The Indispensability of Economics

Peter Boettke is certainly one of the preeminent economic thinkers of our time. The George Mason University professor has dedicated his life to the advancement of sound economics and classical liberal ideas. His latest book, The Four Pillars of Economic Understanding, is as timely as it is profound. Not because it features the most complicated equations or the most cited economists, although it cites many, but because it accomplishes the monumental task of humanizing economics. It is a book that communicates some of the most sophisticated concepts in a manner that is not only understandable but inspiring for even those who have not yet studied economics.

To do as Boettke says and “take economics beyond the chalkboard” is one of the most important public services an educator can perform. Economic understanding is necessary for the maintenance of a free and prosperous society. It allows the individual to not only comprehend the world around him but unlock the secrets of the universe. 

Boettke supports this otherwise hyperbolic statement by writing 

“As James Buchanan taught us, economic theory is able to lift an ordinary individual to the heights of observational genius, while a genius unarmed with economic theory will often be reduced to very ordinary if not worse in their observations of how the world works.”

That is the essence of economics. At its core, it is about understanding the natural order of society and ensuring the progress of civilization. As Boettke explains later in his book, this is why centrally planned states like the Soviet Union failed while those that embraced liberalism flourished. 

His book further explains that economics isn’t just about these profound questions about the course of humanity. It’s also about everyday things like why we can stick a piece of plastic into the wall (ATMs) and get money, no matter where we are in the world. Or why we can go to a grocery store in the middle of Western Massachusetts and buy products from around the world.

Boettke writes 

“Don’t overteach the principles – we can show others how economics belongs in everyday life and not just in the classroom.”

This is the message that should ultimately be taught in economics. Economics is about people. That is why in Boettke’s book he decides to name the four pillars of economic understanding “Truth and Light,” Beauty and Awe,” “Hope,” and “Compassion.”

Truth and Light 

Boettke explains that one of the first tasks of economics is comprehending the natural order of society. It sheds light on why some policies fail while others succeed. Why some societies prosper and innovate, while others don’t. Understanding economics allows the individual to see through the false narratives of demagogues, tyrants, historical revisionists, instigators, and rabble-rousers.    

Boettke explains that 

“Learning economics to a considerable extent is learning about all the implications of scarcity, and this the persistent and consistent application of opportunity cost to all of human affairs.”

This knowledge allows the viewer to see through the fog and make sense of reality. Why are supermarkets in the United States so plentiful while people in Venezuela have to be rationed basic goods? How come the careful planning of experts in the former Soviet Union produced poverty and despair while seemingly chaotic freedom made the Western world the richest civilization to ever inhabit the Earth?

 Why is it that when these same liberal principles were applied in countries like China, India, Japan, Brazil, South Korea, and so on, they too saw unprecedented prosperity? Economics shows us that there are certain universal truths. That there is a natural order to things that when tapped correctly, can unleash human potential.

Boettke writes 

“First economics is counterintuitive in a fundamental way. The central theoretical puzzle of economics is undesigned order and thus our theoretical quest begins with us trying to explain outcomes that are not implied in the intentions of participants.”

The great Adam Smith explained that we do not expect our dinner from the kind-heartedness of the butcher or the brewer, but from their own self-interest. This is why there is a sort of Spontaneous Order, as Hayek explained, that arises from the individual actions of people acting in their mutual self-interests. This is the first task of economics, not to shape the world to the will of the few, but to understand what free people can do when they are left to their own devices. 

Beauty and Awe

Once one understands the machinations of a free and prosperous society, one would be hard-pressed to not be floored by the enormity of it all. Boettke explains that part of this pillar of economic understanding is finding beauty in the mundane. He writes 

“The world is full of marvels, from FaceTime to air travel. But the real action is in the mundane – those everyday things we take for granted… and when we do its awe-inspiring.”

Everything from scrolling through social media on a smartphone to going to a concert is made possible through monumental accomplishments behind the scenes. Accomplishments that arise from mutual and voluntary cooperation that exist within a spontaneous order. All the global supply chains, the research, the labor, the logistics, and then subsequently all the things that made those inputs possible. Everything comes together spontaneously through the individual self-serving actions of others. Now think about how everything from the shirt on your back to the car you drive. These mundane items in our lives are the product of profound ideas that we often take for granted. Free trade, permissionless innovation, competition, profit and loss are just some of the things that make this all possible.

