Dedicated to my students whose road leads far beyond my sight I offer as a signpost along that road why Economics was a wise choice for three reasons: practical, philosophic and humorous – just for laughs. It does not hurt that Economics is sometimes called ‘the science of choice’.
The title of my teaching site is ELEMENTAL ECONOMICS: Not Accounting, Not Business, Not Commerce, Not Mathematics – Economics which is a distinct discipline of thought whose findings are applied in Accounting, Business, Commerce and, yes, even, Mathematics! There are three practical reasons why Economics was a wise choice: (i) attaining economic literacy, (ii) being introduced to deductive logic, analytic geometry, model building & game theory; and, (iii) opening new career opportunities. AS noted above, it does not hurt that Economics is sometimes called the science of choice.
You will continue after this class in an environment filled with News about the global, national, regional and local economy as well as the industry, public or non-profit sector in which you work. After this class, you can hopefully read the News and use it to navigate safely with knowledge and understanding of the vocabulary (jargon), basic concepts and analytics of Economics. This is my primary learning objective for the class. The test will be the ability of students after the course to read and understand the business news. Here is the test for Micro and here for Macro.
Mainstream Economics like Law and Physics is a deductive science, moving from the general – an assumption, precedent or model – to the specific. This contrasts with induction moving from the specific to the general. Inculcating an appreciation of deductive reasoning (and logic in general) is my secondary learning objective. This can, like economic literacy, become a life-long asset.
Furthermore Economics, unlike Law but like Physics, uses analytic geometry taught in no other social science. It provides, together with deductive logic, the tools necessary for model building. For example, a visual model of the Market with Demand and Supply curves intersecting with ‘X’ marking the equilibrium where the willingness to buy and the willingness to sell clears the Market at a specific price/quantity. This can all be expressed in mathematics – second order differential calculus - yet remains the point where consumer happiness and firm profit are maximized. Model building, using deductive logic and analytic geometry, involves a skill set potentially useful throughout your career and not just their creation but also criticism of models proposed by others – business or otherwise.
On the web or in real life game playing is both part of business and the largest entertainment business in the world – bigger than Hollywood, bigger than the music industry. This leaves aside game playing in the military. In this class you will learn of the root of modern game theory – the problem of oligopoly, a form of market competition in which profit maximization of a few major actors depends on the actions and reactions of one another. Game playing after this class will never be the same.
Economics is, as I understand it, second only to Psychology in the employment of social science graduates. In the case of Economics, academic economic literature is classified and electronically retrievable using the Journal of Economic Literature (JEL) Classification System which defines the wide range of sub-disciplines on offer to students. There are thus many higher degree and employment opportunities in the public sector – international, federal, provincial and local government – as well as the for-profit and non-profit sectors. These are opportunities of which you may not have been aware before this class. This is my third learning objective.
Economics was a wise choice for three philosophic reasons, because it is: (i) the philosophy of the age; (ii) the last ideology standing; and, (iii) the environment’s last best hope.
The standard model of market economics explains the consumer society in which we live, love and work. It was conceived in the 1870s through the marriage of Isaac Newton’s calculus of motion and Jeremy Bentham’s felicitous calculus – the calculus of human happiness.
Newton I assume you know but Bentham I assume not. He was arguably the most important social reformer in English history. To Bentham (1748-1832), we owe the last great philosophy emerging from the Western Enlightenment – Utilitarianism. And, in addition to the standard model of market economics, he was responsible for compulsory mass education, reform of the public assistance system as well as the criminal justice system and much more. His influence is still felt today even with respect to intellectual property rights – copyright, patents, registered industrial design and trademarks. Thus Bentham rejected the concept of natural rights calling them ‘nonsense’ and imprescriptible or moral rights of creators as ‘nonsense on stilts’.
The standard model shifted Economics from the study of the distribution of national wealth among classes to efficient consumer and producer behaviour. It atomized Economics making the individual consumer and entrepreneur the foundation stones of the Economy just as the Republican Revolution or popular democracy had made the individual citizen the foundation of the polity. In fact one name for the standard model is ‘dollar democracy’: In this view APPLE’s fortunes rise or fall on the votes of consumers – a.k.a., consumer sovereignty.
It is a secular philosophy in which pleasure and pain are “the sovereign rulers of the State”. Where other philosophies failed Economics succeeded in reifying (making concrete that which is abstract) human happiness as money. The presence of money brings pleasure; its absence brings pain. Your willingness to pay becomes the measure of how much happiness you hope to obtain from a good or service. Even philanthropy or charity is measured by your willingness to pay in return for that warm and fuzzy feeling of doing good. In the standard model there are no selfless acts. Yet selfishness that drives the consumer and producer generates transcendent called the market that ideally is beyond the control of individual actors producing the greatest good for the greatest number through 'the invisible hand'. The 'market' has become an idol to many:
There are four classes of idols which beset men’s minds. To these for distinction’s sake I have assigned names— calling the first class Idols of the Tribe; the second, Idols of the Cave; the third, Idols of the Market-Place; the fourth, Idols of the Theatre.
