MISUNDERSTANDING UNCERTAINTY EXACERBATES UNCERTAINTY

Despite the fact that Cash McCall contrasts Austen a la producer with McCall a la entrepreneur, the relationship is much more in the sense of complementary alternatives than binary opposites. McCall’s work as an entrepreneur isn’t superior to Austen’s manufacturing work and vice versa because Austen can’t effectively coordinate production without the kind of work that McCall does and McCall doesn’t have anything to coordinate without Austen’s kind of productive work. Both Austen and McCall fill necessary functions in meeting demand under conditions of uncertainty. And yet, when it comes to the problem of what people believe about uncertainty, McCall and Austen are oriented precisely in opposition to one another. Austen’s desire to withdraw from the problem of uncertainty isn’t a problem per se because production and discovery are to some degree separable functions. His desire is not, however, simply a matter of preference; his desire grows out of his beliefs about the nature of the problem he faces. Hawley uses Austen’s aversion to uncertainty to illustrate the nature and implications of a particular way of misunderstanding uncertainty. To that end, McCall’s sale of Suffolk for $3 million marks the discovery of a new opportunity for utilizing the company’s productive capacity as well as providing a moment of narrative tension that renders visible the problem arising from Austen’s mistaken belief about the nature of economic uncertainty. Austen’s visceral reaction to the news of Suffolk’s resale price and his allegations of fraud are the means by which Hawley both evokes and deconstructs existing accounts of market prices as a problem of injustice, unfairness, or inequality based on a failure to recognize the problem of coordination.

There is a certain narrative familiarity and plausibility to Austen’s position that present a rhetorical challenge for Hawley. Anyone who, like Grant Austen, sells their company for a price 50 percent lower than the price it sells for one day later would experience at least some degree of seller’s remorse. Given the rapidity of the second sale, it wouldn’t be entirely unreasonable to at least wonder if the second sale was in the works before the first was completed. In that sense, it’s hard to blame Austen for either the intensity of his emotional reaction or for entertaining the possibility of conspiracy and fraud. When all of this is added to the fact that, from a storytelling perspective, pitting the hardworking, productive businessman in a battle for survival against the slick, predatory capitalist is a common trope in business narratives, the difference between the two sales prices of Suffolk seems a sufficient problem in itself to serve as the driving tension of the entire novel. In this sense, Hawley uses Austen to construct a narrative account that has the potential to perpetuate a mistaken belief about the nature of an economic problem.

By the time Austen learns about the resale of Suffolk and in a fit of rage, charges off to find an attorney willing to bring a lawsuit against McCall for fraud and theft, however, it’s already been made clear that there is no way McCall could be guilty of any such thing. And, in fact, Hawley has already set up several circumstances that would demonstrate that if anything, the opposite of what Austen believes is true. Hawley uses Austen’s accusations against McCall to evoke then dismiss a whole series of ways to interpret the sales of Suffolk according to a mistaken idea of uncertainty. Hawley evokes the idea that McCall was able to buy low and sell high because he had some kind of special information about Suffolk and Andscott. But, not only does McCall admit to buying Suffolk without calling his normal team of investigators to assemble a thorough file on the company, but also, during negotiations, Austen makes a conscious and deliberate choice not to tell McCall that his company is in danger of losing over half its revenue. Even if the sales prices were to be seen as a problem of unequal access to information, the information is running clearly in Austen’s rather than in McCall’s favor.

Hawley evokes the idea that McCall is able to extract such a large profit margin because he is some kind of financial genius. Hawley builds into the narrative descriptions of several companies that McCall owns expressly for the purpose of investigating and analyzing the financial potential of companies. And yet, when McCall meets Austen to discuss the possibility of buying the company, he agrees to a deal on the spot with consulting any documentation or employing his information-gathering mechanisms. If he had put some kind of financial genius to work calculating how to get the best deal, the financial investigation would have revealed that Suffolk was on the verge of losing its biggest customer and, consequently, it wouldn’t be a good purchase without a significant price reduction. In other words, Hawley gives McCall all the trappings of the highly calculating financial expert and then makes sure that he doesn’t use them. Furthermore, he arranges so that if he had put those skills to work, he would have tried to bargain Austen down if he had been willing to buy at all. The upshot is that Hawley makes it impossible to think of McCall’s million-dollar profit as a matter of his ability to empirically judge the value of the company.

