Conversing about Dante
Civic passion, public life, economic reasoning1
Speech by Luigi Federico Signorini
Senior Deputy Governor of the Bank of Italy
Bank of Italy, Florence Branch
3 December 2021
Dante and the economy
For this speech, I intend to draw inspiration from several passages of the Commedia2 to
formulate some arguments as an economist, which I will use towards the end to make
a couple of free observations about one of today's great problems. I hope that you will
forgive me my unavoidable incursions into a field that is not mine and I shall try not to
go beyond the bounds of this task. I leave discourses on literature to others. At best, I can
invoke my passion for the subject, certainly not my competence.
It is clear that the science of economics in the modern sense did not exist in Dante's day,
although of course the economy as a fact did exist. It was not that economic reasoning
was entirely lacking, at least from Aristotle onwards, rather that the analytical tools
potentially available to observers at that time were very different from those of today.
Today, through the lens of a subject that came into being several centuries later, we see
it in a different way.
If we look through this lens, one fact stands out. Dante seems not to have noticed the
impressive acceleration that society was experiencing at that time. Or better, to the extent
that he did notice, he only saw the negative aspects.3 "La gente nòva e i subiti guadagni"
1
I would like to thank Alfredo Gigliobianco for helping me to write this text, Paolo Angelini and Ivan
Faiella for reading it and making suggestions, and Ignazio Visco for his many useful remarks.
2
Ignazio Visco set out a broad overview of the transformations of the economy and of economic thinking
in Dante's time in a recent speech ('Notes on Dante's economy and events of our times', Banca d'Italia,
2021). I deal with a less ambitious topic here: the reading of some extracts chosen from the Commedia,
in the spirit of the title of this conversation ("'/Civic passion, public life, economic reasoning"), using some
of the intellectual instruments available to economists seven hundred years on.
3
In Dante's radical refusal of the mercantile society emerging at that time, M. Romanelli (L'economia di
Dante. Mercato, profitto, dono, Longo, 2021) sees an intellectual position that is anything but unaware or
reactionary, but rather dictated by a 'grand project for the regeneration of humanity'. We do not disagree;
if anything, we express doubts, as befits economists, over Romanelli's positive assessment of this vision.
("The new people [newly rich] and the rapid gains")4 aroused his indignation. Fiorenza
(the poetic name for Florence) "dentro della cerchia antica" ("within the ancient circle",
that is to say of the golden days of Cacciaguida, Dante's forefather) "si stava in pace"
("dwelt in peace"), because it was "sobria" ("sober" i.e. content with a modest way of life);
the problems all begin when people start to desire more material goods.5
At the beginning of the fourteenth century, Florence was on the verge of becoming the
economic and cultural centre of Europe. The extent to which economic development
counts in the creation of an environment favourable to cultural development is sometimes
underestimated. Certainly, the issue never even occurred to Dante. Over the course of
a century, the wealth of his city, which came from extraordinary growth in trade and
manufacturing, nourished Humanism and the Renaissance, and bred and attracted some of
the most celebrated artists and intellectuals of all time. Yet Dante focused on the offensive
"puzzo" ("stench") of people from rural areas who were invading the town.6 He did not grasp
the contribution that these new arrivals could make in terms of work and ingenuity, nor did
he perceive the multiplier effect of urban development on economic and cultural growth.
After all, the very concept of development as we understand it today was missing.
Nobody living at that time, if they were literate, could fail to notice the civic renaissance of
Europe following the "etadi grosse" ("crude [dark] ages"),7 but if they had ever wondered,
they would probably have said that the most they could aspire to was a return to the
magnificence of the Roman imperial age. Actually, on observing the course of human
history, perhaps the metaphor of a fall (from an earthly paradise or from the golden
age)8 might have come to mind more naturally than that of an ascent - obviously without
prejudice to the expectation of a dramatic and glorious conclusion to the story of the
material universe in the forms of Christian eschatology.
