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Index
Economics in Three Lessons
Lesson One: Sustainability
Chapter One: Henry Hazlitt’s Invaluable Insight
Lesson Two: The Free Price System
Chapter Two: The Central Role Played by Free Prices
Chapter Three: What Prices Do for Us
Chapter Four: The Role of Profits in Driving Down Prices
Chapter Five: Who Are the Bosses in a Free Price System?
Chapter Six: “Spontaneous Order” from Free Prices
Chapter Seven: The Essential Role of Loss and Bankruptcy
Chapter Eight: What About Inequality?
Chapter Nine: Why Greed Is Not “Good” in a Free Price System
Lesson Three: Enemies of the Free Price System
Chapter Ten: Crony Capitalism
Chapter Eleven: Laissez-Faire Contra the Cronies
Chapter Twelve: Today’s Crony Capitalism
Chapter Thirteen: The Crony Capitalist Conundrum
Chapter Fourteen: The Progressive Paradox
Chapter Fifteen: Where Does This Leave the Poor?
Chapter Sixteen: How the Fed Fits In
Chapter Seventeen: The Fed’s Conflict of Interest
Chapter Eighteen: Who Exactly Is Feeding off the Fed?
Chapter Nineteen: Keynes’s General Theory: The Crony Bible
Chapter Twenty: Saying Goodbye to Crony Capitalism
Endnotes
One Hundred Economic Laws
Preface
Chapter I: Laws of Economic Analysis
1. Law of Analytic Laws: If . . . then analysis assists us just as much in the social realm as in the physical realm.
2. Corollary A of Law of Analytic Laws: Material Life (If we restrict our inquiry to material life, we will misunderstand economic laws.)
3. Corollary B of Law of Analytic Laws: Boundaries (If we look for economic laws only outside ourselves, we will also misunderstand them.)
4. Corollary C of Law of Analytic Laws: Physical Science Myopia (If we only look through the lens of the physical sciences, we will also misunderstand economic and other social laws.)
5. Corollary D of Law of Analytic Laws: Logic (If we concentrate on ordinary logic, the kind of logic we use to police our everyday language, it will give us the best results in identifying, defining, and using economic laws.)
6. Corollary E of Law of Analytic Laws: Mathematics (It is an essential tool for economic calculation, but if we try to use it in the same way it is used in the physical sciences, the results will not be helpful to us.)
7. Corollary F of Law of Analytic Laws: Economic Data (Observations from the past are not relevant or reliable enough for more than limited use. If you base decisions on old correlations, you will likely make poor decisions.)
8. Corollary G of Law of Analytic Laws: Predicting the Future (In relying on economic laws, we should understand that they are usually probabilistic in nature.)
9. Corollary H of Law of Analytic Laws: Immutability (No matter how much we change, the underlying tenets of economic law do not change.)
10. Corollary I of Law of Analytic Laws: Universality (Economic laws apply without exception to everyone.)
11. Corollary J of Law of Analytic Laws: Corruption (If we rely on laws, physical or social, there will be attempts to corrupt and misuse them.)
Chapter II: Laws of Economic Sustainability
12. Law of Sustainability: Economic laws are concerned with and also help guide us toward sustainability.
13. Corollary A of Law of Sustainability: Unintended Consequences (A refusal to think sustainably produces unintended negative consequences. In some cases, these are readily foreseeable, in other cases not.)
Chapter III: Laws of the Division of Labor
14. Law of the Division of Labor: If we share labor, we may be able to make ourselves much more productive.
15. Corollary A of Law of the Division of Labor: Voluntary Exchange (If we emphasize not just exchange of labor, but voluntary exchange of both labor and goods, we will get better and more reliable results.)
16. Corollary B of Law of the Division of Labor: Private Ownership (If we are to exchange, we must first own.)
17. Corollary C of Law of the Division of Labor: (Law of) Potential Diseconomies of Scale (If we exchange labor, it must be carefully organized, or we may become less, not more productive.)
18. Corollary D of Law of the Division of Labor: (Law of) Diminishing Returns (If we add to one input without considering the effect on other inputs and the total process, we may disrupt rather than enhance production.)
19. Corollary E of Law of the Division of Labor: (Law of) Potential Economies of Scale (If we scale up in a logical way, it can make us far more productive.)
20. Corollary F of Law of the Division of Labor: (Law of) Comparative Advantage, also called Law of Shared Advantage (Even if different parties or countries are ill-matched in skill or resources, they will do better cooperating.)
21. Corollary G of Law of the Division of Labor: (Law of) Absolute Advantage (Even if one party or country has all the skills and resources and the other has none, they are still better off cooperating.)
22. Corollary H of Law of the Division of Labor: Deceptive Trade Practices (What is called “free trade” by governments may actually be the opposite of genuine free trade and may destroy the potential benefits of a global division of labor.)