Hawley also evokes the idea that it is a problem that McCall simply got so much more than Austen. Austen however, in his anger, manages to gloss over several important facts. When Austen learns about the price that McCall gets for Suffolk he is informed of both the amount and the manner of purchase in detail. He is informed directly that McCall received a certain number of shares from the sale that have a certain price on the market currently that, when multiplied together, add up to $3 million. There is, however, no reason to assume that McCall could dump that many shares of stock on the market all at once for full price. And, in an important sense, McCall won’t know how much he actually sold for in a dollar amount until he actually sells those shares. Perhaps most arithmetically simple but all the subtler for it is the fact that Austen feels cheated because he got a “hell of a lot less” (Hawley 1955, 376), but if you do a simple comparison of their immediate net gain, McCall only comes away with $1 million and Austen with $2 million.

If you look at all of the mistaken reasons that Austen devises to explain McCall’s million-dollar profit—fraud, financial genius, unequal distribution—they are all one form or another of the same mistake: thinking that there is some kind of correct or ideal price that can be rationally and reliably determined by sufficiently skilled or knowledgable individuals. In other words, Hawley works to challenge the myth that the economy is subject to economic calculation.

The final, ironic reiteration of this problem is in a very subtle element of the novel. In several places throughout the novel, Hawley interjects brief discussions of tax rates into the business negotiations. He emphasizes the fact that Austen’s company is subject to a “90 percent excess profit tax” (Hawley 1955, 8). Hawley presents the tax rates as an indirect form of price control, meaning, it doesn’t matter how much money you make, your profits after clearing expenses are always going to be reduced by an entire order of magnitude. Any gains you make to combat that reduction are themselves subject to the same level of reduction. The irony is in the fact that Austen increasingly buys into a notion of economic expertise as a way to escape uncertainty, whether that be through hiring knowledgable consultants to outsource entrepreneurial work or in seeking a resolution to price difference through the courts, but the main reason he has any of these problems is that his business has, for years, been subject to a form of economic calculation that presumes to determine with a simple formula what constitutes excess profits. Although it is a fairly simple matter to determine what constitutes today’s profits based on today’s expenses, a more realistic understanding of profit requires thinking about the relationship of profits and expenses across longer periods of time in relation to changes in consumer demand. Austen never realizes that selling his company is a way to correct distortions in prices and production that slowly built up over years until it made his business unsustainable without a major reorganization of productive assets across more than one firm. His increasing commitment to the idea of economic calculation was a realignment of his view of the market, accepting an institutional framework of a mixed economy that actually lessened his ability to respond to uncertainty.

That isn’t just the greatest irony of the book, but of the idea of economic calculation as well. Acting as if the economy is subject to calculation in order to eliminate uncertainty merely exacerbates the selfsame problem. And it is by way of narrative that Hawley uses irony to deliver a description of the economic calculation problem in a New York Times best-selling novel. Economists haven’t always done a particularly good job of translating their disciplinary knowledge into such forms that are accessible to the general public. Certainly our culture is saturated with stories that emphasize sentiment and sympathy before all else. And certainly such stories are highly compatible with the kind of folk economics that can’t distinguish poverty from scarcity and assumes that good intentions lead to good outcomes. The fact that there are, however, powerful stories full of bad economic thinking should steer us toward rather than away from using narrative. On the one hand, the fact that stories can be so powerful should tell us that we have a popular, accessible, and highly effective form of communication already available to us. And on the other hand, the fact that people will mold their understanding of the economy to fit the stories they hear should tell us that we need to make sure there are stories full of good economics. Speaking from my own introduction to the economic way of thinking, I can attest that there is something compelling about the power and elegance of economic theory. But from a position outside the discipline, I can also attest that there is nothing more likely to promote real understanding or to reconcile sometimes complex and counterintuitive ideas with the experience of the real world than a good story. Because people understand the world they live in through stories, they need stories that narrate the market process.