31 October 2010

7 Fallacies of Economics - Lawrence W. Reed

I found the following article this morning while cruising about the 'net during one of my habitual "coffee and internet" starts to my day. This is a good read on some common economic fallacies that frequently plague our social and political discourse. I remain convinced that absent these, a lot of the problems we presently have simply would not exist.

Here are two of my favorites, both of which Reed has written about in the article, the fallacy of collective terms and the incorrect notion that money and wealth are one an the same:

The fallacy of collective terms. Examples of collective terms are “society,” “community,” “nation,” “class,” and “us.” The important thing to remember is that they are abstractions, figments of the imagination, not living, breathing, thinking, and acting entities. The fallacy involved here is presuming that a collective is, in fact, a living, breathing, thinking, and acting entity.

The good economist recognizes that the only living, breathing, thinking, and acting entity is the individual. The source of all human action is the individual. Others may acquiesce in one’s action or even participate, but everything which occurs as a consequence can be traced to particular, identifiable individuals.

The fallacy of “money is wealth.” The mercantilists of the 1600s raised this error to the pinnacle of national policy. Always bent upon heaping up hoards of gold and silver, they made war on their neighbors and looted their treasures. If England was richer than France, it was, according to the mercantilists, because England had more precious metals in its possession, which usually meant in the king’s coffers.

It was Adam Smith, in The Wealth of Nations, who exploded this silly notion. A people are prosperous to the extent they possess goods and services, not money, Smith declared. All the money in the world—paper or metallic—will still leave one starving if goods and services are not available.

Read more: 7 Fallacies of Economics by Lawrence W. Reed

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