Why the New York Yankees Put Babe Ruth in Left Field

A note prepared by Bob Ebel (with Jack Hoeschler), March 2022, for Jack O’Brien as he embarks on his first Economics course

Robert Heilbroner’s Worldly Philosophers is about the evolution of economic thought over the past four centuries: (i) how the thinking of a select group of scholars has shaped modern economic and political thinking; (ii) that markets work; and (iii) when markets fail, why public sector decision making --government--matters… and how that this all fits together, for good or for ill. As John Maynard Keynes (1935, Ch.24) is famously quoted: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”   The Worldly Philosophers is about some of the important “scribblers”.

Economics is both science and philosophy. It is a science—a social science – because the economist employs the same scientific method of inquiry that one associates with the physical sciences:   

Observation/statement of the problem/ issue → theory/ hypothesis →
systematic way of thinking to test the hypothesis (research/empiricism) → outcomes

Economics is also philosophy. A theme that brings together many of the worldly philosophers is that “doing economics” is founded in the best of motives, which is to improve the human material condition. One of the first worldly economists is St. Thomas Aquinas (ca. 1225-74) who asked the question of what constitutes a “just price”. This concept of “getting the prices right” – a concept that is fascinating, complex, and often hard to measure—goes to the field of inquiry relating to whether markets are efficient: how a society goes about getting the most it can from the use of its supply of resources.  (Economists assign “scarce resources”, also referred to as  factors of production, into one of four categories: labor, land, capital and entrepreneurship for which the owner/supplier of the resource receives for types of income returns: wages, rents, interest, and profit).   

Resource Allocation: Efficiency and Equity 

St. Thomas understood this matter of resource allocation. However, by posing the question of whether the price one sees in the private market for goods and services produced by these factors is “just”, we see a first hint of what in the 19th and 20th century will emerge as a key theme of economics: whether there may be a trade-off between “efficiency” (maximizing output from a limited set factors) and “equity” (is the distribution of income and wealth to the factors of production “fair”?).    

Fast forward to Thomas Robert Malthus (1776-1834),  British economist and demographer, who shared a broader concern of equity that runs throughout the history of economic thought —how to understand a world of persistent poverty. Malthus theorized in his Essay on the Principle of Population (1798) that the human lot faces a dismal future because population growth will tend to outrun food supply. He argued that the exponential growth of population can only be checked by war, famine and abstinence. The Malthusian Theory gave rise to an age of pessimism and the saying that economics is the “Dismal Science” (Carlyle, 1849).  

We now see that Malthus was both right and wrong. He was right because he recognized a problem that is still real in many countries in the developing world. But, too, wrong -- maybe “incomplete” is a better word -- because he failed to recognize not only the future power of food production technology, but also that poverty is not only about resource allocation, but also, the distribution of the income returns to (and, thus the accumulated wealth by) the owners of the private sector factor suppliers. This question of efficiency vs. equity would be taken up later by others, especially to note: Swedish Economist Knut Wicksell (1896) whose contribution (among many) was to emphasize that one cannot talk of “just part [of a system] in an unjust whole” (1896).  

The Collapse of Capitalism?

This tension between efficiency and equity leads to another theme that economists have debated over the past centuries: over the long run, will capitalism survive or collapse? Two economists, Karl Marx and Joseph Schumpeter, are among those at the center of this discussion. Marx argued that capitalism would be destroyed by its inherent flaws whereby the owners of capital, who are driven to “accumulate, accumulate” create the conditions for class warfare, which leads to a proletarian overthrow of the system.

An alternative view is found in the work of Austrian Joseph Schumpeter (Capitalism, Socialism & Democracy, 1942) who agreed that capitalism could be destroyed, not by its enemies, but by the capitalists who would undermine the very system that allowed for their elite existence. However, unlike Marx, Schumpeter did not relish the failure of capitalism. Indeed, he noted that if the proletariat succeeded, that the economic system of socialism would then be taken over by a new set of elites,  which is, indeed is what we have seen in many centralized and truly socialist societies (watch out for the common misuse of the term “socialist”/ ref: Hungarian economist Janos Kornai, the Socialist System, 1992).

