Repost: Beatrix Potter, Capitalist Swine

In honor of a recent Beatrix Potter kick here, have a repost of Darwin's analysis of Potter's famous economics case-study, The Tale of Ginger and Pickles.

As you can perhaps imagine, there is much reading in the Darwin family, as we consider it necessary to corrupt the dear little tabula rasas of our children with a mixture of facts and fairy stories from the very youngest possible age. And how better may one corrupt the youth then by wrapping up the harsh teachings of the dismal science in the charming trappings of a bevy of dear little fuzzy animals? Do not allow these subtle deceptions, gentle reader! As I shall demonstrate, under the cover of a whimsical, Edwardian children's authoress, lurks a deadly capitalist in sheep's clothing. Attend, to The Tale of Ginger and Pickles (ebook available here)

THE TALE OF GINGER & PICKLES BY BEATRIX POTTER

Once upon a time there was a village shop. The name over the window was "Ginger and Pickles." It was a little small shop just the right size for Dolls—Lucinda and Jane Doll-cook always bought their groceries at Ginger and Pickles. The counter inside was a convenient height for rabbits. Ginger and Pickles sold red spotty pocket-handkerchiefs at a penny three farthings. They also sold sugar, and snuff and galoshes. In fact, although it was such a small shop it sold nearly everything—except a few things that you want in a hurry—like bootlaces, hair-pins and mutton chops. Ginger and Pickles were the people who kept the shop. Ginger was a yellow tom-cat, and Pickles was a terrier. The rabbits were always a little bit afraid of Pickles.The shop was also patronized by mice—only the mice were rather afraid of Ginger. Ginger usually requested Pickles to serve them, because he said it made his mouth water. "I cannot bear," said he, "to see them going out at the door carrying their little parcels." "I have the same feeling about rats," replied Pickles, "but it would never do to eat our own customers; they would leave us and go to Tabitha Twitchit's." "On the contrary, they would go nowhere," replied Ginger gloomily. (Tabitha Twitchit kept the only other shop in the village. She did not give credit.)

See now? Just as you thought you were settling in for a charming story about two animals keeping a shop for assorted fuzzy creatures and toys, what do we find? Competition for sales and a credit market. Let us see what Ms. Potter is filling these tender young minds with. There is a competitive market in the village. If Ginger and Pickles behave in a predatory fashion by eating some of their customers, they shall gain a bad reputation and their customers will go elsewhere. Thus, although it would be natural for this dog and cat to eat the mice, rats, and rabbits who patronize their shop, they restrain themselves because to do otherwise would be to destroy their reputations, and thus their business. Where does Beatrix Potter get this idea? Why of course, from her neighbor to the north:

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 interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages. Adam Smith, Wealth of Nations Book 1, Ch2

As if this were not enough, Ms. Potter also praises consumer credit! How do Pickles and Ginger assure success in competition against the shop of Mrs. Tabitha Twitchet? (another cat -- perhaps there's something to these businesses all being run by predators?) They offer credit, and consumers value that credit and so patronize the shop.

Ginger and Pickles gave unlimited credit. Now the meaning of "credit" is this—when a customer buys a bar of soap, instead of the customer pulling out a purse and paying for it—she says she will pay another time. And Pickles makes a low bow and says, "With pleasure, madam," and it is written down in a book. The customers come again and again, and buy quantities, in spite of being afraid of Ginger and Pickles. But there is no money in what is called the "till." The customers came in crowds every day and bought quantities, especially the toffee customers. But there was always no money; they never paid for as much as a pennyworth of peppermints. But the sales were enormous, ten times as large as Tabitha Twitchit's.

As, now we see it. Ginger and Pickles offer a valuable service (unlimited credit) but they have not correctly valued it. They charge no interest, require no minimum payments, and have no credit limits. This causes excessive consumption. And now poor Ginger and Pickles experience the opposite side of Smith's dictum: their customers have no care for the emptiness of the till because their self-interest is unaffected. Since they suffer no disadvantage from never paying, and experience significant benefits (unlimited goods at no cost) they never pay. Ginger and Pickles, like many a bad manager, are looking only at top line: their revenue far exceeds that of Tabitha Twitchet. Yet they have the looming feeling that something is wrong... Catastrophic market adjustment ahead!

As there was always no money, Ginger and Pickles were obliged to eat their own goods. Pickles ate biscuits and Ginger ate a dried haddock. They ate them by candle-light after the shop was closed. When it came to Jan. 1st there was still no money, and Pickles was unable to buy a dog licence. "It is very unpleasant, I am afraid of the police," said Pickles. "It is your own fault for being a terrier; I do not require a licence, and neither does Kep, the Collie dog." "It is very uncomfortable, I am afraid I shall be summoned. I have tried in vain to get a licence upon credit at the Post Office;" said Pickles. "The place is full of policemen. I met one as I was coming home." "Let us send in the bill again to Samuel Whiskers, Ginger, he owes 22/9 for bacon." "I do not believe that he intends to pay at all," replied Ginger. "And I feel sure that Anna Maria pockets things—Where are all the cream crackers?" "You have eaten them yourself," replied Ginger.

Now we see the trouble beginning to break. Ginger and Pickles have not accounted for fixed expenses, their cashflow is breaking down, and their problems are exacerbated by being so far out of step with the market in their terms: They offer unlimited credit at no cost while some of their key vendors and regulators offer no credit or limited credit. They're consuming their capital goods in order to make up for a lack of cashflow. And like many small businesses, they have not fully considered the impact of regulation to their business (they did not plan around the cost of the dog license.) Further, bad book keeping and a lack of separation between business and personal use has destroyed their ability to track their inventory.