23. Corollary I of Law of the Division of Labor: Scale of Participation (If people choose not to participate in shared labor, either because they do not work at all or because they do not share their work, everyone will have less than they might have had.)
Chapter IV: Laws of Prices
24. Law of Prices: If we wish to cooperate on a voluntary basis, we must have shared, workable, flexible prices.
25. Corollary A of Law of Prices: (Law of) Discovery and Communication (If shared prices are to help us, they must operate as both a discovery and information system.)
26. Corollary B of Law of Prices: (Law of) Order (If we allow prices to do their job, they will create, maintain, and enhance economic and social order.)
27. Corollary C of Law of Prices: Honest Prices (If we want prices to do their job effectively, we must refrain from manipulating, controlling, or corrupting them.)
28. Corollary D of Law of Prices: (Law of) Supply (If we want to lower prices, the most effective way to do so is not to try to control them, but rather to increase supply.)
29. Corollary E of Law of Prices: (Law of) Demand (If we want to increase prices, for example wages, the most effective way to do so is not to mandate it, but to increase demand.
30. Corollary F of Law of Prices: (Law of) Supply and Demand (If we allow supply and demand to operate, they will balance each other in a way that reflects consumer preferences.)
31. Corollary G of Law of Prices: (Law of) One Price (Markets tend to produce a single price for a given good.)
32. Corollary H of Law of Prices: (Law of) Marginal Utility (If you are trying to price your product, you cannot just take costs and add a profit margin in order to arrive at a solution. You will have to start with what the buyer will pay at this moment for this product, anticipate correctly what the buyer will pay in the near future, and then see if you can keep production costs below this figure.
33. Corollary I of Law of Prices: Monopoly (An attempt to thwart consumer power over prices tends to fail without government support. Although modern governments pretend to police monopoly, the policeman is easily bought off with protection money of one kind or another.)
Chapter V: Laws of Profits
34. Law of Profits: If you want lower prices for ordinary people, do not try to abolish profits. The existence of profits tends to bring prices down.
35. Corollary A of Law of Profits: Consumer Control (If you want ordinary people to control the economic system, then profits are essential for that purpose as well.)
36. Corollary B of Law of Profits: Patience (If you are unwilling to think very long term, even beyond your lifespan, you will not be able to realize the full fruits of the profit system.)
37. Corollary C of Law of Profits: “Speculation” (If you want to earn large profits, do not think that it is enough to speculate.)
38. Corollary D of Law of Profits: Loss and Bankruptcy (If you think the profit system is primarily about profit, you misread the signals it is trying to send you.)
39. Corollary E of Law of Profits: Change (If you want to earn a profit, you must embrace change.)
40. Corollary F of Law of Profits: Changing Ideas (Often the chief barrier to economic progress, as measured by productivity, is not scarcity of capital, skilled workers, or technology, but rather the human reluctance to give up old ideas.)
41. Corollary G of Law of Profits: “Frictional” Unemployment (“Full employment” may signal an economy with a better past than future.)
Chapter VI: Laws of Profits and Wages
42. Law of Profits and Wages: If your goal is to raise wages, the price and profit system best accomplishes that.
43. Corollary A of Law of Profits and Wages: Union Wage Gains (If the goal is to increase the share of business revenue earned by workers, unions will not help.)
44. Corollary B of Law of Profits and Wages: Mandated Wage Floors or Gains (If the goal is to help workers, these also fail their intended purpose.)
45. Corollary C of Law of Profits and Wages: Say’s Law of Supply and Demand (If you want to increase demand, logically you should start by increasing supply.)
46. Corollary D of Law of Profits and Wages: Balanced Prices (If the goal is economic prosperity and more and better-paying jobs, no across-the-board price or cost adjustment will help. The key to prosperity is balancing prices in a profitable way, which can only be done price by price.)
47. Corollary E of Law of Profits and Wages: Wage Ceilings (If wage floors do not help, might wage ceilings help, at least applied to the rich? No.)
Chapter VII: Laws of Economic Equality and Inequality
48. Law of Economic Equality and Inequality: If our goal is economic equality, we must recognize that not all forms of economic equality are logically compatible.
49. Corollary A of Law of Economic Equality and Inequality: The Problem of Envy (If our goal is a better economic outcome, envy will make it harder to achieve.)
50. Corollary B of Law of Economic Equality and Inequality: Inequality “Data” and Its Interpreters (If we try to illuminate these matters with data, it takes a great deal of careful thought to ensure that it is not irrelevant or even misleading. With information, as with production or investment, the most critical issue is quality, not just quantity.)
51. Corollary C of Law of Economic Equality and Inequality: Greed and Conspicuous Consumption (If our goal is economic equality of opportunity rather than of outcome, this does not in any way condone “greed.”)