In this context, the principles inspiring the government of society had to try to establish
an ideal order, not to promote growth; they were static and axiomatic, not dynamic or
empirical. So it was for Dante.9
Avarice
It could be said that it is easy to perceive the limits of this point of view when you have
seven extra centuries of experience and thinking behind you. This is true, in the sense
that we know more nowadays, but not in the sense that this line of reasoning no longer
4
Inferno, XVI, 73. Here and elsewhere, the English translation is taken from The Divine Comedy of
Dante Alighieri, edited and translated by Robert M. Durling, New York-Oxford, Oxford University
Press, 1996-2011.
5
Paradiso, XV, 97ss.
6
Paradiso, XVI, 49-57.
7
Purgatorio, XI, 93.
8
Purgatorio, XXVIII (especially 94-96 and 139-141), where the two myths become one.
9
Not everyone would agree with such an outright statement. It seems to me that it is written clearly,
especially in the Commedia and in the De Monarchia. Yet I am certainly not qualified to have the last
word on the subject. It is to be taken for what it is: the impression of a keen but not expert reader.
presents any difficulties. Certain concepts remain fairly counterintuitive for human beings
in the twenty-first century too.
Let us look at the theme of greed or avarice, symbolised by the famous she-wolf, which
appears in the first canto of the Commedia and returns several times.10 In Dante's view,
those who wish to become rich are despicable because they are greedy, they do not obey
the Commandments and they are stained with a capital sin: that is all.
Those who see making money as their only purpose in life were not liked then and are
not liked now. The economist, however, tends to make some distinctions. It is one thing
to behave as Ebenezer Scrooge does in Dickens' A Christmas Carol. It is quite another to
pursue one's legitimate interests honestly when carrying out any business activity, as we
probably all do, whether in production or in trade.
A cardinal concept of economics as a science is precisely that, in looking to their economic
interests, a person contributes to society's economic well-being. (There are exceptions, as
we shall see later on). This concept, which is hard to understand and easy to misunderstand,
was established, as everyone knows, by Adam Smith in his masterpiece The Wealth of
Nations: "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".11 There are two elements at
the heart of this. The first was already clear to Aristotle, who was a cultural cornerstone
in Dante's day.12 Everyone needs other people in society: the poet (definitely) needs the
shoemaker, while the shoemaker (hopefully) needs the poet. This interdependence arises
from specialisation, which makes the production of all goods more efficient. The second
is that trade is advantageous to both parties. Aristotle at most caught the odd glimpse
of this,13 as he was more interested in the fairness than in the efficiency of trade. Trade
is still often perceived as a battle a contest in which, if one of the two participants earns
something, the other one inevitably loses. Smith demonstrated that it is not really like
that. If the baker parts with a loaf in exchange for a shilling, he does so because it benefits
him. The same goes for the customer: if he pays a shilling, it is because he finds it more
convenient than mixing the dough and baking the loaf himself. The baker earns money from
his business activity, but at the same time provides the customer with an efficient service.
If we broaden the analysis from the individual to the community and include competition,
we can conclude that an economic order based on decentralising decisions and on each
person pursuing their own legitimate interest increases everyone's well-being. That is all,
yet the modern science of economics springs from this basic insight.
10
Inferno, I, 49ss.; Purgatorio, XX, 10 ("Maladetta sie tu, antica lupa!", "A curse be on you, ancient she-wolf");
and perhaps also Purgatorio XIV, 50. Many commentators see something more than just the sin of
avarice in the cupidity of the she-wolf; here, purely for illustrative purposes, I adhere to a circumscribed
interpretation of the relative symbolism.
11
The Wealth of Nations, Book I, Chapter 2. Although his vast and systematic work is often considered
as the founding act of economics, Smith was not actually the first to set out this concept. Anders
Chydenius from Sweden was ahead of him here, and his pamphlet 'The National Gain', was published
a few years before Smith's book. However, the history of thinking is dotted with similar ideas, from
ancient times onwards.
12
Nicomachean Ethics, V.
13
If nothing else, Aristotle, albeit in his own somewhat convoluted way, eventually took up the cudgels for the
right of private property, considering it from the point of view of incentives (Politics, II, 5; and elsewhere).
