Economics For Children

The miracle of so many
things.
How are there so many things? How are
people so rich?
(Introducing children to the economic way of thinking)
PRELIMINARY SKETCH for public consultation

Dated 5 October 2015
Coordinator: Sanjeev Sabhlok
Everyone welcome to join as contributor
[Source]
Contents
1.
BACKGROUND, AND NEED FOR SUCH A BOOK............................................1
1.1
THE NEED.................................................................................................... 1
1.1.1 Why economics is so confounding difficult............................................1

1.1.2 Need recognised as long ago as in 1910...............................................2
1.2
THE APPROACH TAKEN BY THIS BOOK.................................................................3
1.2.1 Plan........................................................................................................ 3
1.2.2 Advance warning................................................................................... 3
1.3
BROADLY SIMILAR WORKS................................................................................ 3
1.4
COPYRIGHT OPEN SOURCE.........................................................................4
BOOK 1: FOR AGE 9-12...................................................................................5

2.
DO YOU WANT TO BE A SMART DETECTIVE?...............................................6
3.
WE WERE ALL VERY POOR, BUT TODAY MOST PEOPLE ARE RICH.................7
3.1
THEN SOMETHING HAPPENED, AROUND 200 YEARS AGO........................................7
3.2
SO WHAT HAPPENED?..................................................................................... 8
3.2.1 All man-made things start as an idea....................................................8

3.2.2 We need our kings, priests, and governments to let us think for ourselves 8
4.
HOW INDIVIDUALS PRODUCE WEALTH.....................................................10
4.1
WEALTH IS PRODUCED BY US, THE ORDINARY INDIVIDUALS...................................10
4.2
THE WEALTH OF A COUNTRY IS THE SUM OF THE WEALTH PRODUCED BY ITS INDIVIDUALS.
10
4.3
EVERYONE IS A PRODUCER AND CONSUMER.......................................................10
4.4
PRODUCING MORE THINGS THAT PEOPLE WANT IS HOW THE WORLD GETS RICH........10
4.4.1 Why are some singers and sportsmen so rich?....................................11

4.5
5.
THE WEALTH OF A SOCIETY IS NOT FIXED..........................................................11
SPECIALISE! ONLY THEN CAN YOU PRODUCE A LOT OF THINGS.................12
5.1
PRODUCING EVERYTHING ONE NEEDS IS A REALLY BAD IDEA.................................12
6. THERE IS NO POINT IN PRODUCING THINGS IF YOU CANT EXCHANGE WITH

OTHERS....................................................................................................... 13
6.1
TRADE MAKES BOTH SIDES BETTER OFF............................................................13
6.2
MOST OF WHAT WE PRODUCE FOR OUR OWN NEEDS COMES FROM SHOPPING..........13
6.3
TRADERS ARE ALSO PRODUCERS.....................................................................14
6.4
WHAT WOULD HAPPEN IF PEOPLE COULD PRODUCE BUT NOT TRADE?.....................14
6.5
WHY ARE SOME COUNTRIES STILL POOR?..........................................................15
7.
HOW ARE YOUR PARENTS ABLE TO GET THE THINGS YOU HAVE IN YOUR HOUSE?
16
7.1
WHY DO MANY PEOPLE NOW LIVE IN CITIES?.....................................................16
7.2
SOME PEOPLE DONT LIKE US TO BECOME RICH. LETS WATCH OUT FOR THEM..........16
8.
PEOPLE HAVE CHOICES...........................................................................18
8.1
SHOULD WE BE FREE TO CHOOSE FOR OURSELVES?............................................18
8.2
ALL PEOPLE PREFER MORE MONEY TO LESS.......................................................18
8.3
EVERYONE LIKES TO PAY LESS FOR THINGS THEY BUY...........................................18
8.4
EVERYONE WANTS A LOT OF THINGS BUT NO ONE IS RICH ENOUGH TO BUY EVERYTHING18
8.5
THE VALUE OF SOMETHING IS WHAT OTHERS THINK IT IS WORTH............................19
8.6
PEOPLE CAN SPEND THEIR OWN MONEY BETTER THAN OTHERS CAN SPEND IT FOR THEM19
8.7
WHAT WE CHOOSE TODAY CAN AFFECT WHAT HAPPENS IN THE FUTURE...................19
8.8
WE MUST LOOK AT THE FULL PICTURE WHEN THINKING ABOUT SOMETHING..............19
8.9
VERY FEW PEOPLE ARE BORN WITH MONEY. THEY HAVE TO EARN IT.......................19
8.10 IS THERE A FREE LUNCH?.............................................................................. 20

8.10.1 We should pay people if we want something from them..................20
8.10.2 Why do people charge for things they sell?......................................20
8.11 IF PRICES OF SOMETHING GO UP LESS OF THE THING IS BOUGHT............................21
9.
WHAT IS THE GOVERNMENT AND WHAT DOES IT DO?...............................22
9.1
SOMETIMES PEOPLE MAY NEED A GOVERNMENT TO MAKE RULES............................22
9.2
SOMETIMES MARKETS MAY NOT BE ABLE TO SUPPLY THINGS WE NEED.....................22
9.3
SOMETIMES PEOPLE DONT BOTHER ABOUT THE HARM THEY CAUSE........................22
9.4
THAT DOESNT MEAN THE GOVERNMENT CAN DO THINGS BETTER THAN THE PEOPLE. .22
9.5
WE LEARNT EARLIER HOW WE EARN MONEY, BUT WHO CREATES MONEY?................22
9.6
PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY...........................23
9.7
WE MUST REMEMBER THAT GOVERNMENTS CANT SPEND OUR MONEY BETTER THAN WE CAN
23
10.
CHAPTER 4: CONGRATULATIONS!.........................................................24
10.1 WELL DONE!............................................................................................... 24

10.2 SO YOU WANT TO BECOME RICH......................................................................24
BOOK 2: FOR AGE 12-18...............................................................................25
11.
BOOK 2 TOPICS...................................................................................26
11.1 HUMAN BEHAVIOUR...................................................................................... 26

11.2 BIASES...................................................................................................... 26
11.2.1 Anti-market bias............................................................................... 26
11.2.2 Make-work bias................................................................................. 26
11.2.3 Anti-foreign bias............................................................................... 26
11.2.4 Pessimistic bias................................................................................ 26
11.3 VALUE....................................................................................................... 26
11.4 SCARCITY................................................................................................... 26
11.5 MAGIC OF THE MARKET AND PRICE SYSTEM.......................................................26
11.6 MARKET..................................................................................................... 26
11.6.1 Are markets immoral?......................................................................27
11.7 RULE OF LAW.............................................................................................. 27
11.8 TRADE....................................................................................................... 27
11.9 CREATIVE DESTRUCTION AND INNOVATION........................................................27
3
11.10
THE MAGIC OF PROFIT................................................................................ 27
11.10.1 Just producing machines does not make a nation wealthy...............27

11.11
PRODUCTIVITY.......................................................................................... 28
11.11.1 Why are wages in third world countries like India so low?................28
11.12
SEEN/ UNSEEN......................................................................................... 28
11.12.1 Bastiat's broken window fallacy.......................................................28

11.12.2 The more animals you eat, the more animals are produced............28
11.12.3 Price controls (rent control, minimum wage, maximum support price, etc)
do more harm than good..............................................................................28
11.12.4 Jobs are created by people, not by governments.............................28
11.12.5 Criminalization of vice only serves to create a black market that benefits
criminal elements and promotes disregard for the law.................................28
11.13
SAVINGS................................................................................................. 28
11.14
COMPARATIVE ADVANTAGE..........................................................................28
11.15
ROLE OF THE GOVERNMENT........................................................................28
11.16
TOOLKIT................................................................................................. 28
11.16.1 Measuring the economy...................................................................28

11.16.2 Game theory..................................................................................... 29
11.16.3 Public choice theory.........................................................................29
11.16.4 Cost Benefit analysis........................................................................29
11.16.5 Moral hazard..................................................................................... 29
11.17
MONEY................................................................................................... 29
11.17.1 Central banking................................................................................29

12.
BAD IDEAS TO BE ADDRESSED.............................................................30
12.1 ECONOMIC EQUALITY IS MEANINGLESS AND IRRELEVANT.......................................30

12.1.1 Are we getting more unequal as we become richer?........................30
12.2 WELFARE................................................................................................... 30
12.2.1 Welfarenomics as propounded by Bernie Sanders...........................30
12.3 SOCIAL JUSTICE........................................................................................... 30
12.4 MISUSE OF "MARKET FAILURE" ARGUMENT........................................................30
12.5 SOCIALISM.................................................................................................. 30
12.6 POPULATION 'PROBLEM'................................................................................. 31
12.7 EXCESSIVE TAXES......................................................................................... 31
12.8 PROTECTIONISM........................................................................................... 31
12.9 MINIMUM WAGE........................................................................................... 31
12.10
CENTRAL PLANNING................................................................................... 31
12.11
BUSINESS CYCLES: NOT CRISES OF CAPITALISM BUT GOVERNMENT INTERVENTION...31
12.11.1 Asset Bubbles...................................................................................31

12.12
THE SCANDINAVIAN MODEL / SOCIAL DEMOCRACY..........................................31
12.13
KEYNESS IDEAS....................................................................................... 32
12.14
MARXIAN................................................................................................ 32
12.15
BEHAVIOURAL ECONOMICS..........................................................................32
12.16
MIXED ECONOMY...................................................................................... 32
12.17
THE PROBLEM WITH MACROECONOMICS.........................................................32
13.
SUGGESTIONS RECEIVED.....................................................................33
13.1 CAPITALISM................................................................................................. 33
13.2 THE FUTURE............................................................................................... 33
13.3 DEFLATION................................................................................................. 33
13.3.1 Fears of deflation are unfounded......................................................33
13.4 NATIONAL RESOURCES ARE NOT FINITE.............................................................33
13.5 TRADE AND WEALTH PRODUCTION...................................................................34
13.6 ROLE OF MIDDLEMEN.................................................................................... 34
13.7 FUNCTION OF PRICES.................................................................................... 35
13.8 ALTERNATIVE TO PRICES: RATIONING................................................................35
13.9 EXTERNALITIES............................................................................................ 35
13.10
PRICE SIGNALS......................................................................................... 35
13.10.1 Price ceilings..................................................................................... 35

