Note: This is a guest post by Neil Kay. It is part of a chapter that he is writing for a book that I am editing with David Rooney and Greg Hearn called Handbook of the Knowledge Economy, volume 2. We’ll post Neil’s chapter as he writes it over the next few weeks. He explains the overall theme of the chapter here. I’ll do the same with mine, which is seriously overdue too. – Tim

Following on from my last thread (The Complexity of Economics and the Paradox of Mankiw), it is common knowledge amongst economists that Robinson Crusoe is an example of a simple (albeit fictional) economy, and it is even more common knowledge that the world is more complex today compared to yesteryear.

Sometimes things are so obvious they just beg to be questioned. I hope to tie up these two related threads with a final posting

Thread 1(a) Robinson Crusoe had a simple economy – or did he?

Beginning students are often introduced to economics by way of Robinson Crusoe’s production and consumption choices on his desert island. A Google search for “Robinson Crusoe economy” gave about 33,000 results at the time of writing, and the back cover of my edition (Defoe, 1995) notes it was even “cited by Karl Marx in Das Kapital to illustrate economic theory”.  Mankiw (1998) follows this well-trodden path and devotes two quick quizzes (pp. 51 and 53) based around Crusoe’s situation to demonstrate the logic of production possibilities, advantages of specialization, opportunity cost, and gains from trade. The first “Quick Quiz” reads:

Draw an example of a production possibilities frontier for Robinson Crusoe, a shipwrecked sailor, who spends his time gathering coconuts and catching fish. Does this frontier limit Crusoe’s consumption of coconuts and fish if he lives by himself?  Does he face the same limits if he can trade with natives on the island?

The correct answer to the first question here is of course “yes”, and to the second is “no”, as every well brought up economics student knows – or quickly learns if they wish to pass the exam (but note that the second question only makes sense if the answer the first question is “yes” – which should be a bit of a giveaway).

It would of course be wonderful if in the spirit of Bill and Teds’ Excellent Adventure we were to validate all this by actually asking the real (which in this paradoxical world means the fictional) Robinson Crusoe his own answer to these questions. In fact, Crusoe anticipated these particular questions in his journal; you must now imagine him sitting in a modern Economics 101 tutorial:

I had nothing to covet for I had all that I was now capable of enjoying … I might have raised ship-loadings of corn, but I had no use for it; so I let as little grow as I thought enough for my occasion. I had tortoise or turtle enough, but now and then one was as much as I could put to any use. I had timber enough to have built a fleet of ships; and I had grapes enough to have made wine, or to have cured into raisins, to have loaded that fleet when it had been built.  But all I could make use of was all that was valuable. I had enough to eat and supply my wants, and what was all the rest to me? If I killed more flesh than I could eat, the dog must eat it, or the vermin; if I sowed more corn than I could eat, it must be spoiled. The trees that I cut down were lying to rot on the ground; I could make no more use of them than for fuel … I possessed infinitely more than I knew what to do with (Defoe, 1995, pp.98-99, italics added)

So the correct answer to Mankiw’s first question is actually “no”.  And if “no” is the answer to the first question, the second Mankiw question does not make sense (I feel some slight guilt if this means that Economics 101 might now have students interrupting my colleagues with; “but Crusoe actually says….” – or even worse, students failing Economics because they gave the right answers here).

Crusoe’s world has no opportunity cost, no need to choose between competing demands on his time.  It is not even economics in the sense that “economics is the study of how society manages its scarce resources” (Mankiw, 1998, p.4), because Crusoe makes it clear his world has no scarce resources. Crusoe’s situation is not untypical of hunter-gatherer societies with “limited wants and unlimited means” as noted in the eponymous work by Gowdy (1997) who cites the example of the !kung hunter-gatherers of Southern Africa who spent only 12 to 19 hours a week getting food (Gowdy, 1997, p. xv).

Some variants of the Robinson Crusoe economy also model Crusoe’s leisure/work tradeoff on the assumption his time is a scarce resource, but of course if there was one resource he had in abundance stranded on his desert island, it was leisure time. And as he would advise a modern Economics 101 tutorial, “I wanted nothing to make it a life of comfort” (Defoe, 1995, p.101)

While Crusoe does not have an economy in the accepted economics sense, he does pursue knowledge activities such as exploration, experimentation, design, hunting, foraging, inventing, reading, writing, spying, navigating, and teaching (Man Friday).  In such a context, complexity matters. Complexity can be defined in many different ways depending on context and purpose, but a holding definition here is that complexity refers to the parts and interrelationships (such as options, solutions, tactics, routes, meanings, etc.) facing a decision-maker like Crusoe. Some of Crusoe’s knowledge could be said to increase complexity where they suggest or reveal possibilities of which he was previously ignorant.  At the same time, some of these knowledge activities decrease complexity, just as Mankiw’s text helps reduces complexity for the student by teaching them which are the important relationships between curves.

Crusoe’s struggles with jar (or pot) making here illustrate how this knowledge activity progressively (and imperfectly) reduced complexity in terms of design and preparation options using experimental methods that modern R&D scientists would recognize:

It would make the reader pity me, or rather laugh at me, to tell how many awkward ways I took to raise this paste; what odd, misshapen, ugly things I made; how many of them fell in, and how many fell out, the clay not being stiff enough to bear its own weight; how many cracked by the over-violent heat of the sun, being set out too hastily; and how many fell in pieces with only removing, as well before as after they were dried; and, in a word, how, after having laboured hard to find the clay – to dig it, to temper it, to bring it home, and work it – I could not make above two large earthen ugly things (I cannot call them jars) in about two months’ labour (Defoe, 1995, p.92).

Crusoe faces a much more complex set of tasks and decisions (assessing potential options) in creating his pots than would a skilled potter of his time, Crusoe’s task is to reduce that complexity by eliminating inferior options as far as possible.  But how does Crusoe’s quest to reduce complexity sit with the common observation that progress means things getting more complex? This leads us on to the next post…