Contrary to the caricature that is sometimes drawn, homo oeconomicus is not inherently
selfish, greedy or deaf to the things of the spirit. We can assume that people maximise
profits in the sense that we expect that in their business, they will seek to garner resources
as best they can: resources to live, to support their families and perhaps even to enjoy
life. If they are as greedy as the she-wolf, they will amass them shamelessly but, if instead,
they are generous and sensitive, they will also help others, support worthy causes or
sponsor art and culture and what have you. The actions of homo oeconomicus are to
be seen as a means, not an end; each person decides their own end, and as long as the
means is honest, it is the end, not the means, that is subject to a moral judgement.
Could Dante have grasped similar concepts regarding the role of incentives in promoting
economic activity? Poggio Bracciolini, another illustrious Florentine writer, got there just
over a century later, during the full flowering of Humanism; in a dialogue of his on avarice,
he had one of his interlocutors argue as follows:
Quod si ita est, ut omnes cupidiores pecuniae appellentur avari, censebuntur
rei hoc nomine fere omnes. Omnia enim ab omnibus agenda suscipiuntur
pecuniae gratia, ducimurque omnes lucri cupiditate, neque eius parvi, quod
si sustuleris, negocia operaque omnia penitus cessabunt. Quis enim quicquam
aget, remota spe utilitatis?... Illam sequuntur omnes, illam appetunt. Nam sive
rem militarem, sive mercaturam, sive cultum agrorum, sive artes has, quas
vocant mercenarias, consideres; sive etiam quas appellant liberales; videtur
singulis praeposita esse ingens pecuniae cupido... Quid enim, ne de vilioribus
exercitiis loquar (quorum late patet finis), leges in vita tractantes aliud ducit,
quid aliud trahit nisi pecuniae cupiditas non parva, et uberior lucrandi facultas?
Quid item medicos, quid reliquos qui se ad liberalium artium studia conferunt?
Confer te ad sanctiores disciplinas, philosophiam, theologiam: sciendine causa
an plurimum lucrandi tanta ponitur in his edocendis opera?... Quicquid inter
mortales tractari vides, quicquid periculorum suscipi, eo spectat ut inde aurum
atque argentum excudatur. Est enim peropportuna ad usum communem
et civilem vitam pecunia, quam necessario Aristoteles inventam tradit ad
commercia hominum resque mutuo contrahendas... Si unusquisque neglexerit
operari quicquid excedat usum suum, necesse erit, ut omittam reliqua, nos
omnes agrum colere... Videte quantum a vestra opinione dissentiam. Sint aliqui
prae ceteris avari, praeter hanc communem avariciam cupidi: vos extimatis e
civitatibus hos abici oportere; ego contra advocari in illas, tamquam opportuna
adminicula ac sustentacula populorum.... Cum enim affirmas plura mala
avariciam peperisse, ego et plura bona.
If all those who want a little more money were to be called greedy, well
then, we should consider everyone, or almost everyone guilty of this crime.
Everything that people do, they do for money; we are all governed by the
desire to earn, and not just a little if possible; and if earnings were to be
eliminated, all trade and business would cease. Nobody would undertake
anything if there were no hope of turning a profit. Everyone pursues this hope
and everyone cultivates it. Consider military activity, trade and agriculture;
consider the so-called mercenary trades; consider even those that are said to
be liberal professions: and you will see that a great desire for money prevails
in all of them. What else indeed (if we do not want to mention the humblest
jobs, whose goal is obvious), what else attracts lawyers if not the desire for
money, and no small desire at that, and the possibility of more substantial
profits? And what about doctors? And all the other professional people?
