economics for children

7/25/2019 Economics for Children

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The miracle of so manythings.

How are there so many things? How arepeople so rich?(Introducing children to the economic way of thinking)

PRELIMINARY SKETH ! "or p#$lic cons#ltation

%ate& ' (cto$er )*+'

oor&inator, San-ee. Sa$hlo/E.eryone welcome to -oin as contri$#tor

0So#rce1

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ontents

1. BACKGROUND, AND NEED OR !UC" A BOOK............................................1

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1.1.1 Why economics is so confounding dicult............................................1

1.1.2 Need recognised as long ago as in 1910...............................................2

+2) THEAPPR(AHTAKEN3YTHIS3((K222222222222222222222222222222222222222222222222222222222222222224

1.2.1 lan........................................................................................................!

1.2.2 "d#ance warning................................................................................... !

+24 3R(A%LYSIMILAR5(RKS222222222222222222222222222222222222222222222222222222222222222222222222222222224

+26 (PYRI7HT! 8(PENS(9RE:22222222222222222222222222222222222222222222222222222222222222222222222226BOOK 1# OR AGE $%1&...................................................................................'

&. DO (OU )ANT TO BE A !*ART DETECT+E-...............................................

/. )E )ERE A00 ER( OOR, BUT TODA( *O!T EO0E ARE R+C".................2

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C24 S(METIMESPE(PLE%(NBT3(THERA3(9TTHEHARMTHEYA9SE222222222222222222222222))

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)414. C"ATER 3# CONGRATU0AT+ON!5.........................................................&3

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BOOK OR AGE 1&%18...............................................................................&'

11. BOOK & TO+C!...................................................................................&

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++2) 3IASES222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222)

11.2.1 "nti$market *ias...............................................................................2+

11.2.2 ,ake$work *ias.................................................................................2+

11.2.! "nti$foreign *ias............................................................................... 2+

11.2. essimistic *ias................................................................................2+

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11.+.1 "re markets immoral......................................................................2-

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11.1+.1 ,easuring the economy...................................................................2%

11.1+.2 7ame theory.....................................................................................29

11.1+.! u*lic choice theory.........................................................................29

11.1+. 4ost /ene6t analysis........................................................................29

11.1+.3 ,oral ha5ard.....................................................................................29

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11.1-.1 4entral *anking................................................................................29

1&. BAD +DEA! TO BE ADDRE!!ED............................................................./4

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12.1.1 "re we getting more une8ual as we *ecome richer........................!0

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12.2.1 Welfarenomics as 'ro'ounded *y /ernie anders...........................!0

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+)26 MIS9SE(MARKETAIL9RE AR79MENT222222222222222222222222222222222222222222222222222222224*

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+)2++ 39SINESSYLES, N(TRISES(APITALISM39T7(>ERNMENTINTER>ENTI(N2224+

12.11.1 "sset /u**les...................................................................................!1

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3


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1/. !UGGE!T+ON! RECE+ED.....................................................................//

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+424 %ELATI(N2222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222222441!.!.1 :ears of de;ation are unfounded......................................................!!

+426 NATI(NALRES(9RESAREN(TINITE222222222222222222222222222222222222222222222222222222222222244

+42' TRA%EAN%5EALTHPR(%9TI(N222222222222222222222222222222222222222222222222222222222222222222246

+42 R(LE(MI%%LEMEN22222222222222222222222222222222222222222222222222222222222222222222222222222222222246

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+42= ALTERNATI>ET(PRIES, RATI(NIN722222222222222222222222222222222222222222222222222222222222222224'

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+42+* PRIESI7NALS222222222222222222222222222222222222222222222222222222222222222222222222222222222222222224'

1!.10.1 rice ceilings.....................................................................................!3

1!.10.2 rice ;oors........................................................................................!+

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+42+) (MPARATI>EA%>ANTA7E222222222222222222222222222222222222222222222222222222222222222222222222224ings, ?riests, an: gofor o9rsel


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62 How in&i.ials proce wealth

0his cha'ter focuses on the actual dynamics of wealth creation. It focuses on 'ro'ertyrights.1

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+2< 5ealth is proce& $y #s; theor&inary in&i.ials

Kings &o not proce new i&eas or wealth2 Priests &o not proce new i&eas or wealth2

It is always in&i.ials who create wealth2

Kings an& priests li.e oO the wealth we proce2 I" we compare things with the story o" thegrasshopper an& ants; then we are the ants; an& /ings an& priests the grasshoppers2

Kings &o ha.e a role to play not priests; an& Ill come to that later2 3#t we ne.er "orget;e.en "or a moment; that /ings an& priests ne.er proce a single new i&ea or thing; or anywealth2

5e sho#l& not "orget that they were in charge "or the Jrst CC;=** years o" h#man history;an& e.eryone was poor an& misera$le2

It is .ery clear that /ings an& priests cannot proce anything2 They can only ta/e things"rom others or stop others "rom procing things2 5hen we #n&erstan& this .ery clearly; wecan start as/ing how people the ants are a$le to proce so many new i&eas; things an&

wealth2 5hat is it a$o#t or&inary people that is so #n$elie.a$ly inno.ati.e an& procti.e?Kings &onBt nee& to create new i&eas2 They can simply ta/e away things "rom people; an&so they &onBt nee& to ha.e any i&eas2

(r&inary people cannot ta/e away things "rom others2 They ha.e to pro.i&e others with a#se"#l thing or ser.ice; so someone will pay them in ret#rn2

(r&inary people are a"rai& that what they proce will $e stolen "rom them; either $y athie" or sometimes $y the /ingBs own men2 I" a /ing can ass#re people that their propertywill not $e stolen "rom them; they can spen& their time thin/ing a$o#t new i&eas an&procing new things2

reating a sit#ation in which the or&inary person can spen& time thin/ing new i&eas;

ass#re& that his proce will $elong to him; is the /ey to #n&erstan&ing why they or&inarypeople are now so mirac#lo#sly procti.e2

18Sone Ki hi&iya Total Re"orm Agen&a


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+2= The wealth o" a co#ntry is the s#mo" the wealth proce& $y its in&i.ials2

3#t it is .ery important to remem$er that all the wealth is owne& $y those who proce it;not $y anyone else2

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+2C E.eryone is a procer an&cons#mer

Ecept "or someone who is really sic/; an& "or /ings who ha.e ser.ants or sla.es "or theire.ery nee&; e.eryone is $oth a procer an& cons#mer2

Yo#r mother an& "ather are procers2 They proce things that yo# nee&2Yo#r "ather proces "oo& $y coo/ing a &elicio#s &inner2 Yo#r mother proces light $yreplacing the ol& light $#l$ when it gets "#se&2

&4Sone Ki hi&iya Total Re"orm Agen&a


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+2+* Procing more things that peoplewant is how the worl& gets rich

Some people worry that i" more things are proce& $y "ewer people; then -o$s will $e lostan& some people will $ecome poor2

3#t the economist &etecti.e /nows $etter than that2The economist /nows that people ha.e an en&less set o" nee&s an& wants2 5hensomething $ecomes cheaper s#ch as clothes $eca#se a "actory proces a lot o" clothesat a low cost; e.eryone now can sa.e some o" the money they #se& to spen& on clothes2

They #se this sa.ing on other things that they li/e; s#ch as goo& "oo& in a resta#rant;tra.el; or learning tennis2 This new epen&it#re creates new -o$s2 Since e.eryone is goo& at&oing many things; people who lose a -o$ can ta/e #p one o" the many new -o$s that arecreate&2

9ltimately; we get the same n#m$er o" -o$s an& clothes that we ha& in the $eginning; 'lusmany more things li/e more tra.el an& goo& "oo&2 Each time anyone can Jg#re o#t a wayto proce something cheaply; the entire society sa.es a lot o" money2 That spare money is

then #se& to create more things2That is how the worl& $ecomes rich, thro#gh $etter an& $etter metho&s o" proction2

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1.14.1 )hy are some singers an: s?ortsmen so rich-

(" co#rse; there are people who &onBt proce a lot2 3#t they may proce something o"great #ality; li/e a great painting or song; or a great tennis match2 People li/e #ality; an&there"ore these people also $ecome rich2 3#t remem$er; only a "ew o" these people wille.er $ecome rich2 Most singers an& sportspeople are #ite or&inary; an& no one will pay "or

their wor/2To $ecome rich; people nee& to proce a lot o" things that people want; or things o" great#ality2

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+2++ The wealth o" a society is not Je&Some people thin/ that the total amo#nt o" wealth in a society is Je&2 S#ch people thin/that the wealth o" the society m#st $e re&istri$#te&2

3#t they "orget a n#m$er o" things2

5ealth $elongs to in&i.ials; not to any nation2 I" they try to re&istri$#te wealth; that will$e stealing someoneBs property2 I" people /now that what they proce will $e ta/en away$y "orce "rom them; they will no longer proce anything2 A"ter people ha.e pai& taes ontheir earnings; it is theirs to /eep an& to #se2

S#ch people "orget the history o" o#r species; an& how we ha.e proce& so m#ch newwealth in the past )** years2 The total wealth in a society is always increasing $eca#seh#man /nowle&ge is always increasing2 It is this /nowle&ge that allows #s to proce e.ermore things; at lower cost2

