Ev Ehrlich's Everyday Economics

The Life of Giffen

(Author’s Note: Giffen, a Victorian-era economist, discovered a class of goods for which demand fell instead of rose when prices fell. So-called “Giffen goods” are the exception to the laws of supply and demand taught toi every economics undergraduate ever since, offering a low-key immortality to an otherwise unexceptional economist of a bygone age.

Written with my friend Dan Luria in Brighton, Michigan, summer of 1986. We performed it once, for our wives.)

The scene is the study of Sir Robert Giffen, a Victorian library of the mid1850's. Giffen sits, working feverishly, by the light of a lamp. It is about 4 A.M. His wife enters.

Heloise: Sir Robert! I was afraid I'd find you here!

Giffen: (puts down his pen and sighs deeply) That is quite alright, my dear. I am, in fact, here.

Heloise: What are you doing up at this hour, Sir Robert?

Giffen: Actually, Heloise, I was working on another new idea. It is about a mathematical system that describes the equilibrium level of national income, but rather than a predetermined level of equilibrium, as handed to us by Providence, alternative values for such a level, only one of which corresponds to the full employment of resources. (triumphantly) I shall call it...Giffenism!

Heloise: (repeating him) Equilibrium level...but Sir Robert, didn't Say put an end to all that?

Giffen: (with sudden anger, snapping his pen) Say! Damn his eyes to hell! (quickly getting his composure, his spirits dampened) Yes, yes, that's correct. You might say that Say has rendered the concept of the determination of national income somewhat...meaningless...granted. But (regaining his enthusiasm)...here! Look at my calculations. To begin, we must first list every type of demand for a good or service, or, when they are added together, Comprehensive Demand, as I call it, so as to distinguish it from the demands in individual markets. C, here, is for consumption. G is for government. Poor houses, that kind of thing. I is for investment, as in steam engines for pumping mine water, or equipment that is used in the process of manufacturing. When you sum these, they add up to income, or I.

Heloise: But I thought that the letter I signified investment.

Giffen: (deflated) Yes, yes, that is so. Yes, I did not think of that. (now once again buoyed) But no matter, income can be signified by the letter Y.

Heloise: Why?

Giffen: Y. Exactly. Yes, that's right! (He picks up a new pencil and begins to work anew).

Heloise: Oh, Sir Robert, please come to bed. It is 4 A.M.

Giffen: (correcting her) It was 4 A.M. when you entered, my dear. It surely later than that now.

Heloise: (She kneels besides him, imploringly) I beg of you, Sir Robert. Return to our bed, so that we may be man and wife once again. (passionately) Sir Robert, I am a woman! I have needs!

Giffen: Yes! Needs! And tastes and preferences, and income constraints, too. (suddenly in anger) But Cournot has already thought of that, the supercilious twit! How I loathe him and his little mathematical systems, so neat and orderly, as if anybody could ever understand them! I hope he rots in hell!

Heloise: (soothingly) My poor darling!

Giffen: He is almost as odious as Mill.

Heloise: (imploringly) Please don't bring up Mill right now, Sir Robert. It is almost dawn, and you must rest.

Giffen: (enraged) Mill! That bastard. That despicable little bastard! How tired I am of hearing his name! (In the singsong of a child) Mill wrote the best political economy since Ricardo. Mill wrote on the rights of women. Mill is more than a political economist, he is a philosopher. Mill spoke Latin and Greek at the age of 18 months. (In his normal voice) I should hope to vomit at the command of the demons of Hades if I am ever to hear this litany again!

Heloise: Yes, yes, I know, I know. Please, Sir Robert.

Giffen: Eighteen months, indeed! I can't even recall where I was at the age of 18 months!

Heloise: I am sure, Sir Robert. But please

(She is interrupted by a knock on the door.)

Giffen: Who could that be?

Heloise: I have no idea, Sir Robert. Footman! Go to the door and admit our visitor!

(in a moment, Schwindler, Giffen's graduate student, enters)

Schwindler: Sir Robert! Sir Robert! Thank heavens I have found you!

Giffen: Be calmed, my lad. Why have you come to find me at this time of night?

Schwindler: You must come to the laboratory immediately, Sir Robert! There is a matter there that requires your immediate attention!

Heloise: But it is so late!

Giffen: I must go nevertheless, my darling. I shall return to you at the earliest possible convenience. Lead on, Schwindler, and I shall follow.

ACT II

The scene is the library of the University of London. At center stage is a large writing desk covered with papers and pens, compasses and protractors. Giffen and Schwindler enter.

Schwindler: Here, Sir Robert, is the problem of which I have spoken.

Giffen: On these sheets?

Schwindler: Exactly, Sir.

Giffen: (studying the paper) I fail to comprehend you, Schwindler. All I see on these papers are arrays of numbers.

Schwindler: They are more than numbers, Sir Robert. They are data. They describe the consumption of potatoes in all of Ireland and the price of said potatoes at the time in which they were consumed.

Giffen: (suddenly livid) Have you no shame, Schwindler? These are precisely the type of data that are used to validate the writings of that cretinous dago, Cournot.

Schwindler: Hear me out, Sir Robert, I beg of you. I have examined these data time and time again, and I can only come to one inevitable conclusion.

Giffen: And that is?