13.10.2 Price floors........................................................................................ 36
13.11
TRAGEDY OF THE COMMONS........................................................................36
13.12
COMPARATIVE ADVANTAGE..........................................................................37
1. Background, and need for such a book
When you first grasp the explanatory power of economic ideas, youll feel like the movie
hero who suddenly grasps The Matrix and realizes he can pull bullets out of the air.
[Source]
1.1
The need
Sometime in the middle of September, 2015, I came to a view that everyone needs to
understand the economic way of thinking, just like they need basic literacy, basic
arithmetic and basic science.
Without a basic understanding and intuition about how an economy works and how wealth
is (or can be) created, most people will apply their untrained intuition and will go wrong.
Just like without understanding that there are bacteria, people made entirely wrong
decisions about diseases caused by bacterial infection, so also in the case of economics,
people make entirely wrong decisions about the operation of the economy
Economic illiterates often gain power over other people through the field of politics. In their
ignorance and arrogance, they cause untold harm to the people whose welfare they wish
(or allegedly wish) to support, and to the world.
The economic way of thinking can be called the economic method. It is a branch of the
scientific method. It is, however, more complex in many ways than the method used to
understand the physical sciences, since there is no linear relationship in economics.
Everything in economics is a relationship between one or more different forces. It is all
about interactions, about further actions and reactions, about consequences that ricochet
across the entire world economy. Everyones economic actions affect everyone else.
Always, without exception. The outcomes of these actions can be predicted - as accurately
as the outcomes of physical actions, although as the impacts of these actions get into
second and third order effects, the outcomes become increasingly harder to predict
correctly.
Good intentions fail to translate into good results precisely because of this complexity. The
"do-gooders" are not aware of how the first order effect they seek to create will come at the
expense of widespread second and third order effects which will overwhelm their good
intentions.
I couldnt readily find an existing booklet for little children to teach them the economic way
of thinking. , so it became necessary to prepare something new.
This is a preliminary sketch. I would like as many people as possible to get involved, and
would like to have them listed as contributors to this work.
Please review the
sabhlok@gmail.com.
sketch
(below)
and
send
your
thoughts
and
comments
at
Sone Ki Chidiya Total Reform Agenda
1.1.1 Why economics is so confounding difficult

ECONOMICS IS SO DIFFICULT BECAUSE IT IS ALMOST ENTIRELY ABOUT THE COMBINED
EFFECT OF THINGS THAT ARE HIDDEN FROM SIGHT; INVISIBLE.
Since 99.99 per cent of economics is about things that are hidden from sight (the endless
series of actions and interactions) it is literally impossible except for a highly trained person
to understand what's going on.
Economics is a discussion regarding these invisibles. Not for nothing did Adam Smith call
the price system and the market an invisible hand.
In religion, too, people have failed to grasp the invisibility of God, so every religion has
been forced to create visible artefacts/ temples/ mosques. [Btw, you well know this doesn't
mean I have a position on the existence of any type of god, visible or invisible; economic
systems are absolutely real, their mechanics of operation entirely invisible.]
The question is how can one explain this to the ordinary person (including highly
competent physicists) who are not used to looking at a vast series of actions/ interactions.
In the physics lab scientists looks at a particular event, and then it is over. What happens
further, and then further, etc. is converted into general laws of entropy.
In economics, however, any action (even the most modest) has a direct effect on the
**entire** world economy. Its effects ricochet across the whole world, and not just in one
generation: in multiple generations (like the effects of Indian socialism in driving out its
best talent from India).
It is truly hard to get people to think about these hidden effects. The fact that amazingly
brilliant people like Adam Smith, Bastiat and Hayek have been explaining this for hundreds
of years but there is almost zero awareness of these hidden mechanisms and effects of
economics action even today, suggests that that challenge to get the ordinary, untrained
person to understand the economy is Herculean, close to impossible.
Yes, this little book project would be a tiny drop in the ocean, but we need a widespread
concerted effort to simplify the key elements of economics so every child can begin to see
through the confounding fog of the price system, and stop railing against the only system
that has taken mankind from a short, brutish life of misery, to health, wealth and
abundance.
1.1.2 Need recognised as long ago as in 1910

The desperate need for teaching economics to children was recognised as long ago as in
1910 in one of the premier academic journals in economics. However, nothing (or almost
nothing) has been done for the past 105 years.
"we have a correspondingly large number of self-assertive citizens, who, whether they
know anything of economics or not, will take a practical hand in legislating on the subject"
[John B. Clark, Economics for Children, Journal of Political Economy, Vol. 18, No. 6 (Jun.,
1910), pp. 432-434]
There is a simple truth in it which a boy ten years old can master; and I know
this because I have seen one of them do it. As he sits by a dining-table a child
of ten is able to see that he wants a first slice of bread more than he wants a
second one, and still more than he wants a third. It is not necessary to call
this fact a "law of diminishing utility of successive increments of consumers'
goods," although after a time the boy would get the meaning of that formula.
The simple possibility of gradually satiating wants, by supplying more and
more of the thing wanted, is all that it is at first necessary to see.
The child can be made to perceive that if in the butler's pantry there were a
given amount of bread, which must be disposed of that day or go altogether
to waste, and if the waitress were a bread-merchant who owned this supply,
there would be a limit to the price she could ask and still dispose of the whole
quantity. No one would want the last remnant of this commodity enough to
pay very much for it, and this fact, for the time being, would suffice to make
bread cheap. If, moreover, the supply every day were likely to be what it is on
this particular day, the bread would remain cheap.
This is one of the score of principles which, when stated technically and in
abstract terms, appear to most people strange and complex, though in simple
terms they appear nearly self-evident. It is entirely possible to strip of
technicalities a very large number of economic principles and make them
simpler than the problems of mathematics with which a child of ten years is
expected to grapple.
To secure this result it is, in my judgment, best to impart the knowledge first
in a conversational way and with an abundance of questioning, which will
enlist the pupil's interest and set his reasoning powers at work. After such a
preparation a very simple textbook is useful. This plan exacts from the
teacher something which may not always be supplied, but it would be strange
if in any large school it were not possible to find some teacher capable of
supplying it. The extent in the United States to which economics is now
taught is all in favor of the plan.
John B. Clark Columbia University
1.2
The approach taken by this book
We need to get the economic method or way of thinking understood by children. Everyone
doesnt need to know or understand the technical terms used in the economics profession.
In fact, textbook economics often limits itself to the toolkits of economics without
providing an understanding of the economic way of thinking. Such knowledge can lead to
much harm.
There are a number of university trained economists who have never understood the
economic method or the economic way of thinking. It may be too late to change them, but
there is a need to educate the future generations.
1.2.1 Plan
I propose two books, one for ages 9-12 and the other (advanced) for ages 12-18. The
children's book will avoid jargon and any unnecessary concept/s. Concepts that are not
critical will be excluded (e.g. opportunity cost, sunk costs, most market and government
failures).
1.2.2 Advance warning

Please note that there is an overarching theme to this book. The whole of human progress
to date can be summarised as a revolt against government and religion. That is the most
start truth about human history. There are deep vested interests among government/
religion to block reason and production. These are highlighted, along with details of how
ordinary people are able to produce enormous amounts of wealth, without the assistance of
any government or religion.
To the extent you blindly support government or religion, please dont give this book to
your children. They are likely to get "infected" with questioning. But without such basic
questioning it is impossible to understand the economy.
1.3
Broadly similar works
There do exist some (broadly) similar works. Most of these are targeted at teenagers or
young adults. These include:
Jonathan Gullible (free)

Letter to his grandson from Fred I. Kent.
Candynomics: Economics for Children
Economics For Children: What Is Economics (DVD)
Economics Made Simple: How money, trade and markets really work by Madsen Pirie
Ragged Dick and Mark, the Match Boy by Horatio Alger
Thidwick the Good-Hearted Moose by Dr. Suess
I Pencil
The Toothpaste Millionaire, by Jean Merrill
The Giver by Lois Lowry
A Financial Fable by Carl Barks
The Golden Helmet by Carl Barks
The Monarch of Medioka by Floyd Gottfredson
Whatever Happened to Penny Candy? by Richard Maybury
The Money Mystery by Richard Maybury
Capitalism for Kids
Little House on the Prairie by Laura Ingalls Wilder
The Giving Tree
The Giver by Lois Lowry (also Finding Blue)
Adventures of Primo Dinero
Heir Conditioned
A little bit more advanced (teenagers):
Economics in One Lesson: The Shortest and Surest Way to Understand Basic
Economics by Henry Hazlitt (Free)
Economic Sophisms by Bastiat (free)
Principles of Economics (MR university)
Free Market Economics: A Basic Reader (free)
Economics Made Easy by Les Livingstone (free)
Economics: The Remarkable Story of How the Economy Works by Ben Mathew ($3)
Connor has written these three books for children: http://tuttletwins.com/
1.4
Copyright Open Source
I intend a Creative Commons copyright on this book, which means anyone can modify and
re-publish in any form or shape.
Book 1: For age 9-12
10
2. Do you want to be a smart detective?
This book is a story about how people make things, from where they get their money, how
they become rich, and, in fact, how you can become rich.
Everyone wants to become rich. But some people are not rich, and some countries are
poorer than others.
By the time you finish this book you would have become an economist. Anyone can
become an economist if they understand the economic way of thinking; just like anyone
can become a scientist if they understand the scientific way of thinking.
An economist understands how the whole society cooperates to produce the things we
need. That includes understanding what happens after something happens. For example, if
you buy an ice-cream, she understands what happens to prices of everything as a result,
and to the total number of things that are produced in the world. And how more ice-creams
could get produced as a result particularly if the ice-cream producer and seller are able to
make a reasonable profit.
In fact, it would be fair to say that the more the paper that people consume, the more the
trees that are produced. The more the chicken that people eat, the more the chicken that
are produced.
All this is really strange. Like Alice in Wonderland. But it is true.
And it is impossible to understand without being an economist.
The economist is a very smart detective who is able to piece together a complex jigsaw
puzzle that most people will never be able to bring together in their mind.
Do you want to be a very smart detective?
11
3. We were all very poor, but today most

