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Better Economics Introduction

The Mises Institute put out a bad Economics for Beginners resource. Rather than focusing on criticizing it, I decided to make something better. I wrote my own alternative answers for their prompts. You might find it interesting to compare my answers with theirs. Note that theirs took a long time and received a bunch of editing and polishing, and had a budget from a donor, while mine didn’t. I also share a few criticisms at the end.

What Is Economics?

Economics is a field of study. Topics include prices, money, wealth, production, trade, markets, division of labor, scarcity, supply, demand, profit, cost and capital. Economists use rationality and math to do calculation and planning.

Economics is primarily about how multiple people can cooperate for mutual benefit. Some concepts would be useful to a man alone on an island, but most economic study is oriented towards groups of people or whole societies. Typical economics topics include buying and selling goods and hiring people for jobs, which involve multiple people.

A good economic system is good at creating wealth – material prosperity for society. Economists study big picture issues like which policies increase or decrease wealth. They also study detail issues like the nature of a single trade and they try to connect the big and little issues into a unified understanding.

What Is Cost?

A cost is something you give up. Costs are most commonly stated in terms of money, e.g. $3 for a loaf of bread. But costs can be stated in terms of any resource, e.g. reading a book could cost you 5 hours. The cost of an action should be compared to the benefit, and you should avoid it if you consider the benefit lower than the cost.

What Is Money?

Money is the standard means of exchange (trade).

It’s inconvenient to trade shoes for bread or accounting services for massages. The person selling bread might not currently want shoes. So I trade shoes for money then trade money for bread. Money is the most generically desirable and easily tradable good. It makes trading more convenient.

Trading something for money is called “selling”. Trading money for something else is called “buying”. Trades that don’t involve money are called “barter”.

A good money can be saved for later. A perishable good like milk wouldn’t work well as money. It’s also beneficial for money to be small, light, divisible and hard to counterfeit. Gold and silver worked well as money before the switch to paper money.

What Is Profit?

Profit is the amount of benefit you get minus the cost. If profit is negative, it’s a loss rather than a profit.

Profits are most commonly calculated in dollars. For example, a business buys (or rents) raw materials, tools, land and buildings, and hires workers. All of those are costs in money. It produces and sells some goods. The income from those sales is called revenue, which is also in money. The revenue minus the costs is the profit (or loss).

What Is Capitalism?

Capitalism is an economic system in which individuals are free to choose what economic activities to do. Each person does his own planning and decision making, although he’s welcome to listen to the advice of others. It’s called a free market because each individual can freely make his own choices. Other people may be involved in your business only by their voluntary consent. If you want business partners or workers, you must offer good enough deals that they choose to deal with you instead of others.

According to capitalism, the government’s job is to protect men from force. That includes policing violence, theft, fraud and breach of contract. Put another way, the government’s job is to make sure that producing a lot of wealth is the only way to become wealthy (or receiving wealth as a gift).

The more people invest their wealth in increasing future production, the wealthier society as a whole can become. This is called capital accumulation. Under capitalism, individuals are incentivized to reduce consumption, and contribute to capital accumulation, because the more they do that the wealthier they can become.

Capitalism also incentivizes specialization. If I focus on making shoes, and you do computer programming, we can get way better at our jobs than if we each had to do every job ourselves. If I can skip learning some things, and trade, then I can benefit from other people’s knowledge and focus on being great at only a few things. If many people do this, then the average skill that people use to do things is a lot higher, so we all end up better off. Capitalism doesn’t force anyone to specialize, but it enables the division of labor. Most people voluntarily participate because the more skillfully you do things, the more money you can make, so specializing is a way to increase your income.

What is Cronyism?

Cronyism is when people get special privileges from the government, instead of the government treating everyone equally and fairly. Cronyism is a way to get rich without producing a corresponding amount of wealth.

If someone gets rich by being especially productive, there’s no harm to society. He made our total wealth bigger and kept a significant chunk of what he created. Society is more wealthy than before, not less.

But a cronyist becomes rich without producing enough. He becomes rich at the expense of others, not in a way that offers some positive benefit to others. He has the government use taxpayer money to pay too much for his products, or to give him subsidies. Or he uses laws and police to suppress competition or otherwise unfairly benefit himself, e.g. by charging extra taxes on competing products or making regulations which fit what he’s already doing and prevent competitors from using different approaches. Instead of just trading on a free market, he gets some kind of special privilege from the government.

Price controls (government-dictated minimum or maximum prices for some good or services) are a type of government policy which benefits or privileges some people while harming others.

The cronyism problem involves the government having powers it shouldn’t and anti-social men exploiting the situation for personal gain at the cost of harming society.

What Is Socialism?

