Posts filed under ‘Myths and Realities’
Sutton Alert
| Peter Klein |
I haven’t made way through all of Bob Sutton’s contribution to the HBR symposium, “How to Fix Business Schools,” but I read the summary on Sutton’s blog, and Bob manages to work two whoppers into the opening paragraph. First, he calls Oliver Williamson “a major proponent of Agency Theory.” (Bob, for the differences between agency theory and transaction cost economics, try Williamson’s 1988 Journal of Finance paper. Or any introductory textbook.) OK, a nit-pick. But consider this: “Many economists teach and believe that humans are selfish and greedy.” Apparently Bob has read Williamson’s description of opportunism as “self-interest seeking with guile.” Rather than think about what this means, or consider the context in which Williamson uses the term, Bob turns to his dictionary, which tells him that guile means “treacherous cunning, skillfull deceit.” Ergo, economics teaches cunning and deceit!
In the HBR piece itself, Bob manages to make the obligatory link between Alan Greenspan and Ayn Rand, though calling Greenspan a follower of Rand is a bit like saying the Black Panthers were inspired by Gandhi. (As Greenspan repeatedly reminded us, he believed in Rand’s ideas “at the high philosophical level,” i.e., not at all, where actual policies were concerned.) The opening of the HBR piece is informative, however, in suggesting how Sutton may have came to his views about economics and economists:
In my experience, most economists at top business schools are clueless about the nitty-gritty of management, which can’t be captured in elegant mathematical models. They treat any teaching remotely related to what leaders actually do on their jobs as a low status activity; at faculty meetings, I’ve seen economists and their followers dismiss and ridicule professors who teach “soft” skills. Those who speak in simple language and use words instead of numbers are often screened out, expelled or sentenced to spend their days at the bottom of the pecking order. And even faculty who bring rigorous evidence that challenges economic assumptions are badly treated.
I’m sorry that Sutton’s interactions with economists haven’t been more pleasant. But, really, what do his personal experiences have to do with the substance of economic doctrine, or its application to management? You won’t learn anything about these from reading this stuff.
Adam Smith’s Famous Metaphor
| Peter Klein |
The indefatigable Gavin Kennedy explains, for the umpteenth time, that Adam Smith was ambivalent about market capitalism and that the famous metaphor of the “invisible hand” was not meant as a generalized defense of the market. As Gavin points out, Smith’s detailed analysis of the market economy appears in Books I and II of the Wealth of Nations, while the invisible hand metaphor appears only once, in Book IV, where Smith defends British merchants who, despite mercantilist export subsidies, preferred to keep their capital invested at home, to the benefit of the British economy. Notes Gavin:
So inconsequential was [Smith’s] use of The Metaphor that neither he, nor anybody else until the late 19th century, commented upon it. . . .
Moreover, it was only in Chicago in the 1930s that The Metaphor was generalised into Smith’s so-called “law” of markets. Paul Samuelson (1948, 1st edition), in his famous textbook, Economics (16 editions), publicised this invention with the inevitable affect on modern economics, as tens of thousands of his readers took it on trust as true.
To be sure, the relevant passage in Smith also includes the famous lines, “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good,” and the remark that “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.” But Smith’s statements need to be understood in context; he is discussing the specific problem of trade monopoly, arguing against trade and industrial policies that subsidize particular markets or industries.
Relative Prices Matter
| Peter Klein |
Hate to keep flogging a dead horse, and perhaps preaching to the choir, but the point can’t be made often enough: relative prices matter. The childish Keynesianism of people like DeLong and Krugman, like Bernanke and Geithner, understands only aggregate concepts like “national output,” “employment,” and “the price level.” A consistent theme of this blog’s rants is that resources are heterogeneous (1, 2) and, consequently, relative prices must be free to adjust to changes in demand, technology, market conditions, and so on. When government policy generates an artificial boom in a particular market, such as housing — drawing resources away from other parts of the economy — the key to recovery is to let resources flow out of that market and back to the sectors of the economy where those resources belong (i.e., to match the pattern of consumer demands). It’s quite simple: home prices should be falling, interest rates should be rising, savings rates should be going up, and debt levels should be going down. The Administration’s policies, like that of the last Administration, are designed to achieve exactly the opposite. Why? Because relative prices don’t matter, the allocation of resources across activities doesn’t matter, all that matters is to keep any sector from shrinking, any prices from falling, any firms from failing, any consumers from reducing their consumption. A child thinks only about what he can see. The unseen doesn’t exist.
