Lesson 1: Why Is Economics So Dismal?

 

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

-- Murray Rothbard

Economics is truly dismal. This is probably not what you were expecting from an opening, but there can be no escaping this label, which was infamously decreed by the Scottish historian Thomas Carlyle during the Nineteenth century. Despite the fact that most individuals have never heard of Carlyle, its no surprise that they would agree with his claim. Whenever I ask someone what they know about economics, the two most common reactions I receive are not unlike the owls you see depicted above. Once the initial dread and discomfort of this question wears off, the most frequent response I am told is that economics has something to do with money, or financial markets. This sort of answer is not necessarily incorrect; economics does have a lot to do with money, but the problem is that this response is that is sort of like saying the ocean has something to do with boats. Clearly, there is a great deal missing if the only thing we know about the ocean is what takes place on its surface. So despite the fact that I agree with Carlyle’s label, the truth is that Economics is not dismal for the reasons he thought it was then, nor for the reasons you think it is today. Economics’ alleged dismalness in fact stems from several issues which this lesson will attempt to address.  

In sum, the reason why Economics is dismal is because it remains one of the most painfully misunderstood subjects known to man.

It problem isn’t that Economics is scarcely known. The problem is that what little most of us do know about Economics is likely steeped in error. For example, even though few individuals claim to be experts in Physics, nearly everyone still possess a correct understanding of many of the principles of physics, such as gravity. Most generally understand that gravity is a universal constant in our world, one whose forces actively guide our actions. As such, we do not find groups of individuals who claim that the Law of gravity doesn’t apply to them. There isn’t anyone who flippantly denies that gravity is a myth - for example, in the case of houses or automobiles - because that would be demonstrably untrue. Yet these are precisely the sort of claims made about the forces of Economics, even by individuals who actually claim to understand them. 

Unfortunately, these sorts of errors in understanding are not surprising. Most of us have had next to nothing in regards to an education in the principles of Economics. Even those whose primary school actually took the subject seriously enough to teach it are likely to have already forgotten everything they learned - with the exception of the words Supply & Demand. Education in general seems quite intent on pushing Economics off the table in order to make room for the seemingly more important subjects of Art, Music, Agriculture, Technology, Architecture, History, Medicine, or Engineering. For example, the American Council of Trustees and Alumni surveyed 100 leading universities across the country to identify which ones require their students to take at least one introductory economics class. Only two institutions - the University of Alaska in Fairbanks and the United States Military Academy at West Point - have an economics requirement. The rest, including the entire Ivy League, the top liberal arts colleges according to U.S. News & World Report, and the flagship public universities in each of the other 49 states, are not doing anything to ensure that their graduates are economically literate.

It goes without saying that the subjects above are indeed important fields of study. No one would deny this. Yet while plenty of movements and public cries can be found calling for students to enter into and preserve these precious academic fields, economics has remained largely ignored. This is profoundly ironic considering that Economics has been the catalyst through which all of these other subjects have even been allowed to develop. Indeed, without the development of modern civilization; without the creation of wealth with allows for greater and greater accomplishment of goals (such as efforts that culminate in the creation of the first computer) it is easily arguable to claim that none of the subjects above would be as advanced as they are today. That understanding alone should help us grasp just how important Economics truly is. Yet the reality is the opposite. Practically no one hold Economics in high regard. But again, why would anyone hold Economics to be critically important, when by its omission alone, we have been essentially taught that the role it plays in our lives is negligible?

However, as much as a lack of educational emphasis for economic literacy remains a problem, it is only half the problem. The other half is that those who actually come to recognize this importance and attempt to learn economics find their first exposures comparable to that of learning an alien language[1]. Just ask anyone unfortunate enough to stumble across a televised discussion on economic issues, and they are likely to conclude that the panel of speakers all sound remarkably similar to the “wonking” teacher from Charlie Brown. In fact, former FED Chairman and Economic guru, Alan Greenspan, fit this illustration frighteningly well, as he was notorious for speaking on Economic topics with such obscurity that even well educated listeners began dubbing his comments as “Greenspeak.” Additionally, most books on Economics aren’t very helpful either. Many are filled with abstract terms and mathematical models that often conflict, confuse, or read like VCR instructions. So while many of the students who take classes in Economics find that they can memorize the subject material, it is often given no practical sense of meaning, which is why they often fail to apply it to the real world, and thus forget most of it by the time they enter adulthood. Sadly Economic education has become the equivalent of teaching cavemen how to operate an automobile. The cavemen might be able to open the doors or operate the pedals, but they still possess no conceptual understanding of what an automobile is or how it mechanically operates.

At the end of the day, widespread economic illiteracy is clearly a problem, but the reasons for it are obvious. If abstract mathematical models and Alan Greenspan have become the archetypes for all things Economic, how could anyone come to the belief that Economics is one of the most important, if not relevant subjects they could ever learn? Even if someone were to concede that economics was important, most individuals would still claim that it wasn’t important enough for them to understand it personally. To most, the notion that everyone should possess some understanding of Economics seems just as impractical as the idea that everyone should possess some understanding of mechanical engineering. Most would say that Economics understanding is only necessary for an eccentric few; inside the walls of a financial establishment where groups of balding men with furrowed brows sit around a large table and discuss interest rates[2].