Since the wealth o" a society $elongs to people; not to the entire society an& $eca#se it isalways increasing; there is no nee& to re&istri$#te it2 It is only necessary to loo/ a"ter thosewho are in etreme po.erty2 That is; howe.er; a &iOerent iss#e; an& weBll come to it

separately2

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'2 SpecialiseD (nly then can yo# proce alot o" things



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+2+) Procing e.erything one nee&s isa really $a& i&ea

Instea& o" trying to proce e.erything Q o#r own "oo&; clothes; $#il& o#r own ho#sean& treat o#r own illnesses Q we can $ecome $etter oO $y &oing one thing well2

Someone who is goo& at ma/ing toys sho#l& proce toys2 S#ch people will alsoo"ten in.ent machines to increase the proction o" toys2 5hen people "oc#s onprocing one thing; more o" e.erything gets proce&; than i" e.eryone trie& toproce e.erything2

This is calle& &i.ision o" la$o#r; where e.eryone specialises in something2 The morethe &i.ision o" la$o#r an& specialisation; the richer the society $ecomes2 Tri$alsocieties ha.e low le.els o" specialisation2 A&.ance& co#ntries ha.e .ery high le.elso" specialisation2

A"ter a lot o" toys ha.e $een proce&; people can $#y whate.er toys they nee&"rom the toy ma/er2 The toyma/er can #se the money ma&e "rom selling toys to $#ywhate.er he nee&s2

The &octor &oes not $a/e his own $rea& or man#"act#re his own instr#ments orwea.e or ma/e his own coat2 (thers &o these things "or him; an& in ret#rn he treatsthe &iseases with which his patients are aicte&2

E.eryone $ecomes $etter oO2 It is important that people are allowe& to ma/e as many machines as they can

possi$ly in.ent2 The more the machines; the more the st#O that we can proce; at acheaper price2 At one time; a watch was .ery costly $eca#se it was ma&e $y han&2Now "actories ma/e it an& some watches are now cheaper than an iceQcream2

I" le"t to themsel.es; people will in.ent new i&eas an& wor/ o#t ways to procethings cheaply to &o more with less2 This is calle& eUciency2

Remem$er; this is not a$o#t $eing the $est in the worl& in what yo# &o2 To $e ateacher; yo# -#st ha.e to $e $etter than others2

The teacher gets so goo& in teaching $y spen&ing time to constantly learn newthings that she can teach yo#2 She specialises in teaching2 She $ecomes $etter thanmost others in teaching; $#t she may not $e a .ery goo& tailor o" menBs s#its2

This is what happens in a mar/et economy2 In a mar/et economy e.eryone $ecomes$etter oO $eca#se e.eryone specialises; then tra&es with others; instea& o"procing e.erything themsel.es2

This is &iOerent to the sit#ation when man #se& to li.e in -#ngles2 5e now procem#ch more $eca#se we specialise2

Not e.erything is sol& in a $aaar2 The teacher sells teaching ser.ices in a school2The &octor sells me&ical ser.ices in a hospital2 These places; too; are mar/ets; or$aaars ! o" a &iOerent /in&2 The mar/et where people sell their time e2g2 to treat

patients is calle& the la$o#r mar/et2 Yo# m#st ha.e hear& that to $e a Gac/ o" all tra&es is to $e a master o" none2 The

Gac/ o" all tra&es has not specialise& in anything so he canBt $e $etter than mostpeople on anything2

It is always $etter to "oc#s on &oing one thing .ery well2 As a res#lt o" specialisation; no single person /nows how to ma/e anything; e.en a

pencil2 S#ch compleity can only $e manage& thro#gh prices in the mar/et2 There is no

single person who can plan the whole process o" ma/ing a pencil2

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2 There is no point in procing things i"yo# canBt echange with others

&Sone Ki hi&iya Total Re"orm Agen&a


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+2+4 Tra&e ma/es $oth si&es $etter oO The echange o" something "or another thing is calle& tra&e2

5hen someone $#ys a toy "rom the shop/eeper; $oth the $#yer an& seller $ecome$etter oO2 The shop/eeper has too many toys an& cannot ma/e #se o" these toys at

home2 He wants money "or the toys so he can $#y other things he nee&s2 The $#yer&oesnt ha.e eno#gh toys in the ho#se so nee&s a toy2 3etter to $#y a toy that wor/swell; than to try to ma/e a toy $y onesel"2

There"ore $oth parties $eneJt "rom tra&e2 3oth $#yers an& sellers say 8Than/ yo#D: a"ter a p#rchase2 The a#thor o" Harry Potter; GK Rowling; &i& not $ecome rich $y stealing yo#r money2

Yo#r parents pai& money to GK Rowling $eca#se they tho#ght yo# wo#l& li/e the$oo/; an& so it ga.e them .al#e2 GK Rowling was a$le to gi.e away the $oo/ $eca#sethe money yo#r parents ga.e her; pro.i&e& her more .al#e than ha.ing one morecopy o" the $oo/2 3oth si&es gaine&; an& in the process GK Rowling $ecame rich2

0A&.ance&1 3ill 7ates &i& not $ecome rich $y ma/ing others worse oO2 People pai&money "or his procts $eca#se his procts sa.e& them time an& money an& ma&e

them more procti.e than the cost o" the so"tware they $o#ght "rom 3ill 7ates2Tra&e creates new wealth2

This shows that the mo&ern society create wealth witho#t harming anyone2 All .ol#ntary echanges increase the wealth o" each o" the participants2 5ealth is

proce& $y tra&ing2

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+2+6 Most o" what we proce "or o#rown nee&s comes "rom shopping

3#t IBm s#re yo#B.e o$ser.e& that they &onBt really proce e.erything "rom scratch $ythemsel.es2

In most cases they #se their time to go shopping; an& $#y yo#r shoes an& toys2 That is alsoproction2 It &oesnBt matter how they get yo# the things yo# nee&, they are procers2They ha.e proce& the shoe .ery eUciently; $y sa.ing their time2

5hy &onBt they proce e.erything "rom scratch? The answer to this #estion is important2It hol&s the /ey to wealth we see in this worl&2

I" we ha& eno#gh time to learn e.erything that man/in& /nows; an& we ha& eno#gh time toproce the things we Jn& in the mar/et; then we co#l& proce e.erything o#rsel.es "romscratch2

3#t no h#man $eing has the time in one li"etime to learn e.erything2 It ta/es $illions o"people to /now e.erything2 An& it ta/es $illions o" peopleBs entire li"etime to proce thesethings2

5e are the only animal on Earth that is not limite& $y instinct2 9nli/e pigs; we are a$le tostore /nowle&ge in $oo/s2 Most importantly; we can specialise2 Each o" #s can &o a smallpart o" the wor/ necessary to proce a small part o" a $ig thing2 Each o" #s can proce alot o" a that small thing2 This way the worl& proces a $illion &iOerent things; none o"which is "o#n& in nat#re2

5e ha.e create& an entirely new #ni.erse "rom what nat#re ga.e #s2 An& that &oes notcome "rom procing e.erything o#rsel.es2 It comes "rom intense /nowle&ge an& intensespecialisation2 The more the people on Earth; the $etter; so we can ha.e e.en more/nowle&ge an& &eeper specialisation2

Two things are there"ore .ery goo& "or all o" man/in&, more people to specialise; an& tra&e2

5itho#t tra&e all this specialisation will go waste2



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+2+' Tra&ers are also procersSome people thin/ that proction is only a$o#t "actories2 3#t proction is also thro#ghtra&e2 I" yo# want a partic#lar $ran& name shoe; then yo# &onBt go to the "actory to get it2

Yo# go to the local shop2 3eca#se that shop pro.i&es yo# with the shoe yo# want; it can $esai& that it VprocesB the shoe2

This is the proper way o" thin/ing a$o#t tra&e, that the tra&er proces things that peoplewant2 Tra&ers an& procers are part o" the same system that proces wealth2 5itho#ttra&ers there will $e no proction o" wealth2

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+2+ 5hat wo#l& happen i" peopleco#l& proce $#t not tra&e?

