My one quibble with The Price of Everying: Solving the Mystery of Why We Pay What We Do, Eduardo Porter’s wonderfully readable survey of the function of pricing, is that he didn’t put his last chapter, “When Prices Fail,” at the beginning of his book; I also wish that he had dealt a little more aggressively with the toxic strain of Chicago thinking exemplified by Eugene Fama. Mr Fama says that talk of economic bubbles “drives me nuts”; it’s his Panglossian belief in efficient markets that drives me nuts. The first thing to learn about prices is that they are often wrong, and wrong for the very reason the existence of which thinkers of Mr Fama’s persuasion deny: neither buyers nor sellers have enough information to set a correct price. Market prices, moreover, are always somewhat arbitrary, in that they’re spot prices, reflecting the needs of the moment. There is no way for the buyer and seller of a barrel of oil to develop an agreeable estimate of the environmental cost of the use of that oil, whether as fuel or otherwise. Environmental costs are necessarily determined outside the market. We are still pricing oil as if they did not exist — as if the twenty metric tons of carbon dioxide that the average American produces every year were not a problem. 

There is no reason to expect us to be any better at setting environmental prices than we are. Until three or four hundred years ago, the long-term consequences of human activity were limited to the supply of fertile soil. We could, as the Mayas did, run out of the resources needed to support civilization, but exhausting the environment was a temporary thing. It is only with the large-scale industrial and engineering projects of the Nineteenth Century that we began to test the limits of the natural world’s recuperative powers, and we were understandably slow to assess our impact. Blake’s dark Satanic mills were objectionable for their human costs; nobody seems to have thought what caused those famous London fogs until the town ceased to belch tons of coal soot into the air every day. Anyone who foresaw what the proliferation of vehicular traffic would do to air quality in Los Angeles or Denver would have been dismissed as a crank. 

As Porter shows us, Sir Nicholas Stern, author of the 2006 Stern Review on the Economics of Climate Change, has been dealt a more polite version of crank-dismissal by William Nordhaus, a Yale professor who does not doubt that we’ve got to do something to reverse course on climate change, but who questions the importance of preventing damages set to accrue after the year 2800. These are early days indeed for the economics of stewardship. 

The recommendations to combat climate change in the Stern Review stand uncomfortably alongside this principle of social justice. If income per person were to grow by 1 percent a year over the next two centuries, less than half the pace of growth of the last century, peeople in the year 2200 would be 6.3 times as rich as they are today. Why should the poorer people of the present scrimp and save in order to protect the environment for their richer descendants, who could afford more environmental investments than we can?

It’s the asking of questions like this that highlights the importance of The Price of Everything. The important thing to do right now is not to stop carbon emissions — important as that certainly is. Before embarking on any ambitious schemes to curtail this environmental damage or to encourage that environmental boon, we need to match our anxieties about the future with an awareness of the past, the history of which has only begun to be written. How did we get here? What were we thinking? In “The Price of Work,” Porter analyzes the worker-friendly policies of bygone giants such as AT & T and Eastman Kodak. Today’s corporations, he writes, 

can no longer afford the generosity of the corporate leviathans of the early twenieth century, which relied on a unique feature of American capitalism of the time: monopoly profits. As a dominant company in a new industry with high barriers to entry, Eastman Kodak haad a near monopoly over photographic film. Ford also enjoyed fat profits unheard of in the cutthroat competitive environment of today. 

Monopolies can be good, in other words, for workers. That they may not be optimal for consumers is a consideration that has to be balanced on the recognition that consumers are workers, too. In what circumstances might monopolies serve consumers as well as they do workers and (of course) investors? It may be time for a fresh inquiry. (It’s my view that the facilities for delivering power and water to consumers ought to be municipal monopolies maintained at public expense, and geared to local demands. What’s also needed, if this is to happen, is an improved model of political accountability, one that deftly blends the virtues of transparency with the operational baffles that protect administrators from the whims and caprices of popular enthusiasm.) Everything that a person of my age was taught in school is probably wrong forty-odd years on. Just like every other aspect of human affairs, economic conditions change over time. Searching the marketplace for scientific principles with the eternal applicability of Newtonian physics is misguided, simplistic, and childish.   

Readers who aren’t much interested in the dismal science will find an incredibly interesting extension of the very idea of pricing in “The Price of Faith.” In Porter’s hands, religion looks a lot like a luxury brand that becomes more appealing as it becomes more expensive, not less. Why should that be? Because “more expensive” means “more exclusive,” naturally enough. A religion that imposes personal sacrifice and ritual burden on its members is more likely to hold onto them — as the Catholic Church found out after Vatican II, a loosening — price reduction — that went too far for some communicants but not far enough for others. The history of the Roman church also shows that it is never a good idea to substitute money prices for those sacrifices and burdens — a very undogmatic development that triggered the heart of the Protestant disaffection. 

The Price of Everything is an intelligent book that, for all its surprising nuggets of information, avoids the contrarian and the counterintuitive. But it is  enormously provocative, because it encourages the reader to approach the prices in every aspect of life, and to recognize that money only one way of making payment. The most common alternative to money is time, and the more you have of the one, the more willing you’ll be to spend it for the other.  

Drop me a line at rjk@dailyblague.com
This entry was posted on Tuesday, March 1st, 2011 at 6:00 pm.