As outsiders, economists see some of the conditions in amarket, but they omit other factors. In that regard, econo-mists are no different from other outsiders. To the extent thatthere are outsiders who see a flaw in how the market servesconsumers, those outsiders have the option of starting a busi-ness to address the problem.

There are several fundamental concerns with the presump-tion of a wise, benevolent policy process. It treats the knowl-edge embedded in an economist’s simplified model as thoughit were complete knowledge. It ignores the ways that marketsmight adapt to solve problems. And it presumes that whenthe political process goes to work on problems, it arrives atsolutions flawlessly.

Philosophically, they fall into two schools of thought.One, which I call the engineers, seeks to use themaximum of our knowledge and ability to solveproblems and make the world safer and more stable;the other, which I call the ecologists, regards suchexperts with suspicion, because given the complexityand adaptability of people and the environment, theywill always have unintended consequences that maybe worse than the problem we are trying to solve.

In principle, mathematical models can be adapted to takeinto account real-world complications. In practice, however,economists tend to draw strong conclusions from simplemodels.

Knowing of that literature, I had always inferred that annu-itization was a good idea, until I observed close relativesreach retirement age.

One example of dubious analysis based on mathematicsconcerns the question of how retired people should allocatetheir assets between annuities and ordinary savings. Forexample, if you have $300,000 in savings, you could use it toobtain an annuity from an insurance company that will payyou, say, $30,000 a year for as long as you live.

The use of mathematics helps verify the connectionbetween assumptions and conclusions, but it does notguarantee that we are making good choices in our assump-tions. On the contrary, we often make very bad assump-tions, because better assumptions would be too difficultto handle mathematically.

The MIT-influenced approach that dominates the econom-ics profession treats individual markets and the economy asa whole as if they were simple machines. It embodies a viewthat economic behavior can be analyzed and predicted on thebasis of mathematical equations. The economist plays a roleanalogous to that of a mechanical engineer, using models andequations to suggest ways for policymakers to make marketsoperate more efficiently.

Most of the world’s economic backwardness also comesfrom intangible factors. Where widespread poverty exists, itcan be traced to bad governance, violent conflict, counterpro-ductive social norms, and poor education.

The “hardware” of the economy consists of its physicalresources and physical outputs. However, as with comput-ers, economic “software” is at least as important. Most ofthe world’s wealth is intangible. It consists of our individualand collective knowledge. We know how to transform appar-ently useless gunk, called oil, into energy

I have come to see software and Internet resources as usefulmetaphors for the market economy. In my view, it is better tothink of the economy in relation to the Internet than in relationto a T-34 tank. A tank performs only a few functions. It is delib-erately designed by a small group of engineers. It can be under-stood and evaluated using a few simple measurements, such asspeed, armor thickness, and gun capacity.

Computer networks, which today offer a powerful meta-phor for thinking about the brain or human society, were notaround in that key period in the history of economic thought.Until the mid-1970s, the only computers were mainframes,referred to as “big iron.” Far larger than today’s computingdevices, and yet less powerful, computers were classified asheavy equipment

They see the human brain as being endowed withcapabilities that evolved in the era of hunting and gatheringbut that can be adapted to very different environments. Bothindividual behavior and cultural norms respond to more thanjust the stimuli of reward and punishment.

Samuelson and his successors taught that the economicmachine had a gas pedal that could be used to avoid economicslowdowns. That device was “aggregate demand,” which couldbe increased by the government’s printing money, running abudget deficit, or both. In this economic subfield, known asmacroeconomics, the concept of specialization is forgottenentirely. Instead, economists employ an interpretive frame-work in which every worker performs the same job, toiling inone big factory that produces a homogeneous output. Mac-roeconomics replaces specialization with that GDP factory.

There was even a brief attempt tomodel all economic policy as solving a constrained optimiza-tion problem using a “social welfare function,” which wouldsubstitute society’s values for market prices. MIT and theeconomics profession as a whole developed confidence thatwith modeling, mathematics, and statistical information,they could fine-tune the economic machine.

World War II seemed to show the importance of combiningeconomics with engineering. That combination was partic-ularly useful for addressing problems of constrained optimi-zation. That is, given a fixed capacity to produce, say, steeland rubber tires, what is the optimal quantity of tanks andairplanes to manufacture?

Like psychologists, economists were taken with mechanicalmetaphors, particularly in the aftermath of World War II.Uppermost in their minds were mass-produced machines,such as the T-34 tanks that the Soviet Union used to turnthe tide in its struggle against Nazi Germany.

