Here’s my latest column in the Pittsburgh Tribune-Review. In it, I draw an economic lesson from The New Yorker‘s weekly cartoon-captioning contest, in which people are invited to submit captions to accompany uncaptioned cartoons. My vanity compels me to quote at length from the heart of the article.
Think of each uncaptioned cartoon as a capital good. It has the potential to create value (in this case, to make readers laugh). By itself, though, this capital good produces almost no value; without a caption, each cartoon is virtually worthless. The cartoon becomes valuable — it contributes to human satisfaction — only when a clever caption is added to it.
Suppose for a moment that The New Yorker allowed only residents of Manhattan to submit captions. No doubt many submitted captions, when added to the cartoons, would produce the intended humorous result. But editors of the magazine could not be certain that the best possible caption was submitted.
What if, for a particular cartoon, someone living in Brooklyn had an even better idea for a caption? By prohibiting non-Manhattanites from contributing their caption ideas to the cartoons, the caption that would have been submitted by the person in Brooklyn — the caption idea that would have added to the cartoon even more value than is added by the best caption from Manhattan — never is added. Thus, the cartoon — this particular capital good — fails to produce as much value as it would have produced had Brooklynites been among those who were permitted to submit captions.
Sadly, though, no one ever learns this fact. The winning caption submitted from Manhattan might be judged by everyone to be excellent. But because the even better caption from Brooklyn never materializes, no one ever discovers just how funny that cartoon could be.
If the goal is to ensure maximum value of this particular capital good (a weekly uncaptioned cartoon), clearly it is advisable to have larger, rather than smaller, numbers of people able to try their minds at devising clever captions. With everyone in the world free to contribute captions, each cartoon is joined with cleverer and more creative captions than would be the case if only Manhattanites — or only residents of New York state, or even only Americans — were allowed to submit captions.
The very same process is true of factories and machines and workers. It might be that the entrepreneur with the best idea for how to use a particular factory and its machines and workers to produce maximum value is an American. But fewer than 5 percent of the world’s people live in America. So it is inevitable that the best and most creative ideas for how to use particular assets that are located in America will often be possessed by non-Americans.