Economic definitions

I am two days away from finally sending the manuscript of the 2nd edition of my Free Market Economics off to the publisher. What do academics do when they aren’t teaching? This, at least, is what one of them has done. But for interest and comment, I am putting the following up which I have just finished writing not five minutes ago. It will be at the very start of the book, right after the preface which I will get to as soon as I finish this section on the definitions.

And I hope you all have as much fun on this long weekend as I hope to have myself.

Before venturing into the full text before you, it is useful to have a few definitions in your mind. The language of economics is entirely made up of words that have ordinary meanings in everyday life. But these words, when they cross over into economics, suddenly take on very specific meanings that can cause someone to lose the thread during an economic discussion. We therefore provide a series of definitions of the specialised words used in the text. Having at least a preliminary grasp of these words and their more technical meaning will also in itself provide a grounding in the nature of the economic theory you will meet in the rest of the book.

Economics often looks easy because everyone already thinks they understand what’s going on in an economy without even having to study. Not true at all. For an economist it is painful to hear the mistakes that those who have not studied economics to at least a reasonable depth constantly make. But there are also major differences in the conclusions different economists reach and these are often at a very deep level that no lay person could possibly resolve.

This text will teach you everything you will find in studying economics in a normal, usual way. But it also provides a second perspective that has been taken from the economic theories that were dominant during the nineteenth century. But unlike with the natural sciences, economic theory does not progress to higher plains and then remain there. Economic theory is infused with the hopes and wishes of policy makers and of those who study the subject who are predisposed to some particular point of view. People just wish the world was one way when the way things are turn out to be something else again, and their wishes cause them to accept economic theories that are not properly grounded in the way the world actually is.

The definitions found here are already pointing in a particular direction. The very first definition is “entrepreneur”. These are the people who run our businesses and often, if they are successful, become very wealthy as a result. As this book will explain, entrepreneurially-managed firms are the foundation for wealth and prosperity for an entire community but also for personal freedom and independence from government. Economic attitudes are often determined by one’s reactions to entrepreneurs running our firms. Some people don’t agree that we should allow people to run firms any way they like as long as they follow the law. Some people think that governments should run our businesses or at least our major businesses. Or if they don’t run them should have a major say in what they do.

These are, of course, philosophical and political issues that are absolutely part of economics when thought about in the widest sense, but are not part of what gets taught at the introductory level when starting out on economic theory. Yet this is the foundational point. Economics, as we teach it and learn it today, assumes that most of what is produced is produced by businesses independent of governments and are run by entrepreneurs for a profit. These businesses sell goods and services on a market and these goods and services are bought by consumers with money they have for the most part earned by providing either their own labour or some other input into the production of some other good or service. How this process works in detail is what the study of economic theory is about.

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14 Responses to Economic definitions

  1. Turtle of WA

    … economic theory does not progress to higher plains and then remain there. Economic theory is infused with the hopes and wishes of policy makers and of those who study the subject who are predisposed to some particular point of view.

    If only climate theory was this honest.

  2. Turtle of WA

    Sorry, ‘were’.

  3. sdfc

    How is the chapter on the financial sector coming along?

  4. Mick of Brisbane

    My first edition just arrived in the mail …

  5. Andrew of Randwick

    1#

    to lose the thread during an economic discussion -> to become lost in an economic discussion
    Having at least a preliminary grasp of these words -> Having a preliminary grasp of these words
    will also in itself -> will also by itself

    2#

    everyone already thinks -> everyone thinks
    without even having to study -> without studying it
    major differences in the conclusions different economists -> major differences in the conclusions economists
    are often at a very deep level that no lay person could possibly resolve -> are often at a very deep level that is unknown to a lay person

    #3
    entrepreneur don’t run businesses they “own” businesses – they haves risked their capital. som entrepreneaurs use professional managers, and some manage the business themselves.
    etc
    etc
    .
    Sorry I am just feeling off-colour today and caring about clarity of expression, e.g. invasion day, genocide, shame, ….

  6. blogstrop

    How is the chapter on the financial sector coming along?
    Buy the book and see.

  7. entropy

    what tosh. Entrepreneurs didn’t build that!

    /sarc

  8. Steve Kates

    Dear Mick of Brisbane – I am pleased to find that you have bought the book and while there is a second edition coming, it will not find it’s way into print before September. The publisher is thinking about selling it as a text with the Northern Hemisphere in mind. I won’t say there’s nothing new in the second since there is. I have learned endless things about what I wrote, mainly through teaching from the text. But what I haven’t had to do is change any of the arguments or revise any of the central ideas. I wrote it in a fury during the first semester of 2009 because of the disaster that I felt was certain to follow the Keynesian stimulus and on that there has been not a thing I have felt a need to revise. The only thing that continues to amaze me is that there has been no other relentlessly anti-Keynesian text to follow mine onto the market in these last five years. Anyway, I hope you enjoy the book and if you have any comments or suggestions, sending off the manuscript is by no means the end of the trail.

  9. Nato

    How is that different from the ‘everyday’ definition?

  10. Gazb

    The three main statistics, inflation, economic growth and unemployment rate, have been so effectively interfered with by governments (both state and federal) in recent years in Australia, they just don’t mean what they used to (e.g. working 1 hour per week is no longer unemployed).

    Does your book include a definition of these three stats? Or, more particularly, the historical changes made to them?

    Inflation is so heavily biased to goods, not services, that it helps the inflation figure to import them rather than make them here; while wage rates are always increasing at a much higher figure.

    Economic growth includes government spending – borrow money and employ more public servants and the growth stats will keep looking great (saving recession).

    Unemployment measurements have been vastly improved by now calculating underemployment and underutilisation rates (around 13% at August 2013). We need similar changes to be achieved for inflation and growth.

    I would put it to all economists that productivity gains (or losses) is the only true figure to calculate growth; the rest should be bundled into inflation.

    What should we call these new honest stats? Maybe “true growth” and “true inflation”? the same as we now have “true unemployment”; no wonder our purchasing power has declined.

  11. sdfc

    Gazb
    The three main statistics, inflation, economic growth and unemployment rate, have been so effectively interfered with by governments (both state and federal) in recent years in Australia, they just don’t mean what they used to (e.g. working 1 hour per week is no longer unemployed).

    Those three reports paint a consistent picture of the state of the economy, so there doesn’t seem to be any major problem with how they are measured and reported.

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