19 February 2020

Jane Austen, the accidental economist


It is a truth universally acknowledged that every few years a new adaptation of one of Jane Austen’s works must be released. The latest offering is a new adaptation of Emma, to my mind the funniest and best of her novels.

Yet while Austen has long been regarded as one of the English-speaking world’s greatest writers, her role as an accidental economist hasn’t received the attention it deserves. As ridiculous as this might sound, her novels are chock full of interesting economic insights.

Writing at the start of the 19th century, she identifies the first stirrings of the industrial revolution in Britain which would deliver astounding increases in wealth and living standards. The early 1800’s were, as TS Eliot might have written, a time of tension between dying and birth. The old established order of the landed aristocracy was slowly losing its importance and power and a new commercial middle class was gradually gaining in both. This tension between the old order and the new is clear in Austen’s novels; in Emma the new commercial and professional middle class is exemplified by Robert Martin, an industrious and smart farmer, but lacking in any distinguished family heritage.

Emma’s inherent snobbery means that while she thinks Martin is very good for a farmer, he’s not a fitting husband for her friend Harriet Smith, whose parents are unknown, but whom Emma assumes must be the daughter of a gentleman. This contrasts with the reaction of Mr Knightley, who is just as much an ensconced member of the landed gentry as Emma. Despite Robert Martin being far below him in the social hierarchy, he heartily approves the match and sees in the farmer a man of talent and good sense who should be encouraged, not kept in his place.

As Edward Copeland argues in The Cambridge Companion to Jane Austen, Emma is a book saturated with signs of a society in restless motion. Families such as the Coles, the Martins, the Eltons, and the Coxes on their way up, while Mrs and Miss Bates are on their way down. Such is the tumult of change that the old rules of birth and social order are thrown into question, much to the chagrin of Emma.

As Deirdre McCloskey has argued it is only when culture changed to respect the ‘bourgeois values’, which Robert Martin or the Coles epitomise, that capitalism could take off and deliver the amazing increases in wealth and material conditions that it has over the last 200-300 years. Although characters such as Emma may look down on commerce and trade, the author herself clearly disagrees, and is against the view that earning your fortune makes you less valuable than the landed gentry who live off unearned income.

It’s not just in the rise of a commercial society that Jane Austen offers economic insights, she’s also a dab hand at game theory. As Madeline Grant has previously written, the novels can be read as decision-making textbooks.

Take the example in Pride and Prejudice of Charlotte Lucas: already 27, old by the standards of the day, and since her father has failed to save anything for a dowry, her only ‘assets’ in the marriage market are her looks and her personality. Sadly for her, the ravages of age mean her value in the marriage market is declining steadily by the day. she therefore readily accepts the marriage proposal of Mr Collins, a rather dull individual, whom Elizabeth Bennet has already emphatically rejected.

The fact that Elizabeth, like Charlotte, has no dowry, might make her rejection of Mr Collins, whose modest wealth would have provided her with the future financial security that her family could not, seem foolish. However, whereas Charlotte is already considered on the shelf, Elizabeth is still only 20, and therefore has time left to find a more suitable match. The fact that she then goes on to reject Mr Darcy, a man with vast wealth, must surely mark Eizabeth out as a risk taker for her time. Perhaps today, she would be supporting herself independently by trading on the financial markets, or gambling in Las Vegas.

Jane Austen also has contributions to make in the area of Information Economics. Mary Crawford in the novel Mansfield Park says that marriage “is a manoeuvring business. I know so many who have married in the full expectation and confidence of some one particular advantage… who have found themselves entirely deceived, and been obliged to put up with exactly the reverse! What is this but a take in?”. It’s a neat summary of the problem of information asymmetry in an exchange, almost two centuries before George Akerlof published his seminal The Market for Lemons paper, which would later win him the Nobel prize for economics.

One of the the things that sets Austen’s writing apart is the amount of detail about the material and financial situation of her day. Perhaps the most famous of these is the £10,000 income that Mr Darcy has. But how much would that be worth in real terms today? Well that’s a tricky question. When the BBC radio programme More or Less looked at this issue they found that simply adjusting for inflation, £10,000 in the early 1800’s would today be worth over £800,000.

But this is probably a significant underestimate. After all the economy is much larger today, we’re much wealthier, and earnings today can buy an awful lot more than they could 200 years ago. A better way may be to convert that £10,000 into economic power (i.e. how many goods and services that money could buy then). If you do that by looking at what share of national income £10,000 represented at the time, then you get an annual income of closer to £60m today.

And remember, Mr Darcy lived off unearned income, derived from the land and assets he owned. The capital necessary to generate his income, means his total wealth today would be worth about £3bn. According to the 2019 Sunday Times Rich List, this would make him the joint 50th richest person in the UK. No wonder then, with five young daughters needing to be married off, Mrs Bennet is so ecstatic on hearing the news of Mr Darcy’s arrival in the area.

Of all Austen’s creations Mr Bennet may be the most likeable and entertaining, but some have argued he is feckless in regards to the future financial security of his wife and daughters. He has saved virtually nothing for their futures. No doubt he expected to have a son who would inherit his estates. But he has only daughters, the youngest of which is 15. For many years he must have known that on his death Mr Collins would inherit his estate leaving his wife and daughters with little income.

But perhaps we shouldn’t judge Mr Bennet too harshly: this situation appears to be a relatively common occurrence. It’s clear in Emma that following the death of her husband, Mrs Bates and her garrulous daughter find themselves slowly sliding into penury. Precisely because her husband failed to save enough money for them.

Perhaps the issue is a combination of, firstly, a simple lack of wealth in society, especially relative to today. That meant consumption on necessities, even for the relatively wealthy, ate up a great deal of earnings, leaving little room for savings. Secondly, conspicuous consumption and the need to signal your wealth in order to maintain your social standing would militate against putting much aside.

For example, in Emma, we hear that Mrs Perry has begun pushing Mr Perry to purchase a carriage, an expensive luxury which they had previously done without. And the arrival of Mrs Elton in Highbury sparks almost an arms race in terms of social standing, with both the Eltons and the Woodhouses suddenly having parties in order to signal their social standing. And earlier on in the book we hear of the newly wealthy Coles, who have purchased a pianoforte, despite none of the family being able to play.

One can understand then how the pressures of maintaining social standing may have led Mr Bennet to find it impossible to save. After all, Mrs Bennet hardly seems like the sort of person who would readily economise. As evidenced by her reaction to Mr Collins asking her which of her daughters had cooked the meal they have just enjoyed. The idea that she would suffer the indignity of being unable to afford a cook horrifies her.

Given all these rich insights into the economic plight of our ancestors, perhaps it’s fitting that the place you’re most likely to see Jane Austen is not on a bookshelf, but on the back of a £10 note.

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Jethro Elsden is a Researcher at the Centre for Policy Studies