Look then at the more sacred disciplines, philosophy and theology: in your
opinion, do people study them so much out of love for knowledge or for
money? Everything that people do, all the risks they undertake are for this
purpose: making gold and silver out of it. Money is anything but an evil from
the point of view of collective well-being and civic life. Aristotle says this too,
that money was a necessary invention for trade. If nobody exerted themselves
to earn more than the bare minimum, we would all have to cultivate the
fields, not to mention other things... You see how far removed I am from your
opinion. If some people are more motivated than others by profit, you would
like to drive them out of civilised society; I on the other hand would invite
them in, because I believe them to be essential to support the people. And
since you say that avarice has given rise to innumerable misfortunes, then I
say to you that it is also the fount of many good things.14
Envy
A similar line of reasoning can be followed for envy. The envy that Dante had in
mind is that which leads to suffering over the happiness of others and to desiring the
downfall and ruin of the successful15 (just think of Sapia, who revelled in the defeat of
her fellow citizens in Siena).16 Another kind of envy, which economists do not dislike, is
that which drives a person, following the example of others, to procure - through work
and resourcefulness - what they are lacking. The benefits of benign envy cannot be too
difficult to identify if Hesiod had already observed them in the seventh century BCE. In
the preamble to Works and Days we find this passage:
οὐκ ἄρα μοῦνον ἔην Ἐρίδων γένος, ἀλλ ̓ ἐπὶ γαῖαν
εἰσὶ δύω: τὴν μέν κεν ἐπαινέσσειε νοήσας,
ἣ δ ̓ ἐπιμωμητή: διὰ δ ̓ ἄνδιχα θυμὸν ἔχουσιν.
ἣ μὲν γὰρ πόλεμόν τε κακὸν καὶ δῆριν ὀφέλλει,
σχετλίη: οὔτις τήν γε φιλεῖ βροτός, ἀλλ ̓ ὑπ ̓ ἀνάγκης
ἀθανάτων βουλῇσιν Ἔριν τιμῶσι βαρεῖαν.
τὴν δ ̓ ἑτέρην προτέρην μὲν ἐγείνατο Νὺξ ἐρεβεννή,
θῆκε δέ μιν Κρονίδης ὑψίζυγος, αἰθέρι ναίων,
γαίης ἐν ῥίζῃσι, καὶ ἀνδράσι πολλὸν ἀμείνω:
ἥτε καὶ ἀπάλαμόν περ ὁμῶς ἐπὶ ἔργον ἔγειρεν.
εἰς ἕτερον γάρ τίς τε ἰδὼν ἔργοιο χατίζει
πλούσιον, ὃς σπεύδει μὲν ἀρώμεναι ἠδὲ φυτεύειν
οἶκόν τ ̓ εὖ θέσθαι: ζηλοῖ δέ τε γείτονα γείτων
εἰς ἄφενος σπεύδοντ ̓: ἀγαθὴ δ ̓ Ἔρις ἥδε βροτοῖσιν.
καὶ κεραμεὺς κεραμεῖ κοτέει καὶ τέκτονι τέκτων,
καὶ πτωχὸς πτωχῷ φθονέει καὶ ἀοιδὸς ἀοιδῷ.
So there was not just one birth of Strifes after all, but upon the earth there are
two Strifes. One of these a man would praise once he got to know it, but the other
is blameworthy; and they have thoroughly opposed spirits. For the one fosters
evil war and conflict - cruel one, no mortal loves that one, but it is by necessity
that they honor the oppressive Strife, by the plans of the immortals. But the other
one gloomy Night bore first; and Chronus' high-throned son, who dwells in the
aether, set it in the roots of the earth, and it is much better for men. It rouses
even the helpless man to work. For a man who is not working but who looks at
some other man, a rich one who is hastening to plow and plant and set his house
in order, he envies him, one neighbor envying his neighbor who is hastening
towards wealth: and this Strife is good for mortals. And potter is angry with
potter, and builder with builder, and beggar begrudges beggar, and poet poet.17
Material and spiritual goods
The time has now come to enter Purgatory, because Dante's cantos on envy (XIII, XIV and
XV) lend themselves to further, interesting, considerations. The character who introduces
us to the theme is Guido Del Duca, a nobleman from Romagna. It is he who utters the
famous lines "le donne e' cavalier, li affanni e li agi" ("the ladies and the knights, the labors
and the leisures"), echoed by Ariosto at the beginning of his epic poem Orlando Furioso.
Well then, in Canto XIV, Guido declares unequivocally that he has been very envious
during his lifetime. Yet how he says it initially defies comprehension. He refers to the
human desire for goods for which there is a "mestier di consorte18 divieto" ("where sharing
must be forbidden"). "Where sharing must be forbidden"? It is not just we twenty-first
century Italians that remain nonplussed; the passage must have seemed opaque back
then too. Even Dante himself does not seem to apprehend its meaning immediately.