Here are some excellent posts on the subject. Craig Pirrong notes that Sherwin Rosen had a colorful way of emphasizing relative price effects. Mario Rizzo (1, 2) points to data on the housing market and the Fed’s continuing attempt to keep resources from flowing out of this bloated sector. And here’s a snippet from Israel Kirzner’s short book on Mises explaining that insolvent financial institutions should be liquidated, not rescued. Good reading for grown-ups.
The Danish Mortgage System to the Rescue?
| Nicolai Foss |
As many O&M readers will remember, George Soros recommended a “Danish fix” for the US mortgage crisis. The American Enterprise Institute is sponsoring a whole-day event today on the related, if more cautious, topic, “Can Elements of the Danish Mortgage System Fix Mortgage Securitization?” Here is the wiki on the Danish mortgage system.
Selection, Meritocracy, and Educational Quality
| Dick Langlois |
We have all heard complaints about the decline in the quality of students over, say, the second half of the twentieth century. The usual interpretation is that this has to do with decline in the quality of schools, especially high schools, or in the curriculum delivered in those schools. I always like to point out to people (that is, to non-economists) that much of the perceived decline is likely a matter of demographic and selection effects. Access to secondary and higher education expanded tremendously after World War II, which changed the underlying distribution of abilities of students finishing high school and attending college. (This is also relevant to discussions of the quality of American college students versus Europeans or others — the fraction of students going on to college is higher in the U. S. than elsewhere, so comparing just the mean is misleading.) Education also became more meritocratic after the War, in that colleges and universities began to screen students by academic ability rather by other characteristics (like income).
I just ran across an interesting new paper by Lutz Hendricks and Todd Schoellman that analyzes these issues in a thorough and illuminating way. Here is the abstract:
Student Abilities During the Expansion of U.S. Education, 1950-2000
Since 1950, U.S. educational attainment has increased substantially. While the median student in 1950 dropped out of high school, the median student today attends some college. In an environment with ability heterogeneity and positive sorting between ability and school tenure, the expansion of education implies a decrease in the average ability of students conditional on school attainment. Using a calibrated model of school choice under ability heterogeneity, we investigate the quantitative impact of rising attainment on ability and measured wages. Our findings suggest that the decline in average ability depressed wages conditional on schooling by 31-58 percentage points. We also find that the entire rise in the college wage premium since 1950 can be attributed to the rising mean ability of college graduates relative to high school graduates.
This has a number of significant implications. As the authors point out, average ability has declined at all levels of schooling. This should color our interpretation of the much-touted fact that real wages haven’t increased much since 1960. At the same time, the wage gap between low and high levels of educational attainment has increased over time — because improved sorting has selected people of higher ability into college and selected people of lower ability out of college.
Why They Heart Keynes
| Peter Klein |
Luigi Zingales offers Straight Talk on Keynes (via Casey Mulligan):
Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behavior. Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington.
Three comments: First, the “hangover” metaphor, while not exactly accurate, is an effective way to communicate the basics of the Mises-Hayek malinvestment theory of the business cycle. Use it! Second, Zingales’s description applies equally well to the 1930s and 1940s, when the Keynesian consensus emerged. It’s important to remember that massive deficit spending to “cure” the Depression began with Hoover and Roosevelt in the early 1930s, long before the General Theory appeared. Keynes’s book did not propose a new direction for economic policy; it provided an allegedly scientific rationale for policies already in place, policies government officials were eager to defend and protect. (The use of expansionary fiscal and monetary policy to increase output had long been derided by serious economists as nonsense, as the domain of “monetary cranks” and other snake-oil salesmen).
Third, the Keynesian delusion afflicts not only policymakers, but professional economists as well. I’ve long suspected that the appeal of Keynes to people like Krugman and DeLong is ultimately based on aesthetic, not scientific, grounds. Deep in their hearts, they just don’t like private property, markets, and individual choice. They don’t think ordinary people are capable of making wise decisions and think they, the elites, should be in charge. They resent the fact that most people don’t want their lives controlled by liberal intellectuals. Technical arguments about the effectiveness of monetary and fiscal policy, the relationship between aggregate demand and output, the experience of the 1930s, and the like are really beside the point. For Keynesian economists, the belief that markets are naturally unstable in the absence of government planning is a matter of faith.
