Monday, May 8, 2017

10 economic statements

This post is a follow up to an earlier post which was about testing economic statements. In the earlier post I said that economics is essentially a two step process:

1. Make an economic statement (hypothesis)
2. Determine the validity of the economic statement

For this post, I created a list of 10 statements about economic phenomena from famous economists. The statements are divided into two parts: markets and quality of life. I tried to find quotes that are central for understanding real world economics. I'm not sure if I agree with every statement (for example Milton Friedman) but I believe these quotes draw a broad outline of how we should think about economics.

In the future I want to test the validity of each statement on this list. I'm not sure how I'm going to do that exactly, but it will probably involve looking at previous empirical studies. Maybe some statements will be easier to analyze than others.


1. John Maynard Keynes (1883-1946):
"The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom." (The General Theory of Employment, Interest and Money, 1936)

2. Adam Smith (1723-1790):
"By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." (The Wealth of Nations, 1776)

3. Milton Friedman (1912-2006):
"I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible... because I believe the big problem is not taxes, the big problem is spending. I believe our government is too large and intrusive, that we do not get our money's worth for the roughly 40 percent of our income that is spent by government." (Quoted in Conservatives Betrayed, 2006)

4. Joseph Schumpeter (1883-1950):
"The innovation is hazardous, impossible for most producers. But if someone establishes a business having regard to this source of supply, and everything goes well, then he can produce a unit of product more cheaply, while at first the existing prices substantially continue to exist. He then makes a profit. Again he has contributed nothing but will and action, has done nothing but recombine existing factors. Again he is an entrepreneur, his profit entrepreneurial profit. And again the latter, and also the entrepreneurial function as such, perish in the vortex of the competition which streams after them. The case of the choice of new trade routes belongs here." (The Theory of Economic Development, 1934)

5. David Ricardo (1172-1823):
"Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each." (Principles of Political Economy and Taxation, 1817)

6. Friedrich Hayek (1899-1992)
"The misconception that costs determined prices prevented economists for a long time from recognizing that it was prices which operated as the indispensable signals telling producers what costs it was worth expending on the production of the various commodities and services, and not the other way around. It was the costs which they had expended which determined the prices of things produced." (Coping with Ignorance, 1978)

Quality of life

7. John Kenneth Galbraith (1908-2006):
"In recent times no problem has been more puzzling to thoughtful people than why, in a troubled world, we make such poor use of our affluence." (The Affluent Society, 1958)

8. Robert Owen (1771-1858):
"The advantage of pure, and the disadvantage of impure air are experienced each time we breathe, and all who understand the causes of disease know that an impure atmosphere is most unfavourable to the enjoyment of health, and an efficient cause to shorten human existence within the natural life of man. It is therefore most desirable that decisive measures should be devised and generally adopted to ensure to all a pure atmosphere, in which to live during their lives." (The Book of the New Moral World, 1836)

9. Robert Thomas Malthus (1766-1834):
"The employment of the poor in roads and public works, and a tendency among landlords and persons of property to build, to improve and beautify their grounds, and to employ workmen and menial servants, are the means most within our power and most directly calculated to remedy the evils arising from that disturbance in the balance of produce and consumption." (An Essay on the Principle of Population 2nd Edition, 1836)

10. Karl Marx (1818-1883):
"The worker's existence is thus brought under the same condition as the existence of every other commodity. The worker has become a commodity, and it is a bit of luck for him if he can find a buyer... " (Paris Manuscripts , 1844)

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