Basic Economics: A Citizen's Guide to the Economy

By Thomas Sowell | Go to book overview
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Chapter 4
An Overview

Economics is defined, not just by its subject matter, but by its methods and its purposes. Just as a poetic discussion of the weather is not meteorology, so an issuance of moral pronouncements or political creeds about the economy is not economics. Economics is a study of cause-and-effect relationships in an economy. Its purpose is to discern the consequences of various ways of allocating scarce resources which have alternative uses. It has nothing to say about philosophy or values, any more than it has anything to say about music or literature.


CAUSE AND EFFECT

Analyzing economic actions in cause-and-effect terms means examining the logic of the incentives being created, rather than simply the, goals being sought. It also means examining the empirical evidence of what actually happens under such incentives. Moreover, the causation at work in an economy is often systemic causation, rather than causation determined by personal intention. For example, if the stock market closes at 12,463 on a given day, that is the end result of systemic interactions among innumerable buyers and sellers of stocks, none of whom may have intended for the market to close at 12,463, even though it was their actions in pursuit of other intentions which caused it to do so.

Just as primitive peoples have tended to attribute such things as the swaying of trees in the wind to some intentional action by an invisible spirit, rather than to such systemic causes as variations in atmospheric pressure, so there is a tendency toward intentional explanations of systemic events in the economy, when

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