So much so that in the next canto, he asks Virgil for an explanation: what is this "sharing"
and "forbidden" to which Guido refers? And Virgil explains:
Perché s'appuntano i vostri disiri
dove per compagnia parte si scema,
invidia move il mantaco a' sospiri.19
"Because your desires point to where sharing
lessens each one's portion, envy moves the bellows
to sighing."
The crux is in the words "dove per compagnia parte si scema" ("where sharing lessens each
one's portion"). They mean this: you sinners, you worldly people, set your hearts on goods
which, if divided with others ("per compagnia", "[by] sharing"), give lesser enjoyment,
because each person's part shall be smaller ("parte si scema", "where sharing lessens
each one's portion"). There is, then, no possibility of sharing ("con-sorte", [common lot]:
"è mestier di consorte divieto", "where sharing must be forbidden"). Of what goods do we
speak? Of the lion's share of goods that are the subject of economists' analyses, such as
houses, cars or chickens: if I share my chicken with you, I will only have half left.
Dante stigmatised, in short, the desire for worldly goods, for all worldly goods.20 Whoever
possesses them does not want to share them, because they would obtain a smaller
benefit. Spiritual goods are another matter entirely. God's love, as Virgil explains later
on in an elegant doctrinal passage that anticipates the terse harmonies of the Paradiso,
is in no way diminished when shared with others. On the contrary, the more "table
companions" there are to enjoy this good, the more enjoyment each of them will derive.
Those who desire the love of God simply have to ask for it, and no one will contest them:
E quanta gente più là sù s'intende,
più v'è da bene amare, e più vi s'ama,
e come specchio l'uno a l'altro rende.21
"And the more people bend toward each other up
there, the more there is to love well and the more
love there is, and, like a mirror, each reflects it to the other."
Envy has no place here.
Rivalry, exclusion, public goods
Now, some six and a half centuries after Dante wrote these verses, economists (not,
I believe, inspired by the poet but one never knows...) began to wonder whether, speaking
of economic goods, it is always true that "per compagnia parte si scema" (sharing lessens
20
At the end of Canto XIV (148-150):
Chiamavi 'l cielo e'ntorno vi si gira,
mostrandovi le sue bellezze etterne,
e l'occhio vostro pur a terra mira...
"The heavens call and wheel about you, showing
you their eternal beauties, and your eye still gazes
on the earth..."
And afterwards, in Canto IX of the Paradiso (10-12):
"Ahi anime ingannate e fatture empie,
che da sì fatto ben torcete i cuori,
drizzando in vanità le vostre tempie!
"Ah, deluded souls, wicked creatures who
twist your hearts away from such a good,
directing your faces toward emptiness!"
Even before this, in Canto XI of the Purgatorio, that of the prideful, Oderisi da Gubbio had
warned about fame (100-102):
Non è il mondan romore altro ch'un fiato
di vento, ch'or vien quinci e or vien quindi,
e muta nome perché muta lato.
"The clamor of the world is nothing but a breath
of wind that comes now from here and now from
there, and changes names because it changes directions."
Yet on fame, as on many other things, Dante's thoughts were not easily reconcilable (Inferno IV, 76-78)
XVI (66) XXIV, 46-51; and there may be more passages to consider). That in the Commedia one finds
everything and the opposite of everything is part of its centuries-long appeal.
21
Lines 73-75.
each one's portion). In 1954, Paul Samuelson (who would later win the Nobel Prize for
Economics) formalised the concept of rival goods.22 A good is defined as "rivalrous" if its
enjoyment by one party is diminished when another party consumes the same good. We
are in the classic chicken-sharing situation, and the consideration is precisely that which
Dante has Virgil utter. Samuelson, however, unlike Dante, also identified a category of
(worldly) goods that are "non-rivalrous". For example, national defence or street lighting.
If I benefit from a street lit at night, I do so without preventing my fellow citizens from
enjoying the same good. These are non-rivalrous economic, worldly goods.