The Importance of Economics

And thus we have come full circle: Economics is dismal for young adults because it is often seen as complicated, boring, and insignificant – which is why so few understand it. But the good news for you is that the imagery depicted above is quite possibly the very antithesis of everything that Economics is truly about. Economics is not difficult to learn, and in fact can be one of the most interesting subjects you can learn. But sadly, much of what makes much up the confusing and boring stigma attached to Economics today is based less on what Economics actually is and more on what it has become[3]. In many ways, Economics has taken on a sort of ugly duckling syndrome in that it is regarded negatively (and thus avoided) because it is not seen or understood for what it actually is. Because of this, most individual have inadvertently dismissed any practical importance that it has in our lives.  

Yet as mentioned before, what Economics actually is, is responsible for the existence of modern civilization. Indeed, apart from the sound understanding and application of economics, civilization as we know it today would not exist. Now this is not to say that civilization only came about by of the efforts of Economists and their models: Men did not move from caves and loincloths to condos and skinny jeans because Economists got together and engineered our modern civilization from within some lab. Instead, our modern world of technology, irrigation, electricity, arts, entertainments of every conceivable type, machinery, vast arrays a food, air conditioning, the Shake Weight and conceivably everything that we see around us, would not exist as they do today were it not for the tools of social cooperation, capital accumulation, division of labor, and exchange – all of which are purely economic. It has been only by the productive ability of our economies to abundantly produce these goods and services that our lives are even possible, let alone enjoyable. Even a typical day at the beach would be awful apart from the free time, soft towels, comfortable chairs, tanning oils, and skimpy bathing suits that make this experience so much fun!  

However, this point goes far beyond the simple comforts of modern civilization. It undergirds the existence of civilization itself.  For without the gains made through Economics, it is an inescapable fact that most of the world’s population wouldn’t exist. Without the advances in medicine, technology and the productive capacity of our economies to generate the sort of wealth we have today, the plain and simple reality is that most of us could not have been born, let alone well nourished, educated, and kept free from disease. Without this productive capability, there would be nowhere near enough goods and services by which the current population of the world could be fed, kept healthy or even employed. If that wasn’t bad enough, those of us who did managed to survive our birth and infancy would live far shorter lives comprised of poor health, malnourishment, little to no education and backbreaking labor.

Brazen at it may sound, much of the reason why you are able to read these very words is owed largely to Economics.

So if Economics carries any weight of importance at all, it does so because it seeks to answer one of the most important questions of all mankind: How do we create prosperity? Economics asks how individuals might make the best use of what they have so that they might increase their standards of living. It asks how humanity can progress from the rural agrarian society, towards that of the industrial, technological and beyond. The study of Economics should be considered a noble one, because it is the study of how mankind overcomes poverty – the single most destructive force on Earth. For whether it is disease, starvation, low birth rate survival, malnutrition, general poor health or even crime - poverty is either directly or indirectly responsible for more death and suffering than any other force on Earth. Indeed, more so than any other factor, how a nation understands and applies economics ultimately determines whether that nation will look like North America or North Korea.

We Don’t Understand Wealth Creation/Destruction

The biggest problem however, is that the weight of this importance remains lost to most of us. Americans, students in particular, are so wealthy that they have no idea of what true poverty is really like; the sort of destitution experienced by Third-World nations, like North Korea, India, parts of Africa, or Haiti. We have no conception that something as simple as a cell phone, clean running water, or even a pen could depict radical economic progress because we are practically born with them in our hands. In contrast, Journalist and author Barbara Demick has often written and spoken of those whose lives are starkly different than our own. On National Public Radio, Demick recalled one particular the story of a North Korean man who fled his native country, at extreme risk to his life, simply because he learned that the average citizens of South Korea had access to cars and pens. Compare this to many of Americas poorest, who still have a place to live, a television, phone, clean running water, access to food, a microwave oven, a car and all the pens they could ever want. We have no idea what it is like to endanger our very lives all for the possibility of owning pens. 

The point here is not to say that we should feel guilty for the wealth we have created, quite the contrary. However, we should feel some guilt at the fact that we are an extremely wealthy people who have no conception as to how that wealth was created, how it can be preserved, or how it can be lost. It is only once we begin to examine this ignorance that we begin to truly understand why Economics is dismal.

For instance, historian Thomas Woods has cited several ironies regarding our wealth ignorance, such as the fact that most Americans have to come to assume that our standard of living is the standard that should naturally exist everywhere else on Earth. Whenever Woods speaks on the topic, he often jokes that Americans hold candle light vigils and awareness rallies to spread the seemingly shocking knowledge that poverty actually exists somewhere in our world – all the while vigorously demanding that something be done about it. But the irony, Woods explains, is that we have it completely backwards: Poverty is the norm. What we would even label as extreme poverty today is the standard by which most of the world has historically lived since the dawn of time. It was only until very recently that practically every living soul fully understood that their lives would be comprised of hard labor and grinding poverty - followed by swift death. Even if we were to historically turn the dial back just two hundred years, most would like find the average Americans living standard to be practically barbaric: There was no retirement, no pension plans, no vacations to tropical locals and no instant micro-waved gratification - none of the luxuries we enjoy today.