people are rich
[This chapter shows that the biggest miracle in the world is the vast number of things and
services we see today. This is something entirely new and unprecedented. Knowing this
basic fact and being able to explain it holds the key to understanding economics]
Human beings, as we know them, evolved nearly 100,000 years ago. Before that some
creatures resembled humans, but were not humans.
The main thing is that humans have been as smart as modern man from for a very long
time, but for most of mankinds history, most people remained very poor. Mankind has
struggled for most of its history. Something crucial was missing, even though people were
smart.
They chased and hunted animals or picked plants to eat. They drank water from the open
river or pond and had no shelter except when they learnt to make huts. They used animal
skin as clothes, till they learnt to make a crude kind of cloth. Mankind could barely to grow
enough food for survival. There was great scarcity. Children barely had a few toys. They
played with sticks and stones, and climbed trees. And half the children who were born died
before the age of five, mainly from starvation or disease.
Only kings managed to get a few things and a somewhat decent house, but even these
were of a poor quality. You must have heard about the seven wonders of the ancient world.
But these were built by enslaving people. Many people died during the construction of
these wonders.
Later, priests came on the scene and people created religions. But religions could not save
the children, and people, from dying.
12
1.5
around 200 years ago
Then something happened,
Then suddenly, about 200 years ago, people started becoming rich. And healthy. Books had
been very rare 200 years ago. Today most children have books. It was rare for children to
have clean clothes 200 years ago. But most children now have more than one set of
clothes.
Great wonders exist all around us. The worlds big cities have skyscrapers more than five
times taller than the tallest Egyptian pyramid. And no was enslaved to make these
skyscrapers.
There are thousands of things around us that are not found in nature, things like dolls, toy
trucks, books and airplanes. The shops are full of them.
We produce much more than we did in the past. In the past, a farmer only got four grains
for every planted grain. Today a farmer gets 60 to 70 grains of wheat for every grain he
plants. In most other things, too, people produce 40-80 times what their ancestors
produced. Mankind has almost entirely defeated scarcity in essential things.
In most cases, we use factories to produce things. Our factories produce millions of
computers, cars, and telephones.
People now have more spare time than they ever had. And they dont need to work from
early morning to late at night to earn a living.
Our life is also very easy compared with our primitive ancestors. Primitive man spent most
of the time to find water, to find or grow food and to cook food. Today, most homes have
piped water and electricity. Many people have airconditioners to keep cool on hot days. We
can also heat our homes when things get cold outside.
And there are around 10 times more people today in the world than there were about 200
years ago. Today, even though there are some poor people, most people are amazingly
better off (and healthier) than their ancestors. It is fair to say that the world has become
hundreds of times richer than it was in the past.
This is nothing short of a miracle. There has never been a greater miracle in the entire
history of the Earth.
For Book 2, elaborate on this

See Hockeystick of Human Prosperity by Don Boudreaux
https://www.youtube.com/watch?v=t9FSnvtcEbg
13
1.6
So what happened?
Something happened around 200 years ago due to which most people are now able to
create new ideas and new things.
The main thing that happened was a change in the way people started thinking about
themselves.
In the past, only kings and priests mattered. The common man was nobody.
But around 400 years ago, people in countries like Netherlands and England started
believing in their own ability to learn and to produce things. They began to respecting
successful traders and producers; not just the king or priest.
Many kings and priests didnt like it that producers and traders were becoming more
important than them. They tried to block those who produced wealth. But the people
decided they will not allow kings to tell them what to do. Many kings were killed by the
people, till the kings and governments learnt the lesson: the people are the masters, the
kings their servant.
This change in the way of thinking about the world is known as a revolution.
It was a revolutionary idea that people would be the masters and kings their servant. It was
a revolutionary idea that people would not believe in religion just because someone said so,
and would ask questions and create new ideas.
But it was a necessary revolution. The revolution took many hundred years, and by around
200 years, it was in place in many parts of what we call the Western world.
Today, people are respected if they produce new ideas and a lot of wealth. Bill Gates is
respected more than any king. He owns more money than any king could ever have
imagined.
It is this dignity of the individual, the freedom to think, to ask questions, and to produce;
and respect for those who produce and trade, that changed 400 years ago.
It can be said that mankind became free. Thats what happened.
This idea was very new. It took time to spread, so vast amounts of wealth started getting
produced only from around 200 years ago.
In many countries (such as India) people are not yet free. The businessman is not yet
respected. So many Indians remain poor. If poor countries like India do the right thing, they
will become extremely rich, as well.
14
1.6.1 All man-made things start as an idea

Every man-made thing you see around you started, first, as an idea in the mind of
someone. It is ideas that are necessary for the creation of wealth.
15
1.6.2 We need our kings, priests, and governments to let us think

for ourselves
Till today, many kings and priests today dont allow other people to become more
important than them.
But if the king (or government) stops the people from thinking new ideas and producing
things, how can they possibly become rich?
But this is only the beginning. We need to understand how people are able to think new
ideas and produce new things by themselves. How do so many things get made and how
do they reach the people who need them?
Is there someone (a king?) sitting in the middle who invents all these things and orders
everybody around to produce them in the required quantity and provide them to the right
place at the right price?
Not really.
16
4. How individuals produce wealth
[This chapter focuses on the actual dynamics of wealth creation. It focuses on property
rights.]
17
1.7
ordinary individuals
Wealth is produced by us, the
Kings do not produce new ideas or wealth. Priests do not produce new ideas or wealth.
It is always individuals who create wealth.
Kings and priests live off the wealth we produce. If we compare things with the story of the
grasshopper and ants, then we are the ants, and kings and priests the grasshoppers.
Kings do have a role to play (not priests), and I'll come to that later. But we never forget,
even for a moment, that kings and priests never produce a single new idea or thing, or any
wealth.
We should not forget that they were in charge for the first 99,800 years of human history,
and everyone was poor and miserable.
It is very clear that kings and priests cannot produce anything. They can only take things
from others or stop others from producing things. When we understand this very clearly, we
can start asking how people (the ants) are able to produce so many new ideas, things and
wealth. What is it about ordinary people that is so unbelievably innovative and productive?
Kings dont need to create new ideas. They can simply take away things from people, and
so they dont need to have any ideas.
Ordinary people cannot take away things from others. They have to provide others with a
useful thing or service, so someone will pay them in return.
Ordinary people are afraid that what they produce will be stolen from them, either by a
thief or (sometimes) by the kings own men. If a king can assure people that their property
will not be stolen from them, they can spend their time thinking about new ideas and
producing new things.
Creating a situation in which the ordinary person can spend time thinking new ideas,
assured that his produce will belong to him, is the key to understanding why they ordinary
people are now so miraculously productive.
18
1.8
The wealth of a country is the sum
of the wealth produced by its individuals.
But it is very important to remember that all the wealth is owned by those who produce it,
not by anyone else.
19
1.9
consumer
Everyone is a producer and
Except for someone who is really sick, and for kings who have servants or slaves for their
every need, everyone is both a producer and consumer.
Your mother and father are producers. They produce things that you need.
Your father produces food by cooking a delicious dinner. Your mother produces light by
replacing the old light bulb when it gets fused.
20
1.10
Producing more things that people
want is how the world gets rich
Some people worry that if more things are produced by fewer people, then jobs will be lost
and some people will become poor.
But the economist detective knows better than that.
The economist knows that people have an endless set of needs and wants. When
something becomes cheaper (such as clothes) because a factory produces a lot of clothes
at a low cost, everyone now can save some of the money they used to spend on clothes.
They use this saving on other things that they like, such as good food in a restaurant,
travel, or learning tennis. This new expenditure creates new jobs. Since everyone is good at
doing many things, people who lose a job can take up one of the many new jobs that are
created.
Ultimately, we get the same number of jobs and clothes that we had in the beginning, plus
many more things (like more travel and good food). Each time anyone can figure out a way
to produce something cheaply, the entire society saves a lot of money. That spare money is
then used to create more things.
That is how the world becomes rich: through better and better methods of production.
21
1.10.1 Why are some singers and sportsmen so rich?

Of course, there are people who dont produce a lot. But they may produce something of
great quality, like a great painting or song, or a great tennis match. People like quality, and
therefore these people also become rich. But remember, only a few of these people will
ever become rich. Most singers and sportspeople are quite ordinary, and no one will pay for
their work.
To become rich, people need to produce a lot of things that people want, or things of great
quality.
22
1.11
The wealth of a society is not fixed
Some people think that the total amount of wealth in a society is fixed. Such people think
that the wealth of the society must be redistributed.
But they forget a number of things.
Wealth belongs to individuals, not to any nation. If they try to redistribute wealth, that will
be stealing someones property. If people know that what they produce will be taken away
by force from them, they will no longer produce anything. After people have paid taxes on
their earnings, it is theirs to keep and to use.
Such people forget the history of our species, and how we have produced so much new
wealth in the past 200 years. The total wealth in a society is always increasing because
human knowledge is always increasing. It is this knowledge that allows us to produce ever
more things, at lower cost.
Since the wealth of a society belongs to people, not to the entire society; and because it is
always increasing, there is no need to redistribute it. It is only necessary to look after those
who are in extreme poverty. That is, however, a different issue, and well come to it
separately.
23
5. Specialise! Only then can you produce a

lot of things
24
1.12
a really bad idea
Producing everything one needs is
Instead of trying to produce everything - our own food, clothes, build our own house
and treat our own illnesses - we can become better off by doing one thing well.
Someone who is good at making toys should produce toys. Such people will also
often invent machines to increase the production of toys. When people focus on
producing one thing, more of everything gets produced, than if everyone tried to
produce everything.
This is called division of labour, where everyone specialises in something. The more
the division of labour and specialisation, the richer the society becomes. Tribal
societies have low levels of specialisation. Advanced countries have very high levels
of specialisation.
After a lot of toys have been produced, people can buy whatever toys they need
from the toy maker. The toymaker can use the money made from selling toys to buy
whatever he needs.
The doctor does not bake his own bread or manufacture his own instruments or
weave or make his own coat. Others do these things for him, and in return he treats
the diseases with which his patients are afflicted.
Everyone becomes better off.
It is important that people are allowed to make as many machines as they can
possibly invent. The more the machines, the more the stuff that we can produce, at a
cheaper price. At one time, a watch was very costly because it was made by hand.
Now factories make it and some watches are now cheaper than an ice-cream.
If left to themselves, people will invent new ideas and work out ways to produce
things cheaply; to do more with less. This is called efficiency.
Remember, this is not about being the best in the world in what you do. To be a
teacher, you just have to be better than others.
The teacher gets so good in teaching by spending time to constantly learn new
things that she can teach you. She specialises in teaching. She becomes better than
most others in teaching, but she may not be a very good tailor of mens suits.
This is what happens in a market economy. In a market economy everyone becomes
better off because everyone specialises, then trades with others, instead of
producing everything themselves.
This is different to the situation when man used to live in jungles. We now produce
much more because we specialise.
Not everything is sold in a bazaar. The teacher sells teaching services in a school.
The doctor sells medical services in a hospital. These places, too, are markets, or
bazaars of a different kind. The market where people sell their time (e.g. to treat
patients) is called the labour market.
You must have heard that to be a Jack of all trades is to be a master of none. The
Jack of all trades has not specialised in anything so he cant be better than most
people on anything.
It is always better to focus on doing one thing very well.
As a result of specialisation, no single person knows how to make anything, even a
pencil.
Such complexity can only be managed through prices in the market. There is no
single person who can plan the whole process of making a pencil.
25
6. There is no point in producing things if