Global (Daylight) Savings Glut?
| David Gerard |
I almost hate to bring this up given the levels of scorn and derision I was subjected to over this (and that was just from my friends), but a few years ago Paul Fischbeck and I used our traffic safety website to look at the change in risks and fatalities surrounding daylight savings time. There weren’t any obvious changes for drivers and vehicle occupants, but there did appear to be some dramatic changes in pedestrian risks (e.g., deaths per trip). For the “Spring” forward, we observed considerably lower risks during the evening rush offset by elevated morning risks.
Because we observed pedestrian risk numbers spike during the time change and then return to trend, we attributed the effect to people adjusting to the time change. This conjecture is consistent with some published research that looked at this question. Our basic message (we thought) was to “look both ways or you might get run over,” and thought we might get some good Samaritan points along with the people who remind you to change your fire alarm batteries.
Instead, what we found was that the time change is quite the lightning rod for controversy, over energy savings, traffic fatalities, depression, heart attacks, and many other societal ills. As a policy matter, however, we received feedback from across the spectrum. These are some of the tamer selections:
I am a professional working adult, actually a senior, and I as well as hundreds of others, would like to have our clocks left alone. All of us do not enjoy driving to and from work in darkness. The psychological effects are more than depressing as I am sure you are aware. — Muriel
Thank you both for helping our cities to understand that people should come before cars. — Steve
Now do a study about the dangers of children waiting for school buses in the dark. My elementary school age child was leaving the house in the dark at 7am to get her bus until daylight savings time ended this week. — Sylvia
I am not sure what to conclude from all of this. I have no idea what a benefit-cost analysis of the alternatives would look like, but we certainly learned there are more dimensions of the policy issue than we imagined. As a political economy story, the status quo does not appear to be completely locked in. A few years back, the federal government pushed back the return to standard time until after Halloween in order to reduce the risk of vehicular trick-or-treating incidents.
Perhaps in November I will be able to shed some additional light on the issue.
Ah, Democracy!
| Peter Klein |
I learned this week from Doug French that Dissident Books has published a new edition of H. L. Mencken’s classic and extremely politically incorrect Notes on Democracy. Who but Mencken could write that the common man “is not actually happy when free; he is uncomfortable, a bit alarmed, and intolerably lonely. He longs for the warm, reassuring smell of the herd, and is willing to take the herdsman with it.” As for democratically elected politicians, Mencken reminds us how quickly all those sappy paeans to the people’s will evaporate when a “crisis,” real or imagined, is on the horizon. “All the great tribunes of democracy, on such occasions, convert themselves, by a process as simple as taking a deep breath, into despots of an almost fabulous ferocity. Lincoln, Roosevelt and Wilson come instantly to mind.”
This was on my mind when I read (via Kathryn Muratore) about a new study appearing in Science finding that children looking at pictures of political candidates correctly pick the eventual winner 64% of the time. Apparently we are hard-wired to prefer pretty faces, even when supposedly choosing based on policy views, ideology, “the issues,” etc . So much for the rational voter.
Our Collective Delusions
| Dick Langlois |
I just ran across a new NBER working paper by Roland Benabou called “Groupthink: Collective Delusions in Organizations and Markets.” Looks like an interesting paper. But why does he pick on this blog? I believe we here at O&M are far more resistant than most to groupthink. And I’m sure you all share this view.
Disaster Socialism
| Peter Klein |
As I noted elsewhere yesterday, the “stimulus” bill making its way through Congress is a fine illustration of the Higgs effect, the tendency of government to expand massively in response to “crises,” real or imagined. Naomi Klein’s “Disaster Capitalism” thesis is exactly backward: “disasters” are inevitably followed by huge increases in the public sector at the expense of the private. Anyway, if you have any doubt that the current legislation has precious little to do with economic stimulus, consider the details of the House’s proposed $825 billion package, which includes:
- $1 billion for Amtrak
- $2 billion for child-care subsidies
- $50 million for the National Endowment for the Arts
- $400 million for global-warming research
- $2.4 billion for carbon-capture demonstration projects
- $650 million for digital TV conversion coupons
- $8 billion for renewable energy funding
- $6 billion for mass transit
- $600 million for the federal government to buy new cars
- $7 billion for modernizing federal buildings and facilities (including $150 million for the Smithsonian)
- $252 billion is for income-transfer payments ($81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for people who don’t pay income tax)
- $66 billion for education
Now I should state, for the record, that unlike other critics of this particular stimulus package, I don’t favor government “stimulus” packages of any kind. I’m not a Keynesian, after all.
