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The economics of language

  • Published at 12:07 am March 6th, 2018
The economics of language
A recent article on the Dhaka Tribune reported that Bangladesh as a country, as an idea, is rather closely linked with the idea of Bangla as a language. Languages having much to do with something economists find fascinating, network effects. Indeed, we can explain what happens with languages, with Facebook and with currencies all using these same effects. We end up, as we so often do in economics, with the answer: “It depends.” Let us leave aside those cultural and political issues, the difference between an official language and a mother tongue and mother language. Instead, consider those as networks. Why is it that Facebook has conquered every other form of social media? For the same reason that one fax machine is an expensive paperweight, two allows information to flow, and millions means those millions can communicate with each other. So it is with anything subject to strong network effects. We all go on Facebook because everyone else is there, that everyone else is there means more people join it. The standards fax machines use to talk to each other are just the one set of standards precisely so that they can all communicate.
A great truth of political economy is that concentrated interests always beat dispersed ones
We might think that the same should be true of language. We could all communicate with each other much more easily if there was just the one language used to do so. Often there is a lingua franca which allows this -- say, Latin in the past and English now. But that’s not really how we humans work. Even Bangla is not the same in each and every area of the country, just as English isn’t even in England. There are local dialects which are not mutually intelligible; we use a simplified or standardized version to speak with people from other areas -- this is where the “BBC accent” comes from. The same is true of German for example, people from different areas cannot understand each other using their local variations so they use a standardized German which no one really speaks at home. One story -- a true one -- has it that when John F Kennedy said “Ich bin ein Berliner” in a speech at the Berlin Wall he actually said in the local dialect that he was a jam doughnut. Common German and local are not the same thing at all. The reason for this is that the language varies from household to household. Every family does have its own little private inside jokes; anyone who has ever met the in-laws knows this. So too do neighbourhoods, villages and so on. A national language is like a patch-work quilt of these local variations. To put this into economic terms of our networks, yes, we have that efficiency argument that we should all be using the same inter-changeable language, but that’s just not what we do. There’s a strong force, just us being people, breaking that language up into local variants, as happened with Latin and then Portuguese, Spanish, French, and Italian over the centuries. Much the same happens with currencies. Yes, there’s that network effect of being able to use the same currency everywhere and so being able to trade over larger distances. This does make us richer. But there’s also the fact that the same currency must have the same monetary policy over the same geography. And as we get economic variations across those local areas the larger the currency area the more likely it is that the monetary policy will be wrong for one or more of those localities. This is as good an explanation as we are going to get for what went wrong in Ireland and Spain. Euro interest rates were set low for Germany which was having problems. Too low for those other two economies which then had massive property booms -- booms that collapsed as they eventually do. Which is how we get to a general agreement in theory that there’s something called an “optimal” currency area. Yes, those network effects are just great, that all use one currency to trade. But there are other factors pulling in the other direction, insisting that different currencies should be used in areas with different economic conditions. Or at least that monetary policy should differ, something only possible with different currencies. Another way to put much the same point is that there are economies of scale. Yes, a larger organization, a larger currency, company or language should be more efficient. But there are also diseconomies of scale. In a company perhaps that the central bureaucracy becomes too rigid, meaning that change is near impossible. With languages, that there is this natural variation just between households and this is only going to get greater the larger the number of families using that language. With currencies, the limitation is the aptness of the monetary policy over the different constituent economies. With Facebook, it appears that the natural efficient size is everyone, worldwide. In fact, that’s also a useful definition of what we mean by “network effects.” It’s a subset of the play-off between those economies and diseconomies of scale. There’s a natural useful size, or efficient size, to everything. Economists don’t have much to do with, nor knowledge of, what’s the effective size for a language like Bangla. But we do end up thinking about many of the same things in other ways. And the answer is, as it so often is: It depends. When we have information on the exact circumstances surrounding the exact and specific thing we’re talking about, only then can we even attempt to provide a useful answer. Which language we all decide to use is, of course, a private choice. But this does become very important when we decide about currencies and other economic questions. We just don’t know what the right answer is until we’ve defined exactly what the real question is.   Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.
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