Capital Press • 2000 • 369 pages • $29.95 paperback
Economic Logic is Mark Skousen’s new principles of economics text, which is intended to teach introductory economics in a consistent, integrative fashion. That is a worthy goal. I am not alone in being weary of the current texts that offer a buffet of economic theories. My discontent has developed for a simple reason. Often, when people learn I am an economics professor, they tell me about their miserable experiences in a required economics course.
How is it possible that basic courses in economics are so boring and convoluted that they leave a bad taste in people’s mouths? Like Skousen, I believe that the main problem is that those courses keep most people from seeing the relevance of economics to their lives. Commendably, Skousen has written a principles text that is not guilty of that offense.
His introductory chapters deal with the fundamentals of economics, the nature of human action, and the importance of production and trade as the chief means of creating wealth. In fact, the explanation of the creation and destruction of wealth is central to the book. He distinguishes carefully between wealth and money, and systematically discusses the various stages of production. Throughout, Skousen focuses on entrepreneurial insight as a key component of economic progress.
My enthusiasm for the book grew when I read the chapter on profit and loss. Skousen emphasizes the dynamic nature of the free market and points out how change is prompted by new products, innovations in production, and other kinds of entrepreneurial actions that drive the market process. He does this by stressing that profits and losses are the ultimate signals of market success and failure. As he states, “Profits and losses are the sine qua non of economic existence. They determine what is produced, when it is produced, how much is produced, and how it is produced.” Thus from the outset, profits are regarded positively.
I also like the fact that Skousen integrates managerial theories into his discussions. For example, he presents the notion of Economic Value Added (EVA). EVA has become a common part of financial management texts in recent years, and Skousen uses it to demonstrate how successful business decision-makers approach their jobs—as entrepreneurs. This approach makes economic theory relevant to students whose main interest lies in business.
Skousen continues to develop microeconomic theory with chapters on prices and output, supply and demand, and costs. Among the highlights, the chapter on supply and demand begins with an excellent illustration of the pitfalls of government regulation and intervention. Skousen uses the case of West Germany after World War II to illustrate how people free from government interference were able to achieve a stunning economic recovery. This provides a powerful admonition to those who misguidedly believe that human problems are best solved politically.
When Skousen turns to the issue of monopoly, however, I detect a shift in position. He begins by presenting the prevalent welfare economics that arises from a static, structural view of the economy. This approach typically portrays profit as bad. The reader waits patiently for Skousen to begin a critical attack of this theory. However, even though he makes some of the criticisms that have been lodged against structural analysis, anyone who finds D. T. Armentano’s Austrian critique of neoclassical monopoly theory compelling will be less than satisfied with this chapter.
Skousen then turns his attention to the factors of production. The discussions are useful and full of excellent examples. In the chapter on labor Skousen provides strong critiques of comparable-worth laws and minimum-wage legislation, and an honest assessment of union activity, which aims to garner special privileges by way of political activism. In the chapter on capital, Skousen demonstrates the importance of capital accumulation in promoting economic progress. The only downside here was that he omitted any discussion of how government policies hinder that accumulation.
Skousen’s goal was to write an introductory economics text that would cut through the complexities of theory while providing a good understanding of economic principles. He has largely succeeded.
Paul Cleveland is professor of economics at Birmingham-Southern College.