Q19

[austindyoung]

I'm struggling to see where economists' emphasized the Invisible Hand. The Pin Factory was deemphasized, but I cannot conclude from that that the other prong of Warsh's claimed struggle is therefore emphasized.

I know that there has been an emphasis on the assumption of diminishing returns, and the only thing I know about IH is from P2 (it is the vehicle by which self interest is harnessed to have an effect benefitting the public) and from P3, that it is incompatible with monopolies.

So, now I'm supposed to relate this to railroads. I just don't see any connection between the IH and the reference to railroads. I wouldn't know how to get to this except by POE. Frustrating question, I feel like the credited AC is loaded.


Any help would be great! Thanks!

[nbayar1212]

I also have the same concern as the poster above; I don't see why AC D is the credited response.

I chose AC C which indicates that the purpose of the rail roads reference is to call attention to the increasing prevalence of industries that have characteristics of the Pin Factory.

Although the word "increasing" seems unsupported in the AC i.e. we only know that there are many enterprises that economists think have invisible hand characteristics not that we are currently experiencing an surge in those types of industries, it seems that the purpose of the railroads reference is to support the idea that the Pin Factory is a legitimate phenomenon that is happening in many industries - hence the motivation for economists to find a way to make the Pin Factory theory "respectable."

D on the other hand, tells us that the railroads reference helps strengthen the claim that there are shortcomings with respect to the emphasis economists place on the invisible hand....BUT, much like the poster above, I don't know why there needs to be a tradeoff between lending credence to the Pin Factory theory and emphasizing the Invisible Hand theory. In fact, I would think that any any claim that strengthens the idea of the Pin Factory would probably just be a defense of Adam Smith's original conception - which didn't point to a trade off between the two concepts.

So, why is D better than C?

[fmuirhea]

Paragraph 3 begins by saying that two concepts are incompatible: the pin factory and the invisible hand. It goes on to explain that the invisible hand requires many competitors, which, in turn, depends on returns to scale being diminishing (because if they were increasing, they would lead to monopoly power, which implies a lack of competition).

Paragraph 4 explicitly states the emphasis that you're looking for: "the assumption of diminishing returns dominated economic theory." Remember that P3 inherently linked the idea of the invisible hand with diminishing returns.

nbayar, I think your explanation of why C doesn't quite work is correct. Let me know if this clears anything up or if you remain unconvinced!

[nbayar1212]

Thank you for the explanation. I follow what you wrote, for sure, but one thing is still unclear to me: how are we supposed to know if the trade off is between emphasizing the Pin Factory with the rail roads example and increased emphasis on the invisible hand (as D seems to imply) OR........ if the trade-off is between the Pin Factory and increased emphasis on diminishing returns?

The reason I think its the latter is because of the last few words following the paragraph 4 quote you mentioned i.e. "the assumption of diminishing returns dominated economic theory, with the Pin Factory de-emphasized" This seems to imply a trade-off between emphasizing the diminishing returns in economic thought and emphasizing the Pin Factory, which is what I think as well.

Therefore, I think there is not much support for AC D and possibly even more support against it.

Side note: can we really say a question like this indicates superior reasoning ability if one chooses D over C? If I imagine two lawyers going at it in court with each defending one AC, I really can't see the explanation for D being particularly persuasive....

[fmuirhea]

I think the article almost equates the ideas of the Invisible Hand and diminishing returns to scale. Diminishing returns ensure that there will be competition (as nobody will gain monopoly power), and competition allows the Invisible Hand to function (see the second half of P2). Could a Manhattan pro weigh in on this question?

[austindyoung]

Ok, so I read this again, as well as the comments by fmuirhea and nbayar1212. Great comments.

So, we've been discussing a point made in AC (D) about whether the economists' emphasized the IH.

The answer is: Yes. Fmuirhea helped me get to this. Thank you! But, I don't think diminishing returns and the IH are "equated," but I get what you mean.

In order for the IH to work, the returns to scale need to be decreasing (lines 33-35). Beginning on P4 (36-38) we find out that the assumption of diminishing returns dominated economic theory. As fmuirhea emphasized earlier dominated. Even if the Pin Factory wasn't deemphasized we would know in the least that this assumption was- since it dominates. But we also know that the PF has been "deemphasized."

Now, what we've been writing back and forth on: how do we connect this to IH? Well the assumption of DR isn't just sitting there picking it's nose. Rather, it's validating the IH and turning a blind eye to big industry (monopoly) because, as P4 let's us know, this fulfills the "scientific aspirations" of economists because the math is sharper (40-42; 44-47).

So we know why the assumption exists. Now, is the IH therefore emphasized? While this may seem like a logical leap, it's made "clear" in the passage that it is. The best way of seeing this is what was mentioned earlier- that DR dominate(s)/(d) economic theory in order to validate the IH. By emphasizing diminishing returns they necessarily emphasized the Invisible Hand. Diminishing returns (the assumption) is *necessary* for the IH to work (33-35). It's not a big leap to get that they are emphasizing DR to validate the IH- though the passage doesn't outright say that- we have to make a few connections to get there.

Lastly, we can point to a few other things in purview that DR is attached to IH. Note: these examples are weaker evidence than what we have above, and we should never infer that because something is emphasized that something else's isn't- and vice versa is:

Lines 46-47. Within the context of the scientific aspirations of economists we can see that it would make more sense to emphasize that which looked mathematically more attractive. Because of DR, IH looked more attractive than the PF.

Lines 48-49. If they are trying to bring PF into mainstream economic thought (we can infer that it is currently not in the mainstream)-- what is? Yep. The IH.