Unfortunately, many of us believe that wealth is something that already exists: That wealth is the simple byproduct of hard work and intelligent minds. However, this overlooks the fact that there have always been hard working and intelligent individuals everywhere on Earth - even in the poorest of countries. Haiti is one such nation which possesses an abundant labor force, a close proximity to one of the richest trading partners in the world (the U.S.), and a tropical climate that is ripe for producing crops. Yet even after receiving billions of dollars in both private and public foreign aid for decades, rather than joining the rest of the modern world, Haiti has remained entrenched in devastating poverty for what seems like forever. Conversely, similar territories that were once just a poor as Haiti, such as Hong Kong, have exploded from decrepit shacks into Skyscrapers within mere decades – without any foreign aid whatsoever. In just fifty years, Hong Kong was transformed from abject poverty into a city that rivals New York despite the fact that it possessed almost no natural resources and an even greater population density than that of neighboring India – which has also possessed terribly poor economic conditions for generations.

Our lack of economic understanding has also made us arrogant. Woods adds that we like to sneer in disgust at the horrific practices made in the past, such as the notion that children were made to work in factories or fields. We see this act comparable to that of slavery and frequently decry against any nation that allows for the existence of child labor. Yet despite our good intentions, we fail to understand that throughout all of history, children have had to work. We fail to understand that the existence of child labor is not primarily the by-product of greedy businessmen with long mustaches looking to shove kids down coalmines for pennies a day, but because economies were so poor that if children did not add to the productivity of their family - then their family would likely starve. By working, these children actually set the groundwork to create enough wealth so that their children might not have to work at such a young age. It is this very productivity that eventually enabled countries like the U.S. to grow wealthy enough that child labor became largely unnecessary. In fact, by 1930, only 6.4 percent of kids between the ages of 10 and 15 were actually employed, and 3 out of 4 of those were in agriculture.[4] The sad truth is that in our ignorance, many attempts to end legitimate child labor in third world countries has forced those children into far more horrifying and illegitimate practices, such as begging, crime and prostitution.  

Finally and worst of all, because most of us do not understand Economics, or Economic History, we fail to understand how wealth can also be destroyed. For instance, most of us inherently accept the false notion that Economics has historically moved along a continually progressing trend. That once discovered, the knowledge for creating economic prosperity cannot be lost or diluted. We believe that each subsequent economic thinker throughout history has continued to refine and espouse a greater understanding of the principles of economics. Its only makes sense that mankind would only get better at understanding a particular realm of science, after all, this is how all the sciences have more or less progressed throughout time. Unfortunately, a reading of Murray Rothbard’s two-part tome, An Austrian Perspective on the History of Economic Thought, thoroughly reveals how history has been repeatedly plagued with societies whose fallacious notion continually derailed, diluted or corrupted both the science of Economic Theory and its application. The results of enacting these fallacies were civilizations that halted technological progress, stifled economic growth, fell into poverty, and destroyed themselves from the inside out. 

Perhaps one of the clearest examples of this was that of the great Roman Empire, a civilization that remains one of the most startling examples of human prosperity and accomplishment. Indeed, throughout its reign, there was nothing like the wonder, power and accomplishment that was Rome: It created structures, such as the Colosseum and the Circus Maximus, which even to this day remain architectural marvels, and also developed one of the first aqueduct systems that brought clean water into the homes of Rome’s one million residents. In its prime, Rome was the center of economic progress; art, philosophy, military tactics, agriculture, mathematics and even entertainment all made vast gains during Rome’s best eras. It has even been suggested that Rome came incredibly close to creating the first industrial revolution, the gains from which would have completely reshaped the world we see today[5]. Unfortunately, Rome never saw such a revolution, which then came about some 1200 years later, because it completely collapsed around the fifth century, after having fallen from its high position and decayed for nearly four centuries prior. 

The question of what caused Rome to fall has been of critical importance because it is key in understanding how wealth (and thus civilization) is destroyed. The truth is that we already have its answer, as historians such as Michael Rostovtzeff and economists such as Ludwig von Mises, have demonstrated how unsound economic policies played the primary role in the impoverishment, decay and eventual collapse of the Roman Empire.[6] And while Rome may have been one of the clearest examples of how economic progress can be reversed and ultimately destroyed, Rome was by no means the only example. Countless other nations have faded away in exactly the same fashion - not at the hands of a more powerful military adversary - but as a result of abandoning sound economics, and thereby crippling these civilizations ability to even sustain themselves. 

Its true that the science of Economics has made advances over time, but this does not infer that sound Economic theory and application cannot be slowed, crippled or even reversed. In fact, real economic progress has only occurred in small pockets of explosive growth within areas such as Ancient Greece, the American and European Industrial Revolution, parts of Ancient China and more recently, Hong Kong and Singapore. Generally speaking, true economic progress has been an extremely rare event throughout history, and sadly, most of the civilizations that have managed to create this explosive growth have also managed to lose it.

Which bring us to today.

The West in general, and the United States in particular, show lifelines that similarly reflect the life of the great Roman Empire[7]. Just a few hundred years ago, most of the world lived in what we would classify as poverty. Yet somehow, America enabled itself to grow at such a startling rate that those Americans who died at the end of the 20^th century died in a world that barely resembled the one they were born into. In the measly span of roughly one hundred years, North America went from horse drawn carriages to manned missions into Space. This kind of technological progress has never occurred in all of human history combined! Yet as expected, our lives of intercontinental travel, instant worldwide communication, retirement, advanced medicine, computer technology, and all manner of entertainments that can make one blind - were all the products of employing sound economics.