The Heath Brothers on Incentives
| Peter Klein |
Dan and Chip Heath worry that incentive plans backfire because of focusing illusion — managers place too much weight on a single variable in the incentive contract, ignoring the likely side effects. I don’t disagree that this is possible but Chip and Dan seem to be knocking down a pretty feeble straw man. The drawbacks of single-variable, quantitative incentive schemes are well known in the organizational design literature, spawning oodles of studies of multi-tasking, the use of multiple performance measures, the benefits and costs of subjective evaluation criteria, and the like. (There’s a nice overview in BSZ chapter 16.)
Keynesian Economics in Four Paragraphs
Courtesy of Robert Barro:
[A]ssume that the multiplier was 1.0. In this case, an increase by one unit in government purchases and, thereby, in the aggregate demand for goods would lead to an increase by one unit in real gross domestic product (GDP). Thus, the added public goods are essentially free to society. If the government buys another airplane or bridge, the economy’s total output expands by enough to create the airplane or bridge without requiring a cut in anyone’s consumption or investment.
The explanation for this magic is that idle resources — unemployed labor and capital — are put to work to produce the added goods and services.
If the multiplier is greater than 1.0, as is apparently assumed by Team Obama, the process is even more wonderful. In this case, real GDP rises by more than the increase in government purchases. Thus, in addition to the free airplane or bridge, we also have more goods and services left over to raise private consumption or investment. In this scenario, the added government spending is a good idea even if the bridge goes to nowhere, or if public employees are just filling useless holes. Of course, if this mechanism is genuine, one might ask why the government should stop with only $1 trillion of added purchases.
What’s the flaw? The theory (a simple Keynesian macroeconomic model) implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system.
Barro thinks a multipler of zero is a more plausible baseline assumption. Of course, if GDP is adjusted for quality, the multipler is most likely negative, as resource allocation is directed by government officials, not consumer demands. In prior work Barro has estimated wartime multiplers of 0.8, but this seems high based on Robert Higgs’s important work [1, 2]. More important, there the Austrian point that resources are heterogeneous, and the additional goods and services financed by government spending will tend to be in the “wrong” place in the economy’s intertemporal structure of production. Keynes rejected the idea of capital heterogeneity, so this problem was lost on him.
Krugman’s Got the Disease
| Peter Klein |
Paul Krugman suffers increasingly from what might be called Stiglitz’s Disease, the inability to read (or cite) anyone but oneself. Some years ago Krugman wrote a rather silly and superficial piece on the Austrian theory of the business cycle, which he called the “hangover theory” of recessions. Krugman’s essay provoked strong reactions from Roger Garrison, John Cochran, David Gordon, and Bob Murphy, all of whom have considerable expertise regarding this particular theory. Naturally, Krugman didn’t read any of these responses because they weren’t written by, well, Paul Krugman. So, a couple of days ago, Krugman again trots out his “hangover” metahpor, oblivious to the fact that his original essay got the Austrian theory completely wrong. Ah, the joys of being a full-time dilettante!
Indigenous Entrepreneurship in Rural China
| Peter Klein |
A very interesting article in the McKinsey Quarterly by MIT’s Yasheng Huang: “Private Ownership: The Real Source of China’s Economic Miracle.” The key to China’s recent economic is not state-led capitalism (call it “Bush-Bernanke-Paulson capitalism”) but private property and financial-market liberalization, leading to a burst of indigenous rural entrepreneurship. Writes Huang:
Big cities like Beijing, Shanghai, and Shenzhen are routinely extolled in the Western press as vibrant growth centers. China’s rural areas, if mentioned at all, typically figure as impoverished backwaters. But a close analysis of the economic data reveals that these breathless descriptions of China’s modern city skylines have it exactly backward: in fact, the economy was most dynamic in rural China, while heavy-handed government intervention has stifled entrepreneurialism and ownership in the urban centers.
Particularly interesting is Huang’s account of why so many Western economists fail to understand this. (more…)
What Deregulation?
| Peter Klein |
We noted previously a major flaw in the “deregulation-caused-the-financial-crisis” meme spreading rapidly throughout the MSM: namely, there wasn’t any. If I can quote from the comment section of another blog, here’s Jerry O’Driscoll making the same point:
[T]here has been no deregulation of the financial markets since 1999 (Gramm-Bliley Leach). And that act did not repeal the Glass Steagall Act of 1933, . . . but amended it (Sections 20 and 32 of GS being repealed), and some other banking statutes. Mostly the act legitimized financial market developments already in place, and provided a new regulatory structure (so much for deregulation).