Imagine someone has proce& a lot o" $ananas at a .ery low cost2 I" he is now #na$le tosen& the $ananas to the people who will pay the most; either $eca#se o" nat#ral o$staclesli/e a &amage& roa& or a $arrier create& $y the /ing go.ernment; then his $ananas willrot2 People who wo#l& ha.e li/e& to get $ananas at a price will not get them; an& the manwho has proce& $ananas will go $an/r#pt since the people in his .illage can only eat somany $ananas2

It &oesnBt matter how m#ch we specialise2 I" we then canBt tra&e; h#manity is s#n/2

Tra&e is the li"e$loo& o" man/in&2

I" there is any "#n&amental role "or the /ing go.ernment; it is two"ol&, to "acilitatespecialisation an& to "acilitate tra&e2 To achie.e that a go.ernment may ha.e to pro.i&e "or&e"ence; police; -#stice an& some in"rastr#ct#re; $#t these are all means to the en&, o"greater specialisation an& greater tra&e2

Simpli"y the $o $elow; "or $oo/ +

:or /ook 2& ela*orate this

elf$suciency is death.Each &ay I ha.e a choice, proce economic policy "or the go.ernmentan& $#y things that I nee& "rom the wages I get; or &irectly procethe things that I nee&2

Yo# /now; I am .ery smart g#y Q almost as smart as yo#2 So yo# an& Ico#l&; theoretically; proce o#r own croc/ery; c#tlery; comp#ter;smartphone; $#l$s; hea&phone; "ri heater; airQcon&itioner; T>; car;ho#se; clothes; c#rtains; meat an& $rea&2 5e co#l& also proce o#rown me&icines; airplane; tennis rac#et; tennis $alls; spectacles;shoes an& mangoes an a.erage s#permar/et has +'*** items an

a.erage "amily perhaps #ses +*;*** items; incl#&ing the componentso" the ho#se itsel" so this list is not eha#sti.e2

Howe.er; the time ta/en "or #s to learn to proce these things; then

/4Sone Ki hi&iya Total Re"orm Agen&a


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assem$le &irectly proce each o" the h#n&re&s o" tho#san&s o" rawmaterials; an& Jnally proce the things we nee& wo#l& ecee& a$illion li"etimes2

I cons#me to&ay the o#tp#t o" a $illion h#man li"etimes within one li"e2PL9S ha.e more leis#re an& entertainment than almost any h#man

ha& in the past2I am not one h#man $eing2 I am a $illion h#man $eings within mysel"2

All this is $eca#se o" tra&e an& echange the mar/et system; theprice system2

G#st li/e no h#man $eing can possi$ly proce all the things he nee&sor wants; so also no nation can proce all things the nation nee&s2

Anyone who see/s sel"Qs#Uciency e2g2 Swa&eshi is S9II%AL2 (r atleast RA>IN7 MA%2

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+2+< 5hy are some co#ntries still poor?

:or /ook 2& ela*orate this

5hat &isting#ishes prospero#s nations "rom poor ones are strong instit#tions;higher "ree&om; an& high economic compleity procti.ity o" an economy2

The higher a co#ntry ran/s in these "actors; the greater its correlation withprosperity2

/&Sone Ki hi&iya Total Re"orm Agen&a


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+2+= 5hy &o many people now li.e incities?

It is costly to li.e in cities2 E.en then people li/e to li.e in cities2 5hy is that so? 3eca#se aspeople li.e closer together; they can specialise an& proce more things2 This ispartic#larly so in the case o" what we call Vser.icesB2 These are people who #se their ownhan&s an& min& to &irectly &eal with other people; s#ch as teachers; n#rses; &octors;hair&ressers; coaches2

It is more li/ely that yo# will Jn& a goo& tennis coach or &octor in a city than in a smalltown2



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+2+C Some people &onBt li/e #s to$ecome rich2 LetBs watch o#t "or them2

L#c/ily "or most o" #s to&ay; the common man has a chance to wor/ har& an& $ecome rich2Yo# ha.e a .ery goo& chance o" s#ccee&ing to&ay $eca#se e.eryone is respecte& i" theyproce things that other people want2

In a "ew cases the /ing the go.ernment is $a& an& &oesnt let people proce2 S#ch /ingssho#l& $e thrown o#t2

There is another gro#p o" people, the procers; who o"ten Jn& it .ery har& to $ecome richthro#gh competition with others2 To s#ccee& in the mar/et people ha.e to /eep watchingwhether others are &oing $etter than them; an& they ha.e to /eep impro.ing themsel.esan& their procts2 This is har&2

So most $#sinessmen &onBt min& things that stop others "rom procing2 (ne way is tostop things "rom other co#ntries $ring $ro#ght in "or sale2 S#ch things that we get "romother co#ntries are calle& imports2 S#ch $#sinessmen tell #s that -o$s will $e lost i" weallow imports2 3#t the tr#th is that people will get more things an& cheaper things2 That is

always $etter so people can $ecome richer2 The $#sinessmen nee& to wor/ har&er toproce things that are cheaper an& $etter2 That will create -o$s which are worthwhile2

Let #s ne.er allow anyone to stop more things $eing proce& or importe&2

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=2 People ha.e choices

/Sone Ki hi&iya Total Re"orm Agen&a


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+2)* Sho#l& we $e "ree to choose "oro#rsel.es?

Some people li/e it sweet; some li/e it so#r2 Some li/e it re&; some li/e it $l#e2

hoosing one o.er the other &oesnBt harm anyone2 People sho#l& $e "ree to choose

what they li/e2 They sho#l& $e "ree to change their min&; as well2

4


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+2)+ All people pre"er more money toless

Ha.e yo# hear& o" anyone who wants to $e poor?

E.eryone wants to $e rich2 All people li/e more money2 5hy? 3eca#se with more

money they can $#y more things; or tra.el; or li.e in a goo& ho#se2 %oes this mean people are gree&y? Not necessarily2 I" people ha.e earne& their

money with their own eOorts; they are entitle& to as m#ch money as they canpossi$ly earn2 This &oesnt; o" co#rse; gi.e anyone a right to get what they &i&ntearn2 3eing goo& an& har& wor/ing to earn money the right way is &iOerent tocheating others -#st $eca#se one wants a lot o" money2

5e sho#l& $e happy that they ha.e earne& a lot o" money2 It is wrong to $e -ealo#s o"others wealth which has $een earne& $y them or e.en inherite&2

Ha.ing more money &oes not mean that #alities li/e lo.e; tr#st; cooperation an&e#al treatment o" e.eryone are not more important2 5e will see how these gooalities can $e maintaine& e.en as people $ecome richer thro#gh greaterproction an& tra&e2



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+2)) E.eryone li/es to pay less "orthings they $#y

Ha.e yo# seen people $argain? People li/e to get things that cost as less as possi$le2Sometimes people stan& in long lines to get into a shop which is ha.ing a clearancesale2

5hen people ha.e a choice to pay Rs2+* or Rs2)* "or the same thing; they will $#ythe cheaper one2

That is $eca#se people li/e to /eep more money with them; so they li/e to pay aslittle as possi$le "or what they want2

4C


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+2)4 E.eryone wants a lot o" things $#tno one is rich eno#gh to $#ye.erything

No one has eno#gh money to $#y e.erything2

That is $eca#se people can only $ecome as rich as the .al#e o" what they proce2 3#t e.eryone can only proce a small part o" what others want2 A toyma/er can

only proce some o" the toys that people want2

An& people also want clothes; ho#se; car; an& other things2 Incl#&ing teaching;me&ical care2

So someone will proce these other things an& earn money "rom selling them2

No one can earn so m#ch money that he can $#y e.erything in the worl& ! e.eryonewants something they cannot aOor&2



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+2)6 The .al#e o" something is whatothers thin/ it is worth

A stone on the gro#n& has no .al#e2 Now imagine that the stone is an #npolishe& &iamon&2 E.en that has no .al#e to a

cow or pig; or to h#mans who li.e in -#ngles2 5hy &o yo# care "or a piece o" stone &iamon&? 3eca#se others li/e it an& will pay

money "or it2 A thing is worth what others are willing to pay "or it2

The .al#e o" a painting we ma/e is &etermine& $y the amo#nt o" money others arewilling to pay "or it2 It has no economic .al#e in itsel"2 That &oesnt mean it has no.al#e2 It simply means its economic .al#e is ero2

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+2)' People can spen& their own money$etter than others can spen& it "orthem

No one /nows $etter than #s a$o#t what we li/e2 No one /nows $etter than #s a$o#thow m#ch money we ha.e2

People always try to thin/ a$o#t their own sit#ation an& &o the $est they can2 They will $#y "rom their money whate.er gi.es them the greatest .al#e "or the

money they ha.e2 No one else can &eci&e $etter than #s a$o#t how we sho#l& spen& o#r own money2

3&Sone Ki hi&iya Total Re"orm Agen&a


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+2) 5hat we choose to&ay can aOectwhat happens in the "#t#re

I" yo# st#&y a lot to&ay; yo# co#l& $ecome a &octor in the "#t#re2 I" yo# &o a lot o"swimming practice to&ay; yo# co#l& $ecome an (lympic swimming champion in the"#t#re2

3#t i" yo# eat a lot to&ay; yo# co#l& $ecome "at an& sic/ in the "#t#re2

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+2)< 5e m#st loo/ at the "#ll pict#rewhen thin/ing a$o#t something

(ne &ay while playing cric/et; the $all went an& hit a win&ow2 The win&ow $ro/e25hy was the owner #nhappy? A"ter all; someone wo#l& now get pai& to J thewin&ow2 5o#l&nBt that person $e happy?

The owner was #nhappy $eca#se he ha& sa.e& money to $#y a s#it an& now hewo#l& ha.e to spen& that money in replacing a win&ow2

3y &estroying a win&ow no new wealth was create&; e.en tho#gh the person whoJe& the win&ow recei.e& some money2

That is $eca#se that money wo#l& ha.e $een $etter #se& in paying the tailor tostitch a s#it2 The owner wo#l& ha.e then got $oth the win&ow an& the s#it2 Now heonly has the win&ow2

The man who repaire& the win&ow wo#l& not ha.e got money; $#t the tailor wo#l&ha.e got the money2

It wo#l& $e wrong; there"ore; to say that the society has $eneJte& $eca#se thewin&ow $ro/e2



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+2)= >ery "ew people are $orn withmoney2 They ha.e to earn it2

5hen people proce something that others .al#e; they li/e to $e pai& "or pro.i&ingthe .al#a$le thing2

Yo#r teacher teaches2 She proces VteachingB2 That is .ery .al#a$le2 5ho .al#es theteaching? Yo#r parents .al#e it most; $#t yo# also .al#e it2 It is "ascinating to learnnew things e.ery &ay2

Now; is it possi$le "or yo#r teacher to teach yo# witho#t $eing pai& in ret#rn?

