Michael Watts's The Literary Book of Economics is built up of examples like this (although he includes two excerpts from The Merchant of Venice, somehow this particular gem of economic insight escaped him). Watts's premise is that we can learn a great deal about economics by looking at literature, and he has assembled for this unique anthology 78 selections in which great, near-great, and not-so-great authors end up illustrating many fundamental economic principles, ideas such as opportunity costs and the division of labor. In Watts's view, Rabelais even offers in his Gargantua and Pantagruel an early anticipation of the Coase theorem and the problem of economic externalities. In general, Watts is not claiming that these authors were explicitly or systematically examining economic questions. His basic point is that in seeking to portray human life, authors are inevitably drawn into economic issues, which are after all central to human existence. Insofar as authors succeed in holding the mirror up to nature, they should in some way reflect the underlying economic realities of everyday life.
Watts is an economics professor who has dabbled in literature all his life (he minored in English while a grad student in economics at LSU). As his mirror image—an English professor who has dabbled in economics all his life (in my wayward youth, I attended the NYU seminar of the great Austrian economist Ludwig von Mises)—I am probably in as good a position as anybody to review this book. And assessing this anthology from my perspective as an English professor, I would say that my colleagues need it more than his do. To be sure, Watts has performed a valuable service for his colleagues in economics. This book may help to humanize their teaching and even their outlook on the world. Mainstream academic economics, with its obsession with mathematical modeling, constantly runs the danger of losing touch with the concrete reality of economic life as it is lived by real actors in the real world (a lesson I learned from Mises). Precisely because the authors Watts includes are writing about concrete human situations, they can serve as a corrective to the abstract tendencies of mathematical economics.
One of the best sections of Watts's anthology deals with "Entrepreneurship and Profit," and offers a number of examples of what economic activity actually looks like to businessmen. In one of his explanatory headnotes, Watts points out the gap that can develop between the academic view of economic life and the perspective of real actors in the business world:
Business schools graduate thousands of new managers every year, but entrepreneurs are a different breed than managers, who by definition are content to work for a salary and bonuses. Financially, the reward that successful entrepreneurs earn is profits; and no less important to the working of the economy is the risk they bear of incurring losses if their innovations or business ventures prove unsuccessful.
In its chimerical quest to become a predictive science, mainstream economics often tries to bracket out the element of risk in the real world. Watts thus does well to remind his colleagues of the ineluctable uncertainty of economic life by beginning this section with a passage from the first scene of The Merchant of Venice, in which Shakespeare once again demonstrates his grasp of economic reality by showing a group of merchants grappling with the inherent riskiness of commerce. Indeed Shakespeare shows he understands the principle of spreading one's risks, as he has Antonio say: "My ventures are not in one bottom trusted, / Nor to one place, nor is my whole estate / Upon the future of this present year."
Economists would do well to consider incorporating Watts's book into their teaching—it might help them to make their theoretical points come alive for their students. But I still think that this book would be more useful to English professors (even though I suspect that they are less likely to pick it up). To my knowledge, economists do not generally go around professing to be experts on literature. But it is the scandal of my profession that literary critics today have no qualms about pontificating about economic issues, even though they usually are completely ignorant of economics. Contemporary literary criticism is dominated by various forms of Marxism and quasi-Marxism, from Cultural Materialism to New Historicism. Literature professors are thus constantly passing negative judgments on capitalism and the operations of the market economy, presuming to analyze such complicated economic issues as free trade and globalization. And yet they seem unconcerned that the Marxist economics they trot out is a relic of the 19th century, predating the marginalist revolution that is the basis of all modern economics and, moreover, that Marxism has been decisively refuted by the course of economic history in the 20th century.
I have seen my colleagues become nervous about their ignorance of economics only when the matter of their personal finances has come up (Marxists are very well-paid in literature departments and, after all, they have to invest their surplus value somewhere). I once had the honor of explaining the difference between a stock and a bond to one of the most distinguished New Historicists of our day (it took awhile). I wish the students who have complete faith in this critic's ability to analyze a capitalist economy could have seen the look on his face when I pointed out to him that the price of a bond goes down when interest rates go up. He stared at me as if I had just told him that the sun revolves around the earth. I believe I finally got through to him on this point, but decided to skip the difference between a "put" and a "call" for that day. And yet, as a literary critic, this man thinks he knows enough about economics to be certain that socialism is superior to capitalism.
I am thinking of giving this colleague a copy of The Literary Book of Economics. With Watts's clear and straightforward headnotes to each section, the book can actually serve as a good primer for the basic principles of economics. My literary colleagues could indeed learn a great deal about how markets work from reading this book. Watts is an excellent representative of received opinion in the mainstream economics profession today. On the whole, he is sympathetic to the free market, and many of his selections offer examples of the failure of government attempts to regulate economic life. At the same time, Watts is even-handed in his choice of authors, including many, such as George Orwell, who would be classified on the Left. In his choice of American authors, Watts in fact loads the book with critics of capitalism, such as John Steinbeck, Frank Norris, and Upton Sinclair. Indeed Steinbeck is overrepresented in the book, with eight out of the 78 selections (while the passionate defender of capitalism, Ayn Rand, gets only one). If anything, Watts tries to be too objective in his role as commentator, and might have usefully pointed out the poor economic reasoning in some of his selections. For example, he prints an astonishingly dim-witted piece by Edward Bellamy, "The Parable of the Water Tank," but fails to explain how muddled its concept of overproduction is (what Bellamy calls "overproduction" is simply the production of goods that people want less than other goods that might have been produced with the same resources and that therefore cannot be sold at prices that cover their costs of production). To his credit, at least Watts gets in one jab at Bellamy in the headnote: "Ironically, in many ways the collapse of the Soviet Union in the early 1990s fits the predictions of Bellamy (and Marx) far more than has the historical experience of market economies."