If the two could meet, Samuelson would tell Dante that there are not only spiritual goods
outside the sphere of envy. On the other hand, it is interesting how Dante, in warning
his contemporaries against this capital sin, highlighted a characteristic of worldly goods,
or rather of many of them, which is their rivalrous nature - something which would
only be formalized many centuries later by economists. Although commentators have
identified the probable origin of Dante's thinking (Saint Augustine plays on the same
theme in The City of God),23 nobody, that I know of, has emphasised the link between the
moral foundation of Cantos XIV-XV and economic analysis.
In 1959, Richard Musgrave described another category, non-excludable goods, which
partly overlaps with the previous one of non-rivalrous goods.24 To obtain a loaf of
bread from the baker, the customer must pay up, because otherwise the baker keeps it:
he or she can "exclude" the customer's enjoyment of it. But there is no way of excluding
the passer-by from the benefit of public street lighting. In this second case, those who
produce the good are unable to recoup the costs and realise a profit by imposing
a price for its use. If a good is non-rivalrous in the way intended by Samuelson and
non-excludable à la Musgrave, it is what is called a "public good".
It is clear why Dante is interested in these matters: from rivalry and excludability comes
envy, a capital sin.
But what about the economists? I think it is intuitive (there are, of course, formal ways to
demonstrate it in the abstract world of economic theory) that to produce a "public good"
relying solely on market forces, in other words on individual trades between producers
22
Paul A. Samuelson, "The Pure Theory of Public Expenditure", Review of Economics and Statistics, 36(4):
387-389 (1954).
23
As is well known, Saint Augustine contrasts two cities, we would say two communities. The city of men seeks
worldly satisfactions, while the city of God aspires to higher things. Within this broad vision, the author
compares Cain and Abel to Romulus and Remus. The latter were both anxious to claim the glory of the
foundation of Rome. "Ambo gloriam de Romanae rei publicae institutione quaerebant; sed ambo eam tantam,
quantam si unus esset, habere non poterant. Qui enim uolebat dominando gloriari, minus utique dominaretur,
si eius potestas uiuo consorte minueretur. Vt ergo totam dominationem haberet unus, ablatus est socius, et
scelere creuit in peius, quod innocentia minus esset et melius", De Civitate Dei, XV, 5 ("Both desired to have
the glory of founding the Roman republic, but both could not have as much glory as if one only claimed it;
for he who wished to have the glory of ruling would certainly rule less if his power were shared by a living
consort. In order, therefore, that the whole glory might be enjoyed by one, his consort was removed; and
by this crime the empire was made larger indeed, but inferior, while otherwise it would have been less, but
better"; Saint Augustine, The City of God, translated by Marcus Dods, New York, Random House, 1950).
24
Richard Musgrave, A Theory of Public Finance, New York, McGraw-Hill, 1959.
and users, is problematic. Adam Smith's idea, which is applicable to all the other goods,
does not hold here. Somehow, the community of users, the State, must intervene.
Thinking about non-rivalrous and non-excludable goods takes us a long way. If you allow
me, we shall now make a small digression toward the attendant consequences, which as
we shall see matter greatly. Even if the path leads us away from Dante for a while, and
closer to the issues of today.
Up to now, I have spoken about national defence and public lighting, classic examples
from the 1950s, but the question of the public nature of goods does not end there. If you
look at the Wikipedia entry for this in English, you will find listed, among other things, the
production of knowledge and of official statistics, flood control systems, and lighthouses
(yes, lighthouses that signal to ships the position of certain points on the coastline; as to
why Wikipedia mentions them, we shall see that shortly).
One of the greatest challenges of our century is the preservation of the environment, and
specifically the prevention of global warming. Strictly speaking, in this case we are talking
about "common" rather than "public" goods and the question is slightly different too,
not so much about how market incentives do not lead to their production in sufficient
quantities but rather that they do not impede their excessive exploitation. (The good
that is not produced in sufficient quantity is, if you like, the absence or reduction of
pollution). There is no need to enter into the details. Let's just say that, in general, this
is about goods or other utilities whose utilisation rights cannot be easily exchanged on
the market because, in one way or another, there is no "ban on sharing": all of humanity
benefits or would benefit from a reduction in greenhouse gas emissions; however, given
the difficulty of exchanging them at individual level, for similar goods the customary
theoretical presumption that the market alone can ensure their efficient allocation falters.