you cant exchange with others
26
1.13
Trade makes both sides better off
The exchange of something for another thing is called trade.
When someone buys a toy from the shopkeeper, both the buyer and seller become
better off. The shopkeeper has too many toys and cannot make use of these toys at
home. He wants money for the toys so he can buy other things he needs. The buyer
doesn't have enough toys in the house so needs a toy. Better to buy a toy that works
well, than to try to make a toy by oneself.
Therefore both parties benefit from trade.
Both buyers and sellers say Thank you! after a purchase.
The author of Harry Potter, JK Rowling, did not become rich by stealing your money.
Your parents paid money to JK Rowling because they thought you would like the
book, and so it gave them value. JK Rowling was able to give away the book because
the money your parents gave her, provided her more value than having one more
copy of the book. Both sides gained, and in the process JK Rowling became rich.
[Advanced] Bill Gates did not become rich by making others worse off. People paid
money for his products because his products saved them time and money and made
them more productive than the cost of the software they bought from Bill Gates.
Trade creates new wealth.
This shows that the modern society create wealth without harming anyone.
All voluntary exchanges increase the wealth of each of the participants. Wealth is
produced by trading.
27
1.14
Most of what we produce for our
own needs comes from shopping
But Im sure youve observed that they dont really produce everything from scratch by
themselves.
In most cases they use their time to go shopping, and buy your shoes and toys. That is also
production. It doesnt matter how they get you the things you need: they are producers.
They have produced the shoe very efficiently, by saving their time.
Why dont they produce everything from scratch? The answer to this question is important.
It holds the key to wealth we see in this world.
If we had enough time to learn everything that mankind knows, and we had enough time to
produce the things we find in the market, then we could produce everything ourselves from
scratch.
But no human being has the time in one lifetime to learn everything. It takes billions of
people to know everything. And it takes billions of peoples entire lifetime to produce these
things.
We are the only animal on Earth that is not limited by instinct. Unlike pigs, we are able to
store knowledge in books. Most importantly, we can specialise. Each of us can do a small
part of the work necessary to produce a small part of a big thing. Each of us can produce a
lot of a that small thing. This way the world produces a billion different things, none of
which is found in nature.
We have created an entirely new universe from what nature gave us. And that does not
come from producing everything ourselves. It comes from intense knowledge and intense
specialisation. The more the people on Earth, the better, so we can have even more
knowledge and deeper specialisation.
Two things are therefore very good for all of mankind: more people to specialise, and trade.
Without trade all this specialisation will go waste.
28
1.15
Traders are also producers
Some people think that production is only about factories. But production is also through
trade. If you want a particular brand name shoe, then you dont go to the factory to get it.
You go to the local shop. Because that shop provides you with the shoe you want, it can be
said that it produces the shoe.
This is the proper way of thinking about trade: that the trader produces things that people
want. Traders and producers are part of the same system that produces wealth. Without
traders there will be no production of wealth.
29
1.16
What would happen if people
could produce but not trade?
Imagine someone has produced a lot of bananas at a very low cost. If he is now unable to
send the bananas to the people who will pay the most, either because of natural obstacles
like a damaged road or a barrier created by the king (government), then his bananas will
rot. People who would have liked to get bananas (at a price) will not get them, and the man
who has produced bananas will go bankrupt since the people in his village can only eat so
many bananas.
It doesnt matter how much we specialise. If we then cant trade, humanity is sunk.
Trade is the lifeblood of mankind.
If there is any fundamental role for the king (government), it is twofold: to facilitate
specialisation and to facilitate trade. To achieve that a government may have to provide for
defence, police, justice and some infrastructure, but these are all means to the end: of
greater specialisation and greater trade.
Simplify the box below, for book 1
For Book 2, elaborate this

Self-sufficiency is death.
Each day I have a choice: produce economic policy for the government
and buy things that I need from the wages I get, or directly produce
the things that I need.
You know, I am very smart guy - almost as smart as you. So you and I
could, theoretically, produce our own crockery, cutlery, computer,
smartphone, bulbs, headphone, fridge, heater, air-conditioner, TV, car,
house, clothes, curtains, meat and bread. We could also produce our
own medicines, airplane, tennis racquet, tennis balls, spectacles,
shoes and mangoes (an average supermarket has 15000 items; an
average family perhaps uses 10,000 items, including the components
of the house itself; so this list is not exhaustive).
However, the time taken for us to learn to produce these things, then
30
assemble (directly produce) each of the hundreds of thousands of raw

materials, and finally produce the things we need would exceed a
billion lifetimes.
I consume today the output of a billion human lifetimes within one life.
PLUS have more leisure and entertainment than almost any human
had in the past.
I am not one human being. I am a billion human beings within myself.
All this is because of trade and exchange; the market system, the
price system.
Just like no human being can possibly produce all the things he needs
(or wants), so also no nation can produce all things the nation needs.
Anyone who seeks self-sufficiency (e.g. Swadeshi) is SUICIDAL. Or at
least RAVING MAD.
31
1.17
Why are some countries still poor?
For Book 2, elaborate this

What distinguishes prosperous nations from poor ones are strong institutions,
higher freedom, and high economic complexity (productivity of an economy).
The higher a country ranks in these factors, the greater its correlation with
prosperity.
32
7. How are your parents able to get the

things you have in your house?
Can anyone buy everything that is produced in the world?

We also know that all children like a variety of things. Some like ice-cream, some like balls,
others like other toys.
But no one can get everything they like. There may not be space in the house to store
everything. There may also not be enough money to buy everything.
So why cant what do your parents know what to bring, and how do they bring home the
things you have?
But for that to happen need to go back a few hundred years to find out why we have so
many things in the world today, and why we are so rich.
Lets get to the bottom of this mystery!
It is one thing to like something and another thing to get it. If people like something, they
can either make the things they like themselves, or they can buy them.
But it is hard for everyone to make everything. They have to learn how to make that thing
and they have to spend time to make it. Most people therefore don't make everything. They
make one thing (that they are good at), then they sell the thing they make and get the
money. And from that money they buy the things they want.
It may seem obvious that this is how the world works, but this is an amazing thing and it is
interesting to find out what it means and how it works.
But heres the there is not a single human being who can make even one of these things by
himself. Not even a pencil.
To make a pencil is not within the capacity of any single person. Making it involves creating
paint, growing and creating the rubber, growing, cutting and creating the wood, mining the
lead, and the mining and making the little metal strip that sticks the rubber to the pencil),
each involving so many other things. Thousands of people across the world are needed,
doing different things, in order to make a single pencil. Id like to refer you to a really fun
story about the making of a pencil (I Pencil).
33
1.18
cities?
Why do many people now live in
It is costly to live in cities. Even then people like to live in cities. Why is that so? Because as
people live closer together, they can specialise and produce more things. This is
particularly so in the case of what we call services. These are people who use their own
hands and mind to directly deal with other people, such as teachers, nurses, doctors,
hairdressers, coaches.
It is more likely that you will find a good tennis coach or doctor in a city than in a small
town.
34
1.19
Some people dont like us to
become rich. Lets watch out for them.
Luckily for most of us today, the common man has a chance to work hard and become rich.
You have a very good chance of succeeding today because everyone is respected if they
produce things that other people want.
In a few cases the king (the government) is bad and doesn't let people produce. Such kings
should be thrown out.
There is another group of people: the producers, who often find it very hard to become rich
through competition with others. To succeed in the market people have to keep watching
whether others are doing better than them, and they have to keep improving themselves
and their products. This is hard.
So most businessmen dont mind things that stop others from producing. One way is to
stop things from other countries bring brought in for sale. Such things that we get from
other countries are called imports. Such businessmen tell us that jobs will be lost if we
allow imports. But the truth is that people will get more things and cheaper things. That is
always better so people can become richer. The businessmen need to work harder to
produce things that are cheaper and better. That will create jobs which are worthwhile.
Let us never allow anyone to stop more things being produced or imported.
35
8. People have choices
36
1.20
ourselves?
Should we be free to choose for
Some people like it sweet, some like it sour. Some like it red, some like it blue.
Choosing one over the other doesnt harm anyone. People should be free to choose
what they like.
They should be free to change their mind, as well.
37
1.21
less
All people prefer more money to
Have you heard of anyone who wants to be poor?
Everyone wants to be rich. All people like more money. Why? Because with more
money they can buy more things, or travel, or live in a good house.
Does this mean people are greedy? Not necessarily. If people have earned their
money with their own efforts, they are entitled to as much money as they can
possibly earn. This doesn't, of course, give anyone a right to get what they didn't
earn. Being good and hard working to earn money the right way is different to
cheating others just because one wants a lot of money.
We should be happy that they have earned a lot of money. It is wrong to be jealous of
others' wealth which has been earned by them (or even inherited).
Having more money does not mean that qualities like love, trust, cooperation and
equal treatment of everyone are not more important. We will see how these good
qualities can be maintained even as people become richer through greater
production and trade.
38
1.22 Everyone likes to pay less for

things they buy
Have you seen people bargain? People like to get things that cost as less as possible.
Sometimes people stand in long lines to get into a shop which is having a clearance
sale.
When people have a choice to pay Rs.10 or Rs.20 for the same thing, they will buy
the cheaper one.
That is because people like to keep more money with them, so they like to pay as
little as possible for what they want.
39
1.23 Everyone wants a lot of things but

no one is rich enough to buy
everything
No one has enough money to buy everything.
That is because people can only become as rich as the value of what they produce.
But everyone can only produce a small part of what others want. A toymaker can
only produce some of the toys that people want.
And people also want clothes, house, car, and other things. Including teaching,
medical care.
So someone will produce these other things and earn money from selling them.
No one can earn so much money that he can buy everything in the world everyone
wants something they cannot afford.
40
1.24 The value of something is what

others think it is worth
A stone on the ground has no value.

