probably didn’t realise they were benefitting from his miserliness.  Of course, the wonderful thing about A Christmas Carol is that its message has a specialness far beyond economic outcomes; it is about the wonders of a personality transformation, after which one sees others in an entirely different light because one can see oneself in a different light.  To this extent, economics is amoral. 

* You'll also find lampooning and ridiculing too; you may recall that relatives of Martin Chuzzlewit are criticised for their collusive attempts to obtain the inheritance; the Lammle family in Our Mutual Friend learn the costs of marrying for money; there's an odiousness about moneylender Daniel Quilp in The Old Curiosity Shop; and there is something pathetically desperate and uenviable about Uriah Heep in David Copperfield.   

** And when it comes to paying wages, I don't even think it can be assumed that Scrooge’s wages to Bob Cratchit were evidently stingy; I mean, from what I can remember, Cratchit's wages were low, but he was free to seek employment elsewhere.  Say Scrooge pays Bob Cratchit £20 per week, and Cratchit is worth £25 per week in labour and skills - why doesn't Fezziwig or one of the other prospective employers offer him £22.50 per week?  Then Cratchit would be £2.50 better off, and Fezziwig would get £25 worth of skill and labour for £22.50.  Maybe Scrooge was only paying Cratchit what he was worth.