Boettke writes that these are not terms to be simply represented on a chalkboard but 

“If you allow yourself as you study economics to be open to the mystery of the mundane, then teaching economics will be that much easier to absorb and appreciate.”

That is the beauty of voluntary exchange in a system of political as well as economic liberty. Economic understanding should lead the beholder to humble themselves before this almost incomprehensible and self-optimizing state of affairs, not claim to be able to control it. Even worse as Boettke explains is 

“So much of our political popular rhetoric is based on the idea that trade is a zero-sum game: one party wins, the other party loses.”

Unlike politics, economics is not about conflict; it is about cooperation. It is not about domination; it is about a mutual betterment. Voluntary transactions that leave both parties better off subsequently make the world a better place. 

Hope

When we see the potential of freely interacting individuals, economic understanding becomes necessarily built on hope. Hope about innovation, mutual agreement, peace, and prosperity. When people are left to their own devices and the rulers of society are held accountable, this is what results. 

Boettke illustrates this optimistic worldview that economics is based on when he writes

“A sense of excitement about the voyage into the unknown future, and the embrace of the possibility of discovery and creativity that the liberal society makes possible… Liberalism says YES, and the cosmopolitan liberal order turns strangers into friends and enemies into partners. It is an emancipation doctrine – from dogma of the altar, from repression by crown, from violence by the sword, and from the exploitation by the privileged mercantilist class.”

Robert Mulligan touches on this, albeit in a more technical sense in his book about entrepreneurs. Mixed into his explanations of equations and textbook-style analysis of the role of entrepreneurial buyers and sellers, it is also very clear how a hopeful view of humanity underlies economic understanding.

 Entrepreneurial actions in the marketplace create new products, new inventions, lower prices, new markets, and phase out the old. Ideas concerning hope and optimism about free individuals are part of what Deirdre McCloskey describes as what brought humanity out of abject poverty. 

Hope is essential to sound economics because of the power of spontaneous innovation and cooperation. Those who are pessimistic about the human condition, who believe that a coercive central planner must direct society in order for progress to occur are mistaken. The record of the Soviet Union, North Korea, Maoist China, and other totalitarian nations provide a clear counterfactual. 

Compassion 

Boettke asserts that at the heart of economic understanding is liberalism, and from liberalism comes compassion. Liberalism is defined as a free and open society, of mutual benefit, and freedom from coercion. Boettke writes 

“The challenges of a globalized world are not new, just as fear of “other” is not a new challenge to true liberalism. As Hayek pointed out repeatedly, the moral institutions that are a product of our evolutionary past, which are largely in group morals, often conflict with the moral requirements of a globalized society.”

There are no restrictions on color, creed, class, or gender. In a sound economic system, all are welcome to participate and there are no pre chosen winners, regardless of race or industry.

Boettke explains that this is something that the enemies of Liberalism, from the left, right or center, fail to understand. You cannot build a society that wages perpetual war. When the populace empowers the government to wage a war on terror, a war on drugs, a war on Wall Street, a war on immigrants, a war on religion, a war on whatever it deems undesirable, only negative consequences can occur. We should at minimum stand by the maxim to live and let live, and at best aspire to cooperate and prosper together.

Boettke writes 

“At a foundational level, no one is privileged over any other in recognition of our basic humanity… We are fallible but capable human choosers, and we exist and interact with each other in a very imperfect world. No one of us, let alone any group of us, has access to the truth from the Almighty Above, yet we are entrusted to find rules that will enable us to live better together than we ever would in isolation.”

Through economics, we could find a highly scientific explanation of this that includes jargon regarding supply and demand, regulatory policy, competition, barriers to entry and so on. At the core, the pillar of compassion is what underlies it all. 

Reflection 

Boettke’s book is profound because it isn’t just another book on economics full of fancy equations and sophisticated theories. (Although those are important too.) Too often economists and intellectuals privy to economics get so caught up in niche discussions that we forget what this is ultimately about. 

When educators go out into the world to teach economics and when individuals embark on the journey to immerse themselves in the subject they are doing something truly special. They are becoming truth-seekers and truth-tellers about the nature of society. They are inspiring a deeper appreciation for the spontaneous forces that make modern civilization possible. They are spreading hope through the understanding that answers and innovation may not be apparent at first but with time they make themselves apparent.  

Finally, they are making society a more compassionate place where we all mutually benefit from the fruits of our labor. Those are the pillars of economic understanding and those should be the principles that guide the noble task of economic education.

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