“The art of economics consists in looking not merely at the immediate but at the longer term effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” – Henry Hazlitt, Economics in One Lesson.
Economics and those who practice it have a deservedly poor reputation. It has been called 'the dismal science'; it is also often said that if you laid all the world's economists end to end they would still never reach a conclusion; economists, it is also said, are number crunchers who, if they had any charisma would have become accountants. All this is, of course, true.
Economics itself has been defined variously as the "social science that studies the allocation of scarce resources to satisfy unlimited wants," or as the "science of value." Neither are strictly accurate. Economics, as George Reisman defines it,
is the science that studies the production of wealth under a system of division of labor, that is, under a system in which the individual lives by producing, or helping to produce, just one thing or at most a very few things, and is supplied by the labor of others for the far greater part of his needs... The importance of economics derives from the specific importance of wealth—of material goods—to human life and well-being.
Too few economists however have digested the lesson given by Hazlitt, or the definition offered by Reisman. Many economists since Keynes still see their job as being hand-maidens of the State, deciding how precisely state intervention should proceed, to what end, and who should be the beneficiary. Many still think short-range and bog themselves down in minutiae. They are supportive of policies that have short-term appeal for certain groups, e.g. inflation, borrowing, taxing, subsidising and (government) spending, but which are disastrous for everybody in the long term. By peddling minutiae too tortuous for the lay person to bother with, they create the illusion of wisdom, and bamboozle people into acquiescence; but theirs is the prescriptive wisdom of witch-doctors.
We are all the losers. It is often ignorance of basic economics that stops many people supporting the free society, and it is true that many of the key concepts of economics are not immediately apparent. Supply and demand is a fairly easy concept that, while beyond most politicians, is still something that even a six-year-old can grasp. However, beyond that lie dragons for some. The broken window fallacy and the laws of marginal utility and of comparative advantage for example are not so obviously intuitive, although they are wonderfully powerful tools once understood, as they should be in a free society (a game to help understand the latter is online here). The ideas of spontaneous order, or that there are "phenomena that are the product of human action but not of human design," or of the miracle of breakfast -- these ideas and concepts help to integrate economic thought and help make it understandable.
Indeed, in a free society with a free market place, economics would necessarily be demystified. It would be the servant of the entrepreneur instead of the bureaucrat, and be primarily descriptive of a process that citizens had already decided was morally proper, i.e. the voluntary exchange of goods and services in a society in which contracts and the rule of law are protected. Or, as Robert Nozick described the process, capitalist acts amongst consenting adults.
This is part of a continuing series explaining the concepts and terms used by libertarians, originally published in The Free Radical in 1993. The 'Introduction' to the series is here. The series may be found on the right-hand sidebar of 'Not PC.'