Yet just like Rome, where we find ourselves today is a global economy struggling to survive one of the largest economic shocks it has ever experienced, the cause and duration of which are completely alien to most of us. As the U.S. economy still remains stagnant as of the time of this writing (2013), most of us have no clear answers regarding how we arrived at this position, to say nothing about how or when we’ll get out of it. What we see instead are answers and even entire movements that prey on the animosity we feel from having lost our jobs or seen our standards of living reduced. Unfortunately, such animosity merely reflects what Economist Thomas Sowell refers to as our inability to see beyond “Stage One”.  Sowell correctly writes that because individuals don’t possess an economic knowledge to understand the causes for economic problems, they instead supplement causes that placate their emotions. Ultimately lacking any depth of economic analysis, most simply claim that “the economy crashed because [insert people group] were greedy.” Empty statements like this are akin to remarking that a plane has crashed into the ground because of gravity. The answer may be fundamentally true, but not only is it completely devoid of a thorough explanation; it also does nothing to prevent another plane crash.

Economics and Your Life

As we will see, it is a general law of Economics that all humans wish to improve their state of being. All of us want to have better, longer, happier and healthier lives in some fashion or another. But despite the fact that individuals are always working towards achieving better states, our efforts for achieving the outcomes we wish to see are greatly hindered by the fact that we do not understand Economics. Economics is not simply about what takes place on Wall Street, it directly concerns every aspect of our lives.

This is why individuals, such as Robert Murphy, have sharp criticism for those who continue to relegate the importance of economics off to economists such as himself. Murphy asks how anyone could hold any interest in the ills of modern life - energy scarcity, unemployment, quality of education, outsourcing of labor, pollution, crime, endangered animals, lack of affordable housing or transportation, traffic jams, gas prices, income inequality, the falling quality of medical services, or the ever-rising costs of living – and not realize that they have taken an interest in something that is inexorably related to economics? How could anyone wish to see better medical services, better job opportunities, better cell phone services, safer schools or healthier foods without Economics? How could anyone desire an easier way of life and yet still remain woefully oblivious to the role Economics plays in these practical day to day issues? Worse yet, how is it that so many of us hold strong opinions regarding these issues, as well as positions on how they should best be resolved, yet based on no understanding of economics whatsoever?

This is the fundamental problem with Economics and the reason why it has become truly dismal: We possess history-defying levels of wealth, prosperity and abundance, yet most of us have no real clue as to how this wealth was actually created, nor how it can be maintained. Instead, we have been taught to ignore the very science that reveals to us how our world works; how its manifold problems come about, and how they might best be resolved so that individuals can create prosperity. While at its best, this ignorance robs our complaints of any credibility, at its worst, this ignorance does nothing to bring about the solutions we desperately wish to see in our world. 

Therefore, since Economics is inexorably bound to the sort of lives we will live, shouldn’t the general understanding of, and fervent adherence to, that which enables us to create economic prosperity (and end economic destruction) be nothing if not our obligation to understand? 

On this, Economist Ludwig Von Mises correctly answers;

"Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen." [8] (bold added)

Yet even Mises understood that this is no simple (or welcome) task, which is why he adds the following; 

 “the flowering of human society depends on two factors; the intellectual power of outstanding men to conceive sound, social and economic theories and the ability of these or other men to make these ideologies palatable to the majority.”[9] (bold added)

Mises was right: The proliferation of economic understanding doesn’t stand a chance apart from those individuals who can cogently explain it without causing the rest of us to collapse from a brain aneurism. That is where this work comes in. My purpose here is merely that of the translator; to convey the theories and ideas which brilliant men, such as Mises, have conceived in order that you might better understand and actively apply Economics to the world around you. Understanding the difference between what Economics actually is versus what is has become today is another main aspect of this work, because it is a key factor toward understanding why the Economics you read here may appear in stark difference to the economics you see in your classroom or textbook. 

In conclusion, if we truly possess any desire to have lives that consist of relative peace and prosperity, then we would do well to acquire some understanding of the science that enables us to bring such prosperity about. We would do well to understand solutions that can help create a better world; one with newer technologies and innovations that enable individuals to live longer, safer and more prosperous lives. Perhaps most importantly, we would do well to learn about economic fallacies; those policies and notions which - no matter how well intentioned or wondrous they appear to be – destroy wealth and create misery and even death because they ultimately ignore or reject the Laws that Economics is built on. 

It is upon this very concept that our study will begin. 

---

[1] This comparison was taken from the authors personal experience.

[2] For Economists, this is known as a party. 

[3] We will examine more of this in later sections.

[4] See EH.net's "Child Labor in the United States" by Robert Whaples, Wake Forest University.

[5] If the first industrial revolution had occurred during Roman times, it is entirely possible that inventions such as the steam engine, the printing press, and the computer could have been created over 1000 years before they eventually were. Just imagine how the world might look if the computer had been created in 1000A.D. 

