Novel economics.

Henderson, David R.

THE PRICE OF EVERYTHING: A Parable of Possibility and Prosperity

By Russell Roberts

203 pages; Princeton University Press,

2008

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Have you ever wanted to give a friend a book that explains the main virtues of economic freedom in a dramatic way that is accessible to a broad audience? Russell Roberts's latest novel, The Price of Everything, is the book you want.

That's right: I said "latest novel." Roberts, an economics professor at George Mason University, has written two other novels, both of which teach economics lessons. His first, The Choice, is a kind of It's a Wonderful Life applied to free trade. His second, The Invisible Heart, is a highly plausible love story between two high-school teachers: a male economics teacher and a female English teacher.

In my review of The Invisible Heart, I pointed out a problem with the book as a novel: the conversation is one-sided. I stated in my review: "I don't know how to fix that when one person understands economics and the other doesn't, and the author's goal is to get across some important ideas in economics. But maybe Roberts will figure that out when he writes his next novel."

Roberts has partially figured it out. This time, although the conversation is still one-sided, it is less so. His new twist is to have the person who knows and teaches economics be an older woman, the fictional provost of Stanford University, Ruth Lieber. Maybe I shouldn't find this more acceptable than a male know-it-all, but I do. Dramatically, it works better. Part of the reason is that she often has a more gentle way than Roberts's previous male characters of communicating life's economics lessons.

The other protagonist in the novel is Stanford undergrad Ramon Fernandez, a tennis star whose mother had escaped with him from Cuba by boat. When Lieber meets him, she has an explicit agenda, and it's one that, as an economics professor, I share: she wants to convince Ramon that free markets are humane and will accomplish so much of what he, and humans in general, want to accomplish. Lieber may also have a hidden agenda, and Roberts keeps us wondering about that all through the novel. The way he plays that tension is masterful.

Another way Roberts handles the one-sided-conversation problem is by alternating between Lieber teaching an economics class that Ramon's girlfriend, Amy, attends and Lieber having conversations with Ramon. In one class, Lieber tells the students why no one knows how to make a pencil. Her explanation is based on Leonard Read's classic 1958 monograph "I, Pencil." The gist is that the pencil is made through an extensive division of labor, not just across industries but also across borders, and there is no central organizer, no central planner, who makes this happen. Instead, it is an example of people acting and coordinating their actions based on prices. Lieber goes beyond Read, pointing out that "the greatest migration in human history, the movement of the Chinese from the farms to the cities"--which has created new demands for pencils, bicycles, and other items--has happened without a shortage in either pencils or bicycles.

There are other nice touches. One of my favorites is Lieber's story of a family friend who put 20 years of his life into producing a medical device that made him rich. Lieber makes clear that the way you get rich in a free market is by producing something people really want. Why did they want this medical device? Because it blasted the plaque from people's arteries, making open-heart surgery unnecessary. In the previous year, the device had helped about 4,000 people. But then the man found out that he had liver cancer and a life expectancy of only a few months. He was distraught. His children were grown and he had hardly ever been around; his wife had left him. I don't want to give away the story--it surprised me and I want you to have the same surprise. But what happened next was a wonderful, loving, and totally believable way of helping the man see just how important his life had been.

Another of my favorite passages reminded me of something that happened in the early 1990s in my economics class. We were discussing the economics of information, and the main point I wanted to get across is that information is scarce and often valuable. Therefore, I said, the hostility that many people have toward those who make money on the basis of information that only they have is no more justified than hostility toward those who make money on steel or cars or steak. So-called inside traders, I said, are making money from information, but so am I. I'm here because I'm paid to be here, and I am paid to be here because I have information to impart that the school deems valuable enough to pay me for. So, I am making my money on inside information every bit as much as an inside trader does. "Do you mean, professor, that you're not teaching us because you love us?" joked a student. The class laughed, and I saw my chance to extend the joke and teach an economics lesson in the process. "I do love you," I said, "but love isn't enough to get me here. I have to be paid, too." Ruth Lieber tells a similar story.

One issue that always comes up in discussions of economic freedom is the high degree of income inequality that economic freedom can lead to. In The Price of Everything Ruth and Ramon have that discussion. Ruth makes the point that a high degree of inequality is completely consistent with everyone doing well and improving his or her situation. She makes an important distinction, using a variant of a statement that Roberts used in a March 2006 online debate held by the Wail Street Journal Lieber says, "I think most people care about getting ahead, not about whether they're getting ahead of others."

Roberts is definitely progressing as a romantic novelist. See if this passage about Ramon and Amy sitting looking at birds increases your pulse:

 Amy's body temperature had been
 on the rise for the last few minutes.
 Without any conscious effort
 on her part, the slightest tinge of
 pink rose to where her cheekbones
 were closest to the skin, in that
 perfect curve below her eyes. Her
 upper lip dampened, glistening
 ever so lightly in the sunlight holding
 the remains of the day. As the
 hawk flew on, and the shorebirds
 returned to their still life, Ramon's
 gaze returned to Amy's face.
 Whether it was the change in color
 or the moistening of her upper lip
 or some other cause--Ramon
 could not explain it any more than
 he could explain the impulse of
 the shorebirds to defend their
 young so ably--Ramon took Amy
 in his arms and kissed her.

But I don't want to downplay the good economics that Roberts and his character Lieber get across in a punchy way. To answer Ramon's objection that increases in productivity destroy jobs, for example, Lieber states, "In 1900, America had 30 million jobs. A century later, we had over 130 million." Roberts even has a nice statement about economics professors who are passionate about teaching and not so excited about writing seldom-read scholarly articles, a statement that I, a passionate economics teacher, appreciated. Lieber, speaking to Ramon after her career has ended, says:

 I spent the early part of my career
 writing scholarly papers for scholarly
 journals that a handful of
 scholars found interesting. But in
 the classroom, I taught thousands
 of students over the years about
 the complexity of the world.

Happily, if the Amazon rankings and the number of people listening to Roberts's EconTalk podcasts are indicators, Russ Roberts is teaching tens of thousands of people that, in Lieber's words, "not everything glorious that we observe in the world around us is the result of someone's intention. There is wonder in the world that we humans create without any of us fully understanding it."

David R. Henderson is a research fellow with the Hoover Institution and an associate professor of economics at the Graduate School of Business and Public Policy at the Naval Postgraduate School in Monterey, Calif. He is the editor of The Concise Encyclopedia of Economics (Liberty Fond, 2008.)