Now- if I were to just answer Q19 without looking at the ACs, here's what I'd put:

"The reference serves to give evidence to "Pin Factory" (as oppose to "Invisible Hand") economists that despite an emphasis on diminishing returns, increasing returns in industry exists. It is therefore permissible to describe industries with a method that models this occurrence, i.e., the Pin Factory."

This allows (D) to make sense to me and it easier to weed out the other answers.

Any other thoughts, qualms, or whatever with what I wrote- post them! Hard question!

[Dkrajewski30]

Like many, I chose C for this one. But after looking back at it, it's clear that 'to reflect the fact that increasing returns....', which comes just before the reference to railroads in P5, is what's playing the role that C states. And then, every other answer aside from D is easy to eliminate, so then D's left over.

My interpretation of why D is precisely right is this: emphasizing the theory of the Invisible Hand more or less inhibits what one can say about increasing returns, or in other words, it leads to one embracing diminishing returns and not this idea of increasing returns, which is what the Pin Factory is all about. So it's safe to say, then, that alluding to railroads, one of the industries that exemplifies increasing returns at work, points to a negative thing that happens when you embrace this concept of diminishing returns. And that's that some industries, like the railroad, work as you'd expect the Pin Factory to work. If you embrace diminishing returns, you're in a spot where you're more or less forced to 'overlook reality'.

[jackielacchin]

I think this question and the credited response become a lot clearer in the entire context of the passage, not just the referenced lines. The passage begins by pointing out an inherent contradiction in the Invisible Hand theory (see line 2). This contradiction is that increasing returns to scale will lead to a monopoly, which is incompatible with a free market (see lines 20-33). The railroad industry is a monopoly -- there is hardly any competition. The economists in paragraph 5 who are trying to bring this fact of increasing returns leading to monopoly to the broader academic community, but lacking mathematical representation, have faced difficulty getting this "shortcoming" of the Invisible Hand theory into mainstream thought.

Therefore, the answer choice can be read as such: point to an industry [railroads] that illustrates the shortcomings of economists emphasis on the Invisible Hand [the assumption of diminishing returns has dominated economic theory (line 36-40) and the assumption of diminishing returns is necessary for the Invisible Hand theory because there must be competition (line 30-33)--if returns are increasing it leads to a monopoly which is not a free market place(25-26)].

In other words, the passage revolves around the discussion of a conflict in an economic theory and this industry illustrates that conflict.

Answer choice C, on the other hand, is not supported at all. Where do we hear of "increasing prevalence" of industries characterized as monopolies? The passage merely says "many economists tried repeatedly to bring the Pin Factory into the mainstream of economic thought to reflect the fact that increasing returns obviously characterized many enterprises, such as railroads." Characterizing many enterprises does not imply increasing prevalence - we do not know how common these enterprises are nor do we know if they are becoming more common.

I hope this helps clear up some of the confusion on the post. Sorry if I do not make sense!

[lavabyle]

All,

Thanks for the above explanations - I can see why D is the correct answer.

However, can someone please help explain why B is incorrect? Looking at lines 48-51, in conjuction with line 52 following "Yet they repeatedly failed because they could not state their ideas rigorously enough" - the author seems to suggest that railroads were mentioned to, quoting AC B, "illustrate the difficulty of stating the concept of the Pin Factory with mathematical rigor."

Lines 48-51 point out that the Pin Factory "obviously" characterized the enterprise (e.g. railroads) better than the Invisible Hand, and yet many economists repeatedly failed to bring the Pin Factory into mainstream thought. Why? Because they couldn't state their ideas rigorously enough.

Any help would be much appreciated!

[ohthatpatrick]

I'm not sure how we've failed to officially weigh in on this question until now, but great debate!

Question Type: Purpose of Detail
Keywords: serves to, primarily to, in order to

Task:
Find the BIGGER CLAIM / BIGGER PURPOSE attached to a specific detail.

(Cheat-code: the vast majority of these questions have a correct answer that reinforces the bigger idea that comes right before the detail)

These questions are particularly well suited to "BIGGER CLAIM. For example, DETAIL."

Looking up the "railroads" line reference, you see "SUCH AS railroads", i.e. for example, 'railroads'.

So what are they an example of?
An example of an industry that has INCREASING, not diminishing, returns.

How does this fit with the purpose of this paragraph?
Railroads, like Pin factories, have increasing returns as we scale up. Economists have wanted to bring these examples into mainstream economic thought, but it's hard to illustrate the underlying math with enough rigor.

ANSWER CHOICES
(A) railroads are a Pin Factory, not Invisible Hand

(B) maybe ... this connects to the following big idea. Railroads aren't used to illustrate the math idea, though. They're brought up as an example of an industry that clearly DOES have increasing returns.

(C) "increasing prevalence" is too strong. If this said "call attention to the existence of industries that have ..." it would be fine.

(D) Emphasizing Invisible Hand makes it seem like everything has diminishing returns. But the railroads are an example of the opposite. So I guess this illustrates that we shouldn't only emphasize diminishing returns (Invisible hand)

(E) Ha. "transportation industries"? Was the author ever trying to make a big point about transportation industries?

Looking back at (B) vs. (D), it seems safer to pick (D), which is a closer match for "an example of an industry with increasing returns".

For (B) to be right, we would at least need to know that economists HAD at some point tried to demonstrate the math of railroads, but failed to do so with enough rigor.

We really don't have that leg to stand on. When we look at "such as railroads" in context, it is PURELY an example of an enterprise with increasing returns. That is all we know about it.

In terms of the aforementioned "cheat code" (just reinforce the previous sentence / preceding big idea) ... we would want to see 'railroads' related to 'trying to bring Pin Factory into mainstream economic thought'.

(D) is saying "emphasizing Invisible Hand" as code for "Pin Factory is NOT in the mainstream".

Hope this helps.