[6] Rostovtzeff, Michael. Social and Economic History of the Roman Empire. The Clarendon Press. 1926
Mises, Ludwig von. Human Action. Ludwig von Mises Institute; 3rd edition (2010)

[7] For other parallels between America and Rome, see Cullen Murphy’s Are We Rome? Mariner Books; Reprint edition (May 5, 2008)

[8] Human Action. Page 875

[9] Human Action. Pg. 860 Ludwig von Mises Institute; 3rd edition (2010)

Lesson 1: The Return to Eden

Choosing a starting point for a brief study of economics can be quite the daunting task. Economics was not the creation of one mind but rather many minds over many centuries so there are literally hundreds of places one could begin. But a good beginning is nonetheless absolutely necessary because if you don’t understand where the foundations of economics begin then you are liable to build your understanding of it on many of the same falsehoods that even some professional economists have made their careers. In an effort to break down these foundations into teachable concepts, I have decided that the beginning of time is probably the best place to start. 

If you’ve read it, the Bible records a time when man had all that he needed[1], there was no starvation, disease, poverty, pain, - and especially no taxes. The first man had only a garden and his beautiful wife to occupy his time. This place is referred to as Eden: A time when economics did not exist. In this peaceful place, there was nothing initially needed to satisfy the needs of the first man and woman, everything was very good - but as we already know, it clearly didn’t stay that way. Genesis chapter three records that the man and woman were tempted to disobey God, and when they did, they were cursed and expelled from Eden. Thus pain, scarcity, poverty and death entered the world and thus was the birth of economics[2] - the science which examines the production and distribution of limited goods in a world of unceasing demands.

Whether or not you believe in this Biblical story is irrelevant. I’m simply using it to illustrate the point that since the dawn of time man has tried relentlessly and emphatically to return to (or achieve) a state where his needs and desires are satisfied. We are always working toward this goal in some regard and its accomplishment comes about through our actions. Economics begins with Human action: We seek to economize limited resources in order to achieve particular goals. This action occurs because each of us wishes to satisfy our needs or alleviate our discomfort - we are constantly striving to return to time when economics does not need to exist. We are always striving to return to Eden.

Personally, this is a very simple place to start, economics is about individuals satisfying desires through production and exchange. But socially, economics then explodes into the vast study of how societies do the very same thing - striving toward their return to Eden. You’d think some society would have eventually achieved Eden by now, but history has proven that economics is a complicated science – because it involves humans – and humans are very flawed creatures. On roads paved with endless good intentions, we have repeatedly tried and failed to create an Eden of our own. We continue to lead ourselves down paths that yielded imperfect or even horrid, results: there is still war, poverty, racism and disease.    

Nonetheless, we continue striving toward improving our lives and our world through our actions. You likewise have your own ideas that you believe will help usher in Eden, goals like fighting inequality, racism, world hunger, saving the dolphins and ensuring that the planet doesn’t melt. These are simply needs that humans seek to satisfy, whether they are on a large scale or an individual scale (like making a sandwich), economics encompasses all these things. Of course included in this are the more familiar aspects of business (production, time, exchange, prices, etc.) that you are familiar with, but at its core, economics goes beyond this single "business" label to encompass all human action. All of these actions make up who we are as a society which makes up what is commonly known as our economy.

There is a great deal that makes up this collection of individual tastes, values and exchanges known as an economy, but we will touch upon that later. Instead the focus of this section is to highlight the apparent challenge we face when we attempt to create that better world or society. The problem for this challenge begins with our individuality. You and I would likely agree on our desire to achieve a better world but we would both quickly realize that we dont share the same vision for how such a world should come about. No society has ever managed to create a utopian civilization and in fact, all those who have specifically tried to create the perfect society have instead only created abject poverty.

The question is why?

The long answer will require a good amount of digging but the short answer is that any society built upon the ignorance of economics and Human action is doomed to economic failure and thus destruction. Striving toward a perfect world has always failed because those who have created such societies pulled their inspiration from sources devoid of sound economics. Economist Ludwig Von Mises understood this point when he stated that; 

“The evaluation of any economic system must be made by careful analysis of its effects upon the welfare of people, not by an appeal to an arbitrary concept of justice which neglects to take these effects into full account.”[3]

What he meant was that designing a prosperous society based on something other than sound economic principles is to doom that design to failure, regardless of the intentions of that designer. It doesn’t matter how driven we are or how much we care, ignoring sound economics always leads to failure. The same can be said of any task, like baking a cake without sugar or building a condominium on the sand - failure lies in the failure to understand the basic foundations. Today, we frequently demonstrate this kind failure by remaining ignorant of economics, assuming that some other individual (likely a politician) possess the necessary intelligence and/or moral character to design this perfect world for us. In truth, the failure of creating a perfect world is this direct result of believing that a Perfect World is possible in the first place. In an effort to achieve such a fantasy, nation builders have ignored several crucial aspects of economic reality (economic foundation).

Namely that (but not necessarily limited to);

(1)   That Eden is subjective: (Subjective Value) Each of us performs different actions for different reasons to achieve different goals - because we hold different values regarding the means to satisfy our preferences. Therefore there can be no ‘one size fits all’ system that perfectly coordinates millions of different individual values into a system that will constitute a perfect utopia. Economics therefore begins with the actions of the individual.

(2)   That Man is not perfectly rational: (Human Action) In acting, because those actions are still based on individual subjective values, we cannot be molded or taught to think in a manner that is arbitrarily declared as perfectly rational. We are individuals, and we cannot become a society the perfectly shares the same values toward acting. Each of us seek to put the least amount of effort into getting what we want (we have an aversion to laborious or painful activity).