Now imagine that the stone is an unpolished diamond. Even that has no value to a
cow or pig, or to humans who live in jungles.
Why do you care for a piece of stone (diamond)? Because others like it and will pay
money for it. A thing is worth what others are willing to pay for it.
The value of a painting we make is determined by the amount of money others are
willing to pay for it. It has no economic value in itself. That doesn't mean it has no
value. It simply means its economic value is zero.
41
1.25 People can spend their own money

better than others can spend it for
them
42
No one knows better than us about what we like. No one knows better than us about
how much money we have.
People always try to think about their own situation and do the best they can.
They will buy from their money whatever gives them the greatest value for the
money they have.
No one else can decide better than us about how we should spend our own money.
1.26 What we choose today can affect

what happens in the future
If you study a lot today, you could become a doctor in the future. If you do a lot of
swimming practice today, you could become an Olympic swimming champion in the
future.
But if you eat a lot today, you could become fat and sick in the future.
43
1.27 We must look at the full picture

when thinking about something
44
One day while playing cricket, the ball went and hit a window. The window broke.
Why was the owner unhappy? After all, someone would now get paid to fix the
window. Wouldnt that person be happy?
The owner was unhappy because he had saved money to buy a suit and now he
would have to spend that money in replacing a window.
By destroying a window no new wealth was created, even though the person who
fixed the window received some money.
That is because that money would have been better used in paying the tailor to
stitch a suit. The owner would have then got both the window and the suit. Now he
only has the window.
The man who repaired the window would not have got money, but the tailor would
have got the money.
It would be wrong, therefore, to say that the society has benefited because the
window broke.
1.28 Very few people are born with

money. They have to earn it.
When people produce something that others value, they like to be paid for providing
the valuable thing.
Your teacher teaches. She produces teaching. That is very valuable. Who values the
teaching? Your parents value it most, but you also value it. It is fascinating to learn
new things every day.
Now, is it possible for your teacher to teach you without being paid in return?
Remember, your teacher has to run her house and manage the costs of food,
clothes, house, and travel to the school
Your teacher can, of course, grow her own food, make her own clothes, build her own
house, treat her own illnesses. But if your teacher has to do all these things, she
wont have much time left in her busy day to teach you.
Of course, your parents can decide to teach you and not send you to school. But
then how would your parents earn the money they need to look after their needs?
After all, time can only be used in one way. Either your parents can spend their time
teaching you or they can use it to earn money for the house. They can't do both.
Time is money. Your teacher cannot teach for free. Your parents therefore pay the
teacher in one of two ways: directly through school fees or indirectly, through taxes
to the government.
45
1.29 Is there a free lunch?
As children we get everything for free, but when we grow older we should not expect
to get things for free.
There is no free lunch. We must give something in order to get something.
46
1.29.1 We should pay people if we want something from them
Lets think some more about this.
Are you more likely to get a barber to cut your hair if you pay him or if you threaten
him with punishment for not cutting your hair?
Punishing people or threatening them is not the best way to get what you want.
People react differently to different incentives, but no one likes being forced to do
something.
To get someone to work for you, it would be helpful to do something good for them in
return, such as paying a barber for a haircut.
47
1.29.2 Why do people charge for things they sell?
What would happen if a baker provided free bread? He would not be able to pay for
the cost of the flour and for the cost of running the oven. Soon, the baker would run
out of money to run the bakers and produce bread.
Providing things for free is not sustainable.
We should pay the baker so he can continue to be in business. This way parents
don't have to make bread themselves, but can produce other things that they are
better at.
A famous man named Adam Smith said that bakers don't produce bread because
they want to make others happy. They produce bread because they want to earn
money and make themselves happy.
Does it mean that bakers selfish? Are teachers selfish because they expect to be
paid for teaching? Are barbers selfish because they expect to be paid for giving a
haircut? Not really. To get the money they need, the baker, the teacher and the
barber first have to make sure that you (or you parents) are being well served. Only
then do their needs get met. The bread should be tasty. It should not be costly. Only
then will it serve your needs.
So even though the baker may be selfish (who knows?) he actually has to make you
happy, before he can think of being happy.
48
1.30 If prices of something go up less of

the thing is bought
If the price of a big TV goes up, less people will buy the big TV and more people will
buy the small TV. If prices go up too much, then some people wont even buy a TV.
If price of a big TV goes down, more people will buy it.
There was a time when only very few people could buy a TV. Today, prices are lower
(because the TV producers have learnt
49
9. What is the government and what does it

do?
50
1.31 Sometimes people may need a

government to make rules
People follow rules on their own. Most rules are set by society. For example, when
someone leaves a bag on a chair in a cinema, it means the chair is occupied.
51
1.32 Sometimes markets may not be

able to supply things we need
Sometimes people, buying and selling things, may not be able to produce enough of
the things that people want. Things like some of the bigger roads and bridges.
Everyone thinks that building a tunnel across the mountain would be a good idea,
but sometimes no one comes forward to collect money from the people to actually
build the tunnel. In such cases, it may be better if we give this job to the
government.
It is hard to own a road and sell the right to use the road. If someone cant control
who uses a road, he cannot recover the costs of building the road. In that case the
road will not get built.
So the government forces everyone to pay (through taxes) and pays for the road
which people then use free of cost (there is nothing free; it has been paid by the
people, through taxes).
52
1.33 Sometimes people dont bother

about the harm they cause
Sometimes a factory may throw poisonous waste water into the river, thereby killing
fish and plants, and making the water undrinkable.
In such cases one solution is to have the government punish the factory for doing
this. That way, the factory will install a system to collect the poisonous waste water
and dispose it safely
53
1.34 That doesnt mean the

government can do things better
than the people
A man named Friedman wrote: If you put the federal government in charge of the
Sahara Desert, in five years thered be a shortage of sand.
What does that mean?
He was trying to show that in most cases when a government tries to do something
it will do it badly and in a very costly way.
The government is made up of kings and priests. But the businessmen who want
to stop others from producing things also join hands with the government.
In general, we should try to ensure that the government doesnt do too many things,
and only does things where it is unavoidable - plus it can show that it can do things
better than others.
54
1.35 We learnt earlier how we earn

money, but who creates money?
Is money the paper? Can anyone print the paper and make money?
In the olden days, money used to be backed by gold. Banks could print money which
had a promise to pay the owner of the note an amount of gold, if the person so
wanted.
That was a good thing, because only a limited amount of money could be issued by
banks.
Later the government took over the job of printing money.
The government did not back its money with gold.
This led to the government often printing money to pay for things. Each time such a
printing takes place, the value of money that people hold falls.
55
1.36 Prices rise when the government

prints too much money
When the government creates a large amount of money, the value of money falls
because the number of things to buy remain the same, but the total money available
increases.
If a toy costs Rs.100 today, it will cost Rs.200 if you double the amount of money (by
printing another Rs.100). Prices rise when money is printed.
56
1.37 We must remember that

governments cant spend our
money better than we can
We saw earlier how no one knows better than us about what we like. No one else can
decide better than us about how we should spend our own money.
In the same way, a government cannot know best how to spend our money.
Government should only take that much money which is needed for roads, for police
and for judges. All other money should be left to the people to spend by themselves.
government should perform only the activities that cannot be performed in the
private sector. These activities are:
Maintaining the military, to protect us from hostile nations and dangerous groups
such as terrorists. Libertarians are willing to concede that an effective military
cannot be privatized and therefore must remain as a function of government.
Maintaining the justice system, to protect us from domestic criminals by means of
police, courts, jails and government lawyers such as prosecutors and public
defenders.
57
10. Chapter 4: Congratulations!
58
1.38 Well done!

By reading and understanding this book you have learnt the economic way of thinking. That
is something very rare in the modern world since most people never get to learn it during
their life.
You can now understand the great policy debates of your time.
59
1.39 So you want to become rich

Well, everyone wants to do that.
By now youve learnt that the way to create wealth is to specialise. So you should
specialise in something. But not just one thing. You should know other things, as well. So
that when the worlds production methods are changed (e.g. machines or robots take over
the job you have specialised in), you are prepared for other ways to remain rich.
60
Book 2: For age 12-18
The second volume (stand-alone) will include concepts that are bit more complex, as well
as more examples.
61
11. Book 2 topics
62
1.40 Human behaviour

Economics is about understanding human behavior. The incentives that drive human
actions, nature of the actions, as well as the outcomes. As such, a good economist has a
good understanding of human nature. Mises considered Economics to be sub-set of
praxeology.
63
1.41 Biases
Four major biases that the general public has:
64
1.41.1 Anti-market bias
65
1.41.2 Make-work bias
66
1.41.3 Anti-foreign bias
67
1.41.4 Pessimistic bias
68
1.42 Value
Negating Marx's Exploitation labour theory/ explaining the subjective value theory
The money prices established in a market are not measurements of value. They are
historical facts, recording the ratio at which two items (the money good and some other
good or service) exchanged in the past.
69
1.43 Scarcity
The first lesson of economics is scarcity. There is never enough of everything to fully satisfy
all those who want it. - Thomas Sowell
If there was an unlimited supply of any particular good, everyone could have as much as
they wanted, and there would be no-one willing to pay even a penny for that good. For
example, generally we have all the air that we need to breathe. So air is free. But that
changes if air becomes scarce. Imagine providing air to an astronaut on the moon. That is
very costly because it is scarce.
70
1.44 Magic of the market and price

system
71
1.45 Market
On entering Paris, which I had come to visit, I said to myselfhere are a million
human beings who would all die in a short time if provisions of every kind ceased to
flow toward this great metropolis. Imagination is baffled when it tries to appreciate
the vast multiplicity of commodities that must enter tomorrow through the barriers
in order to preserve the inhabitants from falling a prey to the convulsions of famine,
rebellion and pillage. And yet all sleep at this moment, and their peaceful slumbers
are not disturbed for a single instant by the prospect of such a frightful catastrophe.
On the other hand, eighty departments have been laboring today, without concert,
without any mutual understanding, for the provisioning of Paris.
How does each succeeding day bring what is wanted, nothing more, nothing less, to
so gigantic a market?
What, then, is the ingenious and secret power that governs the astonishing
regularity of movements so complicated, a regularity in which everybody has implicit
faith, although happiness and life itself are at stake?
That power is an absolute principle, the principle of freedom in transactions. In a free
market, the consumer is the king. Bastiat in Economic Sophisms
Economic liberalization
72
1.45.1 Are markets immoral?

