{xxvi} Gresham’s Law is that bad money drives good money out of circulation. In the P.O.W. camp, the least popular brands of cigarettes circulated as money, while the most popular brands were smoked.
{xxvii} A case could be made that the Smoot-Hawley tariffs had more to do with the massive unemployment of the 1930s than did the stock market crash in 1929 which has often been blamed. While the unemployment rate rose after the stock market crash, the unemployment rate did not reach 10 percent during any of the 12 months following that crash. But, unemployment reached 11.6 percent just five months after the Smoot-Hawley tariff—on its way up to still higher levels, and never got down to 11.6 percent until more than eight years later. Richard K. Vedder and Lowell E. Gallaway, Out of Work, 1993 edition, p. 77.
{xxviii} See, for example, the discussion of “urban hillbillies” in Michael Harrington, The Other America, 1962 edition, pp. 96–100.
{xxix} Westerners called them Arabic numerals because Europeans first encountered these numbers in use among the Arabs, who got them from India.
{xxx} While geographic location alone cannot create genius, different geographic settings can provide very different opportunities for genius to emerge and develop. Few, if any, individuals with recognized historic achievements have developed in isolated mountain villages. On the contrary, historic achievements have been highly concentrated geographically as of a given time, even though these concentrations have changed over the centuries—but, again, seldom coming from geographically isolated places.
{xxxi} The imperative to store food, in order to survive in winter, also provides incentives to turn a perishable product like milk into a storable product like cheese.
{xxxii} Since many of the elites in Arab countries speak English or other languages, these elites have access to a vastly larger cultural universe than the masses. The absence of translated writings would therefore tend to increase the economic and other inequalities within these countries, as well as increase the economic inequalities between these countries and the Western world.
{xxxiii} The very concept of blame seems questionable in this context, when no one can choose what culture to be born into, nor in which geographic setting or in which period of history.
{xxxiv} Even though the advent of agriculture was an epoch-making advance in the social evolution of the human species, opening up the possibility of larger and more complex societies than would have been possible for hunter-gatherers, the need for replenishing the soil nutrients used up by agriculture was by no means immediately obvious to the first farmers. But those farmers who happened to be located where rivers flooded the land annually—automatically replenishing the nutrients at a given location with nutrients washed down from other locations—prospered for reasons the farmers did not even need to understand.
The agricultural methods available at that time made permanent settlement of relatively large populations impossible in most parts of the earth. Only in some river valleys where annual floods fertilized the fields could the land be farmed continuously over the years. These rare conditions were found in the valley of the Tigris and Euphrates rivers in what is today Iraq. This created great economic inequalities between those fortunate enough to live in that part of the world at that time and most people in most other places, until farmers elsewhere realized the need for applying fertilizer to the land. This then made sedentary agriculture possible elsewhere—and this meant that sedentary societies, including cities, became possible around the world.
{xxxv} The far larger cultural universe of the Europeans was matched by a far larger disease universe, since diseases from Asia could travel thousands of miles to Europe by land or sea, just as merchandise did. Plagues from Asia, the Middle East or North Africa could kill many people in Europe, but the survivors would build up biological resistance to these diseases from vast regions of the Earth. Just as Europeans who moved to the Western Hemisphere came equipped with many cultural features that originated outside of Europe, they also came carrying diseases from vast regions both inside and outside of Europe. Meanwhile, the indigenous peoples of the Western Hemisphere had much smaller disease environments from which to gain biological resistance, and were decimated by many of the diseases that Europeans transmitted, even when the Europeans were not personally suffering from those diseases.
{xxxvi} John Stuart Mill pointed this out in his essay On Liberty in 1859: “He who knows only his own side of the case, knows little of that. . . Nor is it enough that he should hear the arguments of adversaries from his own teachers, presented as they state them, and accompanied by what they offer as refutations. That is not the way to do justice to the arguments, or bring them into real contact with his own mind. He must be able to hear them from persons who actually believe them; who defend them in earnest, and do their very utmost for them. He must know them in their most plausible and persuasive form. . .”
{xxxvii} This point is elaborated on pages 34 to 42 of my book On Classical Economics.
{xxxviii} But, however much he exemplified moral principles in his actions, Ricardo was “above the unctuous phrases that cost so little and yield such ample returns.” J.A. Schumpeter, History of Economic Analysis, p. 471n.
