Bryan Caplan  

Scrooge and the Junker Fallacy

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Another great section in Landsburg, from the chapter "What I Like About Scrooge":

This is a law of arithmetic: if Scrooge eats less, there's more food for someone else.

This is a law of economics: if nobody else wants that extra food, then something - either a price or an interest rate - has to adjust until someone wants it.

One reader objects that by sitting on a pile of gold instead of spending it, Scrooge is "removing capital from the economy." This is a particularly stark example of the Junker fallacy, which claimed that the Prussian Junkers retarded growth by investing in land instead of business. Landsburg could have dissected the underlying confusion, but as a master of economic education, he finds a better way:
One reader told me that "the gold Scrooge hoarded could have fed the coal miner's starving children." No, actually it couldn't have. Gold is rather low in protein, carbohydrates, fat, and other essential nutrients (though it may be an excellent source of fiber). You can trade gold for food, but then someone eats less.

Landsburg point, of course, is not that the supply of food is perfectly inelastic, but that, given a price and credit system, people who refrain from consumption automatically free up resources for others. Neat.

Comments and Sharing

COMMENTS (3 to date)
TGGP writes:

I have never understood how the idea of "underconsumption" ever caught on. Yet immediately after 9/11 we were all told it was our duty to head to the mall.

conchis writes:

Just to clarify, if the supply of food is not perfectly elastic, then Scrooge could (cheapshots about the nutritional value of money aside) actually feed people with his cash right? Because otherwise, the price signal to make more food wouldn't exist.

Isn't the point that while hoarding benefits others, not hoarding could benefit specific (and different) others who we might have reason to think have more claim to receiving said benefits. (You can contest the moral judgement in the last bit, but then you're no longer claiming that the anti-hoarding crowd are inconsistent.)

spencer writes:

Of course this theory also explains why restaurants never have to throw away any food.

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