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January-February 2009
Vol. 23, No. 1
"Basic Economics," by Thomas Sowell. Basic Books, 2007, 627 pages.
Revised and Incomplete
Mark Skousen is the author of Economic Logic, now available in its second edition.
Readers of Liberty should be familiar with Thomas Sowell, a prominent economist who considers himself more libertarian than conservative (he favors decriminalization of drugs, for example). Sowell has had a fascinating career, growing up in Harlem, graduating magnum cum laude from Harvard, earning a Ph.D. from Chicago, teaching at UCLA, writing a syndicated column, and authoring more than 30 books. Since 1980, he has been a senior fellow at the Hoover Institution at Stanford.
He is now 78 years old and has written his memoirs ("A Personal Odyssey" — highly recommended). But he is not slowing down. He can accomplish a great deal because he is reclusive and hardly ever travels. Rumor has it that he always charges a speaking fee so far above the market price that no one dares pay it. (I'm constantly asked, "Why don't you invite him to speak at FreedomFest?", an annual conference that I direct. Now you know.)
Sowell has written extensively on economic topics, including Marxism, Say's law, and classical economics. But he extends his expertise to education, social issues, culture, civil rights, and politics. My favorite is "Knowledge and Decisions" (Basic Books, 1996).
With the third edition, "Basic Economics" has become a fat book, and a popular one, especially for home schoolers. This new edition is 40% longer than the first and second ones.
What's its appeal? Unlike standard textbooks, Sowell's guidebook is free from graphs, charts, abstruse mathematics, and professional jargon. When Sowell does use an uncommon term, such as "externalities," he does a good job explaining it. He uses statistics sparingly, citing data from The Economist, The Wall Street Journal, and Business Week. In that sense, his book is more a treatise for a general audience than a textbook.
On the topics he covers, I see nothing to argue about. He does an excellent job exposing the errors in the popular policies of protectionism, progressive taxation, minimum wage laws, affirmative action, antitrust, wage, price, and rent controls, and central planning. He has helpful chapters on the stock market, risk and insurance, money and banking, international trade, labor markets, and the dynamics of the economy. He has also added chapters on myths of the marketplace, such as the fallacy of predatory pricing and issues involving fairness and greed.
My only beef with Sowell is the remarkable number of sins of omission in this book, despite its 40% increase in size. The method is strangely hit or miss. One wonders, in a course in "basic" economics, where is the discussion of Adam Smith's doctrine of the invisible hand? Where is the treatment of Say's law, which introduces the profound supply-side concept that savings, productivity, entrepreneurship, and technology drive the economy, and that consumption is the effect, not the cause, of prosperity? One would think that a man who has written whole books on Say's law and on classical economics and its adversaries would address these vital issues.
Sowell's chapter on money, credit, and the Federal Reserve is grossly inadequate, given today's intense concerns about the stability of the global financial system. There's virtually no discussion of asset bubbles, the boom-bust cycle in real estate, and the highly leveraged debt structure currently under stress, nor even of the Fed's manipulation of interest rates and the supply of money.
Sowell is a student of George Stigler and Milton Friedman of the Chicago school of economics, and he does make one or two passing references to Friedman's claim that the Great Depression was caused (or exacerbated) by the Fed's "inept" deflationary policies in the early 1930s. But he makes no reference to Ludwig von Mises and Friedrich Hayek's Austrian theory of the business cycle, which is critical to understanding what is going on today.
It's unfortunate that Sowell fails to inform his readers about the great contributions of such Austrians as Mises, Schumpeter, and Hayek (he cites Hayek twice, but not on his decentralized information theory), the supply-side economists (he does not mention the Laffer curve or the flat tax revolution), or even great thinkers such as P.T. Bauer, Ronald Coase, Vernon Smith, and James Buchanan. Sowell could improve his book tremendously if he added a chapter on the warring schools of economics. As it stands, there's not enough material on the advances of the various free-market schools, and too little systematic criticism of the anti-market schools of Keynes and Marx.
Given that we are facing the greatest threat to the free-market capitalist system since the Great Depression, the world cries out for a clear-cut analysis of the current financial crisis, how government intervention in the monetary and banking system has brought about this debacle, and the sound free-market solutions to the problem.
The third edition of Thomas Sowell's "Basic Economics" does not go far enough in providing this much needed analysis. As it stands, it serves primarily as supplemental treatise. It cannot take the place of a comprehensive guide to sound economics. There's a lot of work to do if the next edition is to live up to its title.
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