I recognize that policy lags are long and variable, but Sandy [Ikeda] cites events from 1992, 1997 and 1999 [as drivers of the crisis]. He can’t cite any later because there weren’t any. Affordable housing goals go back to the 1930s and, in contemporary form to 1968-70. Again, those are really long policy lags. . . .
Finanical services remains one of the most highly regulated indsutries, perhaps second only to health care. Non-existent deregulation can’t explain the current crisis.
The policy change that occurred in the relevant time frame was the easing of monetary policy by the Greenspan Fed. From a high of 6.5% in May 2000, the Fed Funds rate was cut down to 2% in Nov. 2001 and remained there or below for 3 years. For one full year, it was at 1%. The real rate was negative for approx. 3 years. Negative real interest rates are inevitably inflationary, often causing asset bubbles.
Who Invented the Internet?
| Peter Klein |
OK, we now know it wasn’t Al Gore. (And John McCain didn’t didn’t invent the BlackBerry either.) But who did invent the internet? Physicists have long maintained that they did. Michael Nielsen (via Josh Gans) disagrees:
It’s true that the principal inventor of the web, Tim Berners-Lee, was a programmer working at CERN, the huge European particle accelerator. In 1988 he sketched out a way of hooking up hypertext ideas, developed by people like Ted Nelson and Bill Atkinson, to the internet, developed by people like Vint Cerf and Bob Kahn. He talked the idea up at CERN for a year, with no response. In 1989 he wrote up and circulated a formal proposal around CERN. Again, no response for a year. Finally, he coded up a prototype in his spare time. In this, he actually was helped by his manager, who said it was okay if he used one of CERN’s workstations to build the prototype. It was launched to the world about one year later.
Berners-Lee didn’t succeed because CERN was doing fundamental research. He succeeded in spite of it.
Nielsen goes on to make a more general claim about large organizations tending to stifle innovation, but that is a more complicated and difficult issue. Yesterday in my entrepreneurship class we discussed Zoltan Acs and David Audretsch’s 1990 book Innovation and Small Firms, which paints a more nuanced picture (e.g., the relationship between firm size, scope, complexity, etc. and innovation varies widely by industry, market structure, time, manufacturing technology, and the like).
Here is my take on the history of the internet, and here is an academic paper on internal capital markets and innovation.
Heckman on Academia
| Peter Klein |
Steve Levitt links to this update on the travails of the University of Chicago’s proposed Milton Friedman Institute. Jim Heckman, an Institute supporter who has recently expressed public doubts about its conception and development, is on the hot seat. Heckman makes an interesting observation, in passing, that relates to a previous discussion of research funding:
Heckman added that all institutes are affected by bias, citing hiring decisions as a source of bias throughout the University.
“I doubt there is a truly unbiased academic. Besides, most biased people don’t see themselves as biased. If you think the [Chicago Graduate School of Business] is an unbiased environment, think again. They are recruited for their views. I wonder also how many free marketers would get jobs in anthropology or sociology,” he said.
“It’s true for any institute. You state a mission, attract funders. They expect the mission to be fulfilled. Very rarely do people fund pure knowledge,” he said.
No Analysis, No Data
| Peter Klein |
Earlier I complained that public discussions of the current financial situation are largely devoid of analysis. A recent example: virtually no one has explained why the commercial-paper market is “frozen.” We’re told that even firms with good commercial prospects can’t turn over their short-term notes, leaving them desperately short on working capital. In other words, there is real economic value to be created by extending short-term credit to these firms, but no one is willing to lend. $20 bills on the sidewalk, indeed! Presumably there is some kind of Stiglitz and Weiss (1981) story underlying these claims — banks cannot distinguish good from bad borrowers, so they refuse to lend to anyone — but nobody has bothered to spell it out, or to explain how indiscriminate Fed purchases of commercial paper solves the problem. Ah, well, perhaps to ask for analysis makes one a stuffy and unrealistic fundamentalist.
Bob Higgs notes that not only is the analysis largely absent, the data are wildly inconsistent with the kinds of claims being made.
