The most important books for economists aren’t academic ones

Literature and economic theory often talk about the same thing, but in different languages.
Literature and economic theory often talk about the same thing, but in different languages.
Image: Reuters/Shannon Stapleton
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As a researcher, I study how economic theory can be used to promote development. Like most economists, I’m fascinated by the complex problems the discipline tries to solve. As the daughter of a literature professor, I also grew up listening to stories. There is an important link between the two fields.

Imagine a world where economists from organizations like the IMF and World Bank, policymakers, and academics read the literature of a country before making their recommendations for it. Granted, one isn’t going to gain a deeper understanding of currency depreciation in Africa by reading Chinua Achebe, or find answers to the household savings problem in Japan by reading Haruki Murakami. However, literature could provide a fresh perspective to economists’ questions and, consequently, their answers by highlighting the socio-cultural context of their work. This approach is akin to what Yale economist Robert Shiller calls Narrative Economics.

In this way, economic policies would be more aligned with the experiences of the people they intend to serve, rather than adopting a more theoretical stance.

Behavioral economics recognizes that human behavior is irrational and constantly changing. It turns to psychology and sociology to understand the psyche of people, including their whims and fancies. The theory of cultural materialism similarly studies literature within a broader socio-economic and political framework, exploring the realities writers may have used to inform their characters and plots.

In the spirit of these two approaches, I visualize the relationship between economics and literature as a pyramid I call PLOT: the People-centered Ladder of Trade.

Kadambari Shah
PLOT: the People-centered Ladder of Trade.
Image: Kadambari Shah

The bottom layer, “Individual and Cultural Beliefs,” comprises the attitudes of people and groups, including ethnic and religious customs, which form a part of both economic theory and literature.

In his 1776 magnum opus, The Wealth of Nations, Adam Smith set forward the idea that man is an animal who makes bargains which stem from self-interested actions. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest,” Smith wrote. It is this very notion of self-interest that can constitute the germ of characters in fiction.

Most famously, Jane Austen’s novels draw us into a world of young women who are not only complex and contradictory human beings, but whose economic circumstances put them at a disadvantage in the marriage market, often forcing them to choose between social acceptance and individual preference. The best example is Charlotte Lucas in Pride and Prejudice, who marries the foolish Mr. Collins so she can be a mistress in her own home rather than an old maid in the home of her brother.

Like Austen in the England of the Napoleonic wars, many writers across spatial and temporal boundaries, such as Shakespeare in the Elizabethan era, Leo Tolstoy in pre-revolutionary Russia, and Mahasweta Devi during the Naxalite unrest in post-independence India, have structured their writings on strong economic foundations. We can look to these books to understand the clash between individual self-interest and larger economic circumstances.

The second layer, “Social Systems,” considers economic theory and literature through social institutions.

Implicitly or overtly, the intricate interactions of social and economic systems form the subtext of many literary narratives. Take, for instance, urbanization: in the past 200 years, cities have increasingly become engines of growth, accounting for over 80% of global GDP today. However, the relationship between the city and its inhabitants has often been seen as fraught, as exemplified in the poetry of Blake in the late 18th century, Baudelaire and the French Symbolist Poets in the 19th, and modernists like Eliot and Auden. More recently, memoirs like Orhan Pamuk’s 2005 book Istanbul and Suketu Mehta’s Maximum City, published in 2004, provide a street-level view of economic activities in cities.

When Pamuk describes bustling streets leading to the Bosphorus and thousands of ships passing through one of the busiest maritime lanes in the world, he’s indirectly talking about better forms of infrastructure and new avenues of employment. Maximum City sheds light on another angle of urban growth: widespread pollution across Bombay, the criminal underworld, and inequalities between rich and poor. These disparate lived experiences, stemming from the scarcity of resources in cities, are aptly summed up by Indian poet Javed Akhtar in a telling couplet:

Sub ka khushi se faasla ek qadam hai

Har ghar mein bas ek hi kamra kam hai

(Everyone is just one step away from happiness

Every house needs just one more room)

While the poetic soul yearns for the ineffable, the practical man would settle for additional space. In a global context, we see the impact of shifts in economic geography and labor markets as documented by immigrant writers like Kenyan-Canadian novelist MG Vassanji and Dominican-American writer Julia Alvarez. The socio-economic upheavals of migration have far-reaching consequences on the economies of both the home and the host countries, explored in economic theories such as Piore’s dual labor market theory, and Ravenstein’s laws of migration.

The top layer, “Trade & Commerce,” encompasses material dimensions of life, such as how we spend our money. Nobel-prize winning economist Milton Friedman’s 1957 permanent income hypothesis, a theory of consumer spending, states that individuals tend to increase their spending based on an increase in permanent income. Now, consider the Indian economy, where a majority of the labor force works in the informal sector. With no source of permanent income, how would this theory explain their consumption behavior?

An extreme example is the protagonist Madhav in Munshi Premchand’s 1936 short story Kafan (The Shroud), who rationalizes spending his wife’s burial money on food and drink for himself. His spending is dominated by satisfying immediate needs rather than reflecting confidence in the future.

These writings show how mercantile activities can have both literary and economic representations. Another example is the great Indian epic, the Mahabharata, which has become a popular teaching resource in India. Several business schools use it to explain the economic model of game theory, and the dimensions of conflict and co-operation in decision-making.

My framework provides a way to think about economics in relation to literature as a progression: first come beliefs and culture, which are abstract but strongly embedded. Next, social systems arise, embodying beliefs and culture in law and order, schools, medical practices, and the like. They merge the philosophical and practical. Upon this foundation, which varies from place to place, rests trade and commerce, the day-to-day activities through which society sustains itself. Traditionally, economics has assigned itself to the top layer, relegating literature to the other two. Ideally, economics should draw on the other layers, capitalizing on the aspects of narrative and structural contexts that literature provides. As I have shown, whichever layer you look at, there is an element of both economics and literature at play—imaginative truths are supplemented by material realities, and vice-versa.

Both economics and literature are highly complex fields that can benefit from learning from each other. In the examples above, economists and authors are exploring the same topics and ideas in different languages. While economics adopts a cause-effect analysis at the aggregate level, literature puts a face to economic growth and gives life to the data that springs from human activity. Understanding the material dimensions of literary texts, and the poetic symmetry of economics, can make development policies more robust, by incorporating a better, more nuanced understanding of human behavior.