Are markets immoral as the Pope claims?
73
1.46 Rule of law

A market cannot be free without rule of law.
It is the pursuit of one's own self-interest which makes the economy run, but can also lead
businessmen to cheat or collude to form cartels. Without strong rule of law to keep this in
check, the economy will get derailed.
74
1.47 Trade
We succeed by producing values and trading them with other producers, in

exchanges where both sides winand the more others have to offer, the easier our
success becomes.
The desire for profits is the reason why we trade, innovate, and produce things.
The economy is not a fixed pie and not a zero-sum game.
The necessity of free trade with minimal regulations and no tariffs.
Globalization
75
1.48 Creative Destruction and

innovation
Free economies are innovative economies. Closed economies and Socialist economies can
never be hotbeds of innovation. It is competition which forces businesses to constantly
innovate, thus improving quality and quantity while lowering prices. New products come
out to serve the existing markets or create new markets. This creates jobs and the
improvement of productivity leads to increases in the real wages of workers.
76
1.49 The magic of profit

The desire for profits is the reason why we trade, innovate, and produce things.
Profit made through voluntary exchange is good. It is a signal that the company has
successfully provided a service to others.
77
1.49.1 Just producing machines does not make a nation wealthy

While machines are important for producing goods, just producing machines is not the way
to create wealth. The machines must produce things that people want, and are willing to
buy. Producing the machines must be profitable. In central command economies, often a lot
of machines are produced without any reference to consumption.
78
1.50 Productivity
79
1.50.1 Why are wages in third world countries like India so low?
The reason is because they are low productivity countries. The wages represent the
productivity of the workers. Workers receive a wage reflecting their value in the production
process. These low productivity countries tend to produce products of low marginal quality.
80
1.51 Seen/ unseen
81
1.51.1 Bastiat's broken window fallacy
82
1.51.2 The more animals you eat, the more animals are produced.
Only those animals which we don't/can't eat and in which free production/ trade is not
allowed (e.g. tigers) are scarce. So if TOTAL animals increase by eating them then what's
the issue? So long as you kill them humanely, the total animal life lived increases by eating
animals.
83
1.51.3 Price controls (rent control, minimum wage, maximum

support price, etc) do more harm than good.
84
1.51.4 Jobs are created by people, not by governments.
85
1.51.5 Criminalization of vice only serves to create a black market

that benefits criminal elements and promotes disregard for the law.
86
1.52 Savings
Savings is the driving force of the economy.
87
1.53 Comparative advantage

Even if one person is superior at producing everything, even so he benefits from
cooperating with the inferior partner. For example, a master chef benefits from hiring
subordinates to chop vegetables and prepare the other ingredients, even if the chef could
have performed these tasks better than the employees. This is because outsourcing the
tasks to the inferior workers frees up the chefs time and allows him to concentrate on
those areas in which his advantage is greatest. [STUDY GUIDE TO HUMAN ACTION by Rob
Murphy].
88
1.54 Role of the government
Why society cannot function without a government

Regulations are necessary up-to an extent
A small government leads to strong economic growth, whereas a large government
hinders it.
Property rights are the basis of prosperity
The necessity of minimal regulations in an economy, as well as the ills of overregulation.
[Some of this can go into Advanced]
89
1.55 Toolkit
90
1.55.1 Measuring the economy

The GDP is how you measure the wealth of nations. GDP is not an indicator of economic
growth, but merely a measurement of the market value of final goods and services
produced within a particular geographic area over a specific period. What is meant by
"economic growth" is not the production of goods and services, but the creation of values
that improves people's lives for the better. [http://fee.org/freeman/fooled-by-gdp]
91
1.55.2 Game theory
92
1.55.3 Public choice theory
93
1.55.4 Cost Benefit analysis
94
1.55.5 Moral hazard
95
1.56 Money
Money has no intrinsic value.
96
1.56.1 Central banking

The ravages of central banking
Why separation of money and the state is crucial for sound money
97
12. Bad ideas to be addressed
98
1.57 Economic equality is meaningless

and irrelevant
There is an innate difference between men and regions of the world.
99
1.57.1 Are we getting more unequal as we become richer?

No, despite Piketty (provide some details).
100
1.58 Welfare
Social security is a fraud.

Subsidies (agricultural subsidies, student loans, etc) are both morally wrong and
inefficient.
Welfarism entrenches poverty, creates inter-generational dependency, and
engenders ever-expanding parasitism, Poverty is empirically reduced by economic
freedom.
Governmental redistribution of wealth is legalized theft'
People conflate welfarism with socialism. It is important to clarify the differences, and why
'Social Democracy' and 'Democratic Socialism' are not Socialism.
101
1.58.1 Welfarenomics as propounded by Bernie Sanders.

It's based on Keynesian and Chicago school monetary theory and the law of diminishing
returns. To quote a proponent Dr. Sang-Mok Suh, "Welfarenomics means promoting a
sustainable calitalism through modifying the neo-classical market economy model in three
ways: (1) strengthening the role of government in the areas of formulating & implementing
national strategy; (2) increasing social values of business activities through developing new
CSV (Creating Shared Value) activities; and (3) creating a habitat for co-development
through activating civil society. Welfarenomics also implies promoting a sustainable welfare
state through modifying the European welfare state model in three ways: (1) building a
foundation for 'workfare' through developing customized job programs for welfare
beneficiaries; (2) utilizing various welfare programs as means for social innovation; and (3)
improving the effectiveness of welfare programs through applying various management
concepts to the field of social welfare.
Of course as appealing as it may sound to economic illiterates, Welfarenomics can never
work as it leads to a cycle of continual debt accumulation and currency inflation and
devaluation by the Central Bank.
102
1.59 Social justice
Social justice; there is no social wealth. All property belongs to individuals.
103
1.60 Misuse of "market failure"

argument
The state is just people, as human as the rest of us. They have incentive and calculation
problems that lead to resource misallocation and creates market distortions. Government
failure leads to market failure.
104
1.61 Socialism
Reduces incentive to work.
Creates an underground economy.
The Economic Calculation argument of Socialism.
Case study of India and the wonder which liberated economy, even at a small scale created
105
1.62 Population 'problem'

Population is our greatest asset, not a liability.
106
1.63 Excessive taxes
Negative consequences of high corporate taxes and heavy taxation of the rich
107
1.64 Protectionism
Protectionism is bad for the economy, hurts job growth, and negatively affects consumers
(restriction of choices, lower quality, and higher prices).
108
1.65 Minimum wage
109
1.66 Central planning

Impossibility of central planning
110
1.67 Business cycles: not crises of

capitalism but government
intervention
The following crises are commonly blamed by socialists on Capitalism rather than on
government failure.
(1) Great Depression
(2) American recession. Socialists claim that government deregulation and corporate greed
were the causes.
(3) Eurozone crisis.
111
1.67.1 Asset Bubbles
112
1.68 The Scandinavian model / Social

Democracy
(2) The German model / Democratic Socialism
(3) Cuba / Communism. It is touted as an alternative to 'exploitative and unjust capitalism'
by socialists. They cite their very high social development indicators and successes in
public healthcare.
(4) Chinese model / Command economy
(5) South Korea and Japan / Cronyist state capitalist economy where the state favors the
chaebols and zaibatsus respectively
Scandinavia where social welfare is at peak and hence close to zero growth rate.
113
1.69 Keyness ideas

Keynesian fiscal stimuluses and pump priming do not work and have been consistently
shown to be ineffective. Employment rates do not go up and the economy does not grow.
114
1.70 Marxian
115
1.71 Behavioural economics
116
1.72 Mixed economy

Some people bear the wrong notion that capitalism creates inflation and they even regard
the so called mixed economy as the great work by founding fathers of India..
117
1.73 The problem with macroeconomics

Nothing like aggregate demand.
118
13. Suggestions received
119
1.74 Capitalism
Capitalism is a natural system. Humans will trade and exchange goods and services after
all. Every country's economy, including the socialist ones, is built on capital, so every
country is capitalist at its core. There can be no alternatives. Socialism attempts to create
an alternative system by subverting this natural system of capitalism to cater to its
unfounded and disproven unscientific dogmas. A mixed economy which purports to
combine the 'best' of both worlds cannot be an alternative, since socialism has nothing of
any validity to offer.
120
1.75 The future

Presently a lot of people have taken to talking about a post-capitalist era due to the sharing
economy and technological advances that might bring about a zero marginal cost economy
(Jeremy Rifkin).
121
1.76 Deflation
122
1.76.1 Fears of deflation are unfounded

This following quote by Robert Zubrin points out that apart from factual misconceptions, it
is antihumanism that is the ideological driving force behind environmentalist's vendettas
against population growth, consumerism, nuclear energy, GMO crops, etc.
<<<< Ive been working on this book for more than thirty years, over which period Ive
seen time and again how important innovations that could advance the human condition
have been repeatedly blocked.
Take nuclear power, for example, which is the field of my university degree. In the 1970s,
the antihumanists argued that economic growth must stop because fossil fuels are too
polluting, and, besides, we are running out of them. We responded that we have enough
nuclear fuel to last for millions of years, and it produces no smoke. They werent interested,
and, in fact, they became increasingly militant in their view that nuclear energy must be
ruled out.
Antihumanists also said that population must be limited because there isnt enough food,
although militantly opposing the development or even deployment of higher yielding and
more nutritious crops.
In every area it became clear that the antihumanists wanted the problem, not the solution,
and ultimately the question had to be asked: Why? As I delved into the matter, it became
clear that there was a longer history to all this, and an ideology, which conceived of
humans as destroyers, rather than creators, and which therefore justified all forms of
oppression and tyranny.
If humans are fundamentally destroyers, or, what amounts to the same thing, only
consumers of natural resources, then their numbers, activities, and liberties must be
severely constrained, and someone must be empowered to do the constraining. If, on the
other hand, humans are fundamentally creators, then their freedom must be protected at
all costs, because freedom is essential to the exercise of creativity. >>>>
https://www.theobjectivestandard.com/issues/2012-fall/robert-zubrin/
123
1.77 National resources are not finite.