(3)   That there are not enough resources on the Earth to satisfy everyone’s needs and desires. (Supply & Demand) Supply and Demand are inescapable forces of economics and direct all economic action and apart from which no productive exchanges could take place. 

The problem with Eden is that it has a very powerful appeal. How many of us would pass up a chance for a perfect world or even a perfect world for our children? By simply accepting the notion that a perfect world is possible (an arbitrary ideal to begin with) the trap is already sprung because it then convinces you that no cost will be too high in order to achieve your paradise. Economic disaster occurs because our plans for reaching Eden have historically involved forcing societies to conform to some arbitrarily determined ideal that demands that people give up their wealth, liberty and wellbeing - all for the notion that doing so would will Eden. That by making everyone equally poor, there would be abundant prosperity. Written this way, you would think that no one would agree to such foolish ideas but history has already shown us that millions of people have fallen prey to the idea of a perfect world numerous times. These so-called “advanced” ideas always sound great on paper, but they never work because for all their moral sentiment and idealistic appeal, they still ignore economics. 

Communism is one such attractive idea which appears to be morally appealing on the surface but ultimately fails because it has no sound economic foundation. One of the most famous proponents of Communism, Carl Marx did study and develop economic theory, but he writings revealed that not only were his economic insights flawed, they were premised on false notions regarding the nature and structure of Capital, entrepreneurship and especially the determination of value.

Aside from completely ignoring the issue of scarce resources, Communists believe that prosperity will rise up naturally as the bourgeoisie (the wealthy) are removed from society. Communists believe that they will then arbitrarily decide prices for all goods and services, decide what resources are used for what economic purposes and then decide who gets to use those resources. Even a basic study of economics reveals how daunting such a declaration can be. It is akin to claiming that you will organize the sands of a beach in order to create a better beach, all while the tide continues to roll in and out. Economic laws (the tide in this case) become meaningless as those in charge create their perfectly classless society, forcing the majority of the population to conform to a perfectly equal economic state (and subsequently by exterminating those who will not conform). This paradise pays little to no regard to even the economic (or human) cost as human lives become the eggs that must be broken in order to cook up the “perfect omelet”.

One of the final goals of Communism is the eventual elimination of the government, an act which will only occur once all society is perfectly equal. Only then will the government relinquish its control over society and leave the people to peacefully live their own perfectly equal lives. You probably have never heard of this final aspect of Communism due to its sheer impossibility. Such a final state is not only impossible to administrate, it is impossible to comprehend. As soon as one individual was found to have more shoes or possess happier thoughts than their friends, wouldn’t the Communist government need to return and start the entire process all over again? Far too often I hear Americans claim that Communism could still work today, even though it has produced nothing except poverty and destruction throughout history. Even on paper, any system that ignores economics is doomed to failure.

It is vitally important that you never fall prey the idea of a perfect world because at its very core, this idea is completely subjective. You and I will never have a perfect world because we don’t even share the same vision of what a perfect world is suppose to be. Now, the idea of a perfect world may be built on compassion and good intentions but it is unfortunately also devoid of economics. The purpose of economics is not the return to Eden but rather it is a science that reveals to us the results of our actions. Economics reveals to us what enables individuals to produce and distribute resources in the most efficient manner so that wealth and prosperity can occur. It reveals to us tools that allow for the creation of wealth and it also reveals which fallacies cripple progress and produce waste.[4]

This brings us back to our main point: Regardless of our motives or intents, our personal or moral convictions cannot make a fallacious economic system work. A group of Christian Socialists will fail just the same as a group of Post-Modern or Jewish Socialists – because the failure lies in Socialisms inability to calculate prices, one of the most essential aspects of an economy, it has nothing to do with the fact that the people hold one worldview or another.

We all may have the best of intentions when planning out our societies, but anyone who thinks that forced equality (financially, educationally, morally, physically, intellectually, and/or emotionally) is both viable and attainable is unfortunately not thinking about the realities of economics. There simply are not enough physical resources in the world to allow us each to live the life of Hugh Hefner, lounging around all day in our pajamas inside a large mansion full of beautiful women who can’t read.

In conclusion, it is my hope that this introduction helps you learn the distinction between a better world and your idea of a perfect one. The perfect Eden is not possible because there are simply not enough resources to satisfy everyone’s demands, but it is for that very reason that economics exists: to determine the most efficient means of producing and allocating scarce resources so that economic progress can occur. Without economic progress, we will never be able to produce new technology, more food, new medicine, and clean energy, nor will we be able to produce more of those goods and services cheaply enough so that the poorest can afford them. You must remember that Eden and prosperity are two completely different concepts that no individual should ever confuse. Economic progress means we truly can live rich lives, free from starvation, disease, war and poverty[5]. This doesn’t mean everyone will get everything they want, nor does it mean everyone will be equal, but it does mean that sound economics gives us all a chance to live a better life today than those who lived before us, and that those after us have a chance to live better than we do today.

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[1] Granted, there was no Sunny Delight or Call of Duty: Modern Warfare (that we know of) in Eden, but when you consider the alternatives of the beautiful outdoors, a naked spouse, and lots of time, is there really any argument to be made against this paradise?

[2] What is interesting is that you will find that the first transaction in history occurring at exactly the same hour that economics was born into our world. God declared His purchase of man’s disobedience (The first credit purchase, you could say) to be paid in full in the future.

