Monthly Archive: July 2015

I suppose the origin of this particular column came from a rather comical conversation held over dinner.  My wife mentioned that her father used to tease a cook he knew about her efforts in the kitchen. Her father contended that cook’s efforts were proof that Marxism was wrong about the value of a thing made in the economy.  According to Marxism, the value of any object is determined by the total amount of labor required to make it.

The cook would select a great recipe for the main course, would purchase the finest ingredients, and would labor long and diligently over the preparation.  Of course, the meal would often be a great disappointment and, sometimes nearly inedible.  Any restaurant serving such a dish would soon go out of business.

The inverse situation also occurs.  There seems to be many instances were by accident, an entrepreneur just happens to ‘catch lightning in a bottle’.  A simple idea brought to market with minimal effort makes a fortune for its owner.  If you are thinking about the pet rock then you are reading my mind.

A very comic example of this latter situation occurs in the original movie version of the Producers, where Max Bialystock moans:

So what to make of this Marxist idea?  How much truth is there in the idea that if it took twice the amount of effort to grow one type of crop, say a bushel of wheat, as it did to grow another, say a bushel of corn, then the bushel of wheat holds twice the value as the bushel of corn.

Oddly enough the idea originated well before Marx, with roots being traced back to the philosophical works of the Middle Ages.  Thomas Aquinas is credited for noting in his Summa Theologica that:

This concept also shows up in the classical school of economics.  It was touched on by Adam Smith in his Wealth of Nations but it doesn’t seem that Smith actually embraced the idea as being applicable for anything more than the most primitive of societies (or rude societies as he put it).

Other classical economists, for example Ricardo, held more broadly to this concept making it part of their structure for economics.  Although even then, there were doubts about the universality of this idea. The labor theory of value was embraced by Marx as an important and operative principle but it seems clear that the notion, with no additional provisos, is untenable.  The notion that the buyer in the transaction has no place in determining the value of the thing being purchased is short-sighted and laughable.

Perhaps the best illustration of how much of value lies in the eyes of the customer is the following passage from Chesterton’s The Queer Feet:

If the labor theory of value is not a viable approach for determining value, what is?  That is a question that occupies a great deal of economic discussion even until today and there is no universally held belief.  Mainstream economists do lean toward the idea that free trade best uncovers the value of a good or service because in the free market the value of the thing will be determined best by the currency that will be offered to purchase it.

As a result, trade is actually seen as the mechanism by which value is created or imparted to a good or service.  Free trading allows for the assessment of value by letting lots of people ‘vote’ on the value.  To paraphrase Churchill, this economic democracy is the worst form of finding value except all the others that have been tried.

Please pass me the pet rock.

There has been a lot of recent buzz centering on the fear that certain segments of the population have about genetically modified organisms or GMOs.  These apprehensions are a part of an ever-growing concern that people around the world have in the way that their food is produced and how healthful said food might be.  Concerns over GMOs rank up there with the movement to have free range livestock and organically grown foods.  So what does all this biological science have to do with a blog on economics you might ask.  Well, simply put, everything.

At its core, economics is the study what goods and services society produces where, when, and how; who produces it; and who consumes it.  Sometimes, it even ventures a guess as to why but that question is broached far less often than at first it may appear.  Since the production of goods and services happen in the faces of finite resources and perpetual scarcity there is always a downside to every decision.  If resources are being spent one way they are not being spent on something else.

So of course, the decision to embrace GMOs fully, partially, or not at all is, at its core, a decision about how resources will be spent to satisfy on of the most basic human needs – the need to eat.

Identifying the particular risks of using GMOs is the province of a host of people, including the biologist, the botanist, the farmer, the food distributor, the politician, and so on.  Once the risks have been listed, the weighing of these risks is purely economics and is the province of us all.

However, it is hard to properly weigh the risks when a twofold set of errors is in play as it seems to be now.  The first error is one of emotional rather than rational thinking.  The second is the lack of vision is seeing the lost opportunity or unseen costs of choosing one over the other.

I mention these errors because there is mounting evidence that the developed countries are so mired in a dread of the GMO-monster that they are consigning millions of people in the developing world to avoidable chronic hunger, malnutrition, or death.

Emotional Thinking

The first of these errors, the indulgence in emotional thinking, seems to be gaining ground in many of the modern debates.  Within the past decade, there has been a rise in trendy, boutique causes where the passion is profound but the logic is scarce.  A familiar example is the movement in certain circles to avoid vaccinating a child due to the fear that the vaccinations cause autism.  There isn’t strong evidence to support this conclusion but that doesn’t stop certain people from engaging in emotional attacks against those who honestly disagree with this conclusion.

Advertisers and marketers are eager to fan the flames of emotionalism if it helps sell a product and one such case is the recent switch by Chipotle to ‘non-GMO ingredients’.  Chipotle’s website presents a slick picture

with catchy little lead-in phrase (G-M-Over It) and a short paragraph extoling the companies conscientious “Farewell” to GMOs.  Following the ‘Learn More’ link leads to an equally emotion-filled excerpt:

But if the reader were to persist in reviewing the reasons why Chipotle is saying “Farewell” to GMOs that reader would find a lot of far less emotionally-laden and circumspect words.  Buried in the ‘fine print’, are phrases like “we don’t believe the scientific community has reached a consensus” and “we believe it is prudent to take a cautious approach to GMOs”.  Even further in, Chipotle admits that while it is now shunning GMO plants, it has not eliminated GMOs from its supply chain.

So how much of a “Farewell” can they have made?  It seem more likely that this new campaign to eliminate GMOs (or appear to be doing so) is not designed to protect customers from their dangers as much as it is to boost the flagging stock price of company, which has been on a downward trend since February of this year.

Lost Opportunities to Eat

If this emotionalism were simply fueling an advertising campaign to separate consumers from their money, then one might argue that this it is a victimless crime with no real repercussions.  But in world with limited resources, there are significant lost opportunity costs.

One unseen cost is that the use of land, livestock, and crop resources at less than peak efficiency means that less food is being produced than otherwise would be.  That would be okay if there were plenty of food – that is to say the supply of food matched the demand.  In that case, there would be no incentive to raise production and no pressure for prices to rise.  Such is the long term trend in the US (although food prices have been rising recently and it may be that the bottom has been reached) but is not the case in the developing world.

The Genetic Literacy Project recently published an article by Michael Dzakovich that points out fears over GMOs have prevented their use in Africa.

Mr Dzakovich provides a vivid picture of the unseen costs of slow adoption of GMOs when he writes

Other articles on the Genetic Literacy site suggest that GMOs may help reduce carbon emissions and lower toxic pesticide use.

Clearly there are pros and cons in adopting wide-spread use of GMOs and the risks and the benefits need to be carefully considered.  But emotional arguments and slick advertising campaigns only serve to further hide and obscure the lost opportunity costs and people may be unnecessarily dying as a result.