“While I heartily subscribe to your premise of pursuing one’s dream,” one reader, Donald J., wrote, “there are alternate perspectives worth considering.”[We’re listening… go on.]“Some wiseguy once said that life is what happens to you while you’re waiting for something better to come along. Milton put it a little more poetically in one of his […]
Want to get rich? Don’t listen to financial “gurus,” says Chris Campbell. In today’s Laissez Faire Today, Chris shares a Zen proverb and shows how understanding it is the only real way to get rich (and live a rich life). Read on…
Ben Franklin once said, “An ounce of prevention is worth a pound of cure.” In today’s Laissez Faire Today, you’ll learn about one FREE website that has the potential to not only keep your family safe – but also open your eyes to what’s happening in your own neighborhood. Chris Campbell has all the details. Read on…
All over the world, power is dying. The dictators and tyrants of the world are no longer able to wield it like they once used to. And they’re losing it to the “little guy.” Chris Campbell shows you how to be the king of your castle by taking advantage of this fact. Today, you’ll learn how to grab “power gaps” in the market and channel them into your product idea or project. Read on…
The fireflies along the tidal rivers of Malaysia show "feats of synchrony that occur spontaneously, almost as if nature has an eerie yearning for order." Chris Campbell tells you where else this might occur in the world. Also, new technology may revolutionize the agriculture industry and what we think of as a farm.
Jeff Davis is running for Governor in Hawaii and has an interesting campaign strategy. Also, what motivates hackers is revealed and the findings might surprise you. Finally, Ferguson is discussed in a new light. Chris Campbell has more...
When the government pumps trillions of dollars into the economy, they’re not actually printing the money. It enters as digital entries in banks across the country. It’s made the system fast, responsive, and, unfortunately, vulnerable. Now our money is no longer something we hold in our hands, but something that exists on a very susceptible network.
The so-called recovery is only built on debt and printed cash declares our own Byron King. In the long term, the only option for the government to continue financing it's operations is to print too many dollars. Money printing has it's limits, however. It's Byron's opinion that at some point, perhaps very soon, the government will have to turn to more desperate measures. Namely, capital controls. In the following featured essay, Byron outlines 4 probably ways the government will take your cash and one play you can buy through your broker to prepare today. Read on...
Americans expatriate because they want to get out of the country. Corporations expatriate for similar reasons. Clem Chambers explains...
In a 2009 article, the Huffington Post went into considerable detail about the number of people with PhD degrees in economics employed by the Board of Governors of the Federal Reserve System. This is the government’s branch of the Federal Reserve. It is not one of the 12 regional Federal Reserve banks, all of which […]
The U.S. dollar is the dominant global reserve currency. All markets, including stocks, bonds, commodities, and foreign exchange are affected by the value of the dollar.The value of the dollar, in effect, its “price” is determined by interest rates. When the Federal Reserve manipulates interest rates, it is manipulating, and therefore distorting, every market in […]
The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance or the get-rich-quick adventurer. They will die poor.– Jesse Livermore, How to Trade in StocksThe trouble with capitalism’s guardians is that they have no […]
John Foust, a Democrat running for the 10th congressional seat in Northern Virginia, is — like Gov. Terry McAuliffe and other state Democrats — gung-ho to expand Medicaid. His wife’s position is, shall we say, a bit more nuanced.Foust has slammed his opponent, Republican Del. Barbara Comstock, for her opposition to expansion. He has spoken […]
The midterm election season is upon us, and it’s a tossup whether the Republicans will win the Senate, or if President Obama, seemingly oblivious as conflict flares up around the world, will, through his continuous campaigning, keep Harry Reid in his majority leader seat.The only thing we know for sure is that sociopaths will be […]
Alexander Hamilton was America’s first Secretary of Treasury under President George Washington. When he first entered office in 1789, America was an agricultural nation of just 4 million still broke from its financially costly victory over the British Empire in the Revolutionary War.The states had accumulated relatively massive debts to finance that war, which mostly […]
A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
Fifty years after the 1929 crash, a group of money managers and investment thinkers put together a collection of essays looking back at that experience. The result was a distillation of some pretty fine investment wisdom. Timely, I think, to review now.One of the contributors was Arthur Zeikel, then with Merrill Lynch. The title of […]
