Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Friday, December 15, 2006

Primitive Accumulation

Max Sawicky relays a question in applied utilitarianism:

MaxSpeak, You Listen!: THE DAGWOOD CONJECTURE: A professor of the dismal science submits the following for your consideration and amusement:

In economic theory, individual actors maximize utility subject to a budget constraint -- hence constrained optimization. As an example, consider two people: Mr. Sated and Mr. Hungry. In the morning, Mr. Sated eats breakfast and leaves the house with $20 in his pocket. Mr. Hungry has not eaten in the last 24 hours and finds his only $5 while waiting for the bus. Both leave work at 1 pm and head for the sandwich shop. Upon arriving at the shop they find only one sandwich which the proprietor agrees to auction to the highest bidder. Mr. Sated purchases the sandwich for $8; Mr. Hungry was willing to pay $9 but couldn't. With no time left to shop, Mr. Hungry returns to work.

  1. Is the outcome allocatively efficient?
  2. Is there a market failure? If so, what is it?
  3. If Mr. Sated or the proprietor knew of Mr. Hungry's plight would the outcome have been different? If so, would it have been allocatively efficient?

The answers are:

  1. Yes.

  2. No. There may be an endowment allocation failure, but there is no market failure.

  3. The outcome might have been different, and might not: it is, after all, not from the benevolence of the sandwich-shop proprietor that we expect our lunch, but from his or her interest. Would a different outcome have been allocatively efficient? Once again possibly, and possibly not. In the absence of knowledge of what Mr. Sated's willingness to pay is, we cannot tell.

But the interesting questions here are not about allocative efficiency. The interesting questions revolve around the justice of the process of primitive accumulation that gives Mr. Sated breakfast and $20, Mr. Hungry $5, and the proprietor only one sandwich to sell. The devil is in the narrative that describes and thus produces the framing of the endowment distribution.

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