[3] Theory and History by Ludwig Von Mises. Pg 346.

[4] I must point out that the goal of sound economics is not necessarily utilitarian, meaning that the goal (in this sense) is to overcome poverty at the best cost – not any or all costs – as is the prescription of fallacious economic theories, where the deaths of millions of people become the equivalent of cracked eggs, a necessary cost for the creation of a perfect utopia. Genocide is clearly not the key to paradise.  

[5] You will notice I did not say you can lives free from jealously, offence, inequality, sin, dissatisfaction, theft, fraud or misunderstanding, as the removal of these elements often undergird the utopian ideal.

Why is Economics So Dismal?

Economics is actually the youngest of the social sciences, but unfortunately it is also the most painfully misunderstood. The Scottish historian Thomas Carlyle decreed that Economics was the dismal science and today this title is still quite applicable amongst economists and average citizens alike. The general reaction I get upon starting a conversation on the topic of economics is similar to the picture of the two owls you see here. I have actually seen pain or dread in the faces of those Ive brought up the subject with. When I ask someone what they know about economics, the general response they give is that it has something to do with money or investing – which is kind of like saying that the ocean has something to do with boats. This frequent answer bothers me. Yes, economics does have a lot to do with both money and investing but that is merely one faucet of the science of economics. Investing, in and of itself, is actually another subject altogether and shouldn’t necessarily be what you think of when you think about economics. People are often surprised when I tell them that economics is about everything they do.

I am going to assume that most of my readers have little to no economic education. Even so, anyone who went to a school that actually took the subject seriously enough to teach it has already forgotten anything they learned. As a school subject, economics is not even regarded within the same category of importance as the subject of geography (which is kind of frightening considering the increasing frequency at which Americans, including the 44^th President[1] have trouble remembering how many States there are within our own Union). I believe our poor geographic knowledge is an excellent depiction of where most of us stand on the subject of economics.

 What little we do know about economics can be easily categorized under the label of “Excruciatingly Boring”, and it’s because of this label that we are constantly, if not explicitly, motivated to ignore (or detest) the subject altogether. We are taught to steer clear from economics, to continue with our own interests and passions while we let some other sap waste their life overseeing the workings of our economy. Why bother with economics, when we have better things to do like, vlogging, using Shake Weights, counting blades of grass or watching mindless young adults from New Jersey try to make sense of the world? How can economics compete against this kind of situation? I’ve come to the impression that people compare the studying economics to the studying of juggling: Both are rare and complex talents – but not subjects that any of us take seriously. 

It is the other subjects of formal education that we often hear a greater push for: Music, the arts, classical literature, medicine, and technology - but we never hear about the push for learning economics. We never hear someone claim that it is the most important basic subject they could learn, equal to learning how to read or add. While the aforementioned subjects are indeed useful subjects, they do not, in and of themselves necessarily help produce more goods and services nor create prosperity  but rather - they are the products of prosperity. Shouldn’t we at least be somewhat educated in the subject that can affect or encompass nearly all other subjects?

All right, so maybe economics is important, and maybe you do want to learn more about it but where should you begin, and how can you dredge through such a study without eventually wanting to throw yourself into oncoming traffic? Obviously, my first goal in this opening is to convince you that economics is, in fact, not boring. Now, I do understand that because phrases like “Inflation Induced Inter-temporal Monetary Disequilibrium” exist, you probably don’t believe me, but in my opinion, economics is only boring much in the same way that oxygen is boring. We simply don’t pay any attention to it unless we suddenly aren’t getting any.  

Now, I certainly can’t blame you for steering clear from the subject of economics. How could I blame you when most of the teachers and leaders in the economic community remind us of that teacher from Charlie Brown. However, economist Ludwig Von Mises aptly wrote that; “The flowering of human society depends on two factors; the intellectual power of outstanding men to conceive sound, social and economic theories and the ability of these or other men to make these ideologies palatable to the majority.” Sound economic theory is vitally important for creating prosperity, but what is perhaps more important is the need for people who can simply explain it without causing the rest of us to drop dead from a brain aneurism (see Alan Greenspan and his infamous Greenspeak).

Most of our economic confusions are the result of treating economics as if it were any other subject, but economics is not like physics or biology, where everyone generally agrees on the practices, principles and applications. Within economics there is vast division on both principle and practice, with each varying school of thought claiming sole possession of the one true ideology. Because of this, as stated by economist Henry Hazlitt, economics is haunted by more fallacies than any other study known to man. So, just like the once commonly held belief that the Earth was the center of the universe, today there are many fallacies in economic thinking that most of us accept as common sense. These fallacies have existed since the dawn of economics and have historically slowed human progress to a dismal pace, often requiring centuries for sound practice to come into fruition. So, how can you wade through all this mess and still make it through the other side with your head on straight?

This work is the attempt to explain the basics of economics in a quick, simple and palatable way, by laying down its solid foundations and dismissing some of its most basic and prevalent fallacies. This work is short on purpose because I am willing to sacrifice a great length of material to maintain your full attention. Fortunately, it is not necessary for me to go into the full exposition of each subject because if you truly desire to learn more then you will do so and learn from those writers who do a far better job than I. What I really hope you take away from this is the understanding that economics requires a little bit more attention than the amount we usually give it (which is none).