How to supply public goods
Well then? There are various solutions, none of them perfect; one does not always exclude
the other. Over the course of this brief conversation, I will just hint at them briefly.
The first solution is simply that the government must take responsibility for the public
good. This is frequently adopted: the town council looks after street lights and the State
looks after national defence. One variant is that the public authorities purchase the good
or service from the private sector rather than producing it directly; this often delivers
better operational efficiency. (This variant does not seem advisable for defence). The
fact remains that the how and how much of a service, together with the distribution
of the burden of the cost among the citizenry, depend on the authorities' decisions, in
which citizens only have an indirect say when there are elections (as long as they live in
a democratic regime). Furthermore, in the absence of a world super-state, this solution is
not easily applied to global public or common goods.
The second solution is imposing taxes or granting subsidies that simulate the damage or
benefit for citizens ensuing from the non-rivalrous or non-excludable consequences of private
business, such as pollution or research. This solution provides the market with theoretically
correct incentives (even if the tax or subsidy is only an approximation, not always easy to
compute, of the effect of the activity in question on well-being), and then lets it produce the
good in the most efficient way. The carbon pricing that is under discussion nowadays falls
into this category. Problems arise here too in the case of a global common good, since not
all countries are willing to introduce the same measures (taxes, for example).
The third solution is to establish rules, such as on anti-emissions standards. This is clearly
a direct and potentially effective approach, but the inevitable inflexibility of laws may
create inefficiency. For example, imposing the same obligations to reduce emissions on
all firms is equivalent to a poor allocation of resources if this reduction is far costlier for
one firm than for another.
It follows that the rigidity of the rules is sometimes tempered by market mechanisms, for
instance through the concept of freely tradable "emission permits". The State decides the
total amount of emissions tolerated and provides for an initial distribution of the relative
quotas; private firms can then trade them against payment. Those who are able to reduce
emissions at low cost will take advantage of the chance to sell their shares to firms for
which a reduction is more expensive. The overall reduction will not change, but the cost
of achieving it will fall.
This shows that the fourth solution, i.e. relying to a certain extent on the market, is not
actually entirely excluded, even in the case of public goods. Ronald Coase, another Nobel
prize winner for Economics, went so far as to argue that, in the absence of transaction
costs and provided that property rights are clearly defined, there is no good to which the
market cannot assign an efficient price. His paper on lighthouses is famous (that is why
Wikipedia mentions them), in which he tries to demonstrate that for a certain period in
England, the coastal lighthouse service, apparently the most public of public goods, was
actually supplied by private companies for profit. It should be pointed out that the details
of this story are not uncontroversial. Above all, however, the absence of transaction
costs required for the validity of Coase's "theorem" is a very demanding condition. Put
simply, it assumes that it is possible to stipulate a private agreement instantly and at no
cost, according to which all the stakeholders (potentially millions or billions of people)
voluntarily "buy" (for example) the polluter's renunciation of the right to pollute.
Difficult? Impossible? In a literal sense, yes, of course. Let us consider, though, another
element of the ongoing debate on global warming. As we know, the emerging countries
complain because the advanced countries want to impose strict limits on their emissions,
having themselves pumped countless megatonnes of into the atmosphere from the
CO2
beginning of the industrial revolution until today.25 The emerging economies say that they
are only willing to adopt certain standards in exchange for cash transfers from the rich
countries that are insisting on imposing them. In fact, the Paris Agreements already included
this sort of idea and the most recent negotiations have further advanced the debate. Think
about it: if we look closely, this is basically the application of a version of Coase's theory,
in which a few dozen governments try to negotiate on behalf of billions of people.
Will it work? Let us hope so, even though we still do not know. One way or another,
in order to find a global solution for the problem of greenhouse gas emissions, especially
given a world order based on independent and sovereign jurisdictions, a combination of
various tools will be needed: public investments, rules, incentives, and market solutions.
* * *
If I had told you that I was going to talk about Dante and global warming, you would
defin