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I am the story teller. And, yes, you are right I over
stated the case just to make the point. I wrote this piece lo those many
years ago. It really should have been that Crusoe cut the minimum he
needed but even then he missed what was now gone. (I suppose as will our
society, when we realize what has been lost without having been counted as part
of the cost of production)
arthur From: Lawrence de Bivort [mailto:[EMAIL PROTECTED] Sent: Friday, May 19, 2006 3:35 PM To: Cordell, Arthur: ECOM; [email protected] Subject: RE: [Futurework] FW: ROBINSON CRUSOE ECONOMICS Seems silly of Crusoe
to cut ‘all’ the vines. Why would he not only cut the minimum he needs? Or
maybe the story-teller is trying too hard to make his/her
point? Cheers, Lawry From:
[EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]
On Behalf Of Cordell, Arthur:
ECOM In cleaning up some old
files I came across this piece....from many years ago. I pass it along for
what it's worth. Originally published in 1974, in a
now defunct publication called Survival. This tells a story of how
economies function or mis-function. Arthur J.
Cordell ROBINSON CRUSOE
ECONOMICS One
insight into the relationship between economic growth and environmental decay
may be seen in the following example. Let
us assume that a shipwrecked Robinson Crusoe arrives on a desert island. He is
without implements and quickly begins to worry about such things as food. Fish
abound, but they can only be caught by hand. Mr. Crusoe find that he can catch 2
fish per day by hand–but he really would like to have
more. He
tries to push thoughts of food out of his mind by relaxing and enjoying his very
beautiful island. He particularly likes the scenic hanging vines and the stands
of young trees. Mr.
Crusoe is then struck with an idea. Why not build a net so that more fish can be
caught? "I wonder how long it will take? Is it worth the physical expenditure of
effort? How many more fish will I catch?" He will naturally only build if it
seems worthwhile. Mr. Crusoe is an economic man– he doesn’t engage in wasteful
activity! Mr.
Crusoe estimates that it will take him one day to build the net. For that one
day, he will catch no fish– he will forego consuming 2 fish. Thus he must
restrict consumption in order to make an investment in the
net. Restrictions on consumption equal
savings, and savings are used for investment. So it is with Mr. Crusoe, and so
it is in our larger society as well. Now, how to decide whether it is
worthwhile building the net? In our society businesses try to relate what they
get to what they give up. What they give up is an alternative use of their
savings, and what they get is a return on their
investment. Mr.
Crusoe can use his savings in many ways. He can build a net, or he can explore
the rest of the island, or he can rest, or he can build a non-productive
investment like a monument. Mr.
Crusoe makes a decision based on the range of alternatives that are available.
Two fish per day is certain without the net; three fish might be caught with the
net. Three fish would amount to a 50 per cent daily increase in fish: Not
bad! Mr.
Crusoe is engaged in a decision process, the outcome of which will determine
whether and to what extent economic growth takes place on the
island. Mr.
Crusoe finally decides to make the capital investment. He then begins to look
for raw materials. After all, a net must be constructed of something. Since no
one owns the beautiful hanging vines and young trees, he cuts them all down to
construct his net. Mr.
Crusoe is interested in keeping his costs low. By using the free vines and the
young trees, his costs are only the two fish that he foregoes in the
construction of the net. A
free good is one which has no market price; in economic theory, the unlimited
use of a free good by any one party does not create scarcity nor does it deny
use of that good to anyone else. Air and water are usually cited as examples of
free goods. Mr.
Crusoe is a successful entrepreneur. His net works. He is catching and eating
three fish per day. Daily gross national product or GNP (measured in fish) has
increased by 50 per cent. But– you guessed it – Mr. Crusoe is
not happy. In fact Mr. Crusoe is not happy at all! Why? Let Mr. Crusoe answer:
"I thought those beautiful vines and those slender young trees were free goods;
they belonged to nobody. I thought the costs were all external. But I didn’t
realize that when I cut them down, I would be depriving myself of the this
intangible source of pleasure. Since I am the only one on the island and will be
here for some time then it is clear that I did not correctly evaluate my true
costs of production." Poor Mr. Crusoe. His true production
costs were his foregone consumption (that is, the two fish) plus the loss in
future aesthetic pleasure that he would have derived from the trees and
vines. Mr.
Crusoe came from a society where his reasoning would have been perfectly
acceptable. Free goods do not belong to anybody. One can dump waste into water,
cloud the sky with smoke, cut down trees and make arid vast expanses of
land. Where Mr. Crusoe came from, costs of
production only refer to private costs. Smoke damage, water damage and
environmental damage may all take place in the production process; however,
these actions do not show up as costs to the business. While they are certainly
costs to someone, they are generally dismissed as "social costs" or "external
costs." The
critical lesson for Mr. Crusoe is the critical lesson for mankind. It is
increasingly the case that what we do affects someone else. And what someone
else does will affect us. Mr. Crusoe learned his economics in a society where
free goods were there for the taking. Only society loses when the free goods are
ruined. When Mr. Crusoe becomes the
surrogate for society, it becomes clear that a method of capital accumulation
which does not take into account all costs will lead to environmental
disruption. Similarly economic growth as it is conventionally measured must
involve a continuing externalization of costs over
time. Businesses are not evil in their
actions. It is simply that traditional accounting methods have a private
orientation and only measure certain particular aspects of business
behaviour. The
process outlined in the case of Mr. Crusoe is evident throughout our entire
economy. In most cases pollution is caused by the externalization of costs.
Industrial production leads costs which are not borne by the producing unit but
by society at large. These costs are associated with waste in the water, smoke
in the atmosphere, and noise in surrounding
community. The
price of the product reflects only part of the costs of production. The private
costs are absorbed by the producer while the social costs are absorbed by
society. It is these latter costs which cause the deterioration of the
environment. End. |
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