Basic Economics: A Citizen's Guide to the Economy
by Thomas Sowell
Basic Books, 2000. xi + 366 pages.
Review by Gene Callahan
When I took on the review of this book, I did so with some trepidation. After all, I'm working on an economics book for laymen myself. If I disliked Sowell's work and trashed it, would it be seen as an underhanded attempt to sabotage a competitor? Or if I loved it, would I have to conclude that my own book was superfluous? Still, I wanted to read Basic Economics, as checking out the competition is an important part of a writer's work. And if I agreed to review it, I could get a free copy. The prospect of saving thirty dollars eased my fears and pushed my scruples to the side.
Sowell's book is, as the title implies, targeted toward the general public. Sowell writes with clarity, and he does an excellent job of explaining economics, as he understands it, to the non-economist. He is skilled at finding numerous, real-world examples to illustrate the theoretical ideas he presents, something that I feel is crucial to reaching a lay audience, but too often is neglected.
Stylistically, the one complaint I have about this book, which applies to some of his earlier works as well (e.g., Conquests and Cultures), is a tendency toward repetition. For example, every third or fourth chapter is an overview of the previous two or three, so that well over a quarter of the chapters are just reviews of the other chapters! Sowell obviously considers this style a useful aid to learning. While I would prefer to review sections myself if I need to, rather than have the author decide for me what I need to review, I realize that others may prefer this repetitive style.
The main problem Austrians will have with this book is indicated by my phrase, "as he understands it." Sowell's approach to economics could probably best be described as "semi-Austrian." On the positive side, Sowell's handling of some topics is excellent. In his section on "Popular Economic Fallacies," Sowell takes on the straw man of homo oeconomicus:
One of the last refuges of someone whose pet project or theory has been exposed as economic nonsense is to say: "Economics is all very well, but there are also non-economic values to consider." Presumably, these are supposed to be higher and nobler concerns that soar above the level of crass materialism.
Of course there are non-economic values. In fact, there are only non-economic values…. Economics does not say you should make the most money possible…. What lofty talk about "non-economic values" usually boils down to is that some people do not want their own particular values weighed against anything.
A bit later, he debunks the idea that greed is responsible when prices rise, noting: "Virtually everyone would like to get a higher price for what he sells and pay a lower price for what he buys." Sowell's explanation of comparative advantage is clear and down to earth. He gives a brief, simple, but lucid description of the marginalist revolution. Sowell has several good chapters analyzing the pernicious effects of various government interventions in the market, such as price controls and trade restrictions. He also highlights the idea of consumer sovereignty:
What is called "capitalism" might more accurately be called consumerism. It is the consumers who call the tune, and the capitalists who want to remain capitalists have to learn to dance to it.
Sowell makes excellent and extended use of Hayek's insights into the knowledge problems facing socialist societies. I will here mention another minor quibble: Sowell gives the reader few hints as to what his theoretical sources are. An interested reader who wants to go further in his studies will not get much guidance from this book. For instance, despite the above-mentioned prominent use of Hayek's ideas, I cannot find a mention of his name anywhere in the book. (I admit I have not created a concordance, so I can't guarantee there isn't one tucked away somewhere.) There is a "Sources" section in the back, but it primarily references the sources for particular historical facts and direct quotes.
A more important complaint about Sowell's use of Hayek is that he never seems to place Hayek's analysis of the knowledge problem within the deeper context of Mises' analysis of the calculation problem. Does Sowell consider this too difficult for his intended audience? If so, I think he has made a tactical error, as the calculation problem can be explained to any person of average intelligence. Or does he reject Mises' analysis? It would be interesting to know.
In other cases Sowell is, from an Austrian perspective, just plain wrong. He opens the book saying: "To know what economics is, we must first know what an economy is." Right from the start Sowell seems to reject methodological individualism and embrace some form of holism. An Austrian might correct Sowell's sentence as follows: "To know what an economy is, we must first know what the logic of individual human action is."
A few lines later, Sowell quotes Lionel Robbins: "Economics is the study of scarce resources which have alternative uses." Again, we complain that the emphasis is all wrong. Studying the resources will get us nowhere! We must study human choice. One of the implications of human choice is that resources are scarce, since if they weren't there would be no need to choose.
While Sowell engages those to his "economic left," in order to correct them, he seems unaware that there is anyone to his "economic right." Murray Rothbard's breakthrough paper, "Toward a Reconstruction of Utility and Welfare Economics," was written in 1956, 45 years ago. Yet Sowell discusses externalities as if this paper, as well the follow-up work by Rothbard, Block, and others, never existed.
For instance, Sowell suggests that a law requiring mud flaps on cars is justified, because: "Even if everyone agrees that the benefits of mud flaps greatly exceed their costs, there is no feasible way of buying those benefits in a free market, since you receive no benefits from the mud flaps you buy… but only from mud flaps that other people buy…" It does not seem to occur to Sowell that this problem arises only because roads are publicly owned, and that the owner of a private road could internalize this benefit by requiring mud flaps and advertising this fact. Likewise, Sowell seems to have no idea that standards (weights and measures, interoperability guidelines, and so on) can, and often have, been provided by privately organized networks.
A page later, Sowell states: "Even the strongest defenders of the free market do not suggest that each individual should buy military defense in the marketplace." Perhaps Sowell is unaware of those hanging out on the "muscle beach" of market defense, anarcho-capitalism. Could that really be so, or is Sowell deliberately overlooking them as, perhaps, too frightening a specter to present to his neophyte audience?
Sowell next says: "In short, there are things that government can do more efficiently than individuals because external costs or external benefits make individual decisions, based on individual interests, a less effective way of weighing costs and benefits to the whole society."
What happened to all of that business about localized knowledge? And just what is the measure of effective? How exactly does government "weigh" these costs and benefits? If these decisions are not based on "individual interests," just what interests are they based on?
Curiously, in the next section Sowell goes on to undermine all of his assertions on externalities and intervention with a good discussion of public choice theory, and a hint that private ownership just might solve some of these externalities after all.
All in all, this is a useful book. Many basic economic concepts are presented in an easy-to-understand fashion. For someone floating in the mushy middle or mild left of today's political scene, reading it should provoke them to re-examine many of their assumptions about the proper economic role of government. Still, the flaws in the book are, from an Austrian perspective, significant, and undermine many of its strong points.
In all honesty, I can neither give this book a whole-hearted recommendation or a thorough trashing.
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.