Economists do not deal with a subject that offers clear-cuttests of theories. We have to use judgment in deciding whichinterpretive frameworks to adopt. That does not mean thatyou should abandon the attempt to reason carefully and relyon simple intuition. Intuition uninformed by any economicframework is at least as flawed as are the frameworks taughtin economics courses.

In short, I believe that it is useful to think of economists asconstructing interpretive frameworks. Those frameworks arefragile, in that there are almost always anomalies—observationsthat are difficult to interpret using the framework.

Even though interpretive frameworks are not falsifiable,that would not matter if the interpretations were never prob-lematic. However, all interpretive frameworks suffer fromanomalies, that is, from phenomena that do not easily fit intothe framework.

In physics or chemistry, the number of unverifiable assump-tions and alternative models is whittled down through theprocess of experimental verification. In economics, becausecontrolled experiments are not feasible, such whittling downcannot take place. A particular equation or set of equationsbecomes popular in the modern economic literature becauseeconomists find it interesting or tractable. But it does not haveanything like the experimental support that exists for equa-tions in physics or chemistry.

Economic models contain many unverifiable assumptionsin a context in which plausible alternatives exist. Conse-quently, when we observe, say, contrary to the expectationsderived from a model, a decrease in the price of milk, or anincrease in the overall unemployment rate, we do not knowwhich of many assumptions was mistaken or which of manyalternative explanations accounts for the data.

Markets also adapt in response to our attempts to regulatethem. For example, economists have pointed out that the wayin which physicians are compensated in the United States,with billing based on procedures, distorts the incentives ofdoctors so that they tend to perform too many procedures thathave high costs and low benefits.

Nobel Laureate George Akerlof famously provided aninterpretive framework for the used-car market in whichhigh-quality used cars would be kept off the market, becausebuyers would have to assume, in the absence of other infor-mation, that all used cars were “lemons.”13 However, thatframework assumes that no market adaptation exists toaddress the problem.

If a study were to suggest that women earn less than men,even when controlling for years of education and other indi-cators of human capital, then that would be an anomaly forthe economists. If a study were to suggest that most of thelowest-paying occupations are occupied predominantly bymen, then that would be an anomaly for the sociologists.However, such observations will not prove decisive. Byinvoking other factors to explain anomalous results, each sidecan remain unmoved. Economists will not abandon theirhuman capital framework, nor will sociologists abandon theirgroup-status framework.

The reason that there are relatively few falsifiable proposi-tions in the context of social phenomena is that many causalfactors exist, and decisive experiments are rarely possible.Social phenomena are characterized by high causal density, toborrow a term from James Manzi.12

Up to a point, scientists will stick with an interpretiveframework in spite of anomalies. However, if enough anom-alies accumulate that scientists become uncomfortable witha framework, and they find that an alternative frameworkaddresses the anomalies and is compatible with existingknowledge, then they will switch to the new framework.That switch is what Kuhn calls a scientific revolution.

A single clear-cut logical flawserves to falsify a logical proposition or mathematical proof.A single conclusive experiment serves to falsify an empiricalhypothesis. However, a single anomaly does not lead someoneto abandon an interpretive framework

A framework of interpretation cannot be falsified. How-ever, many frameworks suffer from anomalies. In evolution,for example, some phenomena, such as a peacock’s largetail, would appear to reduce survivability. To address thatanomaly, biologists have suggested that the large tail signalsstrength and attracts potential mates, thereby actually tend-ing to increase the survivability of that characteristic.

For the most part, statements that qualify as scientific prop-ositions are falsifiable. They are either mathematical proofs,which can be falsified by showing a flaw in their internal logic,or else hypotheses about what we observe in the world, whichcan be falsified through careful observations and experiments.According to that scheme, a belief that cannot be falsifiedeither by logic or by evidence is nothing but dogma. Dogmaticbeliefs cannot be falsified, but that is only because you holdonto your dogma regardless of any arguments that can beraised against it.

I believe that good economics is at least a 6! That is, goodreasoning in economics requires more careful thinking thangood physical science—for two reasons. First, more causalfactors are at work in economics than in physical science.Second, although physical relationships are relatively stable,the economy evolves rapidly, including evolution in responseto government’s attempts at regulation.

n physics or engineering, when you leave out a factor (suchas friction), you do so because you can show that in the contextof your analysis that factor will not be important. In econom-ics, we typically cannot do that, because we do not control theenvironment in which we undertake a study. Many import-ant causal factors will be operating at once, and although wemight hope or pretend that none of them matter, we oftenhave no basis for ruling out their importance.

he article on Ursinus College mentions that it alsoraised its level of student aid by close to 20 percent, and thatthe majority of students paid less than half of the full price.One can argue that, rather than defying the law of demand,Ursinus was using it. The college was taking advantage ofwhat economists call price discrimination, charging a highprice to those students willing to pay while luring the moreprice-sensitive students with generous aid.

