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.