Economic Logic, Fifth Edition

Mark Skousen

• Publisher: Regnery Capital
• Year: 2017
• ISBN:
  9781621577713
• Topic: Économie
• Subtopic: Microéconomie

In Economic Logic, Mark Skousen offers a step-by-step approach to economics showing how microeconomics and macroeconomics are logically linked together. The fully revised fifth edition introduces a major breakthrough in macroeconomics: a "top line" in national income accounting called Gross Output. Also included: a powerful four-stage universal model of the economy, a new "growth" diagram, a new diagram of the optimal size of government, and new alternatives to the standard Aggregate Supply and Aggregate Demand curves. Economic Logic is also the first and only textbook to begin with a profit-and-loss income statement to demonstrate the dynamics of the economy. To aid students in comprehending the economic lessons, many other disciplines are integrated into the study of economics, including finance, business, marketing, management, history, and sociology.

Introduction to the Fifth Edition

A LOGICAL APPROACH TO ECONOMICS

Economics, the youngest of the social sciences, is sometimes described as a difficult subject. “There are so many complicated bits and pieces,” Paul Heyne writes in The Economic Way of Thinking, “and they are so hard for students to grasp.” In the beginning of his textbook, Martin Bronfenbrenner warns students, “You may temporarily find yourself unlearning more than you learn, or operating in a fog of confusion.”

But economic science need not be laborious or perplexing. This textbook offers a rigorous course in college economics without unnecessary complications or confusion. It represents a new, integrated approach that establishes the purpose of economics and develops strategies to achieve the economic goals of society. This approach moves from the simple to the complex by systematically building an edifice that, when complete, will hopefully be both elegant and practical. It also attempts to integrate disciplines closely associated with economics—business, marketing, management, finance, and sociology.

Today’s economics textbooks are often a hodgepodge of esoteric theories, unrealistic graphs, and specialized terms. Chapters are so bewildering that students have no idea what subject matter they are going to study next. Economists argue over which should be taught first, microeconomics or macroeconomics, neither of which is integrated into a whole. Supply and demand are usually introduced at the beginning of a book, and then reintroduced in later chapters. Government policy is mixed throughout. International trade has traditionally been placed in the back of the book, almost as an afterthought, but some recent textbooks have begun to integrate global issues.

PART I: AN OVERVIEW

This textbook takes a more systematic approach. Part I begins with the fundamental rationale of economics; what motivates economic activity, how wealth is created or destroyed, and how the standard of living may improve or decline. Scarcity, choice, incentives, and the allocation of resources are important characteristics of economic life and change. Throughout this textbook we emphasize how individuals as consumers, workers, landlords, and capitalists work individually and together to create prosperity, and the extent to which government improves or impedes economic progress. In short, economics concerns itself with wealth, income, choices, incentives, living standards and growth—themes of vital interest to everyone.

In Part I, we discuss the universal characteristics of the world we live in—” the limitations of time and resources, the uncertainty of the future, the necessity of work, and the variety of consumer demand. Based on these basic assumptions regarding human behavior, we develop a common-sense model of economic behavior and consumer satisfaction. We show that virtually all usable wealth must go through a series of processes from unfinished resources to final use by consumers and business, a cooperative process that takes time and involves numerous stages of production in the allocation of limited resources. The idea that all goods and services take time to produce and consume forms the foundation of our universal four-stage model of production that includes services: resources, production, distribution, and consumption/investment.

PART II: MICROECONOMICS AND THE THEORY OF SUPPLY AND DEMAND

To create a complete and praiseworthy edifice, we must build from the ground up. Therefore, Part II begins with microeconomics, the theory of consumer demand, how demands are met by individual producers, and how each firm fits into the stages-of-production model and the time-structure of the economy. Whether involved in mining, insurance, banking, international trade, communications, medical services, or retailing, firms operate on the principle that revenues must exceed expenses over the long haul or they will be forced out of business and into another line of work that better fulfills consumer wants. To be profitable, a firm must work together with its many stakeholders, set the right prices, control the cost of doing business, and adjust to the new demands of competitors and the marketplace.

One of the unique features of this textbook is that we begin with a firm’s income statement, also known as a profit-and-loss statement. This simple but powerful accounting tool allows us to demonstrate the dynamics of firm behavior.

We use the income statement to show downsizing and upsizing, why new products are constantly being developed, and why we see changes in the quantity, quality and variety of goods and services over time. Both students and instructors find that this approach enhances their overall understanding.

Building on the firm’s income statement, we then introduce the demand and supply schedules for individual goods and services. We discuss the wants and needs of consumers, how consumer tastes shift, how consumers respond to price changes, how consumer needs are met by suppliers and factors of production, how entrepreneurs disrupt and create new consumer goods, and how land, labor, capital and entrepreneurship work together to satisfy consumer demands. We also show that the production of all goods requires the cooperation of land, labor, capital and entrepreneurship. Services are, of course, labor-intensive, but land and capital also play pivotal roles in providing services.

Indeed, cooperation among these factors of production is vital, but the conflicts and issues that arise among landlords, laborers, and capitalists are just as vital for a more complete understanding of the process. Therefore, we determine how firms and their inputs respond to changes in supply and demand, and how they create the capital necessary to operate and expand their production, including the development of financial markets. Lastly, various degrees of competition and monopoly are also analyzed.

PART III: MACROECONOMICS

After analyzing the economic activity of individuals and firms, we shift our attention to macroeconomics—how the economy operates as a whole. Part III examines the Aggregate Production Structure, our macroeconomic model, and then introduces the revolutionary “top line” and “bottom line” of national income accounting: Gross Output (GO) and Gross Domestic Product (GDP)—and other aggregate statistics that provide a proper balance between production and consumption.

We also introduce an improved version of Aggregate Supply and Demand, which stresses the key role of interest rates in determining macroeconomic equilibrium and growth. After introducing these macroeconomic fundamentals, the discussion shifts to analyzing the impact of changes in saving and technology and their effect on economic growth, as well as the effect of changes in the money supply. Money is introduced as an important ingredient in the economy, followed by a history of the origin of money and banking, and how modern banking works today.

PART IV: GOVERNMENT POLICY

After we have built the fundamentals of a market economy, Part IV takes a close look at the impact of governmental policies on the economy. What are the legitimate functions of the state? What is the role of government in monetary policy? Other topics include the theory of taxation, the national debt and deficit spending, and the effect that government fiscal and monetary policies have on inflation, recession, and the business cycle. It is in this section that I introduce and critique the basic concepts of Keynesian economics, still popular in the halls of parliament, corporate boardrooms, and Wall Street.

Another important aspect of government policy is regulation and controls—the impact of the state on the environment, international trade, agriculture, housing, and business enterprise.

The final section discusses “macro” government intervention in the form of central planning, socialism, and industrial planning. We discuss the pros and cons, the rejection of socialist central planning in Eastern Europe and China in favor of free markets, and the impact of the financial crisis of 2008 and the European debt crisis in 2011 and beyond.

A UNIVERSAL APPROACH

The focus throughout the text is on the creation of wealth and expanding the standard of living from the point of view of an individual worker, an entrepreneur, a...