Remem$er; yo#r teacher has to r#n her ho#se an& manage the costs o" "oo&;clothes; ho#se; an& tra.el to the school

Yo#r teacher can; o" co#rse; grow her own "oo&; ma/e her own clothes; $#il& her ownho#se; treat her own illnesses2 3#t i" yo#r teacher has to &o all these things; shewonBt ha.e m#ch time le"t in her $#sy &ay to teach yo#2

(" co#rse; yo#r parents can &eci&e to teach yo# an& not sen& yo# to school2 3#t

then how wo#l& yo#r parents earn the money they nee& to loo/ a"ter their nee&s?A"ter all; time can only $e #se& in one way2 Either yo#r parents can spen& their timeteaching yo# or they can #se it to earn money "or the ho#se2 They cant &o $oth2

Time is money2 Yo#r teacher cannot teach "or "ree2 Yo#r parents there"ore pay theteacher in one o" two ways, &irectly thro#gh school "ees or in&irectly; thro#gh taesto the go.ernment2

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+2)C Is there a "ree l#nch? As chil&ren we get e.erything "or "ree; $#t when we grow ol&er we sho#l& not epect

to get things "or "ree2

There is no "ree l#nch2 5e m#st gi.e something in or&er to get something2



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1.&$.1 )e sho9l: ?ay ?eo?le if =e =ant something from them

LetBs thin/ some more a$o#t this2

Are yo# more li/ely to get a $ar$er to c#t yo#r hair i" yo# pay him or i" yo# threatenhim with p#nishment "or not c#tting yo#r hair?

P#nishing people or threatening them is not the $est way to get what yo# want2 People react &iOerently to &iOerent incenti.es; $#t no one li/es $eing "orce& to &o

something2

To get someone to wor/ "or yo#; it wo#l& $e help"#l to &o something goo& "or them inret#rn; s#ch as paying a $ar$er "or a hairc#t2

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1.&$.& )hy :o ?eo?le charge for things they sell-

5hat wo#l& happen i" a $a/er pro.i&e& "ree $rea&? He wo#l& not $e a$le to pay "orthe cost o" the Zo#r an& "or the cost o" r#nning the o.en2 Soon; the $a/er wo#l& r#no#t o" money to r#n the $a/ers an& proce $rea&2

Pro.i&ing things "or "ree is not s#staina$le2

5e sho#l& pay the $a/er so he can contin#e to $e in $#siness2 This way parents&ont ha.e to ma/e $rea& themsel.es; $#t can proce other things that they are$etter at2

A "amo#s man name& A&am Smith sai& that $a/ers &ont proce $rea& $eca#sethey want to ma/e others happy2 They proce $rea& $eca#se they want to earnmoney an& ma/e themsel.es happy2

%oes it mean that $a/ers selJsh? Are teachers selJsh $eca#se they epect to $epai& "or teaching? Are $ar$ers selJsh $eca#se they epect to $e pai& "or gi.ing ahairc#t? Not really2 To get the money they nee&; the $a/er; the teacher an& the$ar$er Jrst ha.e to ma/e s#re that yo# or yo# parents are $eing well ser.e&2 (nly

then &o their nee&s get met2 The $rea& sho#l& $e tasty2 It sho#l& not $e costly2 (nlythen will it ser.e yo#r nee&s2

So e.en tho#gh the $a/er may $e selJsh who /nows? he act#ally has to ma/e yo#happy; $e"ore he can thin/ o" $eing happy2



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+24* I" prices o" something go #p less o"the thing is $o#ght

I" the price o" a $ig T> goes #p; less people will $#y the $ig T> an& more people will$#y the small T>2 I" prices go #p too m#ch; then some people wonBt e.en $#y a T>2

I" price o" a $ig T> goes &own; more people will $#y it2 There was a time when only .ery "ew people co#l& $#y a T>2 To&ay; prices are lower

$eca#se the T> procers ha.e learnt

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C2 5hat is the go.ernment an& what &oes it&o?

'4Sone Ki hi&iya Total Re"orm Agen&a


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+24+ Sometimes people may nee& ago.ernment to ma/e r#les

People "ollow r#les on their own2 Most r#les are set $y society2 or eample; whensomeone lea.es a $ag on a chair in a cinema; it means the chair is occ#pie&2

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+24) Sometimes mar/ets may not $ea$le to s#pply things we nee&

Sometimes people; $#ying an& selling things; may not $e a$le to proce eno#gh o"the things that people want2 Things li/e some o" the $igger roa&s an& $ri&ges2

E.eryone thin/s that $#il&ing a t#nnel across the mo#ntain wo#l& $e a goo& i&ea;$#t sometimes no one comes "orwar& to collect money "rom the people to act#ally$#il& the t#nnel2 In s#ch cases; it may $e $etter i" we gi.e this -o$ to thego.ernment2

It is har& to own a roa& an& sell the right to #se the roa&2 I" someone canBt controlwho #ses a roa&; he cannot reco.er the costs o" $#il&ing the roa&2 In that case theroa& will not get $#ilt2

So the go.ernment "orces e.eryone to pay thro#gh taes an& pays "or the roa&which people then #se 8"ree o" cost: there is nothing "ree it has $een pai& $y thepeople; thro#gh taes2

'&Sone Ki hi&iya Total Re"orm Agen&a


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+244 Sometimes people &onBt $othera$o#t the harm they ca#se

Sometimes a "actory may throw poisono#s waste water into the ri.er; there$y /illingJsh an& plants; an& ma/ing the water #n&rin/a$le2

In s#ch cases one sol#tion is to ha.e the go.ernment p#nish the "actory "or &oingthis2 That way; the "actory will install a system to collect the poisono#s waste wateran& &ispose it sa"ely

'4


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+246 That &oesnBt mean thego.ernment can &o things $etterthan the people

A man name& rie&man wrote, VI" yo# p#t the "e&eral go.ernment in charge o" theSahara %esert; in J.e years thereB& $e a shortage o" san&B2

5hat &oes that mean?

He was trying to show that in most cases when a go.ernment tries to &o somethingit will &o it $a&ly an& in a .ery costly way2

The go.ernment is ma&e #p o" V/ingsB an& VpriestsB2 3#t the $#sinessmen who wantto stop others "rom procing things also -oin han&s with the go.ernment2

In general; we sho#l& try to ens#re that the go.ernment &oesnBt &o too many things;an& only &oes things where it is #na.oi&a$le Q pl#s it can show that it can &o things$etter than others2



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+24' 5e learnt earlier how we earnmoney; $#t who creates money?

Is money the paper? an anyone print the paper an& ma/e money?

In the ol&en &ays; money #se& to $e $ac/e& $y gol&2 3an/s co#l& print money which

ha& a promise to pay the owner o" the VnoteB an amo#nt o" gol&; i" the person sowante&2

That was a goo& thing; $eca#se only a limite& amo#nt o" money co#l& $e iss#e& $y$an/s2

Later the go.ernment too/ o.er the V-o$B o" printing money2

The go.ernment &i& not $ac/ its money with gol&2

This le& to the go.ernment o"ten printing money to pay "or things2 Each time s#ch aprinting ta/es place; the .al#e o" money that people hol& "alls2

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+24 Prices rise when the go.ernmentprints too m#ch money

5hen the go.ernment creates a large amo#nt o" money; the .al#e o" money "alls$eca#se the n#m$er o" things to $#y remain the same; $#t the total money a.aila$leincreases2

I" a toy costs Rs2+** to&ay; it will cost Rs2)** i" yo# &o#$le the amo#nt o" money $yprinting another Rs2+**2 Prices rise when money is printe&2

'Sone Ki hi&iya Total Re"orm Agen&a


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+24< 5e m#st remem$er thatgo.ernments canBt spen& o#rmoney $etter than we can

5e saw earlier how no one /nows $etter than #s a$o#t what we li/e2 No one else can&eci&e $etter than #s a$o#t how we sho#l& spen& o#r own money2

In the same way; a go.ernment cannot /now $est how to spen& o#r money2 7o.ernment sho#l& only ta/e that m#ch money which is nee&e& "or roa&s; "or police

an& "or -#&ges2 All other money sho#l& $e le"t to the people to spen& $y themsel.es2

X

go.ernment sho#l& per"orm only the acti.ities that cannot $e per"orme& in thepri.ate sector2 These acti.ities are,

Maintaining the military; to protect #s "rom hostile nations an& &angero#s gro#pss#ch as terrorists2 Li$ertarians are willing to conce&e that an eOecti.e militarycannot $e pri.atie& an& there"ore m#st remain as a "#nction o" go.ernment2

Maintaining the -#stice system; to protect #s "rom &omestic criminals $y means o"

police; co#rts; -ails an& go.ernment lawyers s#ch as prosec#tors an& p#$lic&e"en&ers2

'


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+*2 hapter 6, ongrat#lationsD



64/142

+24= 5ell &oneD3y rea&ing an& #n&erstan&ing this $oo/ yo# ha.e learnt the economic way o" thin/ing2 Thatis something .ery rare in the mo&ern worl& since most people ne.er get to learn it ringtheir li"e2

