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Why study economics, according to Callahan

December 13, 2010

In the first chapter of his book, Economics for Real People, Gene Callahan asks why study economics. In other words we can ask what is the subject of economics, and why is it important to study it.

“Many people feel that they are generally familiar with economics. However, if you ask around, you will find that people have difficulty in defining the subject.”

Callahan means ordinary people, but economists too give many different definitions. He then gives definition based on Mises’ book Human Action: Economics is the science of human action.

“For some purposes it might be important to differentiate between the general science of human action, which Mises called praxeology, and economics as the branch of that science that deals with exchange. However, since the term praxeology has not gained widespread use, and a sharp delineation of economics from the rest of praxeology is unimportant in an introductory book, I will use economics as the name for the entire science of human action.”

And the definition of human action is (according to Mises):

“Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life.”

After giving the definition (and some examples of what is meant by action, means and ends), he offers some benefits (actually just two, but very broad) of studying economics:

“One of the benefits of studying economics is a deeper understanding of our own situation as acting humans. For instance, people often fail to properly account for the cost of their choices. Once we understand that our costs are measured in terms of our foregone alternatives, we might have a very different view of some common choices. […] [A]ll too often, people take account of the immediately visible profit from an action and fail to account for the less visible, more distant costs. Bastiat referred to this as the problem of what is seen and what is not seen. He felt that it was an important task of economics to teach us ‘not to judge things solely by what is seen, but rather by what is not seen.'”

“Another benefit of an understanding of economics is that it is crucial to evaluating questions of public policy. Should we raise the minimum wage, leave it alone, or even eliminate it? Can we lift our standard of living by protecting domestic industries? What would be the result of privatizing Social Security? These are all economic questions.”

The book is overall very simple and easy. If you don’t need to read complete basics of economics, you still may found helpful the Chapter 13 – On the Causes of the Business Cycle. The whole book is available for free at Mises.org (pdf file). Review of the book can be found in The Mises Review.

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