Schwindler: (dramatically) That the Irish eat fewer potatoes when their price goes down.

Giffen: (repeating it to himself) The Irish...eat fewer potatoes...when their price...I say, Schwindler, are you quite sure?

Schwindler: Absolutely, Sir Robert.

Giffen: (cagily) What does Mill have to say on this topic?

Schwindler: Nothing, Sir Robert. This matter does not appear in any of Mill's writings.

Giffen: Are you quite sure?

Schwindler: Yes sir, I am.

Giffen: (nods and pauses) I say, Schwindler. What exactly do you think of Mill?

Schwindler: Mill, Sir Robert? If I may venture an opinion contrary to the rest, Sir Robert, I find him a mediocre figure whose lone of inquiry is at once ahistorical and apologetic for the ancien regime, so to speak.

Giffen: (suppressing his glee) Do you think so, Schwindler? Is that what most of your fellow apprenticed political economists believe?

Schwindler: I know not what the others think, Sir Robert. But I, for one, think that Mill is, if I may, overrated.

Giffen: You do? Then whom do you admire in political economy?

Schwindler: Marx, Sir Robert.

Giffen: (taken aback) Marx? Who the devil is Marx?

Schwindler: He is a German philosopher, Sir Robert. He has written this pamphlet entitled the Communist Manifesto. I carry one with me, Sir Robert. (He reaches in his back pocket) Here it is.

Giffen: (takes it from him and reads) A specter is haunting Europethe specter of(he stops reading irritatedly) Oh, I should hope to read Bentham again before I read this twaddle! We were speaking of Mill, boy.

Schwindler: Mill, yes, Sir Robert. To the best of my recollection, Mill has never addressed this exception to the basic Smith and Ricardian tenet concerning the relationship between the price of a good and the quantity of that good that is demanded.

Giffen: Never, you say? Fine, then. You have done well, Schwindler, and I shall remember this service.

Schwindler: Then my dissertation on this subject shall be considered, Sir Robert? And my degree granted?

Giffen: We shall discuss those matters later, Schwindler. Right now, give me your papers so that I may write an article for the Fellows of the Royal Society!

ACT III

A meeting of the Royal Society. Economists sit in the audience, talking among themselves.

Chairman: Very well, then, very well. The meeting will come to order. The first topic on the agenda is a paper that has been distributed to you by Sir Robert Giffen on the consumption of potatoes in Ireland. (a collective groan comes from the audience) There, there. Let's have none of that. Giffen, step forward and summarize your paper.

Giffen steps up from the audience and stands behind the podium.

Giffen: As those of you who have read my paper are aware, I have discovered the existence of a class of goods, the demand for which responds perversely to changes in prices. The particular commodity that exemplifies this response is that of the potato in Ireland, (there is some chuckling from the audience, which Giffen talks over forcefully) for which, it can be shown, the quantity consumed actually decreases when the price declines, in contrast to the traditional system as described by such analysts as Cournot (spitefully) and Mill.

Chairman: (cutting him short) Very good, very good. We shall have questions now. Who has a question for Giffen? (no hands are raised) Come now, there must be a question, a paper as controversial as this, and so on. Any questions? (A solitary hand is raised in the back of the room) Ah, excellent! Professor Mill himself! Stand and ask your question, Sir John Stuart.

Mill: (clears his throat presumptuously and mumbles condescendingly) Ah, yes, yes, very good paper, Sir Robert, I enjoyed reading it immensely, very informative. (raises his voice) Now, about this business of reversing the mathematical properties of Professor Cournot's specification of the demand relationship--and that is what it is, isn't it, we all know that, simply a mathematical relationship with topological smoothly twice-differentiable properties -- you are following me here, aren't you, Giffen? -- we all know that if you invert the signs of the demand relationships then (with emphasis) the entire nature of the general equilibrium system changes, doesn't it, Giffen? (calmly now) But, of course, that doesn't concern you for you have not, as a true political economist (again, with emphasis) and philosopher (again, calmly) like myself would, thought through your rather unremarkable observation about what the Irish eat to its logical conclusion, that is, that the system becomes unstable under conditions such as your own and cannot exist in the long run! Or, as the great philosopher Aristotle said, "echo ena pieta kreas phippili terena anna", which was loosely translated by the great Roman Pliny the Elder as "in hoc signo amas amat vinces parenti". (There is a long silence) Well, Giffen, we are awaiting your response.

Giffen: (stoically) You may mock me if you like, Sir John Stuart, but the facts remain as I have presented them. The Irish eat fewer potatoes when their price declines.

Mill: (sarcastically) Oh, that is rich, Giffen. I suppose that if they were free they wouldn't eat any, would they? I suppose that Newton was wrong and there is no gravity in Ireland, either. Or perhaps Copernicus was wrong and the sun revolves around Ireland as well. Come now, Giffen, do you take the members of the Royal Society for fools? Do you suppose that we will believe this blathering nonsense from such an insignificant scholar such as yourself? I say that Giffen is an ignorant clod and that if he thinks that they eat fewer potatoes in Ireland when their price declines, then he should go there and stay there. Who agrees with me?

All: Hear hear.

Mill: So say we all, then. Giffen, you are a fool.

Giffen: You may laugh at me if you wish. But one day you will recognize that there are such goods as Giffen goods, and I shall be vindicated!

CURTAIN