Yo# can now #n&erstan& the great policy &e$ates o" yo#r time2

'C


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+24C So yo# want to $ecome rich5ell; e.eryone wants to &o that2

3y now yo#B.e learnt that the way to create wealth is to specialise2 So yo# sho#l&specialise in something2 3#t not -#st one thing2 Yo# sho#l& /now other things; as well2 So

that when the worl&Bs proction metho&s are change& e2g2 machines or ro$ots ta/e o.erthe -o$ yo# ha.e specialise& in; yo# are prepare& "or other ways to remain rich2



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3oo/ ), or age +)Q+=

The secon& .ol#me stan&Qalone will incl#&e concepts that are $it more comple; as wellas more eamples2

+


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++2 3oo/ ) topics

&Sone Ki hi&iya Total Re"orm Agen&a


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+26* H#man $eha.io#rEconomics is a$o#t #n&erstan&ing h#man $eha.ior2 The incenti.es that &ri.e h#manactions; nat#re o" the actions; as well as the o#tcomes2 As s#ch; a goo& economist has agoo& #n&erstan&ing o" h#man nat#re2 Mises consi&ere& Economics to $e s#$Qset o"praeology2

4


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+26+ 3iaseso#r ma-or $iases that the general p#$lic has,



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1.31.1 Anti%mar>et @ias

'


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1.31.& *a>e%=or> @ias

Sone Ki hi&iya Total Re"orm Agen&a


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1.31./ Anti%foreign @ias


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1.31.3 essimistic @ias



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+26) >al#eNegating Mars Eploitation la$o#r theory eplaining the s#$-ecti.e .al#e theory

The money prices esta$lishe& in a mar/et are not meas#rements o" .al#e2 They arehistorical "acts; recor&ing the ratio at which two items the money goo& an& some other

goo& or ser.ice echange& in the past2

C


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+264 ScarcityThe Jrst lesson o" economics is scarcity2 There is ne.er eno#gh o" e.erything to "#lly satis"yall those who want it2 Q Thomas Sowell

I" there was an #nlimite& s#pply o" any partic#lar goo&; e.eryone co#l& ha.e as m#ch as

they wante&; an& there wo#l& $e noQone willing to pay e.en a penny "or that goo&2 oreample; generally we ha.e all the air that we nee& to $reathe2 So air is "ree2 3#t thatchanges i" air $ecomes scarce2 Imagine pro.i&ing air to an astrona#t on the moon2 That is.ery costly $eca#se it is scarce2



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+266 Magic o" the mar/et an& pricesystem


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+26' Mar/et>n entering aris& which I had come to #isit& I said to myself?here are a millionhuman *eings who would all die in a short time if 'ro#isions of e#ery kind ceased to;ow toward this great metro'olis. Imagination is *a@ed when it tries to a''reciatethe #ast multi'licity of commodities that must enter tomorrow through the *arriers

in order to 'reser#e the inha*itants from falling a 'rey to the con#ulsions of famine&re*ellion and 'illage. "nd yet all slee' at this moment& and their 'eaceful slum*ersare not distur*ed for a single instant *y the 'ros'ect of such a frightful catastro'he.

>n the other hand& eighty de'artments ha#e *een la*oring today& without concert&without any mutual understanding& for the 'ro#isioning of aris.

Aow does each succeeding day *ring what is wanted& nothing more& nothing less& toso gigantic a market

What& then& is the ingenious and secret 'ower that go#erns the astonishingregularity of mo#ements so com'licated& a regularity in which e#ery*ody has im'licitfaith& although ha''iness and life itself are at stake

hat 'ower is an a*solute 'rinci'le& the 'rinci'le of freedom in transactions. In a freemarket& the consumer is the king. B /astiat in


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1.3'.1 Are mar>ets immoral-

Are mar/ets immoral as the Pope claims?


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+26 R#le o" lawA mar/et cannot $e "ree witho#t r#le o" law2

It is the p#rs#it o" ones own sel"Qinterest which ma/es the economy r#n; $#t can also lea&$#sinessmen to cheat or coll#&e to "orm cartels2 5itho#t strong r#le o" law to /eep this in

chec/; the economy will get &eraile&2



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+26< Tra&e

5e s#ccee& $y procing .al#es an& tra&ing them with other procers; inechanges where $oth si&es win[an& the more others ha.e to oOer; the easier o#rs#ccess $ecomes2

The &esire "or proJts is the reason why we tra&e; inno.ate; an& proce things2

The economy is not a Je& pie an& not a eroQs#m game2

The necessity o" "ree tra&e with minimal reg#lations an& no tariOs2

7lo$aliation


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+26= reati.e %estr#ction an&inno.ation

ree economies are inno.ati.e economies2 lose& economies an& Socialist economies canne.er $e hot$e&s o" inno.ation2 It is competition which "orces $#sinesses to constantlyinno.ate; th#s impro.ing #ality an& #antity while lowering prices2 New procts comeo#t to ser.e the eisting mar/ets or create new mar/ets2 This creates -o$s an& theimpro.ement o" procti.ity lea&s to increases in the real wages o" wor/ers2



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+26C The magic o" proJtThe &esire "or proJts is the reason why we tra&e; inno.ate; an& proce things2

ProJt ma&e thro#gh .ol#ntary echange is goo&2 It is a signal that the company hass#ccess"#lly pro.i&e& a ser.ice to others2


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1.3$.1 9st ?ro:9cing machines :oes not ma>e a nation =ealthy

5hile machines are important "or procing goo&s; -#st procing machines is not the wayto create wealth2 The machines m#st proce things that people want; an& are willing to$#y2 Procing the machines m#st $e proJta$le2 In central comman& economies; o"ten a loto" machines are proce& witho#t any re"erence to cons#mption2



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+2'* Procti.ity


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1.'4.1 )hy are =ages in thir: =orl: co9ntries li>e +n:ia so lo=-

The reason is $eca#se they are low procti.ity co#ntries2 The wages represent theprocti.ity o" the wor/ers2 5or/ers recei.e a wage reZecting their .al#e in the proctionprocess2 These low procti.ity co#ntries ten& to proce procts o" low marginal #ality2



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+2'+ Seen #nseen

=+


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1.'1.1 Bastiats @ro>en =in:o= fallacy



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1.'1.& The more animals yo9 eat, the more animals are ?ro:9ce:.

(nly those animals which we &ontcant eat an& in which "ree proction tra&e is notallowe& e2g2 tigers are scarce2 So i" T(TAL animals increase $y eating them then whatsthe iss#e? So long as yo# /ill them h#manely; the total animal li"e li.e& increases $y eatinganimals2

=4


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1.'1./ rice controls rent control, minim9m =age, maim9ms9??ort ?rice, etc :o more harm than goo:.



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1.'1.3 o@s are create: @y ?eo?le, not @y go


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1.'1.' CriminaliFation of etthat @enets criminal elements an: ?romotes :isregar: for the la=.



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+2') Sa.ingsSa.ings is the &ri.ing "orce o" the economy2

=


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+2'4 omparati.e a&.antageE.en i" one person is s#perior at procing e.erything; e.en so he $eneJts "romcooperating with the in"erior partner2 or eample; a master che" $eneJts "rom hirings#$or&inates to chop .egeta$les an& prepare the other ingre&ients; e.en i" the che" co#l&ha.e per"orme& these tas/s $etter than the employees2 This is $eca#se 8o#tso#rcing: the

tas/s to the in"erior wor/ers "rees #p the che"Bs time an& allows him to concentrate onthose areas in which his a&.antage is greatest2 0ST9%Y 79I%E T( H9MAN ATI(N $y Ro$M#rphy12



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+2'6 Role o" the go.ernment 5hy society cannot "#nction witho#t a go.ernment Reg#lations are necessary #pQto an etent

A small go.ernment lea&s to strong economic growth; whereas a large go.ernmenthin&ers it2

Property rights are the $asis o" prosperity

The necessity o" minimal reg#lations in an economy; as well as the ills o" o.erQreg#lation2

0Some o" this can go into A&.ance&1

=C


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+2'' Tool/it

$4Sone Ki hi&iya Total Re"orm Agen&a


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1.''.1 *eas9ring the economy

The 7%P is how yo# meas#re the wealth o" nations2 7%P is not an in&icator o" economicgrowth; $#t merely a meas#rement o" the mar/et .al#e o" Jnal goo&s an& ser.icesproce& within a partic#lar geographic area o.er a speciJc perio&2 5hat is meant $yeconomic growth is not the proction o" goo&s an& ser.ices; $#t the creation o" .al#es

that impro.es peoples li.es "or the $etter2 0http,"ee2org"reeman"oole&Q$yQg&p 1

C+
http://fee.org/freeman/fooled-by-gdphttp://fee.org/freeman/fooled-by-gdp


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1.''.& Game theory

$&Sone Ki hi&iya Total Re"orm Agen&a


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1.''./ 9@lic choice theory

C4


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1.''.3 Cost Benet analysis



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1.''.' *oral haFar:

C'


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+2' MoneyMoney has no intrinsic .al#e2

$Sone Ki hi&iya Total Re"orm Agen&a


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1.'.1 Central @an>ing

The ra.ages o" central $an/ing

5hy separation o" money an& the state is cr#cial "or so#n& money

C


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+)2 3a& i&eas to $e a&&resse&



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+2'< Economic e#ality is meaninglessan& irrele.ant

There is an innate &iOerence $etween men an& regions o" the worl&2

CC


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1.'2.1 Are =e getting more 9neH9al as =e @ecome richer-

No; &espite Pi/etty pro.i&e some &etails2



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+2'= 5el"are

Social sec#rity is a "ra#&2

S#$si&ies agric#lt#ral s#$si&ies; st#&ent loans; etc are $oth morally wrong an&ineUcient2

5el"arism entrenches po.erty; creates interQgenerational &epen&ency; an&engen&ers e.erQepan&ing parasitism; Po.erty is empirically rece& $y economic"ree&om2

7o.ernmental re&istri$#tion o" wealth is legalie& the"t

People conZate wel"arism with socialism2 It is important to clari"y the &iOerences; an& whySocial %emocracy an& %emocratic Socialism are not Socialism2

+*+


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1.'8.1 )elfarenomics as ?ro?o9n:e: @y Bernie !an:ers.