Heilbroner discusses other philosophers who took on both the topics of inevitability of poverty and the collapse of capitalism.  Three are noted here. The first is, and again turn to New York Tribune stringer Karl Marx, who argued that labor was the source of income and wealth (Das Kapital, 1867, 1878; Sweezy, 1942). Although the labor theory of value falls apart (e.g. Von Mises, 1920), his analysis led him to reveal some fundamental failures—poverty allowing failures-- inherent in capitalist institutions. Spoiler Alert:  Marx the economist was not what today we think of as a “Marxist”.  

Saving Capitalism  

Macroeconomics.

Then there was  Keynes (1935) who argued that although Marx got sidetracked by his theory of labor and that Malthus erred in that he did not see that the power of technology and distribution policy as an potential anti-poverty tools (though Keynes also had his concerns about the potential oppressive power of rentier class), both Malthus and Marx had identified a problem -- that  “classical” economic theory  failed to look beyond the production of goods and services (aggregate supply) and that economists must also consider the institutions and sectors that determine the amount of spending on goods and services produced (aggregate demand).   

Keynes’ book on the General Theory of Employment, Interest and Money (1935) still frames much of the debate over “getting right” the role fiscal and monetary intervention in the economy -- that for an economic system to be efficient (Allocation) there is a fundamental public sector role – government as the 5th factor of production—for (i) carrying out macroeconomic policy (stabilization) as well as (ii) addressing the vexing problem of how to distribute the returns to the factor suppliers (distribution). It is this way of thinking that is today is loosely tagged as “Keynesian Economics”—that a well-designed, coordinated, and managed public sector budget and monetary system—is a key set of organizational and institutional arrangements that will help save, not destroy, the capitalist (Keynes, 1935; Samuelson, 1954; Hirschman, 1982).  

The recognition that there other circumstances where markets fail (e.g., information failures, externalities) further provides the rationale for fiscally decentralized systems of governance (The Federalist Papers, 1787-88; Oates, 1992; Bahl and Bird, 2014).    

In sum, government, federal, state and local, can be thought of as providing foundations on which all market economies rest (Stiglitz, 1986).      

It was also Keynes the economist that argued that the post WWI policy of the “winners” suppressing the economy of the “losers” would lead to instability, not recovery and renaissance (The Economic Consequences of the Peace, 1919). His warnings were largely ignored in the Treaty of Versailles, thereby contributing to the rise of European fascism in the 1930s. Fortunately, recognizing that one should not reject wisdom just because it comes late, Keynes’ thinking the framed post WWII policy of the three great Allied Powers (France, U.K., U.S.), that now (if we can keep them) constitute the post WWII  “liberal societies” that include Germany and Japan.       

More on Microeconomics

The third philosopher, David Ricardo (1772-1823), was a wealthy English landlord and contemporary of Malthus. Ricardo did not challenge the Malthusian Doctrine; however,  he took a different track on the poverty issue -- a track that led him to come up with two concepts that further shape how we in now think about economic activity.   

The first was his representation of the theory of  “absolute” vs “comparative advantage”. Keeping in mind that a key focus of economics is allocative efficiency -- that of society being organized to get the most that it can from a set of resources—Ricardo set out to expand on Adam Smith’s insight that the specialization and division of labor enhanced total product by examining the topic of why countries with different resource endowments produce different products and then engage in trade. (The choice of the word “representation” in the sentence above is deliberate as there is some disagreement among scholars as to the originator of the comparative theory doctrine; but there is little disagreement that Ricardo best articulated how it works.)

To get a start on this topic, let’s address the question at the top of this note:  Why did the New York Yankees (also the Red Sox before the Yankees, but that 1919 trade is another topic for another day) put Babe Ruth out in left field?  A glance at MLB stats reveals that Babe was acknowledged to be one of the best pitchers of his time. Some argue he was Hall of Fame caliber. In the jargon of economics, he had an “absolute advantage” in playing that position. So why put him in the outfield? What the Yankees recognized was that his value to the team as a pitcher had to be compared to other things he could do (“opportunity cost”), which was hitting home runs. Thus, it made sense that rather having Ruth spend time on his getting the curve ball right, his time was better spent in batting practice. The Yankees had other players who could pitch, but not hit home runs. The efficient solution, which for the Yankees was to minimize opportunity costs for both the team and the Babe, was for Ruth to follow his “comparative advantage” and focus on his hitting.