Francis Bacon (1560–1626), Novum Organum, Aphorism 39 (1620).
Nonetheless the model fulfils Descartes’ requirement of a science in that it uses deductive logic from a set of key assumptions whose conclusions are subject to both geometric and mathematical proof.
It generates a transcendent mark
The word ‘ideology’ has many meanings today but was coined simply enough by Compte du Tracy, a contemporary of Adam Smith, to mean ‘the science of ideas’. Separation of Church and State was critical to both American and French Republican Revolutions. Creation of a secular ‘science of ideas’ to counter the awe and mystery of religious and metaphysical thought and ritual was part of the French revolutionary agenda designed to overthrow an Ancient Regime of subordination by birth. In short an Ideology explains how the world works without a god; with a god it becomes theology. In this regard the word ‘theory’ literally means a god’s eye view.
With the collapse of Communism there is arguably only one ideology still standing - Market Economics in which everything has a price – kidneys, children, the environment, everything. It is currently split between two warring schools arising out of the Great Depression of the 1930s. The Austrian School - von Mises & von Hayek - believes in the supremacy of the market with no public intervention, let the market do it. The market is viewed as transcendent to human control. With respect to the environment the Austrians say: If consumers are willing to pay then the market will fix such problems. If not, then consumers get the world for which they are willing to pay.
On the other hand, the Keynesian School, believes in a regulated marketplace with public intervention correcting market failures and producing public goods that the market is unable to provide. Both Austrian and Keynesian economics are ideologies, not natural sciences. Nonetheless, market economics today commands global allegiance through the rules and procedures of the World Trade Organization (WTO), NAFTA and other international trade agreements.
The word 'economy' derives from the ancient Greek oikos meaning ‘house’ and nemo meaning ‘manage’, i.e. managing the house. It shares this root with ‘ecology’ deriving from oikogie meaning modes of life and relations within the house. Ekistics - the science of human settlement - also derives from oikos but in the sense of founding an ancient Greek colony like Syracuse or the numerous city states established by Alexander the Great in India at the end of the 4th century before the common era.
Economics as management of the household raises the question: What is the relevant household? In its original sense it was the self-sufficient or autarkic rural estate. Management, however, ascended to higher orders as the self-sufficient village, town, city and most recently the Nation-State. A global society in which there is contiguous urban development separated only by natural barriers – mountains, oceans and deserts - has been called the Ecumenopolis – the World City - by urban planner Constantinius Doxiadis; its global reality is visible in a composite photograph of “The World at Night” published by NASA in the year 2000. If seeing is believing then it provides visual evidence of humanity enframing its home planet. We see a World City whose shimmering lights soar out into the infinite blackness of space. However, there is not yet a global economics, no generally accepted model for managing the planet.
Economics, however, unlike Accounting, Business and Commerce which focus on the financial bottom line, is inclusive of non-market values. The standard model of market economics is based on the assumption that all relevant costs and benefits are internalized in market price, i.e., there are no externalities. If this assumption holds then ‘X’ marks the spot. If, however, there are externalities then market equilibrium must be adjusted. External or social costs and benefits must be added to private costs and benefits. The point is that such external costs must be paid and external benefits accounted for if the appropriate price/quantity equilibrium is to be established. The agency to do so is not the market but rather government. Put another way, the market 'X' solution is superseded by a social ‘X” marking the spot and it is up to government to correct the miscalculation of private agents to generate a new socially optimal equilibrium.
In fact all costs in Economics are opportunity costs, i.e., the cost of any choice is the next best alternative foregone. This includes environmental costs such as pollution. In Economics such costs must be counted while in Accounting, Business and Commerce they count only if they affect the financial bottom line of the firm. Hence, Economics is the environment’s last best hope
Every profession has its own in-jokes. For example, why do sharks not eat lawyers? Answer: Professional courtesy. After this course you may appreciate this joke: How many Chicago School economists does it take to turn a light bulb? None! The Market will do it for them! In fact there is an Economics joke site on the web –JokEc – and here are the top ten reasons for studying Economics:
1. Economists are armed and dangerous: "Watch out for our invisible hands."
2. Economists can supply it on demand.
3. You can talk about money without every having to make any.
4. You get to say "trickle down" with a straight face.
5. Mick Jagger and Arnold Schwarzenegger both studied economics and look how they turned out.
6. When you are in the unemployment line, at least you will know why you are there.
7. If you rearrange the letters in "ECONOMICS", you get "COMIC NOSE".
8. Although ethics teaches that virtue is its own reward, in economics we get taught that reward is its own virtue.
9. When you get drunk, you can tell everyone that you are just researching the law of diminishing marginal utility.
10. When you call 1-900-LUV-ECON and get Kandi Keynes, you will have something to talk about.
Harry Hillman Chartrand, PhD
Cultural Economist & Publisher,