Its $ase& on Keynesian an& hicago school monetary theory an& the law o" &iminishingret#rns2 To #ote a proponent %r2 SangQMo/ S#h; 5el"arenomics means promoting as#staina$le calitalism thro#gh mo&i"ying the neoQclassical mar/et economy mo&el in threeways, + strengthening the role o" go.ernment in the areas o" "orm#lating \ implementing

national strategy ) increasing social .al#es o" $#siness acti.ities thro#gh &e.eloping newS> reating Share& >al#e acti.ities an& 4 creating a ha$itat "or coQ&e.elopmentthro#gh acti.ating ci.il society2 5el"arenomics also implies promoting a s#staina$le wel"arestate thro#gh mo&i"ying the E#ropean wel"are state mo&el in three ways, + $#il&ing a"o#n&ation "or wor/"are thro#gh &e.eloping c#stomie& -o$ programs "or wel"are$eneJciaries ) #tiliing .ario#s wel"are programs as means "or social inno.ation an& 4impro.ing the eOecti.eness o" wel"are programs thro#gh applying .ario#s managementconcepts to the Jel& o" social wel"are2

(" co#rse as appealing as it may so#n& to economic illiterates; 5el"arenomics can ne.erwor/ as it lea&s to a cycle o" contin#al &e$t acc#m#lation an& c#rrency inZation an&&e.al#ation $y the entral 3an/2



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+2'C Social -#stice

Social -#stice there is no social wealth2 All property $elongs to in&i.ials2

+*4


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+2* Mis#se o" mar/et "ail#rearg#ment

The state is -#st people; as h#man as the rest o" #s2 They ha.e incenti.e an& calc#lationpro$lems that lea& to reso#rce misallocation an& creates mar/et &istortions2 7o.ernment"ail#re lea&s to mar/et "ail#re2



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+2+ SocialismReces incenti.e to wor/2

reates an #n&ergro#n& economy2

The Economic alc#lation arg#ment o" Socialism2

ase st#&y o" In&ia an& the won&er which li$erate& economy; e.en at a small scale create&

+*'


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+2) Pop#lation pro$lemPop#lation is o#r greatest asset; not a lia$ility2



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+24 Ecessi.e taes

Negati.e conse#ences o" high corporate taes an& hea.y taation o" the rich

+*


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+26 ProtectionismProtectionism is $a& "or the economy; h#rts -o$ growth; an& negati.ely aOects cons#mersrestriction o" choices; lower #ality; an& higher prices2



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+2' Minim#m wage

+*C


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+2 entral planningImpossi$ility o" central planning



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+2< 3#siness cycles, not crises o"capitalism $#t go.ernmentinter.ention

The "ollowing crises are commonly $lame& $y socialists on apitalism rather than ongo.ernment "ail#re2

+ 7reat %epression

) American recession2 Socialists claim that go.ernment &ereg#lation an& corporate gree&were the ca#ses2

4 E#roone crisis2

+++


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1.2.1 Asset B9@@les



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+2= The Scan&ina.ian mo&el Social%emocracy

) The 7erman mo&el %emocratic Socialism

4 #$a omm#nism2 It is to#te& as an alternati.e to eploitati.e an& #n-#st capitalism

$y socialists2 They cite their .ery high social &e.elopment in&icators an& s#ccesses inp#$lic healthcare2

6 hinese mo&el omman& economy

' So#th Korea an& Gapan ronyist state capitalist economy where the state "a.ors thechae$ols an& ai$ats#s respecti.ely

Scan&ina.ia where social wel"are is at pea/ an& hence close to ero growth rate2

++4


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+2C KeynesBs i&easKeynesian Jscal stim#l#ses an& p#mp priming &o not wor/ an& ha.e $een consistentlyshown to $e ineOecti.e2 Employment rates &o not go #p an& the economy &oes not grow2



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+2


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+2


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+2


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+42 S#ggestions recei.e&

++C


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+2


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+2


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+2


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1.2.1 ears of :eIation are 9nfo9n:e:

This "ollowing #ote $y Ro$ert ]#$rin points o#t that apart "rom "act#al misconceptions; itis antih#manism that is the i&eological &ri.ing "orce $ehin& en.ironmentalists .en&ettasagainst pop#lation growth; cons#merism; n#clear energy; 7M( crops; etc2

^^^^ IB.e $een wor/ing on this $oo/ "or more than thirty years; o.er which perio& IB.e

seen time an& again how important inno.ations that co#l& a&.ance the h#man con&itionha.e $een repeate&ly $loc/e&2

Ta/e n#clear power; "or eample; which is the Jel& o" my #ni.ersity &egree2 In the +C


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+2


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+2


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+2


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+2=* #nction o" prices8#n&amentally prices ser.e three "#nctions2 2 2 2 irst; they transmit in"ormation2 2 2 2 This"#nction o" prices is essential "or ena$ling economic acti.ity to $e coor&inate&2 Pricestransmit in"ormation a$o#t tastes; a$o#t reso#rce a.aila$ility; a$o#t procti.epossi$ilities2 2 2 2 A secon& "#nction that prices per"orm is to pro.i&e an incenti.e "or people

to a&opt the least costly metho&s o" proction an& to #se a.aila$le reso#rces "or the mosthighly .al#e& #ses2 They per"orm that "#nction $eca#se o" their thir& "#nction; which is to&etermine who gets what an& how m#ch[the &istri$#tion o" income2: 0 rie&man; Milton2+C==2 8Mar/et Mechanisms an& entral Economic Planning2: In I&eas; Their (rigins; an&

Their onse#ences $y 725arren N#tter25ashington; %, American Enterprise Instit#te "orP#$lic Policy Research, )

X

+)


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+2=+ Alternati.e to prices, rationingRationing $y #ota is ineUcient $eca#se it restricts personal "ree&om to choose; an& itres#lts in corr#ption; crime; $lac/ mar/ets; an& other ways to game the system2

1&8Sone Ki hi&iya Total Re"orm Agen&a


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+2=) Eternalitieswhat i" the steel mill that proce& the steel "or the c#tlery poll#te& the air with s#lph#ricaci& that ca#se& aci& rain; an& poll#te& the water ta$le with chemicals #se& in the process2

That poll#tion harms people in the area who $reathe the air; while aci& rain &amagesnear$y agric#lt#ral crops; an& chemicals in the water ta$le seep into neigh$orhoo& wells

#se& "or &rin/ing water; ca#sing cancer in local resi&ents2 The cost o" the poll#tion "alls onpeople in the area who s#Oer illness; premat#re &eath an& epensi.e me&ical treatment2

These #n"ort#nate people in the area $ear part o" the cost o" procing the steel; an& thesteel mill escapes paying "or those costs that are inherent in ma/ing steel2 Economists callthis an 8eternality: $eca#se part o" the cost o" ma/ing the steel is pai& $y parties eternalto the steel mill2

+)C


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+2=4 Price signals5hen a society inter"eres with these price signals; $y c#rtailing "ree mar/ets in "a.or o"centralie& planning; price signals are lost2 Then s#pply an& &eman& $ecome#ncoor&inate& an& the res#lts are shortages an& s#rpl#ses2

1/4Sone Ki hi&iya Total Re"orm Agen&a


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1.8/.1 rice ceilings

Price ceilings always ca#se shortages; $eca#se prices cannot rise when there are shortagesin or&er to call "orth greater s#pply2 Rent control has $een impose& in New Yor/ ity an& inSanta Monica; A2 In $oth cases the res#lt was that lan&lor&s c#t $ac/ on maintenance o"rental $#il&ings; an& cease& to $#il& more rental #nits2

E(N(MI I7N(RANE AN 3E ATAL; G9ST AS I7N(RANE ( HY7IENE AN 3E ATAL

a"ter h#rricanes in lori&a &estroye& ho#ses an& $lew oO roo"s; there were lengthyshortages o" $#il&ing materials nee&e& "or reconstr#ction2 I" prices ha& $een allowe& torise; s#pplies o" $#il&ing materials wo#l& ha.e po#re& into lori&a; attracte& $y the higherprices; an& the shortages wo#l& ha.e soon $een eliminate&; with prices then "alling $ac/ tomore normal le.els2 People &isplace& "rom their homes co#l& ha.e spee&ily re$#ilt an&mo.e& $ac/ home2 3#t the antiQgo#ging laws ca#se& shortages o" $#il&ing materials thato"ten laste& as long as a year or more; an& greatly slowe& reco.ery "rom the &isaster2

