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Things I like about Herbert J. Davenport

Sunday 19 July 2020

Herbert_J._Davenport.jpg I have just finished reading Davenport’s two books: Value and Distribution (1908) and The Economics of Enterprise (1913). The former was written while an assistant professor at Chicago and is a first attempt to assess the alternative accounts of economic value (utility), capital, interest and rents, and the distribution of value among the factors of production. It is chock-a-block with passages from Classical economists and “the Moderns” (primarily Wieser and Böhm-Bawerk, but also Fisher, Fetter, Clark, and other Americans) and his comparisons among them. The latter is his textbook, written after arriving at Missouri as Chair of Economics and Dean of Commerce. It is a clear and straightforward treatment of microeconomics theory, centered upon the problems of valuation and distribution. It is the clearest interpretation of the Austrian approach to economics (in English) that existed for half a century or more.

  1. Davenport came to economics as a pragmatist with a scholar’s thirst. He was trained as lawyer (Harvard) and made and lost a fortune in land speculation in the Dakotas. He subsequently studied at the University of Leipzig and l’École Libre des Sciences Politiques (commonly: Sciences Po) in Paris. He entered the University of Chicago to take the doctorate in economics at the age of 36 and finished a year later in 1898, after studying with Thorstein Veblen and J. Laurence Laughlin. He read the new thinking of Eugen von Böhm-Bawerk and Friedrich von Wieser in German and some of the French scholars (Say, Turgot, and Cantillon) in French. He absorbed the Anglophone literature, as well. He chose carefully among these accounts in creating his own account, which developed from his first book, Outlines of Economic Theory (1898) through Value and Distribution and The Economics of Enterprise.
  2. Davenport eschewed mixing economic theory with social and political economics. Thus, he did not participate in the institutionalist movement in the US. While he had enormous respect for Veblen’s views on social issues, they were not incorporated into any of his books or journal papers on the science of economics. The exclusion of social policy caused some ill feelings and some testy reviews by confrères in the profession, especially of the 1913 book. In that book, he considered all forms of value creation, including snake-oil salesmen, prostitutes, makers of burglar’s tools, and other pariahs, specifically because they created goods and services that were valued by buyers. Therefore, these were indeed economic activities and the value they created could be imputed to the services of labor and capital that were used in production. Furthermore, there was no room for the Progressive movement in American society with the study of economic theory. This stance is consistent with the approach of Frank Knight, as evidenced by his writings of the 1920s and 1930s. Knight believed that social values were a social issue, not an issue of economic theory. davenport’s theorizing is also consistent with the approach of Carl Menger in the Grundsätze der Volkswirtschaftslehre (Principles of Economics, 1871), though I cannot find evidence that Davenport read Menger. It appears that his access to Menger came from the writings of Menger’s students, Wieser and Böhm-Bawerk.
  3. Davenport shared Menger’s approach that there are important intangible economic goods, as well as economic goods that are viewed with disdain by social standards. All of these share the only common element that matters to economic theory: they create value for buyers/users. And that value is determined by a subjective valuation by each individual buyer in an individualized transaction with the seller. There is no market price that represents meaningful social valuation. Any transaction price represents an acceptance by the parties that their marginal utilities in that specific circumstance are met by the exchange. As such, Menger and Davenport have a methodological individualistic account of economic theory. Moreover, both accounts follow the two components of methodological individualism: ontological individualism (the theory rests entirely upon individual mental states and action) and explanatory individualism (the causal processes that explain economic exchange are best understood at the individual level). Note that these two accounts are not the way we typically teach economics, with market supply and demand curves denoting a market price and quantity exchanged. (Note that use “denote” rather than “cause” or “explain”. I will elaborate on this in a future post.)
  4. Not only does Davenport’s account of economic value determination in the market avoid social valuation and admit all economic goods, he also slams Classical accounts and many Neoclassical accounts for separating factors of production into Land, Labor, and Capital. Davenport first notes that any Biblical or populist basis for keeping Land separate from Capital is a nonsense (take that, Henry George!). Both provide services to the entrepreneur and their economic value is imputed from the value determination by the buyer of goods produced using those services. That leads easily to the result that Labor services are valued in the same way. The other point that Davenport makes, which is at odds with Neoclassical theory of this era, is that one cannot speak about the marginal value of units of Capital or Land or Labor as separable, social measures of value. In any given enterprise, it is only with the complementarity of the streams of services from all factors that value is created and imputed. So the addition or deletion of a single Labor hour or acre of Land at the margin cannot be valued outside the context of the specific enterprise. A farm laborer who works on two adjacent farms will not have the same marginal value product or implicit wage. Adding up the quantity of any factor of production at a sectoral level cannot lead to any meaningful social valuation of the marginal value product of that factor.
  5. I have insisted that Davenport kept economic theory separate from elements of social welfare and political economy. But how does that fit with his evident admiration for Thorstein Veblen? Like Knight, Davenport was not silent on social issues; he kept them isolated from his theoretical account. Unlike many economists of this period, including two Americans with whom Davenport is linked (not by him!) as the American psychological School, Irving Fisher and Frank Fetter, Davenport was firmly against the eugenics of the Progressive movement. He also wrote two papers that were never published in their entirety, though the ideas were presented in his 1898 book and further developed as speeches at Cornell University in 1917. One decried conspicuous consumption and the other supported a feminist economic position. In the former, he sounds like Veblen! In the latter, he calls for valuation of women’s household work and against “progressive” legislation that excluded women from the labor force, so as to protect men’s wages. I point you to a remarkable analysis of these two papers in the context of other economists’ public positions by Luca Fiorito and Tiziana Foresti (“Herbert J. Davenport on Conspicuous Consumption and the Economics of Feminism”, Journal of Economic Issues, vol. LIII, no.1, March 2019, pp. 277-287.) This is reason enough to like and admire Herbert J. Davenport.
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