Precisely because Watts is so even-handed as an anthologist and fails to make as strong a case for the free market as he might have, my literary colleagues may actually be tempted to read this book and use it in their courses. But unfortunately, one aspect of this anthology may stand in the way of that happy result, and here a cultural difference between economists and literary critics seems to have come into play. Watts economizes too much in this anthology; in his effort to include as many selections as possible, his excerpts are often too brief, and from a literary point of view, he fails to respect the artistic integrity of many of his selections. This is what is known as a "bleeding chunks" anthology. I can see how economists could use it to illustrate economic principles but English professors generally work with whole texts and might find many of Watts's selections too truncated. What is the point of including two brief paragraphs from Emily BrontÃ«'s Wuthering Heights? No English professor would ever consider dealing with such a complex novel on the basis of such a small sample. This is the most extreme example of Watts's economizing, but it is not much of an improvement when he offers four pages from Thomas Mann's Doctor Faustus, one of the most complicated novels of the 20th century. Especially given the fact that Watts wants the Mann selection in part to illustrate the problem of hyperinflation, he would have been much better off including Mann's short story, "Disorder and Early Sorrow"—which is probably the best portrait of the social and cultural effects of the German hyperinflation ever written. Fortunately, Watts does print a number of whole literary works, but his anthology would have been much more valuable to English professors if he had tried to include more complete texts.
Watts's choice of selections for this anthology raises a few questions. To be sure, he makes it clear that he does not regard this book as the definitive anthology of literature and economics. He in fact presents it as a kind of work-in-progress, and expresses a hope that a future edition might be expanded with suggestions from readers. Any anthology will necessarily reflect the personal taste of the editor, and his selections will inevitably involve a certain element of arbitrariness. On the whole, Watts has done an admirable job. He includes many texts that are perfectly suited to his purposes. I was particularly pleased to see two of the selections he included (even though they are both "bleeding chunks")—the passage from Goethe's Faust in which the devil takes credit for that most diabolical of all inventions, paper money, and the passage from Twain's Connecticut Yankee, in which his hero tries to explain the distinction between real and nominal wages to a group of uncomprehending medieval laborers (who prove almost as difficult to educate on economic matters as contemporary English professors).
I was also pleased to find several selections with which I was unfamiliar and which expanded my horizons. For example, I would never have guessed that Gertrude Stein could write anything as economically astute as her 1936 essay, "Money," which goes right to the heart of the political source of our economic problems today: "Everybody who lives on it every day knows that money is money but the people who vote money, presidents and congress, do not think about money that way when they vote it.... When you earn it and spend it you do know the difference between three dollars and a million dollars, but when you say it and vote it, it all sounds the same."
But despite the basic soundness of Watts's choices in The Literary Book of Economics, sometimes his selections border on the idiosyncratic. He makes little or no effort to distinguish between good and bad authors, or, to sound somewhat less subjective, between important and unimportant authors, and at times he does not even seem to be discriminating between fiction and non-fiction. In a volume that contains only one selection by John Milton and two by Shakespeare, it seems very strange to have four selections by Ivan Doig, three by Sebastian Junger, and three by Jon Krakauer. I would not complain about Watts's inclusions if there were not some glaring omissions in this volume. It is especially surprising not to see anything by Daniel Defoe in an anthology on economics and literature. His Robinson Crusoe is probably the single most famous literary text of economic interest—it has been discussed as such by many literary critics and economists over the centuries (see, for example, Ian Watt's The Rise of the Novel or Maximillian Novak's Economics and the Fiction of Defoe). Another surprising omission in this volume is Ezra Pound—his economics may have been largely crackpot, but of all modern authors he is the one who most insistently tried to set himself up as an economic sage, and his poetry is filled with references to economic history (and especially to money and banking). I also regret that Watts did not choose to include anything from Harriet Martineau's remarkable series, Illustrations of Political Economy. Published in the 1830s, these books are the most systematic attempt ever to embody economic truths in fictional form, and, as bestsellers in their day, they are also the most successful effort to package economic ideas for a general public. I was, above all, disappointed not to see anything by Elizabeth Gaskell in this book, in particular an excerpt from her novel North and South. An attempt to counter the anti-capitalist bias of Dickens' Hard Times, North and South would be my nominee for the most economically knowledgeable mainstream novel in English (with the possible exception of Conrad's Nostromo). Its chapters on labor unions and labor strife are for more insightful than anything Watts has included on the subject in his anthology.
I am not trying to suggest that The Literary Book of Economics is fundamentally flawed. I am merely trying to point out its limitations. It is a very good start at trying to bring together economists and literary critics—to establish a common ground between them and help them to benefit from each other's efforts. But, as Watts himself admits, this book is only a start and a great deal of work remains to be done in this area. The danger of any anthology is the illusion of completeness, and it is thus important to point out that works excluded from Watts's book are just as important to his subject as works he included. The same is true of the appendix in which Watts attempts to survey "how literary authors and historians have used economics." Readers who might use this section as a guide to the field should be warned that once again Watts's exclusions are at least as important as his inclusions. For recent literary criticism with an economic dimension, I would recommend the work of Franco Moretti (especially Modern Epic), Gary Saul Morson (especially Narrative and Freedom) and Michael Valdez Moses (The Novel and the Globalization of Culture). In sum, the intersection of literature and economics is one of the most exciting and promising areas of scholarly investigation today. The Literary Book of Economics cannot possibly provide the last word on the subject. But the fact that it helps to open up the fundamental questions in this area makes it a very valuable book indeed.