{xxxix} For a clarification of the differences, see pages 69–71 of my On Classical Economics.
{xl} A more extended discussion of these controversies can be found in Thomas Sowell, On Classical Economics (New Haven: Yale University Press, 2006), pp. 23–34.
{xli} However major a figure Karl Marx was in the history of the world and however great his intellectual as well as political influence on the twentieth century, his work in economics has left little trace on the development of that discipline. Even those economists who are Marxists typically use other economic concepts in their professional work.
{xlii} Marshall’s Principles of Economics was still being used as a textbook in economics when I was a graduate student at Columbia University in academic year 1958–59.
{xliii} As discussed in Chapter 13 of Basic Economics.
{xliv} John Maynard Keynes wrote in 1930: “The world has been slow to realise that we are living this year in the shadow of one of the greatest economic catastrophes of modern history.” John Maynard Keynes, Essays in Persuasion, 1952 edition, p. 135.
{xlv} This theme is explored in my book A Conflict of Visions.
{xlvi} As we have seen in Chapter 17, during the Great Depression of the 1930s successive American administrations of both political parties sought to maintain high wage rates per unit of time as a way of maintaining labor’s “purchasing power”—which depends on the aggregate earnings of workers. But, among economists, both Keynesian and non-Keynesian, it was understood that the number of workers employed was affected by the wage rate per unit of time, so that higher wage rates could mean fewer people employed—and those earning no income reduce purchasing power. A common fallacy in popular discussions of international trade is that countries with high “wages”—that is, wage rates per unit of time—cannot compete with countries that have low “wages,” on the assumption that the high-wage countries will have higher production costs.
{xlvii} There was consternation among wine connoisseurs when economist Orley Ashenfelter said that he could predict the prices of particular wines using data on the weather during the season in which its grapes were grown, without either tasting the wine or paying any attention to the opinions of experts who had tasted it. But his methods turned out to predict prices more accurately than the opinions of experts who had tasted the wine.
{xlviii} In Capital, Marx said, “I paint the capitalist and the landlord in no sense couleur de rose. But here individuals are dealt with only in so far as they are the personifications of economic categories. . . My stand-point. . .can less than any other make the individual responsible for relations whose creature he socially remains, however much he may subjectively raise himself above them.” Contrary to many others on the left, Marx did not see capitalists as controlling the economy but just t
he opposite: “Free competition brings out the inherent laws of capitalist production, in the shape of external coercive laws having power over every individual capitalist.” Karl Marx, Capital, Vol. I, pp. 15, 297.
{xlix} No one writes a 900-page book to say how happy he is with the way things are going.
{l} When laws prevent the building of ten-story apartment buildings, a five-story apartment building on the same land now has higher costs per apartment because the cost of the land—which can be higher than the cost of the building in some places—has to be recovered in the rent charged to only half as many people.
{li} For example, John F. Love, McDonald’s: Behind the Arches.
Epigraph
{1} Steven E. Landsburg, The Armchair Economist: Economics & Everyday Life (New York: The Free Press, 1993), p. 197.
Chapter 1: What Is Economics?
{2} George J. Stigler, The Economist as Preacher and Other Essays (Chicago: University of Chicago Press, 1982), p. 61.
{3} Louis Uchitelle, “The American Middle, Just Getting By,” New York Times, August 1, 1999, section 3, pp. 1, 13.
{4} John Kay, Culture and Prosperity: The Truth About Markets—Why Some Nations Are Rich but Most Remain Poor (New York: HarperBusiness, 2004), p. 27; The World Almanac and Book of Facts: 2013 (New York: World Almanac Books, 2012), pp. 793, 839, 850, 851.
{5} Nikolai Shmelev and Vladimir Popov, The Turning Point: Revitalizing the Soviet Economy (New York: Doubleday, 1989), pp. 128–129.
{6} Oskar Lange, “The Scope and Method of Economics,” Review of Economic Studies, Vol. 13, No. 1 (1945–1946), pp. 19–32; Milton Friedman, “The Methodology of Positive Economics,” Essays in Positive Economics (Chicago: University of Chicago Press, 1953), pp. 3–43.
{7} John Larkin, “Newspaper Nirvana? 300 Dailies Court India’s Avid Readers,” Wall Street Journal, May 5, 2006, pp. B1, B3.