52. Corollary D of Law of Economic Equality and Inequality: The “Trickle Down” Fallacy (We need not fear that the success of the rich will impoverish the poor.)
53. Corollary E of Law of Economic Equality and Inequality: Wealth Taxes (If you want to help the poor or middle class, do not tax wealth.)
54. Corollary F of Law of Economic Equality and Inequality: Wealth “Redistribution” (It is not advisable, but there are better and worse ways to do it.)
55. Corollary G of Law of Economic Equality and Inequality: Making the Worker the Boss (Employee ownership as a potential way to “redistribute” income more broadly is also problematic.)
Chapter VIII: Laws of the Division of Labor within the Free Price System
56. Summary Law of the Division of Labor within the Free Price System: If we wish to be economically successful and prosperous, we must choose competition within an overall framework of cooperation, and in doing so, reject other choices, such as tribalism.)
57. Corollary A of Summary Law of the Division of Labor within the Free Price System: Competition within an Overall System of Cooperation (This necessarily produces superior economic results relative to either competition or cooperation alone.)
58. Corollary B of Summary Law of the Division of Labor within the Free Price System: Growing Networks (There is no limit to the number of people who can simultaneously compete and cooperate in this way.)
59. Corollary C of Summary Law of the Division of Labor within the Free Price System: Worldliness Redefined (Aggression no longer pays.)
60. Corollary D of Summary Law of the Division of Labor within the Free Price System: Nation Size (In this new world, with respect to political units, “small is beautiful.”)
61. Corollary E of Summary Law of the Division of Labor within the Free Price System: Individualism and Cooperatism (Contrary to common assumption, the two are actually synonymous.)
62. Corollary F of Summary Law of the Division of Labor within the Free Price System: World Governments Today (Not only nihilist terrorist organizations, but also national governments, especially the world’s “great powers,” continually threaten to pull us back into atavistic and destructive tribalism.)
Chapter IX: Laws of Economic Calculation
63. Law of Economic Calculation: If we wish to succeed economically, we must take full advantage of economic calculation.
64. Corollary A of Law of Economic Calculation: Measuring Change (As noted earlier, if the goal is economic progress, change is inescapable, and economic calculation is the essential tool to manage and promote intended rather than unintended change.)
65. Corollary B of Economic Calculation: Limits of Calculation (As in everything else, it is quality of economic calculation, and attention to its limits, that matters most. Net present value offers an especially helpful perspective in that it keeps us focused on the long term, not just backward-looking financial statements.)
66. Corollary C of Law of Economic Calculation: Externalities (For society to make best use of economic calculation, we must understand this limitation in particular.)
Chapter X: Laws of Economic Calculation outside Business
67. Law of Economic Calculation outside Business: Whatever its limitations outside of business, it is still the essential tool.
68. Corollary A of Law of Economic Calculation outside Business: “Borrowed Prices” (In order for a government to calculate, it must “borrow” prices.)
69. Corollary B of Law of Economic Calculation outside Business: Halfway Houses between Socialism and a Free Price System (If we mix Socialism with the Free Price System, we should not expect optimal results.)
Chapter XI: Economic Law of Government
70. Summary Economic Law of Government: The deeper government gets into controlling the economy, the more social and economic corruption it creates.
Chapter XII: Laws of Money
71. Law of Money: If people accept and use something as money without first having to convert it to money, then it is money. It is not legal tender laws that make it money.
72. Corollary A of Law of Money: Gold (Although gold today is not “legal tender,” it still functions as an “alternative” currency.)
73. Corollary B of Law of Money: Gresham’s Law (If money is debased by government, the inferior money will tend to drive good money from circulation.)
74. Corollary C of Law of Money: “Paper” Money (Given that “paper” money has even less gold in it than a clipped or diluted coin, and as noted above is infinitely replicable by governments, it is potentially subject to Gresham’s Law.)
75. Corollary D of Law of Money: “Paper” Money and Inflation (Anyone holding paper money while prices are rising is constantly suffering some degree of debasement.)
76. Corollary E of Law of Money: (Law of) Diversification (Although cash is a risky, not a riskless investment, all other investments are risky, too. Fortunately the risks are not all the same, which enables an investor to seek to control overall risk.)
77. Corollary F of Law of Money: (Law of) Investment Value: (Another important way to reduce risk is to avoid investments that have recently become more expensive without a clear change in earning power or that are currently winning a “popularity” contest.)
Chapter XIII: Laws of Money Prices
78. Law of Money Prices: It is an error to think of money as inherently different from other products and services; it too is subject to supply and demand.
79. Corollary A of Law of Money Prices: Stabilizing Prices (Attempts to stabilize money prices will just destabilize the economic system.)
