Thomas Sowell

Newton was not the first man who saw an apple fall. His fame was based on his being the first to understand its implications.

What is important is not the success or failure of particular individuals or companies, but the success of particular knowledge and insights in prevailing despite the blindness or resistance of particular business owners and managers. Given the scarcity of mental resources, an economy in which knowledge and insights have such decisive advantages in the competition of the marketplace is an economy which itself has great advantages in creating a higher standard of living for the population at large. A society in which only members of a hereditary aristocracy, a military junta, or a ruling political party can make major decisions is a society which has thrown away much of the knowledge, insights, and talents of most of its own people. A society in which such decisions can only be made by males has thrown away half of its knowledge, talents, and insights.

Although the basic principles of economics are not really complicated, the very ease with which they can be learned also makes them easy to dismiss as “simplistic” by those who do not want to accept analyses which contradict some of their cherished beliefs.

Neither individuals nor companies are successful forever. Death alone guarantees turnover in management. Given the importance of the human factor and the variability among people— or even with the same person at different stages of life— it can hardly be surprising that dramatic changes over time in the relative positions of businesses have been the norm.

Under both capitalism and socialism, the scarcity of knowledge is the same, but the way these different economies deal with it can be quite different. The problem is not simply with the over-all scarcity of knowledge, but also with the fact that this knowledge is often fragmented into tiny bits and pieces, the totality of which is not known to anybody in any economic system.

Knowledge and insight need not be technological or scientific for it to be economically valuable and decisive for the material well-being of the society as a whole. Something as mundane as retailing changed radically during the course of the twentieth century, revolutionizing both department stores and grocery stores— and raising the standard of living of millions of people by lowering the costs of delivering goods to them.

Nothing makes us understand the many roles of electricity in our lives like a power failure. Similarly, nothing shows more vividly the role and importance of price fluctuations in a market economy than the absence of such price fluctuations when the market is controlled.

Economics is not simply a topic on which to express opinions or vent emotions. It is a systematic study of what happens when you do specific things in specific ways. In economic analysis, the methods used by a Marxist economist like Oskar Lange did not differ in any fundamental way from the methods used by a conservative economist like Milton Friedman. It is these basic economic principles that this book is about.

Just as a poetic discussion of the weather is not meteorology, so an issuance of moral pronouncements or political creeds about the economy is not economics. Economics is a study of cause-and-effect relationships in an economy. Its purpose is to discern the consequences of various ways of allocating scarce resources which have alternative uses. It has nothing to say about social philosophy or moral values, any more than it has anything to say about humor or anger.

Prices play a crucial role in determining how much of each resource gets used where and how the resulting products get transferred to millions of people. Yet this role is seldom understood by the public and it is often disregarded entirely by politicians.

No economic system can depend on the continuing wisdom of its current leaders. A price-coordinated economy with competition in the marketplace does not have to, because those leaders can be forced to change course— or be replaced— whether because of red ink, irate stockholders, outside investors ready to take over, or because of bankruptcy. Given such economic pressures, it is hardly surprising that economies under the thumbs of kings or commissars have seldom matched the track record of economies based on competition and prices.

We will do almost anything for our visions, except think about them. The purpose of this book is to think about them.