Let’s take Ricardian economics out of the sports stadium and into today’s world of …bicycle lanes. Today China is a leading exporter of electric bicycles. But it was the US that developed/pioneered the e-bike, and today the US could technically produce e-bikes as well as the Chinese. However, US worker is, for now, more efficient than their Chinese counterpart at making things like civilian aircraft, motor vehicles and soybeans. In turn, the Chinese are more efficient (opportunity cost minimized) producing various types of electrical machinery, computers and sports equipment. So we—countries—trade …well, ought to...there is also the matter of the rationale for and against countries establishing barriers to trade—a topic for your course in international trade and finance. Nevertheless, whether it is “the Babe” or the “e-bike”,  Ricardo’s 19th century principle frames the discussion.         

Distribution. The second contribution by Ricardo was to turn the focus away from Adam Smith’s concern with the forces of determining the wealth of nations (inter alia, specialization and division of labor, 1776) and argue that the principle purpose of the study of economics was to determine the laws that regulate the distribution of income: “Respecting the natural course of rent, profit, and wages” among landlords, capitalists, and laborers” (On the Principles of Political Economy and Taxation, 1817; Landreth and Colander, 2002).          

So, here is a Ricardian topic: does it make sense to tax property next to a Metrorail station or improved roadway at a higher tax rate than the real estate several blocks away from the road and/or rail line? Ricardian economics would say “yes” since it serves as a way to capture private wealth created by the public’s investment in the rail/highway line. This is a correct way of thinking…

…but, this said, what if there is more to it? What happens when the resource efficient thing to do has implications for equity? Consider, for example, the practice of some governments to build a commuter traffic corridor through, and thereby destroy, poor neighborhoods. As it turns out, there are often trade-offs to be made, and one of the jobs of the economist becomes that of addressing questions such as “who benefits” and “who pays” from a public policy (e.g., economic impact analysis; fiscal notes). One implication: sometimes the public intervention that promotes an efficient outcome requires compensating the losers that are affected by the intervention. (Coase, 1960, argues that in some situations private economic actors can solve the problem through bargaining, thereby negating the need for a public sector role). In sum, whether this is about I-94 connecting Minneapolis and St. Paul or the I-495/270 corridor in metropolitan Washington, we are all Ricardians.      

Further Developments

While all this was going on—from Malthus and Ricardo to Marx and Keynes—in the intervening years there are two other important 19th Century contributions that shape today’s economic text books. Two are worth mentioning in this short note. The first goes to the matter that the Microeconomics section of the textbook refers to as price-determination.

For most of the 19th century, the Classical School accepted the view that cost of production was price determining. In your principles of econ book, this is the supply curve/schedule/function. But in the late 1800s scholars in the Austrian School challenged that notion, arguing “value” depends on demand---marginal utility-- not cost. (e.g., Jevons, 1871; Menger, 1871; Walras, 1874).

So, which is it? Does supply or demand determine price?

The answer to the question above is one that today’s university student takes for granted, and it came from London, not Vienna (which is not to dismiss the importance of the revolution of the Austrian School, which, among other things introduced the theme that economic analysis is a process and that time – the short run vs. long run—is an essential consideration).    

In 1890 Cambridge University Professor Alfred Marshall (Principles of Economics), laid out the “Neo-classical” principle that price is determined by “supply and demand”.  Think about this for a moment: it was not until the world was about to enter the 20th century that the idea fully evolved that prices determined by supply and demand. Alert #2: One could argue the point—indeed, I will do so--that all a student of economics ever needs to know and understand is “supply and demand”.  But here’s the catch:  understanding supply and demand can be super-challenging when it comes to not only specifying all the variables at play, but also the trends in those variables. 

The second 19th Century contribution to today’s world in which we are living in and that we are just now beginning to come to terms with: the economics of discrimination. In 1869 the English philosopher economist, John Stuart Mill (1806-1873),  published an essay on the Subjugation of Women in which he developed the economist’s case that the “subordination of one sex to another is a hindrance to human improvement”.  Mill also advocated for women’s suffrage. Yep—in 1869, more than a half century before the 19th amendment to the US Constitution (1920). On this matter, efficiency (underutilization of scarce resources) and equity (gender as well as other types of economic discrimination) are in-sync.   

Another topic that Mill addressed is the importance of voting and universal education. On voting he suggested that only the better educated should be given the vote. And, to fend off critics that said this would favor the wealthy, he argued for universal education for rich and poor alike. But rather than support the concept of mandatory education, Mill came up with another proposal – vouchers. This way the poor would be also have the benefits of education and would qualify to vote.   