The Federal Reserve System publishes comprehensive data on commercial paper issuance, commercial paper outstanding, and interest rates on commercial paper. I presume that these data give us a clearer picture of what’s going on in the markets than a covey of hyperventilating Wall Street commentators. (more…)
Technology and Firm Size and Organization
| Peter Klein |
As a New Economy skeptic (1, 2, 3, 4) I worry about sweeping claims that information technology has rendered obsolete the large, vertically integrated, publicly held corporation and its managerial hierarchy. Such claims suffer from two problems: First, they tend to be thinly documented — evidence on the economy-wide distribution of organizational forms is largely fragmentary and anecdotal. Second, they usually exaggerate what’s new about those changes that we can document. As I wrote in my review of Yochai Benkler’s The Wealth of Networks:
Benkler proposes social production as an alternative to the traditional organizational modes of “market” and “hierarchy,” to use Oliver Williamson’s terminology. Indeed, open-source production differs in important ways from spot-market interaction and production within the private firm. But here, as elsewhere, Benkler tends to overstate the novelty of social production. Firms, for example, have long employed internal markets, delegated decision rights throughout the organization, formed themselves into networks, clusters, and alliances, and otherwise taken advantage of openness and collaboration. There exists a variety of organizational forms that proliferate within the matrix of private property rights. Peer production is not new; the relevant question concerns the magnitude of the changes.
Here, the book suffers from a problem common to others in this genre. Benkler provides a wealth of anecdotes to illustrate the revolutionary nature of the new economy but little information on magnitudes. How new? How large? How much? Cooperative, social production itself is hardly novel, as any reader of “I, Pencil,” can attest. Before the web page, there was the pamphlet; before the Internet, the telegraph; before the Yahoo directory, the phone book; before the personal computer, electric service, the refrigerator, the washing machine, the telephone, and the VCR. In short, such breathlessly touted phenomena as network effects, the rapid diffusion of technological innovation, and highly valued intangible assets are not really really new. (Tom Standage’s history of the telegraph and its own revolutionary impact, The Victorian Internet [New York: Walker & Company, 1998], is well worth reading in this regard.)
A new paper by Giovanni Dosi, Alfonso Gambardella, Marco Grazzi, and Luigi Orsenigo, “Technological Revolutions and the Evolution of Industrial Structures: Assessing the Impact of New Technologies upon the Size and Boundaries of Firms,” looks at the empirical evidence more systematically and concludes that the effect of information technology on firm size and organization is real, but modest: (more…)
More on Agricultural Adaptation: Johnny Appleseed
| Dick Langlois |
The abstract of a new paper called “Alertness, Local Knowledge, and Johnny Appleseed” recently crossed my computer screen. By a grad student at George Mason called David Skarbek, the paper applies a Kirznerian account of entrepreneurship to the case of Johnny Appleseed, aka John Chapman (1774-1845). The entrepreneurial part will no doubt be of interest to many readers, including my estimable co-bloggers. But I’m more interested in the historical and institutional angle.
Skarbek points out that, contrary to the Disney-fueled myth, Johnny Appleseed didn’t scatter apple seeds randomly throughout Appalachia and the midwestern frontier. He planted clearly defined apple groves, totaling some 1,200 acres by the time of his death. This turned out to be crucial for homesteading, since under American state law the planting of fruit trees was one way to create a property right (in Lockean fashion) out of unowned land. Chapman was thus an institutional entrepreneur.
What Skarbek doens’t say, however, is something I learned at the NBER conference I wrote about earlier. In addition to having what we would nowadays call mental health issues, Chapman was also an evangelical Swedenborgian who shared with Thoreau the view that apples should aways be grown from seeds. (For documentation, see for example here.) In fact, apple trees grown from seeds are good for only one thing — cider — and, indeed, the Johnny Appleseed legend got a boost in Appalachia during Prohibition as the fruits (as it were) of his efforts were used for hard cider. Apple cultivation normally requires grafting, a form of hybridization known for centuries and practiced in Appleseed’s lifetime by the likes of Thomas Jefferson. The point is that Chapman saw hybridization as unnatural and immoral, and his quest was animated as much or more by this religious view as by environmentalist zeal or entrepreneurial insight. As the mention of Thoreau suggests, however, distaste for “unnatural” breeding methods is not exclusive to religious fundamentalists, and indeed today it is followers of Thoreau not (generally) Christian evangelicals who object to genetically modified organisms.
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