To quote Julian Simon:
"Incredible as it may seem at first, the term "finite" is not only inappropriate but is
downright misleading in the context of natural resources, from both the practical and the
philosophical points of view. As with so many of the important arguments in this world, this
one is "just semantic." Yet the semantics of resource scarcity muddle public discussion and
bring about wrongheaded policy decisions. A definition of resource quantity nlust be
operational to be useful. It must tell us how the quantity of the resource that might be
available in the future could be calculated. But the future quantities of a natural resource
such as copper cannot be calculated even in principle, because of new lodes, new methods
of mining copper, and variations in grades of copper lodes; because copper can be made
from other metals; and because of the vagueness of the boundaries within which copper
might be found-including the sea, and other planets. Even less possible is a reasonable
calculation of the amount of future services of the sort we are now accustomed to get from
copper, because of recycling and because of the substitution of other materials for copper,
as in the case of the communications satellite. Even the total weight of the earth is not a
theoretical limit to the amount of copper that might be available to earth. Only the total
weight of the universe-if that term has a useful meaning here-would be such a theoretical
limit, and I don't think anyone would like to argue the meaningfulness of "finite" in that
context. With respect to energy, it is particularly obvious that the earth does not bound the
quantity available to us; our sun (and perhaps other suns) is our basic source of energy in
the long run, from vegetation (including fossilized vegetation) as well as from solar energy.
As to the practical finiteness and scarcity of resources-that brings us back to cost and price,
and by these measures history shows progressively decreasing rather than increasing
scarcity. Why does the word "finite" catch us up? That is an interesting question in
psychology, education, and philosophy; unfortunately there is no space to explore it here.
In summary, because we find new lodes, invent better production methods, and discover
new substitutes, the ultimate constraint upon our capacity to enjoy unlimited raw materials
at acceptable prices is knowledge. And the source of knowledge is the human mind.
Ultimately, then, the key constraint is human imagination and the exercise of educated
skills. Hence an increase of human beings constitutes an addition to the crucial stock of
resources, along with causing additional consumption of resources.
http://www.ce.cmu.edu/~gdrg/readings/2007/09/27/Simon.pdf
A section on the fruits of Capitalism that we are beneficiaries of since the Industrial
Revolution would be great.
Six killer apps of prosperity by Niall Ferguson
https://www.youtube.com/watch?v=xpnFeyMGUs8
==
It is through respecting the son of a barber who produces wealth that the world
started getting rich.
The social dignifying or honouring of those who contributed as industrialist made everyone
an innovator. Innovation was respectable, for the first time in human history.
124
1.78 Trade and wealth production

Wealth is not created just because someone produces a lot of things. What is produced
must be considered to be of value by others. They must be willing to trade (buy) the stuff
that has been produced. It is trade that releases value and creates wealth.
125
1.79 Role of middlemen

Middlemen are important participants in markets, because they serve several purposes,
such as facilitating contacts between buyers and sellers, and reducing transaction costs.
Middlemen are not parasites. They can be eliminated, but their functions can never be
eliminated.
=
A jack of all trades is inherently inefficient. Self-sufficiency is the road to poverty.
Government failure
If you put the federal government in charge of the Sahara Desert, in five years thered be a
shortage of sand. Friedman
Businessmen like political favoritism or patronage.
126
1.80 Function of prices

Fundamentally prices serve three functions. . . . First, they transmit information. . . . This
function of prices is essential for enabling economic activity to be coordinated. Prices
transmit information about tastes, about resource availability, about productive
possibilities. . . . A second function that prices perform is to provide an incentive for people
to adopt the least costly methods of production and to use available resources for the most
highly valued uses. They perform that function because of their third function, which is to
determine who gets what and how muchthe distribution of income. [ Friedman, Milton.
1988. Market Mechanisms and Central Economic Planning. In Ideas, Their Origins, and
Their Consequences by G.Warren Nutter.Washington, DC: American Enterprise Institute for
Public Policy Research: 2746.]
=
127
1.81 Alternative to prices: rationing

Rationing by quota is inefficient because it restricts personal freedom to choose, and it
results in corruption, crime, black markets, and other ways to game the system.
128
1.82 Externalities
what if the steel mill that produced the steel for the cutlery polluted the air with sulphuric
acid that caused acid rain, and polluted the water table with chemicals used in the process.
That pollution harms people in the area who breathe the air, while acid rain damages
nearby agricultural crops, and chemicals in the water table seep into neighborhood wells
used for drinking water, causing cancer in local residents. The cost of the pollution falls on
people in the area who suffer illness, premature death and expensive medical treatment.
These unfortunate people in the area bear part of the cost of producing the steel, and the
steel mill escapes paying for those costs that are inherent in making steel. Economists call
this an externality because part of the cost of making the steel is paid by parties external
to the steel mill.
129
1.83 Price signals

When a society interferes with these price signals, by curtailing free markets in favor of
centralized planning, price signals are lost. Then supply and demand become
uncoordinated and the results are shortages and surpluses.
130
1.83.1 Price ceilings

Price ceilings always cause shortages, because prices cannot rise when there are shortages
in order to call forth greater supply. Rent control has been imposed in New York City and in
Santa Monica, CA. In both cases the result was that landlords cut back on maintenance of
rental buildings, and ceased to build more rental units.
ECONOMIC IGNORANCE CAN BE FATAL, JUST AS IGNORANCE OF HYGIENE CAN BE FATAL
"after hurricanes in Florida destroyed houses and blew off roofs, there were lengthy
shortages of building materials needed for reconstruction. If prices had been allowed to
rise, supplies of building materials would have poured into Florida, attracted by the higher
prices, and the shortages would have soon been eliminated, with prices then falling back to
more normal levels. People displaced from their homes could have speedily rebuilt and
moved back home. But the anti-gouging laws caused shortages of building materials that
often lasted as long as a year or more, and greatly slowed recovery from the disaster."
131
1.83.2 Price floors

Price floors also are well-intended, but inherently harmful. One example of a price floor is
the minimum wage. Setting a minimum wage is intended to protect unskilled workers by
providing them with a living wage. That is the visible idea. But what actually happens is
that employers of unskilled workers find that the increase in the minimum wage now makes
it more expensive to hire unskilled workers. So employers cut back on hiring, fire less
productive employees who are no longer worth their increased pay, and search out
substitutes for unskilled labor, such as outsourcing jobs to developing countries where
labor is less expensive, or hiring illegal immigrants, or purchasing machines that can do the
work more cheaply.
As a result, the lowest-skilled workers lose their jobs, and go from low pay to no pay. The
very lowest-skilled workers that the minimum wage was supposed to help, end up
unemployed and unemployable. In some countries where the minimum wage is relatively
high, such as France, youth unemployment is as high as 405, and there are no baggers in
the supermarkets. The French have to bag and carry their own groceries because the high
minimum wage has rendered baggers unemployable and unaffordable.
Another form of price floor is agricultural price supports. Farmers are subsidized to grow
certain crops. These subsidies on top of market prices cause farmers to increase their crop
production, resulting in agricultural surpluses. These cannot be sold, and are left to rot in
government storage, or burned, or otherwise inefficiently wasted.
132
1.84 Tragedy of the commons

One of the key arguments in favor of private property and against socialism is the Tragedy
of the Commons. People will over-use and destroy the resources, and there won't be
enough for future generations.
The tragedy of the commons comes about as follows. Imagine a pasture open to use by all.
With open access, each herdsman will try to feed as many cattle as possible on the
commons, because the pasture is a free good. This kind of arrangement may work more or
less satisfactorily so long as wars, disease and poaching hold down the numbers of man
and beast below the carrying capacity of the pasture. Eventually, however, the day of
reckoning may arrive, when wars, disease and poaching can no longer hold down the
numbers of man and beast, and overcrowding becomes a reality. At this point, the limited
carrying capacity of the commons relentlessly results in tragedy.
As a rational being, each herdsman acts in his own self interest. More or less consciously,
he asks, "What is the harm to me if I add one more animal to my herd?" Since use of the
pasture is a free good to each herdsman, they have no hesitation in adding more and more
animals to graze on the pasture. Therefore each herdsman keeps adding cattle to the
commons, until overcrowding turns the once-fertile pasture into a bare and barren
wasteland. Then all herds and their herdsmen face starvation. When access is free to
everyone, no-one limits his use of the scarce resource, and everyone becomes ruined.
This same problem afflicts other shared resources. For example, lakes, rivers and oceans
become fished out because of excessive catches that wipe out most of the fish. In similar
fashion, wild animals may eat and trample the crops of farmers, so that the farmers turn to
hunting and killing these wild animals. After the animals are
6 Hardin, G. (1968) The Tragedy of the Commons, Science 162, 1243-1248. Commons are
resources that are publicly owned and open to use by the public, such as public grazing
lands, lakes and rivers, and sea coast.
wiped out, tourists stop coming on safari to see the wild life, and the farmers find that the
demand for their crops has dried up because the tourist business is dead.
How can this problem of the tragedy of the commons be avoided or solved? It has been
successfully solved by converting the commons into private property. For example, if the
commons was put out to auction, and the winning bidder could now charge grazing fees to
users, then there would be no more free good. The private owner would not allow his
property to become over-grazed, and herdsmen would limit their use to what they could
afford to pay. This solution has been successfully used in Africa, where the ownership of
wild animals have been awarded to village chiefs. In order to stimulate safari tours, the
chiefs hire villagers to protect the animals from poachers, and to keep the animals out of
the farmers fields. As a result, the animals are kept in the wild, the farmers sell their crops,
and tourism flourishes, bringing money to the villages.
1. When property is owned by everyone, it is cared for by no-one. Public ownership
is not economically efficient, and can lead to the tragedy of the commons. But with
private ownership and secure property rights, property is efficiently used, to everyones
benefit.
2. When access to a resource is free, that resource will be overused. In a world of scarcity,
nothing is really free. As economists like to say: there is no such thing as a free lunch.
==
133
1.85 Comparative advantage