One other academic scribbler that merits mention is Thorstein Veblen (1857-1929). Veblen grew up in rural Lutheran Wisconsin and then attended Carleton College in Northfield, Minnesota where he met enough children of the well to-do that he became convinced that the purpose of the large corporations and trusts of his era was not to serve the community, but, rather to  acquire monopoly power and restrict production.  

What Veblen wanted economists to understand (and as Mill had also argued, 1859) is that social and cultural practices are part of explaining economic change, including why some societies succeed and others fail. Years later other scholars of economic history would come focus on what has become the study of  “institutional economics” — inter alia, the role that both formal institutions (constitutions, property rights, governmental bureaucracies) and informal systems of behavior (codes of conduct, traditions) play in explaining how economies can grow or decline (North, 1991).   

Final Comments

1. There is, and will continue to be, a new generation of “academic scribblers” as the economic architecture of the world changes for people and places. (e.g., Solow, 1970, 2000).  If you pursue the study of economics, you may be one of the future scribblers who changes the way we think about improving the human condition. 

2. The comments in this note comments are, at best, a sketchy glance at what the Worldly Philosophers is about.   If you pursue the study of economics, take a course (even if you teach it yourself) in   History of Economic Thought. This is where one learns as what  Marshall noted:   

Economic doctrine is not a body of concrete truth, but an engine for the discovery of truth.

— June 2022 

 _____________________________________________________________

Along with Heilbroner where most of the citations in this note can be found:

Blaug, M. (1962). Economic Theory in Retrospect, Homewood, IL: Richard D. Irwin.

Boulding, Kenneth (1970). Economics as a Science.  [Social, Ecological, Behavioral, Political, Mathematical, and Moral Science]. New York and Toronto: McGraw Hill.

Eden, Lorraine, Ed. 1991. Retrospectives on Public Finance. Durham and London: Duke University Press. A focus on fiscal reform in developing economies.

Gale, William (2021). Public Finance and Racism. Washington, DC: Brookings Institution.                       https://www.brookings.edu/research/public-finance-and-racism/

Gray, Alexander (1933).  The Development of Economic Doctrine. London: Longman, Green and Co.

Groves, Harold (1974). Donald J. Curran, Ed., Tax Philosophers, Madison: University of Wisconsin Press.

Keynes, John Maynard (1951). Essays in Biography. New York: W.W. Norton & Company. Keynes General Theory is also a treatise in the evolution of economic thought.

Landreth, Harry and David C. Colander (2002). History of Economic Thought. Boston and Toronto: Houghton Mifflin Company.    If one is looking for just one history of thought book for their bookshelf, get Landreth and Colander.  

(Transparency:  Landreth was one of my Professors at Miami University.)

Pujol, Michele A. (1992). Feminism and Anti-Feminist in Early Economic Thought: Cheltenham: Edward Elgar

Pg. 15: Although influential in politics… Mill’s insight into the patriarchal economic relations which determine [Women’s] place ….were confined to a dead end by subsequent economists.

Robinson, Joan (1942; 1966). An Essay on Marxian Economics. 2nd ed. London: MacMillan.

Sandmo, Agnar (2011). Economics Evolving: A History of Economic Thought. Princeton: Princeton University Press.

Both Sandmo and Landreth & Colander provide a review on post-Keynesian thought. E.g., Sandmo on Milton Friedman, Ch. 18.   

____________________________________________________

Biography.  

Robert D. Ebel is Affiliated Senior Research Associate with the Andrew Young School Public Policy Studies Policy of the Georgia State University.  Prior to his association with the Andrew Young School, he served as Lead Economist for the World Bank Institute’s (WBI) Capacity Building programs on Public Finance, Intergovernmental Relations and Local Financial Management. Robert has also served as Executive Director of comprehensive studies of state/local revenue systems in Minnesota (the Latimer Commission), Connecticut, and Nevada. His professional honors include that of an elected member of the National Academy of Public Administration and, as a member the West Bank/Gaza team, the World Bank President’s Award for Excellence.   His list of publications includes co-editor of the Oxford Handbook on State and Local Government Finance (Oxford University Press) and the Encyclopedia on Taxation and Tax Policy (Urban Institute Press).

BA:    Miami University
PhD:  Purdue University