Socialism is collective ownership of the means of production. The means of production include factories, tools and natural resources. They exclude consumption or consumer goods, like food and clothes, which we use in our homes. The distinction is approximate, not exact.

Socialism often involves government central planners who try to run the economy instead of letting individuals make their own decisions. It could also involve voting on policies.

If people were allowed to buy and sell ownership of the means of production, that would just be capitalism with a stock market. Then some workers might sell off all their ownership of the means of production, and someone else might buy full, individual ownership of a whole factory. To ensure collective ownership, the means of production can’t be traded.

What Is Progressivism?

“Progressive” is a vague political term often used by socialists or other left-of-center people who at least partially oppose free market capitalism. They generally want government power to be used to solve economic problems. They tend to favor a less limited government. This enables cronyism.

Why Experts Can't Predict the Future

Reality and our civilization are really, really, really complicated.

There’s nothing inherently wrong with experts. The problem is using expertise as a justification for power over the lives of others. If an expert is mistaken, but he has no power over me, then I can ignore him. But if he can make laws or tell the police what to do, then his mistakes can ruin my life. If I have the freedom to control my own life, then experts aren’t a threat to me even when they’re wrong.

Why Economics Matters

We want to know what individual actions and economic systems will lead to material prosperity and better satisfaction of people’s wants. We need ways of deciding which goods and services to produce and which not to. We need ways of deciding what manufacturing processes are efficient. We often face tradeoffs. Is it better to use up this or that raw material? Is a more labor intensive process better or worse than putting a bunch of resources into automation? Economics helps us make good decisions.

Money, buying, selling, jobs, business, property, consumption and government economic policies are important parts of our lives. It’s good to have some understanding of how these things work. Mistakes can lead to debt, being able to afford fewer things you want, or to national or global problems like recessions, inflation and mass unemployment.

Learn More

I wrote an essay called Liberalism: Reason, Peace and Property. For more, I recommend the books of Ludwig von Mises, Henry Hazlitt and George Reisman. They all have free ebooks which are easy to find online.

Elliot’s Criticisms

The prompts weren’t very good. They seemed oriented towards political debates against socialists and advocates of government power, rather than focusing on teaching economics concepts like how money and trade work or what freedom, force and voluntary interaction are. The Mises Institute seems more interested in fighting against rival tribes than educating people about useful economics ideas.

I also noticed that the answers kept failing to answer the questions. For example:

What Is Money?

It is common to hear that “money is the root of all evil.”

We are told that money is synonymous with greed, and that desiring it is somehow inherently bad.

This is not true. Money is perhaps the single most important creation in the history of mankind. Just take a moment to consider a world without it.

This is more interested in praising money than defining it. It’s about a political agenda, not teaching economics.

What Is Profit?

It is common to hear profit attacked as exploitation and greed. How many supervillains have appeared in TV shows, books, or movies with the diabolical plot of putting “profits over people”?

In reality, profit is a powerful mechanism for human cooperation, and serves to make sure that the earth’s resources are maximized to serve the best interests of humanity.


Think of profit as the reward for making good decisions.

Profit doesn’t have to be only about money…

This talks about profit but doesn’t tell you what profit is. And it purposefully politicizes the issue.

Similarly, their first sentence answering “What Is Economics?” says “Economics often is considered a dry or “dismal” science.”

Their answer to “What Is Cronyism?” begins “Activists blame “capitalism” for the world’s biggest problems, like the high costs of healthcare.” It gives a definition of “cronyism” in the middle of the second paragraph – and then continues with more political talking points. Also the high cost of healthcare is a U.S. issue, not one of the world’s biggest problems. Many other wealthy countries have government-provided healthcare, which has different problems. And many less wealthy countries have cheaper but lower quality healthcare.

Besides not caring about defining terms and giving direct answers to its own questions, the site gets opportunity cost wrong.

Overall, the site presents itself as basic, introductory economics education, but it’s more focused on a political agenda. Propaganda mislabelled as education makes it harder for people to find genuine educational resources. Sites like this result in people giving up on learning or being indoctrinated.

And this site is much more likely to alienate, rather than persuade, someone who already has an anti-capitalist opinion. It’s then harder to persuade anti-capitalists that actually capitalism is a good idea. If they know that prominent capitalists, like the Mises Institute, have poor arguments and integrity, they will assume capitalism doesn’t actually have good arguments (or else the Mises Institute would have known about and used those arguments instead of putting out propaganda). This kind of site makes the political tribalism problem worse and harms the world. (And they’re doing it in the name of Ludwig von Mises, and trashing his reputation after his death, and discouraging people from reading his great books.)

Elliot Temple on January 20, 2023


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