A comment about economics and Americans

One of the things that makes communicating our message of freedom and liberty with progressives, modern style liberals, and so many others very difficult is that they believe in so many economic fallacies. We might agree on many things with various people from the far left to the far right but often they can’t really see the situation clearly because they have never studied economics and they don’t want to. Why do they dislike economics so much? What is economics?

Austrian-Cat

Let us start looking at economics and the American citizen by looking at a few words from Lew Rockwell on the matter:

The most common misunderstanding about economics is that it is only about money and commerce. The next step is easy: I care about more than money, and so should everyone, so let’s leave economics to stock jobbers and money managers and otherwise dispense with its teachings. This is a fateful error, because, as Mises says, economics concerns everyone and everything. It is the very pith of civilization.

It is this lack of caring about economic principles that leads many Americans into false beliefs about government and what “we” should do about various problems. Rockwell continues:

This is a confusion sown by economists themselves, who postulate something called “economic man” who possesses a psychological propensity to always behave in ways that maximize wealth. Their mathematical models, predictions, and analysis of policy are based on this idea.

In the real world, however, we know this not to be the case. The world as we know involves profit seeking but also extraordinary acts of charity, sacrifice, non-pecuniary giving, and voluntarism (though I dislike that term since all commercial exchanges are voluntary too!).

How to account for these? The Austrian approach to economics dispenses with the idea of “economic man,” or rather broadens the meaning of economics to include all action, which takes place in a framework of scarcity. Scarcity requires that we economize on something in all that we do, even when wealth is not the motivation. For this reason, Austrians analyze acting individuals, not maximizing prototypes.

We have to realize that it is individual humans who act and that they respond to incentives via their subjective evaluation of the situation, even when they don’t consciously realize that they are doing so. We must analyze acting individuals and look at what they really do rather than what they say they are going to do. This message is at the heart of the Austrian School of economics.

One of my favorite writers today is professor of economics Walter Block who has been called “Mr. Libertarian” since Murray N. Rothbard passed away. He has been a fierce defender of market anarchy and normally pulls no punches with his analysis of anything that he writes about. He once wrote the following words:

For zillions of years, the human race lived in small groups of 25–50 people or so. We became hard wired to appreciate explicit cooperation: I scratch your back, you scratch mine; I’ll feed you when you’re hungry and/or sick; you reciprocate. Those who wouldn’t or couldn’t do this didn’t tend to leave their genes to the next generation. That is one of the reasons why the family is even today such a powerful institution.

However, in an economy of 6 billion, we can’t all cooperate this way. Rather, we can only cooperate through markets. That is, implicitly, not explicitly.

To illustrate this point, take the recent history of New Orleans. When Katrina struck, prices of oil, gas, milk, water, orange juice, batteries, candles and other such items catapulted. This was implicit cooperation in action. How so? Higher prices means that those first in line at the grocery don’t get everything on the shelves. Elevated prices have a rationing function; at normal costs, people would tend to stock up; if the prices are very much higher, they will in effect if not by benevolent intention leave something for others. This is part and parcel of Adam Smith’s “Invisible Hand” at work. Also, higher prices in post Katrina New Orleans would encourage, through greater profit margins, businessmen from outside of the struck area to bring these goods to those here who needed them the most. This embodies yet another aspect of Adam Smith’s “Invisible Hand.”

An example of the trouble that economic ignoramuses cause can be illuminated with many different examples, but today let me just look at a couple of food shortage examples. Allow me to point out that so-called liberals and progressives think that rising prices in a time of great shortage is a horrible thing and they usually blame “evil and greedy corporations”.  It would come as a shock to our progressive friends (I have some, no kidding) that rising prices in a time of great shortage is actually a good thing. The higher prices preform the rationing that has to happen, and does so automatically. If there is going to be a food shortage after a major hurricane then we don’t want the first people at the grocery store to clean off the shelves at regular prices and hoard it all. We want the prices to rise so that people take only what they must have at the present time. This can be hard on the poor working class as I well know being one of that class myself, but I would rather buy some expensive product if I need food rather than look at empty shelves.

The economically uneducated always seems to wonder why tomatoes cost so much more in the dead of winter than in the summer time when the local crop comes in. It is the automatic rationing function of the free-market that helps man deal with scarcity in a peaceful manner. This is not the terrible thing the progressives imagine it to be. Economics is the study of man dealing with his environment and the fact that nearly all of his wants and needs are in short supply. Economics is the study of how humans deal with scarcity. We study how man deals with his situation through purposeful action, or as von Mises called it: “Human Action”.

Simply, economics is the study of human action and if one is going to have any opinion on politics or society at all, then one needs to study economics so as not to continue to believe in the many economic fallacies that the state has showered you with via their propaganda for the entirety of your life.

So what books would make a good introduction to economics for the average person? There are so very many that I could recommend, but here are three that I find to be wonderful introductions to the subject. First up is the classic text that I think is a great introduction to anyone interested in learning about economics: Economics in One Lesson by Henry Hazlitt. This one is one of the shortest, surest ways to understand basic economics. Hazlitt was a great writer and this book is not some dry textbook. Another very good introduction to economics would be An Introduction to Economic Reasoning by David Gordon. Dr. Gordon answers the question “Why care about economics?” and then goes on to explain basic economics. Another good introduction is found in Basic Economics by Thomas Sowell. This is a primer for everyday people that explains the basics behind any type of economy.

When you are ready and you have the time, there is no text in the world better than Ludwig von Mises’ book “Human Action“. In my opinion, this book by Mises is the most important work of economic or social theory written in the twentieth century. It is also the most important defense of laissez faire capitalism ever written. Yes, it is even better as a starting point for many people than the works of the great Murray Rothbard. This book is the place to find your moorings before diving into the economics, history, and libertarian philosophy of Rothbard. This book by Mises is not only a work on economics, but a full on investigation of the “science of human action.” Starting from a few principles that are a priori, von Mises deduces an entire body of economic theory. This book is highly recommended if you hope to understand the world we live in.

My friends, you should seek to understand economic thinking and you should encourage those you know to do likewise. Economics is far too important to leave to the professional economists.

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