Jack and Jill are shipwrecked on a desert island. Fortunately there are coconut palms on the
island and clams to be gathered on the beach. Jack can pick 12 coconuts in an hour or find
10 clams in an hour. Jill can pick only 9 coconuts in an hour, but she can find 14 clams in an
hour.
Clearly Jack is better at picking coconuts, and Jill is better at catching clams. Therefore both
are better off if Jack specializes in picking coconuts while Jill finds clams. Jacks skill at
picking coconuts is what economists call his comparative advantage, and Jills comparative
advantage is her skill at catching clams. Since each has specialized, they will trade
coconuts for clams.
So far we have shown that specialization, based upon comparative advantage, leads to
increased trade, which in turn helps all parties to become better off in this Pareto efficient
process, regardless of whether these parties are individuals or entire nations, and
regardless of whether the trade is only domestic, or crosses national frontiers.
. It still pays for the country with a comparative advantage in all goods to concentrate on
producing those goods where its comparative advantage is greatest, and importing those
goods where its comparative advantage is smallest from less efficient countries.
that trade, whether it be domestic or international, is wealth-producing and efficient for all
participants, whether they be individuals or countries. . Globalization increases the wealth
of all nations, not just rich nations. Globalization is by no means a cause of job losses and
unemployment. On the contrary, globalization causes job growth and increases
employment.
DEMAND-SUPPLY
If you are selling lemonade on a hot day, you can raise the price and people will still buy it.
Consequences of actions
People are responsible for their actions
Public sector industries are inherently inefficient in contrast to their private sector
counterparts, as they are insulated from the market forces of competition and financial
accountability that drives innovation, prevents wasteful misallocation of resources, and
reduces costs.
==
Question
Should this book aim to impart financial literacy? E.g. things like compounding?
No.
Bryan Caplan's critique of the failure of Austrian Economics to posit an alternative to
mainstream Neo-classical Economics as well as Austrian economist Tom Wood's response:
http://econfaculty.gmu.edu/bcaplan/whyaust.htm
https://www.youtube.com/watch?v=hst0Wpg-dAM
An interesting debate between an Austrian and Neoclassical economist:
'https://www.youtube.com/watch?v=lIPq3eXdofk
Law of unintended consequences
The feminist demand of Equal pay for Equal work is counterproductive and harms women
This is a good resource for your work.
http://www.economicshelp.org/economics-a-z/
Limitations of Democratic Institutions - Democracy is seen as a process where voters
express their choices via the ballot box. Now, there is a huge difference between voting in
134
the ballot box and voting in the market. While voting via prices in the market, a person who
might want to have a villa along with a Rolls Royce Car is immediately constrained by the
prices and he has to reveal his relative preferences but while voting via the ballot box, a lot
of voters might simultaneously vote for a strong military, massive welfare programs,
balanced budgets and Tax cuts all in one. Democracy simply lacks a feedback mechanism
of communicating back to the voter the relative costs and benefits of the choices he has to
make. Thus there are severe limitations to Democratic Institutions and what they can do.
https://www.youtube.com/watch?v=Q1EOZ8Qn_Xc
Why can't we just print money to pay off debt?
https://www.youtube.com/watch?v=EobPnLZiOo8
Each society choose its future each day
"You have to choose between two roads, and one of them leads necessarily to poverty." Bastiat
- EVEN THE SLIGHTEST TRACE OF SOCIALISM/ STATISM/ PROTECTIONISM IS POISON.
==
The confusion begins with the term "trade deficit".
Self sufficiency is a antediluvian concept that precedes the industrial age with which mass
production, break through in transportation etc. ushered in concept of core competence,
collaboration and trade, antiquating "self-sufficiency" tribalism.
After "independence" Indian politicians starting with Nehru got doped by this stupid
concept of "self reliance" which was never fundamentally disputed or debated by anyone
and cultural/religious organizations like Swadeshi Jagaran Manch with their band of ignorant
zealots latched on, funded by domestic companies that feared competition and relied
heavily on patent violations.
==
It is difficult to free fools from the chains they revere Voltaire
This has always remained true. In Voltaire's time, in Bastiat's time, in our time.
I claim that people are rational, and they actually behave very rationally in matters of pure
(direct) self-interest. Which is very good, indeed.
But their brains become jelly when anything complex, such as the effects of various
people's self-interest on society. Then they imagine the worst, and fail to understand how
individual self-interests check each other and neutralise any ill-effects on each other. Each
time they exchange/ trade, this neutralisation is on display. Both parties gain. Both parties
don't get as much as they want. But hard to understand this, it would seem.
And so there is a plaintive cry for God and Government. For chains to enslave everyone.
Natural sciences like physics are easy to understand in general because of one to one
direct effect of action and taxation and it's authentic proof (posteriori). Whereas economics
is a social science based on logical deduction (a priori) with little in terms of direct one to
one effect because purposeful human action is much more complex than natural events.
WHY ECONOMICS TRIPS EVERYONE: Its conclusions are vastly counter-intuitive.
- selfishness and self-interest create the best results for society
- good intentions almost always create bad results in public policy
- minimum wages harm the poorest of the poor
]- government regulation to prevent monopoly creates monopolies
- imports assist a society more than exports
- economic inequality lifts the poor (in most cases)
135
When even many economists fail to support the rather astounding conclusions, imagine
how hard it is for the common man (no matter how "educated") to do so.
Please provide further examples. I'll try to include in book 2 for children.
SOME OF DON BOURDEAUX'S INSIGHTS
- the purpose of trade - any trade - is to enrich people as consumers and not to enrich
people as producers. The ultimate purpose of all economic activity is to improve our
standards of living (loosely described as 'increasing our consumption'), what ultimately
matters is how well an economy serves us as consumers. "Consumption is the sole end and
purpose of all production" (Adam Smith)
- exports are a cost and imports are a benefit
- the specific jobs lost to imports are not the only employment consequences of trade
- domestic producers protected by government from competition have diminished, rather
than intensified, incentives to improve efficiencies of their operations
Money is a medium of exchange. It is something you pass on to acquire what you really
want. Money is not the same as wealth. A society is only wealthy if it has an abundance of
goods and services.
Money arose naturally and was used in many different forms. Historically, people used what
they readily recognized. Money had to be a commodity that people were familiar with or it
wouldnt have emerged as a medium in the first place. Some people used shells and beads
as a form of money. Other things used as money include tobacco, grain and other types of
food.
Rush to market failure

http://cafehayek.com/2015/11/economists-should-be-more-like-biologists.html
WHY ECONOMICS IS VERY HARD - IT IS MUCH HARDER THAN CHESS
Economics is like chess - only more complex by an order of magnitude.
136
It involves working through an initial action, then reaction - not just by one person but
reactions of potentially tens of other people; then once again, their further actions and
reactions. And so on.
It is not just a two person game. It is potentially a hundreds of persons game.
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/10153164450875848/
free trade: https://www.facebook.com/sabhlok/posts/10153724964413767
Never look at prices. Think of them as equivalent time. So, if an aluminium
staircase costs $100, think how many hour of your time that costs. Then think if
you had to make it on your own how much it would cost. You will see clearly that
you are getting excellent value through the market system.
The only question then is whether you could get it even cheaper. And that's what
the market system does: it drives down all super-normal profit.
I challenge those who complain about the market system to produce ALL the
things they consume in their own, and see if that's even feasible.
The free market system of exchange is critical to human progress.
The Economic Way of Thinking by the late Paul Heyne, Peter Boettke, and David Prychitko.
MYTHS
http://cafehayek.com/2015/11/some-economic-myths-slain-by-alchian-allen.html?
utm_source=feedburner&utm_medium=feed&utm_campaign=Feed
%3A+CafeHayek+%28Cafe+Hayek%29
Key problems of economics
- cooordination problem
- information sharing (price system) problem
- innovation problem (mccloskey)
- productivity problem (related to innovation)
137

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The miracle of so many

PRELIMINARY SKETCH for public consultation

BACKGROUND, AND NEED FOR SUCH A BOOK............................................1

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

THE APPROACH TAKEN BY THIS BOOK.................................................................3

BROADLY SIMILAR WORKS................................................................................ 3

COPYRIGHT OPEN SOURCE.........................................................................4

BOOK 1: FOR AGE 9-12...................................................................................5

DO YOU WANT TO BE A SMART DETECTIVE?...............................................6

THEN SOMETHING HAPPENED, AROUND 200 YEARS AGO........................................7

3.2.1 All man-made things start as an idea....................................................8

HOW INDIVIDUALS PRODUCE WEALTH.....................................................10

WEALTH IS PRODUCED BY US, THE ORDINARY INDIVIDUALS...................................10

EVERYONE IS A PRODUCER AND CONSUMER.......................................................10

4.4.1 Why are some singers and sportsmen so rich?....................................11

THE WEALTH OF A SOCIETY IS NOT FIXED..........................................................11

SPECIALISE! ONLY THEN CAN YOU PRODUCE A LOT OF THINGS.................12

PRODUCING EVERYTHING ONE NEEDS IS A REALLY BAD IDEA.................................12

6. THERE IS NO POINT IN PRODUCING THINGS IF YOU CANT EXCHANGE WITH

TRADE MAKES BOTH SIDES BETTER OFF............................................................13

TRADERS ARE ALSO PRODUCERS.....................................................................14

WHAT WOULD HAPPEN IF PEOPLE COULD PRODUCE BUT NOT TRADE?.....................14

WHY ARE SOME COUNTRIES STILL POOR?..........................................................15

WHY DO MANY PEOPLE NOW LIVE IN CITIES?.....................................................16

PEOPLE HAVE CHOICES...........................................................................18

SHOULD WE BE FREE TO CHOOSE FOR OURSELVES?............................................18

ALL PEOPLE PREFER MORE MONEY TO LESS.......................................................18

EVERYONE LIKES TO PAY LESS FOR THINGS THEY BUY...........................................18

THE VALUE OF SOMETHING IS WHAT OTHERS THINK IT IS WORTH............................19

WHAT WE CHOOSE TODAY CAN AFFECT WHAT HAPPENS IN THE FUTURE...................19

WE MUST LOOK AT THE FULL PICTURE WHEN THINKING ABOUT SOMETHING..............19

8.10 IS THERE A FREE LUNCH?.............................................................................. 20

WHAT IS THE GOVERNMENT AND WHAT DOES IT DO?...............................22

SOMETIMES PEOPLE MAY NEED A GOVERNMENT TO MAKE RULES............................22

SOMETIMES MARKETS MAY NOT BE ABLE TO SUPPLY THINGS WE NEED.....................22

SOMETIMES PEOPLE DONT BOTHER ABOUT THE HARM THEY CAUSE........................22

WE LEARNT EARLIER HOW WE EARN MONEY, BUT WHO CREATES MONEY?................22

PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY...........................23

10.1 WELL DONE!............................................................................................... 24

11.1 HUMAN BEHAVIOUR...................................................................................... 26

THE MAGIC OF PROFIT................................................................................ 27

11.10.1 Just producing machines does not make a nation wealthy...............27

11.12.1 Bastiat's broken window fallacy.......................................................28

ROLE OF THE GOVERNMENT........................................................................28

11.16.1 Measuring the economy...................................................................28

11.17.1 Central banking................................................................................29

BAD IDEAS TO BE ADDRESSED.............................................................30

12.1 ECONOMIC EQUALITY IS MEANINGLESS AND IRRELEVANT.......................................30

BUSINESS CYCLES: NOT CRISES OF CAPITALISM BUT GOVERNMENT INTERVENTION...31

12.11.1 Asset Bubbles...................................................................................31

THE SCANDINAVIAN MODEL / SOCIAL DEMOCRACY..........................................31

THE PROBLEM WITH MACROECONOMICS.........................................................32

13.10.1 Price ceilings..................................................................................... 35

TRAGEDY OF THE COMMONS........................................................................36

1. Background, and need for such a book

Sone Ki Chidiya Total Reform Agenda

1.1.1 Why economics is so confounding difficult

1.1.2 Need recognised as long ago as in 1910

Sone Ki Chidiya Total Reform Agenda

The approach taken by this book

Sone Ki Chidiya Total Reform Agenda

1.2.2 Advance warning

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