{8} “Poverty,” The Economist, April 21, 2007, p. 110.
PART I: PRICES AND MARKETS
Chapter 2: The Role of Prices
{9} William Easterly, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (New York: Penguin Press, 2006), p. 168.
{10} Russell Flannery, “Feed Me,” Forbes, May 24, 2004, p. 79.
{11} Ibid., p. 82.
{12} Andrew Martin, “Awash in Milk and Headaches,” New York Times, January 2, 2009, p. B5.
{13} Shirley S. Wang, “Obesity in China Becoming More Common,” Wall Street Journal, July 8, 2008, p. A18.
{14} Margaret Thatcher, Statecraft: Strategies for a Changing World (London: HarperCollins, 2002), p. 81.
{15} Nikolai Shmelev and Vladimir Popov, The Turning Point: Revitalizing the Soviet Economy (New York: Doubleday, 1989), p. 170.
{16} Ibid., p. 213.
{17} Catherine Reagor, “How Low Will It Go?” Arizona Republic, June 18, 2006, p. A1.
{18} Ibid., pp. A1, A20.
{19} Nikolai Shmelev and Vladimir Popov, The Turning Point, p. 131.
{20} Ibid., p. 181.
{21} Ibid., p. 129.
{22} Ibid., p. 141.
{23} William McCord, The Dawn of the Pacific Century: Implications for Three Worlds of Development(New Brunswick, NJ: Transaction Publishers, 1991), pp. 154–155; Robin W. L. Alpine and James Pickett, Agriculture, Liberalisation and Economic Growth in Ghana and Côte D’Ivoire: 1960–1990 (Paris: Organisation for Economic Co-operation and Development, 1993), pp. 11, 14–15, 75.
{24} Robin W. L. Alpine and James Pickett, Agriculture, Liberalisation and Economic Growth in Ghana and Côte D’Ivoire, p. 18.
{25} Daniel Yergin and Joseph Stanislaw, The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World (New York: Simon & Schuster, 1998), p. 222.
{26} “Unlocking the Potential,” The Economist, June 2, 2001, p. 13.
{27} John Kay, Culture and Prosperity: The Truth About Markets—Why Some Nations Are Rich but Most Remain Poor (New York: HarperBusiness, 2004), p. 279.
{28} Dwight Perkins, “Completing China’s Move to the Market,”Journal of Economic Perspectives, Volume 8, Number 2 (Spring 1994), p. 26.
{29} Xiaoshan Zhang, “Policy Coherence for Development: Issues for China,” Trade, Agriculture and Development: Policies Working Together, edited by the Organisation for Economic Co-operation and Development (Paris: Organisation for Economic Co-operation and Development, 2006), p. 152.
{30} Nikolai Shmelev and Vladimir Popov, The Turning Point, p. 160.
{31} Friedrich Engels, “Introduction by Friedrich Engels to the First German Edition,” of Karl Marx, The Poverty of Philosophy (New York: International Publishers, 1963), p. 19.
{32} Nikolai Shmelev and Vladimir Popov, The Turning Point, p. 172.
{33} Joshua Muravchik, Heaven on Earth: The Rise and Fall of Socialism (San Francisco: Encounter Books, 2002), pp. 332–333.
{34} Russell Gold, “As Prices Surge, Oil Giants Turn Sludge into Gold,” Wall Street Journal, March 27, 2006, p. A1.
{35} “Building on Sand,” The Economist, May 26, 2007, p. 72.
{36} A Will Rogers Treasury, edited by Bryan B. Sterling and Frances N. Sterling (New York: Crown Publishers, 1982), p. 193.
Chapter 3: Price Controls
{37} Henry Hazlitt, The Wisdom of Henry Hazlitt (Irvington-on-Hudson, NY: The Foundation for Economic Education, 1993), p. 329.
{38} Milton Friedman and George Stigler, “Roofs or Ceilings? The Current Housing Problem,” Rent Control: Costs & Consequences, edited by Robert Albon (St. Leonards, NSW, Australia: The Centre for Independent Studies, 1980), pp. 15–16.
{39} Christine Haughney, “For Oscar-Winning Actress, Real-Life Role in Housing Court,” New York Times, August 3, 2011, p. A20; C.W. Nevius, “When Rent Control Provides a Getaway for the Well-To-Do,” San Francisco Chronicle, June 16, 2012, p. A1.