I can bet that from the moment you began reading this, you have been repeatedly mulling over the thought that you’ve made it this far in life without the need to know economics, so why would you need to know it now? Firstly, the truth is that you have actually been an active practitioner in economics your whole life and, (don’t freak out) even reading this book is an act of economics. Because you and I are constantly making decisions based on incentives, disincentives, preferences and tastes, economics is an ongoing and ever present process. Secondly, many of you who read this are now coming into an age where you are paying far more attention to your futures (where you will work, and how you will maintain a certain lifestyle) and economics is slowly becoming something you are recognizing the need to understand. It may be true that you can live a healthy and productive life without the strict knowledge of such subjects as cardio-vascular surgery or auto mechanics, but I argue that you cannot survive at any socio-economic level of any society completely bereft of sound economic understanding – because your life and wellbeing actively depend on it.

Anyone alive and sober in the latter half of this decade should clearly understand that they could no longer ignore economics. This goes beyond those who simply are ignorant of the subject but those who blindly follow a partisan economic policy simply because they are too lazy to investigate the economics they supposedly support. America is no longer the invincible power that many of us thought it was, and as our economy remains stagnant to this very day, most of us still have no clear answer as to why we are unable to get ourselves out of it. 

So often in the event of an economic downturn answers that rarely look beyond what economist Thomas Sowell refers to as “Stage One” are the most plentiful. We don’t really know what caused the economy to crash, so instead we just supplement the answer that we are in this mess “because [insert people group] are greedy.” But this has no depth as an answer. It is like remarking that a plane has crashed into a hillside because of gravity. The answer may be fundamentally true, but it is completely devoid of a full economic explanation - It also does nothing to prevent another plane crash from occurring!

Since I began this work on the subject of poverty and the creation of prosperity I want be sure that I carefully define the two terms early on. By poverty I mean third-world destitution, not what Americans commonly think of when they think of poverty. Americans have taken their economic prosperity for granted to such a degree that we have almost no idea what true poverty actually is. Many of the poorest Americans still have a TV, a phone, running water, a microwave-oven, and a car. We live such wealthy lives that we assume it is the norm, the standard that should exist everywhere else on Earth. Comically, we hold candle light vigils and awareness rallies to spread the shocking knowledge that poverty actually exists somewhere in our world and then demand that something be done about it. It’s good that we want to end poverty but we fail to grasp that poverty has been the norm for the majority of the human race since the dawn of time - and with good reason – poverty is the direct result of bad economic structures.

Americans have it backwards; a relatively short time ago, it was fully understood by the World that their lives would be comprised of hard labor and grinding poverty, which was swiftly followed by early death. No retirement, no pension, no vacations to tropical locals and no instant micro-waved gratification; none of the luxuries we enjoy today. Back then, the children of most families had to work, not because greedy businessmen were looking to shove kids down coalmines, but because if the children didn’t work then their family would very likely starve! Even the Kings of old still had to urinate in a bucket and throw it out a window but no king has ever lived like the average Blue-collar American lives today.

The real question we should ask ourselves is how did we do to bring ourselves to such wealth in such a relatively short amount of time? Nations like China have been around far longer than we have, what did we do in 250 years that the Chinese couldn’t do in 2500 years? Our lives of intercontinental travel, instant worldwide communication, retirement, advanced medicine, technology, and all manner of entertainments that make you go blind - are the result of employing sound economics. Americans have more than we could ever imagine because we’ve adopted economic structures that enabled prosperous the growth from encouraging and rewarding creativity, hard work, productivity and ingenuity. To profess ignorance in economics while yet complain about economic issues such as high gas prices, unemployment, CEO salaries, over-population, energy scarcity, food scarcity, or poverty in general robs our complaints of any credibility. This is akin to complaining about the score of the Football game when you have no idea how Football is even played. You understand that one team was victorious, and the other was not, but as to how this all occurred – well that doesn’t seem very important to us. 

As economist Robert P. Murphy observed, “The sad truth is that most Americans do not know economics. We have no ability to grasp and analyze the problems within our own nation because we are not educated in it. Only with sound economic thinking will you be able to make heads or tails of how the world works.”

Economics my have been called dismal, but this is not because it is boring or complicated. Economics has become dismal because so many young men and women today have strong opinions on economic subjects (which they subsequently cast votes for) and yet they possess little to no economic knowledge on those opinions whatsoever. They support recycling, wage laws, wealth redistribution or even population management without any economic understanding to back their support for those beliefs. They fail to ask whether or not these economic actions actually achieve the desired (economic) effects. Economics is dismal because we ignore it every day.

The bottom line is that economics isn’t as difficult as you’ve been led to believe. so stop shying away from it. With the help of some of the greatest economic writers in history, I hope that you come to understand that economic systems based on fallacies and foolish notions can only bring about stagnation, poverty and economic collapse. Conversely, it is sound economics that brings about vast prosperity for the majority of the world. And even though that prosperity will not be perfect, it is certainly a far reach above where we (and other nations) find ourselves today. It’s time to do away with what has been proven to destroy wealth, enslave nations and cause more deaths than any other force on the planet. It is time you learned some economics.

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[1] At a campaign event in Beaverton, Oregon, Barack Obama claimed to have visited 57 states, which only makes sense if he was including American occupied territory.