A Few Good Things

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Economists have written any number of popular introductions to their field – Armchair Economist, Undercover Economist, Naked Economist, Economic Naturalist’s Field Guide,  Freakonomics, From Here to Economy and Tradeoffs all come to mind – but seldom do economists write about their own experience of the craft.

That’s why, as an economic journalist with some familiarity with the profession, I so liked The Apprentice Economist: Seven Steps to Mastery, by Filip Palda, of École Nationale d’Administration Publique, the public policy school of the University of Quebec.

The voice is pure Chicagoan.  The tone is hortatory, a friendly instructor in a good mood on a sunny day. Why else start with the Slutsky equation?

The Slutsky equation was definitely not what sixteen-year-old Paul Samuelson was thinking about when he described learning the logic of price elasticity, substitution and marginal costs his first year at the University of Chicago, in 1932.

“I could not believe that the rest of the class were making heavy weather of such problems as what would be the effect on the price of kidneys of Minot’s discovery that liver cured anemia, or the effect on mutton price if Orlon were invented.”

In 1932, Samuelson would have been thinking about new mathematical descriptions of general equilibrium by John Hicks and R.G.D. Allen then appearing in London, and perhaps about Edward Chamberlin’s ideas in Cambridge, Mass. about monopolistic competition. – hot topics in the early Thirties.

Only after Eugen Slutsky’s 1915 paper, written in Kiev and submitted to an Italian journal was rediscovered did it become clear how superior were Slutsky’s mathematical treatments for calculating the interdependence of many different prices at the same time.  Slutsky’s paper was re-published in 1952 by the American Economic Association and ever since has been the standard textbook treatment of the central topic of demand theory.

Thus in the first chapter of Apprentice, Palda explains how the reaction to a change in price can routinely be separated into two parts, the income and substitution effects.  If the price rises, the consumer is poorer, so he buys less of the good in question – the income effect. He also shifts away from the more expensive good in favor of alternatives –the substitution effect.  Maximizing satisfaction and minimizing the cost of attaining a certain level of attaining it amount to the same thing, he says: if you can figure out one, you know the other.

From this Palda moves to discussions of cost of living indexes, the supposed neutrality of money, the idea of revealed preference, the introduction of new products, parcelization of otherwise indivisible products (a cow, for example) and the division of labor as a historical process, opportunities to rent services instead of purchasing them, and the way producer theory turns out to be symmetrical in most respects to consumer theory.

“If you understand the process of maximizing utility by substituting one good for another then you have roughly half of economics in your pocket,” he writes.  At the end of the chapter are just two suggestions for further reading: a translation of the 1838 article in which Augustin Cournot first employed calculus to discuss the costs and revenues of firms; and the 2002 description by John Chipman and Sébastian Lenfant of how Slutsky’s 1915 paper was discovered and interpreted.

This is economics as it is experienced by those entering the field: heavy on the latest technique; often non-existent on its history; perhaps with an emphasis on seeing how one concept is related to another. Palda’s special strength is that history is always present at the end. And so it goes throughout this short, occasionally breathless little book:  after substitution, there are three more chapters on various foundational treatments of time, chance and space; followed by three others on the concepts of equilibrium, games, and control. There are clear explanations of key concepts in each case, with a few really good papers cited at the end.

“The significant stuff is that which I got in my intellectual boot camp at Chicago. I was equipped with a few very powerful mental weapons but nobody told me what the objective was. Apprentice is my attempt after 25 years to put together everything I absorbed but did not fully process while at Chicago.”

Palda is second-generation Chicagoan.  His father fled Czechoslovakia for Canada as a law student in 1947, earned an MBA at the University of Chicago in 1958, and a PhD there five years later. The son, born in 1962 and raised in Kingston, Ontario (his parents taught at Queens University), graduated from Queens with a Master’s and then preferred Chicago to Oxford University – over his father’s objections.

Who will find Palda’s book useful? Graduate students in economics and related fields. Lay readers with a well-developed taste for understanding the current state of play. Not many others, I expect. Palda describes the book as a means of “pumping economic iron.” The Cambridge University economist G.L.S. Shackle used to write this way about Austrian and Keynesian ideas.  Such books are all-too-rare specimens of what can be a surprisingly useful subspecialty of the explication business (see, for instance, Erwin Schrödinger’s celebrated 1944 book for lay readers, What Is Life?).

The Apprentice Economist is self-published, reflecting the judgment of mainstream publishers that no market exists to earn back the cost of publication. Its existence thus is an illustration of what Palda calls parcelization, otherwise known in publishing circles as the long tail: relatively small sales of many items adding up to influence, if not necessarily individual profitability, over relatively long periods of time.

What’s done is done. Palda is already at work on the next book, about his dissertation supervisor, tentatively called A Better Kind of Violence: Gary Becker and the Search for an Ultimate Theory of Power. (Here is Palda’s downbeat assessment of the state of the Chicago department after Becker’s death last spring.) His is a strong voice that will continue to be heard.