Competition can clearly be too intense. It may result in all companies in anindustry operating below their normal efficient scale of production, imposing awasteful duplication of excess capacity. It can drive profits too low, undermining theability of firms to invest in new capital or research. Companies which are desperatejust to survive will produce inferior products, simply because they cannot affordhigher quality. If all companies in an industry suffer from the same over-compe-tition, then the whole industry will be marked by shoddy, stagnant, even unsafeproducts. And when companies fail, both their owners and workers suffer massiveeconomic losses. Competition is not, therefore, “free.” It constantly imposes realand substantial costs on the economy, which must always be evaluated against itsmuch-heralded benefits.

To be sure, the competitive struggle to survive elicits some forms of businessbehaviour that are genuinely efficient. These can translate into broad socialbenefits (assuming that new efficiency is shared, one way or another, with workersand consumers). Spurred by competition, managers will work hard to imagineways of producing better products, and better ways of producing them. Thisspurs investment in both capital equipment and technology. Competition alsoallows consumers some degree of choice in their purchases. It thus imposes aparticular form of accountability on companies to deliver high-quality, compet-itively-priced output. (Of course, all too often the range of “choice” provided bycapitalist competition is rather monotonous. Competition in the fast food industryensures that consumers can clog their arteries in several different, but equallyunappetizing and unhealthy, ways!) Table 11.3 lists some of the positive responsesto competitive pressure.

Meanwhile, companies work continuously to create unique or novel featuresin their particular products. Sometimes this is done in genuine ways (with realtechnical innovations), sometimes in utterly phony ways (such as the billions ofdollars spent on ads promoting the idea that one brand of jeans is sexier thanothers). Unique technologies, production methods, and cost savings can also givea firm a unique ability to earn profits (over and above “normal” returns). Thoseprofits are what lure the corporate leaders; the threat of economic extinctionmotivates the followers.

Real-world competition is very different from this strange theory – but it isstill real, powerful, and unforgiving. Importantly, the fact that companies can bevery large in no way implies that competition has become less intense. In fact,the incredible resources, technology, and managerial abilities that modern largecorporations have at their disposal allow them to compete in ways, and in places,that were never before feasible.

economies of scale when average production costs decline as the volume ofoutput grows. Economies of scale are strong in most industries. They explain whyenormous companies continue to emerge and dominate the market even in newindustries (think of giant technology companies like Google, Apple, and Amazon),despite the highly competitive nature of the economy.

An example of this is provided in Table 11.1. To get into the television businessin the first place, assume that Company Z must spend $100 million on capitalequipment, engineering, and marketing. The very first TV set to come off theassembly line therefore costs over $100 million: the total overhead cost, plus theroughly $200 in materials and labour that are built into each TV set. Averagecosts then decline quickly, as output grows. By the time it produces 100,000 TVs,the company has reduced average costs to $1200 – but that’s still too expensive.

Neoclassical economics relies heavily on a strange, idealized notion of competition,called perfect competition. Perfect competition is one of the most bizarreideas in the whole of economics. It was not designed to explain reality: competitionin capitalism has never resembled perfect competition. Instead, it was designedto provide intellectual justification for a theory: Walras’ theory of generalequilibrium, which claims that free-market exchange is the best way to maximizehuman well-being. Without perfect competition, the Walrasian model cannotsustain this claim. (And as we saw in earlier chapters, there are many other logicalfailures in the theory, too.)

Companies Y and Z also compete in the labour market. In practice, the labourmarket rarely “runs out” of workers – that is, there is almost always a comfortablecushion of unemployment, from which companies can hire new workers whenneeded. Nevertheless, a company’s ability to recruit, hire, and discipline newworkers affects its overall performance. When companies must compete with otheremployers for labour, their power over their workers is somewhat reduced. (Thisis why large companies often locate major facilities in rural or semi-rural areaswhere they are the dominant employer; or concentrate hiring among particularneighbourhoods, demographic groups, or racialized communities.)

