Economy World

Economics is not a value in and of itself. It is only a way of weighing one value against another. Economics does not say that you should make the most money possible. Anyone with knowledge of firearms could probably make more money working as a hit man for organized crime. But economics does not urge you toward such choices. What lofty talk about “non-economic values” usually boils down to is that some people do not want their particular values weighed against anything. If they are for saving Mono Lake or preserving some historic building, then they do not want that weighed against the cost – which is to say, ultimately, against all the other things that might be done instead with the same resources. For instance, how many Third World children could be vaccinated against fatal diseases with the money that is spent saving Mono Lake or preserving a historic building? We should vaccinate those children and save Mono Lake and preserve the historic building—as well as doing innumerable ot...

It doesn’t matter what we charge, unless others to agree to pay it. Virtually everyone would prefer to get a higher price for what he sells and pay a lower price for what he buys. The history of most great American fortunes—Ford, Rockefeller, Carnegie, etc.—suggests that the way to amass vast amounts of wealth is to figure out some way to provide goods and services at lower prices, not higher prices. When Richard Sears tried to overtake Montgomery Ward, he did it, not because he did not have enough money to live on, but because he wanted more. If that is our definition of “greed,” then he was greedy. Realistically speaking, do keep in mind that when prices go up, it is far more likely to be due to supply and demand than to greed.

Brand names are another way of economizing on scarce knowledge. Brand names are not guarantees. But they do reduce the range of uncertainty. If a hotel sign says Hyatt Regency, chances are you will not have to worry about whether the bed sheets in your room were changed since the last person slept there. Like everything else in the economy, brand names have both benefits and costs. A hotel with a Hyatt Regency sign out front is likely to charge you more for the same size and quality of room, and accompanying service, than you would pay for the same things in some locally—run independent hotel if you knew where to look. Both Kodak and Fuji film have to be better than they would have to be if boxes simply said “film,” without any reference to the manufacturer. McDonald’s not only has to meet the standards set by the government, it has to meet the standards set by the competition of Wendy’s and Burger King. If Campbell’s soup were identified on the label only as “soup” (or “Tomato Soup...

Physically identical things are often sold for different prices, usually because of accompanying conditions that are quite different. If a camera store sells a particular make and model of camera for $300 and the discount house sells it for $280, it may still pay to go to the camera store where another make and model of camera is available for $250 that does what you want to do just as well or better. If the camera store’s larger selection and more knowledgeable sales staff enables you to buy only what meets your own needs, there may be financial savings there, as well as better advice on operating the camera, even if the discount house charges a lower price for each particular camera that both stores carry. The point here is not to claim that it is generally better or generally worse to buy cameras at a camera store or at a discount house. Instead, the point is that what is being sold in the two places is not the same, even when the cameras themselves are physically identical. The ...

The first sentence of Smith’s classic The Wealth of Nations says: “The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consists always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.” By the late nineteenth century, however, economists had given up the notion that it is primarily labor which determines the value of goods, since capital, management and natural resources all contribute to output and must be paid for from the price of that output. More fundamentally, labor, like all other sources of production costs, was no longer seen as a source of value. On the contrary, it was the value of the goods to the consumers which made it worthwhile to produce those goods—provided that the consumer was willing to pay enough to cover their production costs. This new understanding marked a revolution in the development of ec...

In his 900-page classic, The Wealth of Nations. Smith warned against “the clamour and sophistry of merchants and manufacturers,” whom he characterized as people “who seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” David Ricardo, spoke of businessmen as “notoriously ignorant of the most obvious principles.” Knowing how to run a business is not the same as understanding the larger and very different issues involved in understanding how the economy as a whole affects the population as a whole. Free market competition has often been opposed by the business community, from Adam Smith’s time to our own. It was business interests which promoted the pervasive policies of government intervention known as “mercantilism” in the centuries before Smith and others made the case for ending such intervention and establishing free markets. Business leaders are not wedded to a free market ph...

Money that is saved does not vanish into thin air. It is lent out by banks and other financial institutions, being spent by different people for different purposes, but still remaining just as much a part of purchasing power as if it had never been saved. According to Say’s Law— supply creates its own demand. What a group of French economists known as Physiocrats showed in the late eighteenth century was that the production of goods and services automatically generates the purchasing power needed to buy those goods and services. When the economy creates another hundred million dollars worth of output, that is also another hundred million dollars worth of wealth that can be used to buy this or other output. Production is ultimately bought with other production, using money as a convenience to facilitate the transactions. During the Great Depression of the 1930s, for example, there was a massive increase of unemployment, along with business losses for the economy as a whole. The great...