Category: Economics

Goods, Property and Externalities

Basic economics partitions goods into private goods and public goods, and property into private property and public property. Private goods are defined as those goods that are rival — one person’s consumption of the good  reduces the amount available for others to consume — and excludable — a person can be prevented from consuming the good. Thus a cookie is a private good. A cookie eaten reduces the stock of cookies, and cookies can be locked up.

In contrast to private goods, public goods are non-rival and non-excludable. The services of a lighthouse is an example of a public good because one person’s use of the lighthouse signal does not affect the use of the signal by others, and people cannot be prevented from seeing the lighthouse signal. Continue reading “Goods, Property and Externalities”

Autarchy and Individual Liberty

“Auto means self. Archy means rule. Autarchy is self-rule. It means that each person rules himself, and no other…. As I will use the word, autarchy will signify total self-rule. It will presume a system or social arrangement in which each person assumes full responsibility for himself, proceeds to control himself, exercises control over himself, exercises authority over himself, supports himself, takes initiative, joins with others or not as he pleases, and does not in any way seek to impose his will by force upon any other person whatever.”

The above from the essay Autarchy by Robert LeFevre. See the Rampart Journal of Individualist Thought  (Summer 1966) (free pdf download). Continue reading “Autarchy and Individual Liberty”

China and Economic Freedom

The relationship between economic freedom and prosperity is empirically verifiable. Countries that are relatively economically free — meaning free markets and private ownership of capital — do better than countries that are not economically free.

South Korea, for example, is a rich country and North Korea is a disaster zone; Chileans are better off than Venezuelans; capitalist West Germany was richer than socialist East Germany. Continue reading “China and Economic Freedom”

Have the Laws of Economics Changed?

The correlation between economic freedom and economic prosperity is well-established and robust. Economics explains why this relationship exists and also the causal direction — economic freedom is the cause and prosperity the effect.

I am by nature in favor of freedom of all flavors, not just economic freedom. I value freedom as an ultimate good, although it fortunately happens to be an instrumental good too. Even if material prosperity did not follow from economic freedom — meaning that it was not instrumental in creating wealth — I would still value economic freedom for itself. Philosophically I am not a utilitarian.

These musings are provoked by a comment to the piece on Economic Freedom and Well-being last week. Here’s the comment:

Continue reading “Have the Laws of Economics Changed?”

Ask Me Anything — Is Economics Hard?

There’s a funny story in Robert Heilbroner’s 1953 book The Worldly Philosophers (which has been republished dozens of times):

One evening Keynes was having dinner with Max Planck, the physicist who was responsible for the development of quantum mechanics. Planck turned to Keynes and told him that he had once considered going into economics himself. But he decided against it – it was too hard. Keynes repeated this story with relish to a friend back at Cambridge. “Why, that’s odd,” said the friend. “Bertrand Russell was telling me just the other day that he’d also thought about going into economics. But he decided it was too easy.” Continue reading “Ask Me Anything — Is Economics Hard?”

What’s Capitalism

Vocabulary

Capitalism is a simple enough concept but the associated baggage of its myriad connotations makes the word pretty useless in discussions with people with differing ideological stances, and with people who don’t bother with meaning and content. We can do better.

For any productive discussion, we should have a shared definition of the terms we use. If we are uncertain of the shared meaning of a word, it is best not to use it or even enter into a discussion involving the word or concept.[1]

So let’s take a few moments to define the word first and then get on with the discussion. The definition does not have to be definitive or universally acceptable. It just has to serve the purposes of the discussion. If you don’t accept that definition, it’s not the end of the world; it’s just the end of that discussion.

Capitalism is a combination of (1) private property, (2) free markets, (3) voluntary trade, & (4) institutions which legally enforce contracts. Continue reading “What’s Capitalism”

Competition in Free Markets

Production

The primary purpose of production is consumption. Economic activity is by definition the production and consumption of goods and services. Except for the special case of the so-called “Robinson Crusoe” economy (an economy in which there is only one person who has to necessarily be self-sufficient) every real economy involves exchange or trade. The ability to trade what one has produced for things that one wants to consume generates wealth and increases welfare.

You can of course restrict your consumption to only those things you produce, but you will have a Hobbesian existence: “solitary, poor, nasty, brutish, and short.”

Exchange

Exchange makes possible the creation of wealth through division of labor and specialization, two intimately connected concepts. Surgeons operate, bakers bake, brewers brew, carpenters build, architects design, programmers code, … ad infinitum. The ability to exchange decouples production and consumption. Crusoe’s production and consumption are rigidly linked. In our case, we don’t produce any of the things we consume, and don’t consume what we produce. Continue reading “Competition in Free Markets”

An 1980 interview with Hayek

This is a Friedrich Hayek interview by Bernard Levin at the University of Freiburg which was broadcast in May 1980. Hayek was, in my professional opinion, one of the greatest economists of all times. We are wonderfully privileged to be able to watch videos of his brilliant exposition on the web. I am also impressed by Mr Levin; he does his job as the interviewer magnificently. Continue reading “An 1980 interview with Hayek”

The Peculiar Case of the Somali Shilling

Sudipta, a dear friend in the Silicon Valley, asked me to comment on a March 2013 article titled “Orphaned currency, the odd case of Somali shillings.” The piece is about how the Somali shilling continued to circulate even after the Somali central bank was literally destroyed in the civil war around 1991. The bank notes were “orphaned.”

When Somalia collapsed into civil war in January 1991, the doors of the Central Bank of Somalia were blown apart, its safes were blasted, and all cash and valuables were looted.* But something odd happened—Somali shilling banknotes continued to circulate among Somalians. To this day orphaned paper shillings are used in small transactions, despite the absence of any sort of central monetary authority.

I will leave you to read up that article before continuing here.  Continue reading “The Peculiar Case of the Somali Shilling”

On the Distress of Indian Farmers – The Introduction

Of the three major sectors of any economy, agriculture is the primary sector. It is prior in time and naturally enough forms the basis for the other two sectors — manufacturing and services. Without a solid foundation provided by an efficient agricultural sector, no society can prosper.

Everybody — factory workers, quantum physicists, doctors, programmers, musicians, writers, politicians — needs food. Farming is the oldest occupation and all civilizations begin as essentially agrarian societies. Agricultural success is the necessary precondition for the advancement of civilization. Without an agricultural revolution there can be no avenues for social, technological, and economic development.

The claim of this essay is that India has not had a comprehensive agricultural revolution. All the other problems that India faces derive from that failure. The good news is that India has the opportunity to have an agricultural revolution. It has always had that opportunity. Primarily because of plain idiocy — let’s not sugarcoat this bitter fact — India has failed in progressing much beyond subsistence agriculture. India’s abysmal poverty follows relentlessly from that fact. Continue reading “On the Distress of Indian Farmers – The Introduction”