For most people, fear is usually a more powerful motivator than greed, andthis is true for companies, too. Most of the behaviours exhibited by companiesin the modern economy – the good, the bad, and the ugly – are motivated, andindeed enforced, by competitive pressures from other companies. This pressureleads companies to do dramatic, innovative, often painful and even destructivethings – not solely because their owners and executives are greedy, but becausethey desperately want to stay in business. Competition is thus the disciplining forcethat compels companies to act in particular ways. And in so doing, competitionensures that the whole system behaves in particular ways.

What do capitalists do with their profit? Generally, it doesn’t gather dust either.(If it does, then this economy will experience a recession.) Some of it is spenton the luxury consumption of capitalist households (we call that C◊ on the map,with the luxury diamond subscript distinguishing it from workers’ more humbleconsumption). The rest is set aside to be re-invested (in the next cycle) in thecapitalist’s business: both to replace the wear and tear of the company’s capitalassets, and perhaps to expand the company’s total output.For completeness, we could also draw smaller flows of profits going to smallbusiness owners, and smaller flows for their own consumer spending andinvestment. This would make our diagram very complicated. For now, just keep inmind that small businesses play a subsidiary role in capitalism; they depend on thelarger flows of corporate investment and worker consumption that are shown inthis map. Imagine a stereotypical small business, like a small retail shop: it dependson larger companies both to produce the goods which it sells, and to employ theworkers who are its main customers. Like a small shop, most small business isjust a “go-between”: facilitating spending transactions and minor productionfunctions that ultimately depend on the larger and more powerful forces drivingthe whole system.

This initial investment creates new jobs in its own right (both inside thecompany itself, and in the companies which produce capital equipment, rawmaterials, and other inputs). Even more crucially, this initial investment pushesthe “Start” button on the whole process of production. Investment is the mostimportant form of spending required for the successful functioning of capitalism.When investment is strong, capitalism is vibrant and growing. When investment isweak, capitalism stagnates.

An exception to this general rule is provided by products which are in someway unique and irreplaceable. Economists call these “non-producible” goods. Ingeneral, the value of a producible good or service will equal the cost of producingit. A non-producible item, on the other hand, possesses some special characteristicwhich cannot be duplicated: fine art, a rare mineral, a plot of land in a veryconvenient location, or a very unusual and innate skill (such as possessed bysports legends and opera stars). The prices of non-producible goods and servicesmay deviate from their cost of production, depending on the extent to whichpurchasers are willing to pay a premium for those specific attributes. And hencethe extra money collected by the owners of those commodities genuinely reflectstheir scarcity. In economics, these super-profits are often termed rents.

This concept of permanent scarcity fits nicely with the emphasis that neoclassicaleconomists place on exchange (or the “forces of supply and demand”). Remember,the neoclassical nirvana – a lovely place called general equilibrium – featuresa balance between supply and demand in every market in the economy. Thisincludes not just markets for produced goods and services, but also the markets forfactors of production (inputs used in production, including labour and “capital”).Scarcity plays a crucial role in this theory. Since factors of production are available(or “endowed”) in arbitrary and largely fixed amounts, equilibrium prices for eachfactor (and hence the prices of everything made from that factor) will dependdirectly on the amount that is available. At the macroeconomic level, total outputis ultimately held back only by available quantities of scarce factor inputs: freemarkets then ensure that all available inputs are employed efficiently in production.In neoclassical theory, as a result, the economy is supply-constrained. The onlything limiting total output is the scarcity of productive inputs. Mutually beneficialexchange between buyers and sellers in every market is the best way to make themost of those scarce inputs, and that’s why (in theory) neoclassical economistsworship the free market.

Economics is known as the “dismal science,” and many neoclassical thinkers takegreat pleasure in living up to that reputation. They are obsessed with the conceptof scarcity: the idea that human existence is perpetually and fundamentallyconstrained by economic shortage.

The payment of private profit greatly complicates the definition and measurementof value. In a capitalist economy, the owners of private capital receive a rate of profiton their investments, even if they do no work in production. This does not imply,however, that capital is itself “productive,” nor that profit is morally legitimate,nor that the owners of capital actually did anything useful. Rather, the payment ofprofit simply signifies that under capitalism, private ownership (and the paymentof profit based on private ownership) is a fact of life. Because of the payment ofprofits, the price of something in a capitalist economy will not exactly reflect theamount of work that went into producing it. Two products which require an equalamount of labour to produce will generally have different prices, depending onthe amount of profit that’s paid out (and hence built into the price) in the courseof producing each product. Similarly, GDP includes not just the value of all paidwork (of various sorts, including self-employment and the work of top managers)performed in an economy. GDP also includes other forms of income paid out inthe economy – like profits.