Ginger and Pickles retired into the back parlour. They did accounts. They added up sums and sums, and sums. "Samuel Whiskers has run up a bill as long as his tail; he has had an ounce and three-quarters of snuff since October." "What is seven pounds of butter at 1/3, and a stick of sealing wax and four matches?" "Send in all the bills again to everybody 'with compts,'" replied Ginger.

Will re-presenting the bill "with compliments" achieve anything for our shopkeepers? One doubts it. They would be better off announcing a change in credit terms ("Beginning Monday next we shall begin charging interest on all outstanding balances, and we shall enforce a credit limit of 5s 6p for anyone wishing to make additional purchases.") However, they may well have spread so much easy credit around by this point that such a move would simply set off a round of bankruptcies.

After a time they heard a noise in the shop, as if something had been pushed in at the door. They came out of the back parlour. There was an envelope lying on the counter, and a policeman writing in a note-book! Pickles nearly had a fit, he barked and he barked and made little rushes. "Bite him, Pickles! bite him!" spluttered Ginger behind a sugar-barrel, "he's only a German doll!" The policeman went on writing in his notebook; twice he put his pencil in his mouth, and once he dipped it in the treacle. Pickles barked till he was hoarse. But still the policeman took no notice. He had bead eyes, and his helmet was sewed on with stitches. At length on his last little rush—Pickles found that the shop was empty. The policeman had disappeared. But the envelope remained."Do you think that he has gone to fetch a real live policeman? I am afraid it is a summons," said Pickles. "No," replied Ginger, who had opened the envelope, "it is the rates and taxes, £3 19 11-3/4." "This is the last straw," said Pickles, "let us close the shop." They put up the shutters, and left. But they have not removed from the neighbourhood. In fact some people wish they had gone further.

And there we have it. A troubled business is hit with excessive taxation and immediately shutters. Because the taxes were too onerous, no tax revenues are even collected.

Ginger is living in the warren. I do not know what occupation he pursues; he looks stout and comfortable. Pickles is at present a gamekeeper. The closing of the shop caused great inconvenience. Tabitha Twitchit immediately raised the price of everything a half-penny; and she continued to refuse to give credit. Of course there are the tradesmen's carts—the butcher, the fish-man and Timothy Baker. But a person cannot live on "seed wigs" and sponge-cake and butter-buns—not even when the sponge-cake is as good as Timothy's!

With competition eliminated, Tabitha Twitchet raises her prices -- perhaps partly due to selfishness and the knowledge of a captive market, but also in order that her shelves not immediately be picked bare by the sudden increase in the number of customers. Further, if she gets her goods from the same vendors and Ginger and Pickles did, those vendors have just suffered a major financial reverse as a result of having to write off all the goods they were never paid for by Ginger and Pickles. They may well have raised prices on Tabitha as they try to make up their losses and avoid following Ginger and Pickles into ruin. Still, consumption is down and there is unmet demand. Will market forces encourage new competitors to Tabitha Twitchet's de facto monopoly to come into play?

After a time Mr. John Dormouse and his daughter began to sell peppermints and candles. But they did not keep "self-fitting sixes"; and it takes five mice to carry one seven inch candle. Besides—the candles which they sell behave very strangely in warm weather.And Miss Dormouse refused to take back the ends when they were brought back to her with complaints. And when Mr. John Dormouse was complained to, he stayed in bed, and would say nothing but "very snug;" which is not the way to carry on a retail business.

I must say that I agree: that is indeed no way to carry on a retail business. The alternate vendors who have come into play because of the competitive vacuum and Tabitha Twitchet's high prices are selling inferior product and offering poor customer service. The market has still not righted itself. Will it? Is an equilibrium to be found, or will it be necessary to nationalize the shops in order to achieve a better outcome?

So everybody was pleased when Sally Henny Penny sent out a printed poster to say that she was going to re-open the shop—Henny's Opening Sale! Grand co-operative Jumble! Penny's penny prices! Come buy, come try, come buy!" The poster really was most 'ticing.There was a rush upon the opening day. The shop was crammed with customers, and there were crowds of mice upon the biscuit canisters. Sally Henny Penny gets rather flustered when she tries to count out change, and she insists on being paid cash; but she is quite harmless. And she has laid in a remarkable assortment of bargains. There is something to please everybody.

Awwww. Don't you love happy endings? The market has brought forth a new competitor for Tabitha (who probably never wanted Samuel Whiskers as a customer anyway, after the way he tried to make her son into a rolly-polly-pudding in a previous book) and Sally Henny Penny has learned from the mistakes of Pickles and Ginger. Consumers are doubtless sad not to have credit available to them, but perhaps eventually one of the two shops (or even a third new one!) will make credit available on reasonable terms, which will allow customers to buy in lean times without getting in over their heads. Then perhaps we can have an exciting little story about credit markets! In the mean time, we can rejoice that the local market has righted itself and that such a remarkable assortment of bargains is available at Ms. Henny Penny's shop. Wasn't that a good story, little capitalists? Do come again next Friday, and remember that you must ask your parents for a shilling to give to the storyteller, or else the storyteller will turn you out of the room just at the exciting part.