+4+


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1.8/.& rice Ioors

Price Zoors also are wellQinten&e&; $#t inherently harm"#l2 (ne eample o" a price Zoor isthe minim#m wage2 Setting a minim#m wage is inten&e& to protect #ns/ille& wor/ers $ypro.i&ing them with a 8li.ing wage2: That is the .isi$le i&ea2 3#t what act#ally happens isthat employers o" #ns/ille& wor/ers Jn& that the increase in the minim#m wage now ma/es

it more epensi.e to hire #ns/ille& wor/ers2 So employers c#t $ac/ on hiring; Jre lessprocti.e employees who are no longer worth their increase& pay; an& search o#ts#$stit#tes "or #ns/ille& la$or; s#ch as o#tso#rcing -o$s to &e.eloping co#ntries wherela$or is less epensi.e; or hiring illegal immigrants; or p#rchasing machines that can &o thewor/ more cheaply2

As a res#lt; the lowestQs/ille& wor/ers lose their -o$s; an& go "rom low pay to no pay2 The.ery lowestQs/ille& wor/ers that the minim#m wage was s#ppose& to help; en& #p#nemploye& an& #nemploya$le2 In some co#ntries where the minim#m wage is relati.elyhigh; s#ch as rance; yo#th #nemployment is as high as 6*'; an& there are no $aggers inthe s#permar/ets2 The rench ha.e to $ag an& carry their own groceries $eca#se the highminim#m wage has ren&ere& $aggers #nemploya$le an& #naOor&a$le2

Another "orm o" price Zoor is agric#lt#ral price s#pports2 armers are s#$si&ie& to growcertain crops2 These s#$si&ies on top o" mar/et prices ca#se "armers to increase their cropproction; res#lting in agric#lt#ral s#rpl#ses2 These cannot $e sol&; an& are le"t to rot ingo.ernment storage; or $#rne&; or otherwise ineUciently waste&2

1/&Sone Ki hi&iya Total Re"orm Agen&a


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+2=6 Trage&y o" the commons(ne o" the /ey arg#ments in "a.or o" pri.ate property an& against socialism is the Trage&yo" the ommons2 People will o.erQ#se an& &estroy the reso#rces; an& there wont $eeno#gh "or "#t#re generations2

The trage&y o" the commons comes a$o#t as "ollows2 Imagine a past#re open to #se $y all25ith open access; each her&sman will try to "ee& as many cattle as possi$le on thecommons; $eca#se the past#re is a "ree goo&2 This /in& o" arrangement may wor/ more orless satis"actorily so long as wars; &isease an& poaching hol& &own the n#m$ers o" manan& $east $elow the carrying capacity o" the past#re2 E.ent#ally; howe.er; the &ay o"rec/oning may arri.e; when wars; &isease an& poaching can no longer hol& &own then#m$ers o" man an& $east; an& o.ercrow&ing $ecomes a reality2 At this point; the limite&carrying capacity o" the commons relentlessly res#lts in trage&y2

As a rational $eing; each her&sman acts in his own sel" interest2 More or less conscio#sly;he as/s; 5hat is the harm to me i" I a&& one more animal to my her&? Since #se o" thepast#re is a "ree goo& to each her&sman; they ha.e no hesitation in a&&ing more an& moreanimals to grae on the past#re2 There"ore each her&sman /eeps a&&ing cattle to thecommons; #ntil o.ercrow&ing t#rns the onceQ"ertile past#re into a $are an& $arrenwastelan&2 Then all her&s an& their her&smen "ace star.ation2 5hen access is "ree toe.eryone; noQone limits his #se o" the scarce reso#rce; an& e.eryone $ecomes r#ine&2

This same pro$lem aicts other share& reso#rces2 or eample; la/es; ri.ers an& oceans$ecome Jshe& o#t $eca#se o" ecessi.e catches that wipe o#t most o" the Jsh2 In similar"ashion; wil& animals may eat an& trample the crops o" "armers; so that the "armers t#rn toh#nting an& /illing these wil& animals2 A"ter the animals are

Har&in; 72 +C= The Trage&y o" the ommons; Science +); +)64Q+)6=2 ommons arereso#rces that are p#$licly owne& an& open to #se $y the p#$lic; s#ch as p#$lic grainglan&s; la/es an& ri.ers; an& sea coast2

wipe& o#t; to#rists stop coming on sa"ari to see the wil& li"e; an& the "armers Jn& that the&eman& "or their crops has &rie& #p $eca#se the to#rist $#siness is &ea&2

How can this pro$lem o" 8the trage&y o" the commons: $e a.oi&e& or sol.e&? It has $eens#ccess"#lly sol.e& $y con.erting the commons into pri.ate property2 or eample; i" thecommons was p#t o#t to a#ction; an& the winning $i&&er co#l& now charge graing "ees to#sers; then there wo#l& $e no more 8"ree goo&2: The pri.ate owner wo#l& not allow hisproperty to $ecome o.erQgrae&; an& her&smen wo#l& limit their #se to what they co#l&aOor& to pay2 This sol#tion has $een s#ccess"#lly #se& in A"rica; where the ownership o"wil& animals ha.e $een awar&e& to .illage chie"s2 In or&er to stim#late sa"ari to#rs; thechie"s hire .illagers to protect the animals "rom poachers; an& to /eep the animals o#t o"the "armersB Jel&s2 As a res#lt; the animals are /ept in the wil&; the "armers sell their crops;

an& to#rism Zo#rishes; $ringing money to the .illages2+2 )hen ?ro?erty is o=ne: @y e


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+2=' omparati.e a&.antageGac/ an& Gill are shipwrec/e& on a &esert islan&2 ort#nately there are cocon#t palms on theislan& an& clams to $e gathere& on the $each2 Gac/ can pic/ +) cocon#ts in an ho#r or Jn&+* clams in an ho#r2 Gill can pic/ only C cocon#ts in an ho#r; $#t she can Jn& +6 clams in anho#r2

learly Gac/ is $etter at pic/ing cocon#ts; an& Gill is $etter at catching clams2 There"ore $othare $etter oO i" Gac/ specialies in pic/ing cocon#ts while Gill Jn&s clams2 Gac/Bs s/ill atpic/ing cocon#ts is what economists call his comparati.e a&.antage; an& GillBs comparati.ea&.antage is her s/ill at catching clams2 Since each has specialie&; they will tra&ecocon#ts "or clams2

So "ar we ha.e shown that specialiation; $ase& #pon comparati.e a&.antage; lea&s toincrease& tra&e; which in t#rn helps all parties to $ecome $etter oO in this Pareto eUcientprocess; regar&less o" whether these parties are in&i.ials or entire nations; an&regar&less o" whether the tra&e is only &omestic; or crosses national "rontiers2

2 It still pays "or the co#ntry with a comparati.e a&.antage in all goo&s to concentrate on

procing those goo&s where its comparati.e a&.antage is greatest; an& importing thosegoo&s where its comparati.e a&.antage is smallest "rom less eUcient co#ntries2

that tra&e; whether it $e &omestic or international; is wealthQprocing an& eUcient "or allparticipants; whether they $e in&i.ials or co#ntries2 2 7lo$aliation increases the wealtho" all nations; not -#st rich nations2 7lo$aliation is $y no means a ca#se o" -o$ losses annemployment2 (n the contrary; glo$aliation ca#ses -o$ growth an& increasesemployment2

%EMAN%QS9PPLY

I" yo# are selling lemona&e on a hot &ay; yo# can raise the price an& people will still $#y it2

onse#ences o" actions

People are responsi$le "or their actions

P#$lic sector instries are inherently ineUcient in contrast to their pri.ate sectorco#nterparts; as they are ins#late& "rom the mar/et "orces o" competition an& Jnancialacco#nta$ility that &ri.es inno.ation; pre.ents waste"#l misallocation o" reso#rces; an&reces costs2

XX

J9estion

Sho#l& this $oo/ aim to impart Jnancial literacy? E2g2 things li/e compo#n&ing?