“Macroeconomics and Misgivings” argues that it is a mis-conception, albeit one that is well entrenched in the mindsof both professional economists and the general public, tothink of the economy as an engine with spending as its gaspedal.

“Finance and Fluctuations” deals with the misconceptionsabout finance that are common among economists, who oftenfail to appreciate the process of financial intermediation. Thissection looks at the special role played by financial intermedi-aries in enabling specialization. Intermediation is particularlydependent on trust, and as that trust ebbs and flows, the finan-cial sector can amplify fluctuations in the economy’s ability tocreate patterns of sustainable specialization and trade.

“Specialization and Sustainability” exposes the misconcep-tion that we must undertake extraordinary efforts in order toconserve specific resources. This section explains how the pricesystem guides the economy toward sustainable use of resources.In contrast, individuals who attempt to override the pricesystem through their individual choices or by imposing gov-ernment regulations can easily miscalculate the costs of theiractions.

“Machine as Metaphor” attacks the misconception held bymany economists and embodied in many textbooks that theeconomy can be analyzed like a machine. This section looksat a widely used but misguided approach to economic analysis,treating it as if it were engineering. The economic engineersare stuck in a mindset that grew out of the Second WorldWar, a conflict that was dominated by airplanes, tanks, andother machines. Their approach fails to take account of themany nonmechanistic aspects of the economy.

He knows that his breakfast depends upon workerson the coffee plantations of Brazil, the citrus groves ofFlorida, the sugar fields of Cuba, the wheat farms ofthe Dakotas, the dairies of New York; that it has beenassembled by ships, railroads, and trucks, has beencooked with coal from Pennsylvania in utensils madeof aluminum, china, steel, and glass.

How much commerce andnavigation in particular, how many ship-builders,sailors, sail-makers, rope-makers, must have beenemployed in order to bring together the differentdrugs made use of by the dyer, which often come fromthe remotest corners of the world! What a variety oflabour too is necessary in order to produce the toolsof the meanest of those workmen!

The woollen coat, for example, which covers theday-labourer, as coarse and rough as it may appear,is the produce of the joint labour of a great multitudeof workmen.

The roundabout process (or high capital intensity) creates agap of time between the initial steps in the production pro-cess and the final sale of goods and services. During thattime gap, workers involved in the early stages of the pro-duction process must receive income before consumers havemade purchases. (Think of the producer of farm equipment,which must receive payment from a farmer before the farmercan use the equipment to harvest a crop.) That preconditionrequires financial intermediation. As the economy becomesmore specialized and the production becomes more round-about, the financial sector takes on more significance.

The steel must be transported,which may require a railroad or a ship for transportation.And so on. Most of the people whose work enables thefarmer to harvest wheat have no idea that they are partof the wheat production process. The Austrian school ofeconomics would describe this multistep production pro-cess as very roundabout.

An increase in capital intensity accompanies an increasein specialization. Think of capital as tools that are usedto produce things. Farm equipment helps produce food.Manufacturing plants help build farm equipment. Steeland concrete production facilities help build manufac-turing plants. Workers with powerful tools are moreproductive. It is easier to excavate a foundation with abulldozer than with a spoon.

Improvements in transportation accompany specializa-tion. The farther that you can cheaply transport goods,the more specialization you will see. Before the adventof the railroad, water transport was relatively efficient,so that specialization tended to be most extensive neargood harbors and navigable rivers. Improvements intransportation have connected the world’s regions moreclosely, promoting greater specialization

Trade accompanies specialization. The more you spe-cialize, the more you need to trade to obtain what youwant. In a society where people specialize, you will findthem exchanging goods and services.

If Cheryl’s bank no longer needed a mortgage paymentprocessing system, her value would be reduced. If her bankwent completely out of business, her value would be reducedmore. If the mortgage servicing industry consolidated, usingfewer systems, her value would be reduced more still. And ifcomputers suddenly became much more expensive and bankswent back to using mechanical calculators, her value wouldbe reduced still more. That last hypothetical is extreme, butthe point is that specialization is subtle, deep, and highlydependent on context.

