Thinking About Deer and Beaver

|Peter Boettke|

Back in the mid-1980s, Dave Prychitko and I were in graduate school together and we had the amazing experience of having James Buchanan and Kenneth Boulding as professors in the same semester.  Buchanan spent a lot of time that term discussing Adam Smith's deer and beaver model.  But so did Boulding.  Both Buchanan and Boulding also were very proud that they were students of Frank Knight.  I asked Boulding after one class as we walked back to his office, why are we talking about the deer and beaver model over and over again in both Buchanan and his class.  He characteristically laughed and smiled at me, and simply said something along the lines of, "My dear Peter, that is just the great Frank Knight approach to teaching. He either talked about that deer and beaver model, or he commented on religion."  I was confused, but I also put my confusion aside because I had to work on my next assignment from Buchanan related to variations on the deer and beaver model.

Tomorrow in my PhD course on modern history of economic thought I am discussing the transition from classical economics to the founding of neoclassical theory.  We are reading Blaug's Economic Theory in Retrospect and Mirowski's More Heat Than Light.  But as I was thinking about how to stimulate discussion of the refinements in the economic way of thinking during this period, I came back to Adam Smith's deer and beaver discussion from Bk 1, chap 6: "In that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labor necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters, for example, it usually costs twice the labor to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer. It is natural that what is usually the produce of two days' or two hours' labor, should be worth double of what is usually the produce of one day's or one hour's labor."

What do you think I am doing by invoking this thought experiment in relationship to the development of economics in the late classical and early neoclassical period?  And how do you think it relates to what Knight, Boulding and Buchanan were trying to do in their use of the thought experiment in teaching?  I wonder if my students will use Smith's example 20 years from now when they are teaching their graduate students.

Comments

[Steve Horwitz]

All I know was that I was in that JMB class too, and it was that damn deer and beaver paper that earned me the stupid B-- . :)

If I never think about that model again, it will be fine with me!

[Greg Ransom]

Let's see. Mirowski. Mirowski ..

You're connecting the deer and beaver example to proto-energetics and the development of the mathematics of thermodynamics and the conservations of energy.

[Jerry O'Driscoll]

I prefer the School of Salamanca to Smith on this issue.

Need I say, there is no causality in Smith's example?

[Allen Dalton]

Since you are attempting by this example to introduce the transition from classical to neoclassical, I presume the answer you are looking for is that the PPF implied by Smith is linear with an opportunity cost of 2 deer/beaver. Regardless of the utility functions one might devise (excepting corner solutions) the marginal rate of substitution will also be 2 deer/beaver in equilibrium, so the price of beaver is cost-based. So we add the marginalist contribution (utility functions) without changing the classical core - costs determine prices.

[Mario Rizzo]

The example has been constructed in such a way as to make any demand considerations irrelevant. So voila: demand/utility is irrelevant.

[Arash]

@ Allen and Mario

... and that's why I believe that we can exclude value-theoretical considerations from the list of Peter's possible purposes. I would suggest that Buchanan's critique of Robbins and the choice-theoretical foundations of neoclassical economics could make it on that list, as well as the more catallactic vision of classical political economy.

[Troy Camplin]

Sounds like the labor theory of value.

[Sheldon Richman]

Two hours of one kind of work can be far more pleasant than one hour of another kind of work.

[Jerry O'Driscoll]

The two blades of Marshall's scissors are both determined by subjective valuation. Cost is in utility space, as Buchanan later explained in Cost and Choice.

[Roger Koppl]

We'll have to wait for Pete to spill the beans and tell us what *he* had in mind, but I am always struck by this idea that we somehow need "a rule for exchanging them." This need for underlying "rule" or, in the extreme value substance ("socially necessary labor time") is striking in the classical lit.

[H]

Prof Boettke will be giving it a Levy-Peart spin I think.

[Mario Rizzo]

Which means we shall only half-understand.

[FC]

The other half will have high-pitched vocals and unconventional time signatures.

You did mean Neil Peart, right?

[Rafe Champion]

What Mario said re demand and the subjective value of deer and beaver in the market.

[Allen Dalton]

@ Jerry and Sheldon

I suppose the phrase "costs twice the labor" could be understood in utility terms and we can get a proto-subjectivist interpretation out of Smith's example. But then what is the development that Pete wants to note in the transition from classical to neo-classical economics? I don't really think "it's all in Smith."

[Jerry O'Driscoll]

On value theory, it is deinitely not all in Smith. I'm pro-Smith, but not on this issue.

[Arash]

The distinction between subjective and objective value theory is somewhat obsolete. Since T. Koopmans's 1951 paper collection on linear programming, especially Samuelson's and Arrow's pieces, it is clear that the classical objective version is a special case of the standard neoclassical version, where objective and subjective data coequal role in the determination of equilibrium prices. Wicksell in Zur Zinstheorie (written 1926; published post mortem in 1928) and Hayek (in Interest and Utility Analysis 1936) reach the same conclusion. Subjective data dominates also under restrictive assumption. It is a matter of empirical data to discriminate between the respective versions of neoclassical value theory.

[Jerry O'Driscoll]

Arash,

You overlooked my previous post. Cost is not objective, but subjective.

Valuation is a product of the human mind. Cost is the subjective value foregone. Objects are the subject of valuations, not the determinants of value.

Economics is not physics.

[Current]

Jerry, I don't the Arash is denying that. I think his point is that that if all individual preferences are the same, then in general equilibrium, the neoclassical system degenerates into the classical system. The classical system becomes a special case.

Is that right Arash?

[Allen Dalton]

Well, Pete?

[Arash]

@ Current,

exactly, but the assumptions that turn general equilibrium analysis to the classical special case are: no joint-production, a single originary input, constant returns to scale. Identical preferences also do the job, I guess.

@ Jerry,

I have great sympathies with the Buchanan-L.S.E. approach to costs. By 'objective' I mean that - under some restrictive assumptions - initial endowments and technology may dominate the determination of equilibrium prices (as Frank Knight argued in his suggested simplification of price theory).

@ Peter

Tell us!

[Arash]

@ Current

I erred. Identical preferences won't reduce the general case to the classical version. What matters is that households have constant marginal rates of substitution (but not identical rates).

[Peter Boettke]

Basically all the points raised were discussed. It was about generating discussion on the question of what was enduring in the classical system and what needed repairing. The one thing not discussed here that I made a point to discuss was distribution.

[Arash]

Thanks.

[Current]

As usual, when I discuss things with Arash I find out how much more I have to learn about neoclassical economics.

One of the things that interests me about these simple explanations of classical economics is how much capital complicates them.

I remember debating with someone who said that in pre-modern times the labour theory of value and the classical system is quite reasonable. It's only now with the widespread possibilities of substitution and entrepreneurship that post-classical economic ideas are needed. I don't think he was right.

At some starting point the capital and land are given. Then labour is inhered into some goods, and value created. But, that "value" is in the context of the existing capital and land. The idea that when a fixed piece of capital is constructed it "disappears from the value stream" doesn't make sense.

[Arash]

Current,

thanks. Unfortunately, my posts were the last thing I did before going to sleep and the first thing I did after waking up. That was a bad idea, because I mixed some things up.

I wrote that objective data dominates if marginal rates of substitution are constant for a given utility-level (linear indifference curves). That's nonsense! In such a case, subjective data dominates. Sorry for the series of mistakes.