80. Corollary B of Law of Money Prices: Measuring Prices (Attempts to stabilize money prices also presume that we can reliably measure economy-wide prices, which is false.)
81. Corollary C of Law of Money Prices: “Elastic” Money Supply (Another fallacy that is economically destructive.)
82. Corollary D of Law of Money Prices: Real Wealth (It is not a matter of money.)
83. Corollary E of Law of Money Prices: Deflation (We should welcome it.)
84. Corollary F of Law of Money Prices: Inflation (Roots of)
Chapter XIV: Law of Interest Rates
85. Law of Interest Rates (on Money Loans): Lending rates reflect an inescapable social reality: that money in hand is worth more than money in the future. They also represent some of the most important prices in the economy and as such both reflect and balance supply and demand. If we interfere with them, we will lose both the vital signal and balancing services they provide. We will not improve our economic prospects.
Chapter XV: Laws of Banking
86. Law of Banking: The way banking is currently set up guarantees its instability.
87. Corollary A of Law of Banking: Fractional Reserves Create Money (We have more or less inadvertently given banks the power to create new money more or less surreptitiously.)
88. Corollary B of Law of Banking: The Federal Reserve (The power of banks to create money has led to a government takeover of them, which is used for government’s own surreptitious purposes.)
89. Corollary C of Law of Banking: Fed as Price Fixer (Everything the Fed does represents an effort to fix some of our most important economy-wide prices.)
90. Corollary D of Law of Banking: Reform (Banking can be put on a more solid foundation, most obviously by eliminating fractional reserve banking.)
91. Corollary E of Law of Banking: Bank Privatization (Money and banking services are not inherently different from other commercial services.)
Chapter XVI: Laws of Government-Controlled Banking
92. Law of Government-Controlled Banking: If we allow government to continue to tighten its control of banking, we should not be surprised if government uses this control for its own purposes, not to improve prospects for the economy.
93. Corollary A of Law of Government-Controlled Banking: Government Financing Options 101 (In the end, the public pays one way or the other.)
Chapter XVII: Laws of Spending Versus Saving
94. Law of Spending Versus Saving: No one is so foolish as to try to spend his or her way to wealth. We create wealth by abstaining from spending, by saving, by making wise investments, and by working hard to make the investments as productive as possible. Governments are not exempt from this reality. Whether financed by taxes, debt, or money creation, its spending does not “stimulate” an economy.
95. Corollary A of Law of Spending Versus Saving: “Fiscal Stimulus” (Also referred to as “Growth” Policy)
96. Corollary B of Law of Spending Versus Saving: Keynesian Financing “Tricks” (Borrowing is cheaper but more destructive if interest rates are controlled and especially if government borrows from itself.)
Chapter XVIII: Law of the Non-Neutrality of Money
97. Law of the Non-Neutrality of Money: Injecting new money into the economy from any source, whether fractional reserve banking, “quantitative easing,” or “fiscal stimulus,” by definition cannot be neutral, contrary to assertions in most economic textbooks. Non-neutrality of money matters a great deal for an economy.
Chapter XIX: Law of the Non-Neutrality of Money, Newly Created Money, “Business Cycles,” and Depressions
98. Law of the Non-Neutrality of Money, Newly Created Money, “Business Cycles,” and Depressions: The most fundamental source of chronic economic bubble and bust.
Chapter XX: Summary Laws of Economics
99. Summary Law of Economics: If you want a thriving economy, protect free and flexible prices.
100. Corollary A of Summary Law of Economics (The test that distinguishes good government law pertaining to the economy from bad is that good government law does not interfere with, manipulate, or control prices.)
Appendix: Summary List of One Hundred Laws
Laws of Economic Analysis (Chapter I)
Laws of Economic Sustainability (Chapter II)
Laws of the Division of Labor (Chapter III)
Laws of Prices (Chapter IV)
Laws of Profits (Chapter V)
Laws of Profits and Wages (Chapter VI)
Laws of Economic Equality and Inequality (Chapter VII)
Laws of the Division of Labor within the Free Price System (Chapter VIII)
Laws of Economic Calculation (Chapter IX)
Laws of Economic Calculation outside Business (Chapter X)
Economic Law of Government (Chapter XI)
Laws of Money (Chapter XII)
Laws of Money Prices (Chapter XIII)
Law of Interest Rates (Chapter XIV)
Laws of Banking (Chapter XV)
Laws of Government-Controlled Banking (Chapter XVI)
Laws of Spending Versus Saving (Chapter XVII)
Law of the Non-Neutrality of Money (Chapter XVIII)
Law of the Non-Neutrality of Money, Newly Created Money, “Business Cycles,” and Depressions (Chapter XIX)
Summary Laws of Economics (Chapter XX)
Endnotes
Index for Economics in Three Lessons
Index for One Hundred Economic Laws
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