The machines were made out of materials that hadto be mined and transported. That transportation requiredmany other people and machines. The transportation equip-ment itself had to be manufactured, which required miningand shipping materials to the place where the transportationequipment was manufactured

Picture yourself watching news on cable television whileeating a bowl of cereal. However, instead of giving you thenews, the TV announcer asks you to consider what you wouldneed to do to make your cereal completely from scratch.You would need to grow the cereal grains yourself. If youuse tools to harvest the grain, you would have to make thosetools yourself

Even more strikingis the fact that almost everything you consume is somethingyou could not possibly produce. Your daily life depends on thecooperation of hundreds of millions of other people.Just as it is inconceivable that human society would haveevolved to its present state without language, it is inconceiv-able that we would have gotten to this point without special-ization and trade. Moreover, in order for society to progressfurther, patterns of specialization and trade must continue toevolve.

always asks, “How do you know that?” The MIT approachsuppresses that question and instead presumes that economicresearchers and policymakers are capable of obtaining knowl-edge that in reality is beyond their grasp.2 That is particu-larly the case in the field known as macroeconomics, whosepractitioners claim to know how to manage the overall levelsof output and employment in the economy.

Early in 2015, I came across a volume of essays edited byE. Roy Weintraub titled MIT and the Transformation ofAmerican Economics.1 After digesting the essays, I thought tomyself, “So that’s how it all went wrong.”Let me hasten to mention that my own doctorate in eco-nomics, which I obtained in 1980, comes from MIT. Also,the writers of Weintraub’s book are generally laudatorytoward MIT and its influence.Yet I have come to believe in the wake of the MIT trans-formation, which began soon after World War II, that econo-mists have lost the art of critical thinking. The critical thinker

The Scottish writer Adam Smith is often viewed as the “father” of free-marketeconomics. (This stereotype is not quite accurate; in many ways Smith’s theories arevery different from modern-day neoclassical economics.) And his famous Wealthof Nations (published in 1776, the same year as American independence) cameto symbolize (like America itself) the dynamism and opportunity of capitalism.Smith identified the productivity gains from large-scale factory production andits more sophisticated division of labour (whereby different workers or groups ofworkers are assigned to different specialized tasks). To support this new system, headvocated deregulation of markets, the expansion of trade, and policies to protectthe profits and property rights of the early capitalists (who Smith celebrated asvirtuous innovators and accumulators). He argued that free-market forces (whichhe called the “invisible hand”) and the pursuit of self-interest would best stimulateinnovation and growth. However, his social analysis (building on the Physiocrats)was rooted more in class than in individuals: he favoured policies to undermine thevested interests of rural landlords (who he thought were unproductive) in favour ofthe more dynamic new class of capitalists.

Why? Because even the short-changed partneris still better off (by one penny) than if they had rejected the offer – and that’s allthey care about. So there is no rational reason for the offer to be rejected.In practice, of course, anyone with the gall to propose such a lopsided bargainwould face certain rejection. Experiments with real money have shown that splitsas lopsided as 75–25 are almost always rejected (even though a partner rejectingthat split forgoes a real $2.50 gain). And the most common offer proposed is a50–50 split. That won’t surprise many people – but it does, strangely, surpriseneoclassical economists! In short, the real-world behaviour of humans is notremotely consistent with the assumption of blind, individualistic greed.

Homo sapiens have existed on this planet for approximately 100,000 years. Theyhad an economy all of that time. Humans have always had to work to meet thematerial needs of their survival (food, clothing, and shelter) – not to mention,when possible, to enjoy the “finer things” in life. Capitalism, in contrast, has existedfor around 250 years. If the entire history of Homo sapiens to date was a 24-hourday, then capitalism has existed for three-and-a-half minutes.What we call “the economy” went through many different stages en route tocapitalism. (We’ll study more of this economic history in Chapter 3.) Even today,different kinds of economies exist. Some entire countries are non-capitalist. Andwithin capitalist economies, there are important non-capitalist parts (althoughmost capitalist economies are becoming more capitalist as time goes by).I think it’s a pretty safe bet that human beings will eventually find other, betterways to organize work in the future – maybe sooner, maybe later. It’s almostinconceivable that the major features of what we call “capitalism” will exist for the

Curiously, even though capitalism dominates the world economy, the term“capitalism” is not commonly used

we live in a capitalist economy, and we might as wellname it.

This book focuses mostly on describing one very particular kind of economy:capitalism

The UN defineshuman development on the basis of three key indicators: GDP per capita,life expectancy, and educational attainment.

An “efficient” economy is one which maximizes, throughexchange, the usefulness of that initial endowment

Scarcity is a normal condition. Humans are “endowed” witharbitrary amounts of useful resources.

Now you can return home. Congratulations! You’ve done a lot more than just takea stroll. You’ve conducted a composite economic profile of your own community

Has your income increased faster than the prices of the things you buy?

List yourapproximate monthly income.