Although the mainstream media have turned its attention away from the wreckage of Obamacare, don’t think for a second that all is well.As the politicos in D.C. focus their attention on the midterm elections in November, now is a great time to study, prepare, and seek out the most affordable, accessible, and highest quality options […]
Turn on the tube and economic ignorance seems to be everywhere. There is constant shilling for more government. Business is demonized. Man is said to be trashing the environment. “Workers and women are oppressed” is the constant mantra.And members of the clueless media nod their heads in unison.Only John Stossel has provided the fresh air […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
In the minds of many people around the world, including in the United States, the term “capitalism” carries the idea of unfairness, exploitation, undeserved privilege and power, and immoral profit making. What is often difficult to get people to understand is that this misplaced conception of “capitalism” has nothing to do with real free markets […]
Some people are saying it is just what the doctor ordered. Others are saying that the cure is worse than the disease.The Affordable Care Act? Reengagement in Iraq? Tea Party bullying in the GOP?Not this time. Just as protracted in the corridors of Congress and the White House is the debate over the proposed reform […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
People jacked up about income inequality can find a new hobby. The 1% are victims of a doomsday machine, and the countdown is ticking. Machine, thy name is “family.”This came to mind as I was reading a preview of Columbia Professor Andrew Ang’s forthcoming, must-read book on Asset Management. Ang is that oxymoron, an exciting […]
It might sound like the latest new product from Apple, but IPAB is actually the newest major legal challenge to Obamacare.Recently, a three-judge panel in the 9th Circuit Court of Appeals in San Francisco heard arguments about the Independent Payment Advisory Board, or IPAB, a 15-member panel created by the Affordable Care Act and empowered […]
Americans have come to believe that the IRS and the income tax are inevitable parts of our lives. After all, most everyone alive today has lived his entire life under federal income taxation.It wasn’t always that way. For some 125 years, the American people lived without having any tax imposed upon their income.The obvious question […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
Finally, my obsession comes to an end.
For a full week, I’ve thought about not much else besides the economic concept of “marginal utility.” It has consumed me completely. I’ve come to realize how much it pervades my thinking about virtually everything.
I first heard about the notion in college, but one book revived the whole topic for me. It is Philip Wicksteed’s The Common Sense of Political Economy. It’s a book that makes economic logic real in our lives.
The Common Sense of Political Economy is an excellent example of a rediscovered classic — a book of profound importance in its time that came to be lost in the shuffle for no good reason. I read it for the first time only recently, and the importance of the book overwhelmed me. Here is a treatise on economics written at the dawn of the discovery of the great principle of modern economics: marginal utility.
It is as mighty and significant as Adam Smith’s Wealth of Nations or Ludwig von Mises’ Human Action, and like these books, it is not just a dusty old tome, but one that speaks directly to the great issues of our time.
This is why I’m thrilled that Laissez Faire Books is the publisher of this new edition, the first modern edition with American spellings, correct graph placements, cleaned-up citations, and perfect navigation. Also, a great teacher of modern economics has written a great introduction to it. He is Peter Boettke of George Mason University. He writes as if the author is an old friend and the ideas he is discussing are at the front of his mind always.
Wicksteed’s clarity exceeds any other presentation I’ve read, mainly because it is not a translation, but in English originally. Wicksteed’s enthusiasm, even love, for the topic itself is obvious on every page. He is like a tour guide in a great castle who turns on lights in room after room and proceeds to explain everything in each room with precision and excitement. The reader can detect this in his prose.
Why does he put the phrase common sense in the title? There are two meanings. He sought to bring a certain unity to the opinions and debates within economics at the time. The principle of marginal utility had been written about and taught for several decades. It was the great discovery within economic theory of the last half of the 19th century, but was only then becoming the full consensus of the science itself. Wicksteed sought to make the marginalist way of thinking the “common” way.
The second way he uses the term is to capture the effect of marginalist thinking on the human mind. Once you get the principle, the functioning of the world becomes clearer to you. What was previously mysterious now seems rather obvious. What had previously baffled you now seems perfectly clear. The marginalist way of thinking becomes, in the most colloquial use of the phrase, “common sense.”