No2

3ryan aplans criti#e o" the "ail#re o" A#strian Economics to posit an alternati.e tomainstream NeoQclassical Economics as well as A#strian economist Tom 5oo&s response,http,econ"ac#lty2gm#2e$caplanwhya#st2htm

https,www2yo#t#$e2comwatch?.Xhst*5pgQ&AM

An interesting &e$ate $etween an A#strian an& Neoclassical economist,

https,www2yo#t#$e2comwatch?.XlIP4e@&o"/

Law o" #ninten&e& conse#ences

The "eminist &eman& o" E#al pay "or E#al wor/ is co#nterprocti.e an& harms women

This is a goo& reso#rce "or yo#r wor/2

http,www2economicshelp2orgeconomicsQaQLimitations o" %emocratic Instit#tions Q %emocracy is seen as a process where .otersepress their choices .ia the $allot $o2 Now; there is a h#ge &iOerence $etween .oting in

1/3Sone Ki hi&iya Total Re"orm Agen&a
http://econfaculty.gmu.edu/bcaplan/whyaust.htmhttps://www.youtube.com/watch?v=hst0Wpg-dAMhttp://var/www/apps/conversion/tmp/scratch_4/'https:%2Fwww.youtube.com%2Fwatch%3Fv=lIPq3eXdofkhttp://econfaculty.gmu.edu/bcaplan/whyaust.htmhttps://www.youtube.com/watch?v=hst0Wpg-dAMhttp://var/www/apps/conversion/tmp/scratch_4/'https:%2Fwww.youtube.com%2Fwatch%3Fv=lIPq3eXdofk


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the $allot $o an& .oting in the mar/et2 5hile .oting .ia prices in the mar/et; a person whomight want to ha.e a .illa along with a Rolls Royce ar is imme&iately constraine& $y theprices an& he has to re.eal his relati.e pre"erences $#t while .oting .ia the $allot $o; a loto" .oters might sim#ltaneo#sly .ote "or a strong military; massi.e wel"are programs;$alance& $#&gets an& Ta c#ts all in one2 %emocracy simply lac/s a "ee&$ac/ mechanismo" comm#nicating $ac/ to the .oter the relati.e costs an& $eneJts o" the choices he has toma/e2 Th#s there are se.ere limitations to %emocratic Instit#tions an& what they can &o2

https,www2yo#t#$e2comwatch?.XF+E(]=Fn@c

5hy cant we -#st print money to pay oO &e$t?

https,www2yo#t#$e2comwatch?.XEo$PnL]i(o=

Each society choose its "#t#re each &ay

Yo# ha.e to choose $etween two roa&s; an& one o" them lea&s necessarily to po.erty2 Q3astiat

Q E>EN THE SLI7HTEST TRAE ( S(IALISM STATISM PR(TETI(NISM IS P(IS(N2

XX

The conf9sion @egins =ith the term tra:e :ecit.Sel" s#Uciency is a ante&il#.ian concept that prece&es the instrial age with which massproction; $rea/ thro#gh in transportation etc2 #shere& in concept o" core competence;colla$oration an& tra&e; anti#ating sel"Qs#Uciency tri$alism2

A"ter in&epen&ence In&ian politicians starting with Nehr# got &ope& $y this st#pi&concept o" sel" reliance which was ne.er "#n&amentally &isp#te& or &e$ate& $y anyonean& c#lt#ralreligio#s organiations li/e Swa&eshi Gagaran Manch with their $an& o" ignorantealots latche& on; "#n&e& $y &omestic companies that "eare& competition an& relie&hea.ily on patent .iolations2

XX

It is &iUc#lt to "ree "ools "rom the chains they re.ere ! >oltaireThis has always remaine& tr#e2 In >oltaires time; in 3astiats time; in o#r time2

I claim that people are rational; an& they act#ally $eha.e .ery rationally in matters o" p#re&irect sel"Qinterest2 5hich is .ery goo&; in&ee&2

3#t their $rains $ecome -elly when anything comple; s#ch as the eOects o" .ario#speoples sel"Qinterest on society2 Then they imagine the worst; an& "ail to #n&erstan& howin&i.ial sel"Qinterests chec/ each other an& ne#tralise any illQeOects on each other2 Eachtime they echange tra&e; this ne#tralisation is on &isplay2 3oth parties gain2 3oth parties&ont get as m#ch as they want2 3#t har& to #n&erstan& this; it wo#l& seem2

An& so there is a plainti.e cry "or 7o& an& 7o.ernment2 or chains to ensla.e e.eryone2

Natural sciences like 'hysics are easy to understand in general *ecause of one to onedirect eEect of action and taation and its authentic 'roof ('osteriori). Whereas economicsis a social science *ased on logical deduction (a 'riori) with little in terms of direct one toone eEect *ecause 'ur'oseful human action is much more com'le than natural e#ents.

5HY E(N(MIS TRIPS E>ERY(NE, Its concl#sions are .astly co#nterQint#iti.e2

Q selJshness an& sel"Qinterest create the $est res#lts "or society

Q goo& intentions almost always create $a& res#lts in p#$lic policy

Q minim#m wages harm the poorest o" the poor

1Q go.ernment reg#lation to pre.ent monopoly creates monopolies

Q imports assist a society more than eportsQ economic ine#ality li"ts the poor in most cases

+4'
https://www.youtube.com/watch?v=EobPnLZiOo8https://www.youtube.com/watch?v=EobPnLZiOo8


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5hen e.en many economists "ail to s#pport the rather asto#n&ing concl#sions; imaginehow har& it is "or the common man no matter how ecate& to &o so2

Please pro.i&e "#rther eamples2 Ill try to incl#&e in $oo/ ) "or chil&ren2

S(ME ( %(N 3(9R%EA9@S INSI7HTS

Q the p#rpose o" tra&e Q any tra&e Q is to enrich people as cons#mers an& not to enrich

people as procers2 The #ltimate p#rpose o" all economic acti.ity is to impro.e o#rstan&ar&s o" li.ing loosely &escri$e& as increasing o#r cons#mption; what #ltimatelymatters is how well an economy ser.es #s as cons#mers2 ons#mption is the sole en& an&p#rpose o" all proction A&am Smith

Q eports are a cost an& imports are a $eneJt

Q the speciJc -o$s lost to imports are not the only employment conse#ences o" tra&e

Q &omestic procers protecte& $y go.ernment "rom competition ha.e &iminishe&; ratherthan intensiJe&; incenti.es to impro.e eUciencies o" their operations

Money is a me&i#m o" echange2 It is something yo# pass on to ac#ire what yo# reallywant2 Money is not the same as wealth2 A society is only wealthy i" it has an a$#n&ance o"

goo&s an& ser.ices2Money arose nat#rally an& was #se& in many &iOerent "orms2 Historically; people #se& whatthey rea&ily recognie&2 Money ha& to $e a commo&ity that people were "amiliar with or itwo#l&nBt ha.e emerge& as a me&i#m in the Jrst place2 Some people #se& shells an& $ea&sas a "orm o" money2 (ther things #se& as money incl#&e to$acco; grain an& other types o""oo&2

R#sh to mar/et "ail#re

http,ca"ehaye/2com)*+'++economistsQsho#l&Q$eQmoreQli/eQ$iologists2html

5HY E(N(MIS IS >ERY HAR% Q IT IS M9H HAR%ER THAN HESS

Economics is li/e chess Q only more comple $y an or&er o" magnit#&e2

1/Sone Ki hi&iya Total Re"orm Agen&a
https://www.facebook.com/sabhlok/posts/10153701744418767?pnref=storyhttp://cafehayek.com/2015/11/economists-should-be-more-like-biologists.htmlhttps://www.facebook.com/sabhlok/posts/10153701744418767?pnref=storyhttp://cafehayek.com/2015/11/economists-should-be-more-like-biologists.html


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It in.ol.es wor/ing thro#gh an initial action; then reaction Q not -#st $y one person $#treactions o" potentially tens o" other people then once again; their "#rther actions an&reactions2 An& so on2

It is not -#st a two person game2 It is potentially a h#n&re&s o" persons game2

The greatest charitable activity anyone can undertake is to teach liberty and reason.

I encourage everyone to undertake this charitable work. It requires your time and knowledge; not money.

the failure of modern economic training to teach young economists to ask, always to ask, why.[excellent article by Don Bourdeaux]

monopoly : https://www.facebook.com/groups/fahayek/permalink/!"#$%%"!&'"&%&/

free tra:e# htt?s#LL===.face@oo>.comLsa@hlo>L?ostsL141'/2&3$331/22

Ne at ?rices. Thin> of them as eH9i ho= many ho9r of yo9r time that costs. Then thin> ifyo9 ha: to ma>e it on yo9r o=n ho= m9ch it =o9l: cost. (o9 =ill see clearly thatyo9 are getting ecellent et system.

The only H9estion then is =hether yo9 co9l: get it eet system :oes# it :riet system to ?ro:9ce A00 thethings they cons9me in their o=n, an: see if thats eet system of echange is critical to h9man ?rogress.

The Economic Way of Thinkingby the late Paul Heyne, Peter Boettke, and David Prychitko.

MYTHS

htt?#LLcafehaye>.comL&41'L11Lsome%economic%myths%slain%@y%alchian%allen.html-9tmso9rcefee:@9rnerP9tmme:i9mfee:P9tmcam?aignee:Q/ACafe"aye>Q&8Cafe"aye>Q&$

Key ?ro@lems of economicsQ cooor&ination pro$lem
http://cafehayek.com/2015/11/knowing-about-economics-and-knowing-economics.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+(Cafe+Hayek)https://www.facebook.com/groups/fahayek/permalink/10153164450875848/https://www.facebook.com/sabhlok/posts/10153724964413767http://cafehayek.com/2015/11/some-economic-myths-slain-by-alchian-allen.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+(Cafe+Hayek)http://cafehayek.com/2015/11/some-economic-myths-slain-by-alchian-allen.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+(Cafe+Hayek)http://cafehayek.com/2015/11/some-economic-myths-slain-by-alchian-allen.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+(Cafe+Hayek)http://cafehayek.com/2015/11/knowing-about-economics-and-knowing-economics.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+(Cafe+Hayek)https://www.facebook.com/groups/fahayek/permalink/10153164450875848/https://www.facebook.com/sabhlok/posts/10153724964413767http://cafehayek.com/2015/11/some-economic-myths-slain-by-alchian-allen.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+(Cafe+Hayek)http://cafehayek.com/2015/11/some-economic-myths-slain-by-alchian-allen.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+(Cafe+Hayek)http://cafehayek.com/2015/11/some-economic-myths-slain-by-alchian-allen.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+(Cafe+Hayek)

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