As a fellow cook, food lover, and economist who incorporates Austrian entrepreneurial theory into my work, I love Mike’s post commemorating Julia Child’s birthday today. Let’s push it even further.
One way to create value in cooking is through new combinations of what Mike calls “raw elements”. We can think of three categories of raw elements in cooking: ingredients, cooking techniques or the producer’s “interpretation”, and taste or the consumer’s “interpretation”. The combination of these yields the “useful product”, a dish. These categories lend themselves to Menger’s taxonomy of higher-order and lower-order goods; physical ingredients are goods of the highest order (I would also put in here the capital goods and fuel used in cooking, with which an Austrian capital theorist might quibble, but I’m simplifying here), which a cook combines and a consumer eats, thereby enabling both cook and consumer to benefit from the value creation.
The first important point in this cooking-economics connection is fundamental to economics: the subjective nature of value. The consumer’s interpretation-perception-assessment of the dish is the most clearly subjective element of this dynamic process. Much of value rests in the perception of the ultimate consumer. But there are some subjective aspects of the producer-cook’s interpretation too; that’s where opportunity cost comes in on the supply side. The cook perceives at that moment, in that context, what she thinks is the best use of the raw elements that she is combining to create the dish (ingredients, her time and skill, capital), based on her perception of the alternate uses of these elements. That’s inherently subjective.
The second important point that Mike raises is the entrepreneurship one. Value creation from cooking doesn’t just come from doing the same thing over and over, adding more cooks and more stoves to increase scale (OK, there’s some value in that, but diminishing returns). The cook who explores novel combinations of the raw elements (garlic-artichoke foam from a CO2 canister atop a sous-vide cooked and seared-finished halibut steak, anyone?) is an entrepreneur. The essence of creative cooking, and creative economic activity, is curiosity and experimentation, and those are the essential ingredients in entrepreneurship. This entrepreneurial activity is grounded in some fundamentals, such as the physical chemistry of how ingredients and temperature interact, the ratios in which ingredients generally combine to yield pleasing results, the basic cooking skills, and the physical and neurological reality of our taste system. But the entrepreneur experiments with those fundamentals and pushes their boundaries, using the heterogeneous raw elements and searching out opportunities for “profit” from doing so.
Which brings us to the third important point in my Austrian theory of cooking/cooking as a metaphor for Austrian entrepreneurship. A system that will yield the most valuable and pleasing combinations of entrepreneurial economic or cooking activities will have low entry barriers (anyone can try to cook!) and a robust feedback-based system of error correction. Low entry barriers facilitate creativity in discovering new useful products from the raw elements, as well as enabling new value creation when some of those raw elements change. Error correction, whether a “yuck, that’s gross!” at home or a lack of profits due to low repeat business at a restaurant, is most effective and valuable when there are feedback loops that can inform the cook-producer about the value that the consumer did or did not get from the dish.
Both cooking and economic activity are inherently purposeful, creative, and entrepreneurial, and are better when done in an environment that combines low entry barriers and robust error correction.
And today’s front page Google splash celebrates Julia too. Happy birthday Julia, and thanks for the inspiration.