Wicksteed writes with the passion of a hobbyist (he was actually a Unitarian minister in “real life”), but with a precision that exceeded all the professional economists of his time. It still stands as the most elaborate, detailed, and extensive exposition of the idea ever written.
If you stick with his argument from beginning to end, your thinking will be permanently affected. You will see marginal utility all around, in every economic action. It will provide new ways of thinking of prices, resources, and human behavior. You will have an impenetrable edifice against the fallacy of thinking of the value of whole classes of goods and services, and instead will see value as exclusively attached to the incremental choice of the acting person.
What is marginalism? It is the notion that economic value extends from the incremental choice one unit at a time. Why does this matter?
Let me give the nearest example at hand. I have a cup of coffee in front of me. I made it with my Keurig coffee maker. Each Keurig cup costs 50 cents. Is that too much or too little? On the one hand, it is crazy expensive. I could pay $4 for a full can of coffee and make probably 40 cups, paying only 10 cents per cup.
Why don’t I do this? Because my choice is made at the margin. I’m not evaluating a whole stock of a good. I’m making my value judgments on just the one cup of coffee that I want to drink right now. This is the relevant unit, not some abstraction concerning how much coffee is at the store or on the ships coming from Africa or the whole stock of coffee growing in plantations all over the world. What matters to me in making the choice of whether the coffee is “worth it” is the cup right in front of me.
The classic puzzle that marginal utility sought to solve was this: Why are diamonds so much more valuable in the market than water, even though water is obviously more necessary for life? Just on the face of it, shouldn’t it be the reverse? Marginalism solves the issue. The choice for one or the other is made on the incremental unit, not on anyone’s opinion on the value of the whole class of goods.
From the point of view of human choice, water is usually far more plentiful and available than diamonds, whereas diamonds are much less so and, therefore, have a much higher value per unit. The situation could reverse itself in a different social context. A man dying of thirst in the desert will pay far more for water than diamonds. This is how prices come to be: The choice at the moment of decision-making for or against the increment of what is available right now.
Marginal utility theory solves many other seeming mysteries. Why are movies that cost tens of millions of dollars to make available for download for only a few bucks or even for free, while video games that might cost only a few thousand dollars to make priced $50 and $100? The answer is that the user is not making judgments based on the cost of production, but only on the use value of one unit to him or her at the point of decision making.
Marginalism helps explain wage puzzles too. Why do plumbers make so much more money than baby sitters, even though baby sitters are guarding and protecting human lives and plumbers are only unstopping drains? The baby sitter might indeed have great total utility to society, but the market makes judgments on the margin. Baby-sitting services are much easier to come by, whereas plumbing services are relatively scarcer. Consumers do not care about total utility; they care about obtaining the service in the one instance in which they need it. That decision is what determines the price.
This insight further addresses wage issues that would otherwise mystify people. Why does a basketball star, who would seem to provide nothing necessary to human life, make so much more money than a reading teacher, who is teaching a crucial skill? Again, it is not the total utility of the task that matters for economics, but the utility of the incremental choice of the acting person.
Why, on holidays, are restaurants open but banks closed, when surely banking provides a more unique service to society and anyone can cook stuff at home anytime? The answer is that restaurants make higher profits on the margin on holidays, when people want to go out to eat, whereas the banks have discovered that their profit margins are best served by opening when people tend to do their banking, which is not on holidays.
Marginalism helps illuminate many other economic concepts, such as opportunity cost (the real cost of anything is the thing you give up to get it), subjective value (economic value resides in the human mind, not the physical good), diminishing marginal utility (the more of each additional unit you buy, the less you are willing to pay for it), and the relationship of cost and price (the cost of a good never dictates its market prices; indeed, the reverse is true). It provides insight in nearly every aspect of human behavior.
Once you begin to think about the margin, the scales truly do fall from your eyes.
You will notice the book is gigantic. But it is also a joy to read, because Wicksteed’s own enthusiasm is infectious. Maybe you will be like me and truly come to admire and genuinely like the man behind the prose. I appreciate his spirit of discovery and exposition. It’s absolutely marvelous that he can speak to us again, a full century and two years after his masterpiece first came out. It’s a big, but worthy task to go on this tour of economic reality with him. Marginalism will become your “common-sense” way of viewing the world when you’ve finished.