All Commentary
Thursday, May 1, 1986

Teaching Economics

Mr, Hertz was a CPA and a partner in a leading accounting firm. For many years he taught a course in economic theory at the New York Institute of Credit, Shortly before his death in 1985, he set down these thoughts.

How best to present economic principles.

Progress toward a free society and a free economy cannot be made until a substantial part of the population understands the operations of the market. What constitutes a “substantial portion” is not a scientific matter. Perhaps only 15 or 20 per cent is enough to make the difference when votes are counted. One of the problems, however, is the very fundamental deficiency in the notion that “votes” are a satisfactory method of determining the future of a society.

Without belaboring the question of how depth and breadth of education can be achieved, it certainly can be concluded that almost as important as the basic concepts themselves, for the achievement of these ultimate goals, is the effectiveness of the teaching. After teaching students who have not previously been exposed to economics, I have gradually come to some conclusions as to what fascinates young people and what approach draws them to economics and might hopefully convince them to maintain a lifetime interest in the subject.

First, students must be persuaded that they will never understand the world around them, including occurrences in their daily lives, without understanding economics. Students are fascinated when their attention is called to the “spontaneous order” of the market. Easily found examples in the environment are the similarity of prices asked for the same commodities uptown and downtown, in-state and out-of-state, and at even greater distances if we ignore transportation time and costs. Another simple example is the remarkable phenomenon that the retail outlets we patronize tend to have just the right amount of goods for the people who come in to buy. All this happens without a central planning system. On further thought, it could not, does not, happen with a central planning system.

The equity of the spontaneous order of the market is further underscored when the students consider the varied tastes, goals, attitudes, means, and values of their acquaintances. Given the heterogeneity of human beings, the accomplishments of the market appear quite remarkable. In economics as I teach it, the students learn that the spontaneous order is achieved as trades take place among individuals with differing interests and wants. When transactions take place at the margin, heterogeneous individuals become compatible and mutually satisfactory transactions are consummated.

Economic theory may then be put into the context of the “invisible hand” or “spontaneous order.” My course then concentrates on the processes or “forces” of the market. To appreciate their importance, the students must gain some understanding of what might be called the philosophical context of economic theory. They must realize, for example, that economics deals with human actions in the face of a scarce environment. They must come to understand how deductive reasoning, on the basis of fundamental axioms, leads to conclusions, economic laws or principles, which are incontrovertible unless the original premises are repudiated or the reasoning is unsound. Regardless of what appears to the senses in the environment, therefore, the laws of economics are not reversed or refuted, but merely obscured from the casual observer by the infinite number of forces working at all times in the real world.

I also introduce the thesis that economics is a science of means. Economics is described as “value-free.” Personal tastes and other factors entering into an individual’s goals, are givens and not the subject matter of economics per se. Economics is non-judgmental, in the sense that it scrupulously avoids making value judgments about the ends or goals of human action. Rather it focuses on the means for achieving those ends.

Hopefully, at the end of a brief introduction of this sort, the student’s appetite has been whetted. By that time, he or she will understand the basic, self-evident axioms and can reason with the teacher from then on—from these axioms to the laws of economics, from the elementary to the more complicated, and then on to the “spontaneous” introduction of money, which makes complex transactions possible.

The market then, overall, is seen as the structure of voluntary, purposeful human actions, based on private property, governed only by principles of peace and social cooperation. Private property is the necessary concomitant of a voluntary society. Explained in this manner, the economy is shown to evolve solely from the actions of individuals, only voluntarily collectivized, and the forces of nature.

Our present system is riddled with government intervention of various sorts, the effects of which are disruptive. However, the system is still primarily the outcome of individual actions, not of overall coercion. All systems, whether theoretically “pure” market or “pure” socialist, are subject to the kind of analysis which only an understanding of market theory enables one to make.

Non-Market Forces

The next step in teaching economics is to introduce non-mar-ket forces, as they are superimposed step by step upon the market. Such non-market forces always turn out to be forms of coercion, political superimpositions, either direct or indirect. Key examples are explored in detail—government control over money leading to inflation, artificially stimulated bank credit expansion and its inevitable consequences, the effects of price and wage controls, regulation of business, and so forth. International trade is shown to become an economic problem only as a result of the political establishment of national borders and the institution of various government interventions within those national boundaries. Finally, totalitarian socialism is described in depth as the consequence of government interventionism carried to its extreme. Reference is made to the Soviet Union and other socialist countries, as well as to the “ideal” socialist state, if such can be conceived. The fundamental flaws of socialism are addressed and the students examine and compare both ends of the spectrum of economic systems—the market and socialism.

In this way, in accordance with my profound conviction, I try to project the urgent need for people to understand economic theory and the market. Only with an understanding of market theory can anyone recognize “order” in a world in which heterogeneous individuals conduct their daily affairs without supervision superimposed by government or a higher authority. Only with an understanding of theory, can one expect to pierce the mysteries which the economy presents to uninformed laymen.