?Monograph Review A Students Guide to Economics Written by Paul Heyne When you first thought about Economics, what did you think of? To me it was pretty much the study of money, as simple as that. I thought it would be interesting to ask a few people what their thoughts were and I heard many different definitions from as simple as “Money” from a family member to “To me it is the state of well being – money, housing, unemployment, industry etc. ” told to me by a coworker.
The true definition of Economics is the study of how individuals transform natural resources into final products and services that people use. This definition is quite a bit different than what I thought it would be, so I was very interested to read the monograph A Students Guide to Economics, Paul Heyne and hopefully learn how this definition came to be. As I was reading the book I found that the changes came and were documented by many different economists and were explained in many of the publications that those economists had written.
In the monograph A Students Guide to Economics, Paul Heyne describes the history of economics and how this definition evolved to what it is today. The book starts out with the “discovery” of the Economics. In 1776, Adam Smith was the first person to question economic growth with a book titled Inquiry into the Nature and Causes of the Wealth of Nations. Adam Smith summed up economics as “the volume of the nation’s annual production will depend primarily on the skill, dexterity, and judgment with which people apply their labor to the natural resources available to them.
I take this as, in a good economic society, people will use the natural resources personal talents wisely. Smith also states that everyone is a merchant, by this I think he means that with every transaction, you are making a trade. For example, if a shoe maker sells a pair of shoes, the money that is paid for them is not really the trade, the leather that he buy with the money so he can make more shoes is the trade for the shoes he sold. The General Theory of Employment, Interest, and Money written by John Maynard Keynes was published in 1936.
This book stopped many economists from focusing on the trade cycle and started them focusing on government spending to make up the deficiency in private spending that had caused and prolonged the slump during World War II. From what I understand about this publication, Keynes was one of the first people to hold the government accountable for certain economic problems. For example after World War II certain people wanted the government to be responsible for bringing the unemployment rate up to 100% when the employment rate was extremely low at that time.
Macroeconomics was brought up for the first time in 1948 in the publication Economic: an Introductory Analysis written by Paul Samuelson. A Students Guide to Economics states that Microeconomics or “the modern theory of income determination” as Samuelson called it, uses variables including total expenditures on personal consumption, total business investment, and total government purchases of goods and services. Microeconomics is not considered one of the two parts of economics, the other being Microeconomics.
People have two possible responses when they start feeling that the organization has changed in a negative way (decrease in quality or benefit to the member), they can exit (leave the organization), or they can voice (try to improve the issue by communicating with the organization). This theory was written about in Exit, Voice, and Loyalty written by Albert O. Hirchman. An example of an exit response would be going into a grocery stare and finding out that they do not carry the type of salsa that you like anymore, when you find this out, you decide to switch grocery stores and go to the one that has your salsa.
An example of a voice response would be going to a salon to get your hair colored, you go home and realize the color is not what you asked for, instead of leaving the salon and finding another one, you call and voice your frustration, you end up going back and they fix your hair for free. Written in 1957, The Economics of Under-Developed Countries by Peter Bauer and Basil Yamey looked into the theory of “growth economics”. At that time people had the notion that if there is an under-developed country, another country can go in and help it with a quick fix.
Economists believed that with a small amount of funds and a good economic model an under-developed country would have major economic growth. With this growth they assumed that the country would not cause their country any issues. Bauer and Yamey were not buying into this theory. They wrote in their book that to help an under-developed country many other things would determine the countries outcome like the citizen’s attitude and knowledge. Risk, Uncertainty, and Profit written by Frank Knight in 1921 explains how a market-coordinated economy handles the problem of coordinating activity in the presence of uncertainty.
One of the things that stands out most about Frank Knight was that he distinguished between two types of change, risk and uncertainty, defining risk as randomness with knowable probabilities and uncertainty as randomness with unknowable probabilities. Frank Knight stated that risk arises from repeated changes for which probabilities can be calculated and insured against but uncertainty arises from unpredictable changes in an economy changes that cannot be insured against.
Uncertainty, he said “is one of the fundamental facts of life. ” (Review by Gail Owens Hoelscher). Fire would be an example of a risk, you know what will happen if a fire occurs. A customer’s preference would be an example of an uncertainty. Deirdre McCloskey wrote that there was no such thing as a scientific method for economics in The Rhetoric of Economics written in 1985, scientists merely argue what they believe is true.
McCloskey states that economics needs to get back to the science of facts or responsible rhetoric and get away from the things that economists are trying to persuade people is true. A businessman may know what his costs will be to produce a product and may be very aware of what the demand will be for that product but he may not be able to predict the competition he has from companies producing a similar product. Economics is the study of how individuals transform natural resources into final products and services that people use.
A Students Guide to Economics has helped me understand why the definition “Money” doesn’t quite cut it. There are so many aspects that I never even thought of when it comes to economics like planning for risk and uncertainty and understanding exit and voice responses. Economics has evolved tremendously from the time it was first brought to peoples attention in Inquiry into the Nature and Causes of the Wealth of Nations to the current writings of Deirdre McCloskey. Looking into the future, I predict we haven’t seen the last changes.