{40} Bay Area Economics, San Francisco Housing DataBook (Berkeley, CA: Bay Area Economics, 2002), p. 21.
{41} Mike Schneider and Verena Dobnik, “Solo Living Drops in Manhattan, Rises Elsewhere,” Associated Press & Local Wire, September 6, 2011; Marc Santora, “Rent-Stabilized Apartments, Ever More Elusive,” New York Times, July 8, 2012, Real Estate Desk, p. 1.
{42} William Tucker, The Excluded Americans: Homelessness and Housing Policies (Washington: Regnery Gateway, 1990), p. 275.
{43} John Tierney, “The Rentocracy: At the Intersection of Supply and Demand,” New York Times Magazine, May 4, 1997, p. 40.
{44} Institute of Public Affairs, “Post War Confusion: Rent Control,” Rent Control, edited by Robert Albon, p. 125.
{45} Nonie Darwish, Now They Call Me Infidel (New York: Sentinel, 2006), p. 43.
{46} William Tucker, The Excluded Americans, p. 162.
{47} Bay Area Economics, San Francisco Housing DataBook, p. 56.
{48} Ray A. Smith, “Study Sees Record Industrial Space Vacancies,” Wall Street Journal, January 7, 2004, p. B6.
{49} Joel F. Brenner and Herbert M. Franklin, Rent Control in North America and Four European Countries (Washington: The Potomac Institute, 1977), p. 4.
{50} Ibid., p. 69.
{51} Thomas Hazlett, “Rent Controls and the Housing Crisis,” Resolving the Housing Crisis: Government Policy, Decontrol and the Public Interest, edited by M. Bruce Johnson (San Francisco: Pacific Institute for Public Policy Research, 1982), pp. 282–283.
{52} William Tucker, The Excluded Americans, p. 163.
{53} Diana Geddes, “The Doors Have Closed on Furnished Accommodation,” The Times of London, January 24, 1975, p. 11.
{54} William Tucker, Zoning, Rent Control and Affordable Housing (Washington: Cato Institute, 1991), p. 21.
{55} Christopher Jencks, The Homeless (Cambridge, MA: Harvard University Press, 1994), p. 99.
{56} Richard W. White, Jr., Rude Awakenings: What the Homeless Crisis Tells Us (San Francisco: ICS Press, 1991), p. 123.
{57} Joseph Berger, “For Some Landlords, Real Mon
ey in the Homeless,” New York Times, February 9, 2013, p. A15.
{58} Laurie P. Cohen, “Home Free: Some Rich and Famous of New York City Bask in Shelter of Rent Law,” Wall Street Journal, March 21, 1994, p. A1.
{59} Nicole Gelinas, “Is There a New York Housing Crisis?” City Journal, Summer 2006, pp. 62, 64.
{60} Joseph Berger, “For Some Landlords, Real Money in the Homeless,” New York Times, February 9, 2013, p. A1.
{61} Matt Smith, “Legends in Our Own Minds,” SF Weekly, January 30, 2002, p. 13.
{62} William Tucker, “How Rent Control Drives Out Affordable Housing,” Policy Analysis, number 274, May 21, 1997.
{63} Milton Friedman and George Stigler, “Roofs or Ceilings? The Current Housing Problem,” Rent Control, edited by Robert Albon, pp. 5–6.
{64} William Tucker, The Excluded Americans, pp. 268–277; Christine Haughney, “For Oscar-Winning Actress, Real-Life Role in Housing Court,” New York Times, August 3, 2011, p. A20.
{65} William Tucker, The Excluded Americans, p. 268.
{66} David Kocieniewski, “For Rangel, Four Rent-Stabilized Apartments,” New York Times, July 11, 2008, pp. A1, A13.
{67} Sally C. Pipes, The Top Ten Myths of American Health Care: A Citizen’s Guide (San Francisco: Pacific Research Institute, 2008), p. 15.
{68} Andrew Higgins, “Food Lines: Odd Borders Appear in Russia as Regions Face Poor Harvests,” Wall Street Journal, October 16, 1998, p. A1.
{69} Nikolai Shmelev and Vladimir Popov, The Turning Point: Revitalizing the Soviet Economy (New York: Doubleday, 1989), p. 8.