The Ideological landscape of Economics
What are some authors and readings to understand some of the important concepts and fundamental ideas in economics that are essential to understanding society and economics?
Economics is the operating system of society. Naturally, learning economics is quite important.
Economics helps us understand (1) the action of firms and individuals (called microeconomics); (2) the variables such as population, employment etc. and the actions of central banks, banks and policymakers (called macroeconomics); (3) the way markets work (market economics) (4) how trade and commerce function (trade economics) AND (5) the structure of poverty and how we can overcome it.
However, in my research, I realised some ideas were more important than others. So what are some authors and readings to understand some of the important concepts and fundamental ideas in economics that are essential to understanding society and economics?
The landscape of economics
To start, Adam Smith’s books are a proper microeconomics primer. Microeconomics deals with firms and people. It is still worth reading if you like very complex sentences. These books have been analysed threadbare, and you will find good commentary. [Adam Smith]
David Ricardo and Alfred Marshall are insightful, but you will get their ideas from other places as well.
Historically speaking, David Hume’s (a friend of Adam Smith's) writings on economics are well thought out. While they do not point out theories, they do state the social picture of the problem.
Karl Marx’s writings about the shortcomings of capitalism are quite insightful. In fact, Marx’s diagnosis is quite prescient. His solution is totally atrocious. Rather than read Das Capital, I would suggest it’s easier to read Marx’s letter to Engels, which discusses these in more detail.
Irving Fisher put forth the first proper theory of economic crash. His short paper on debt deflation theory is worth reading. His other writings are equally worthy.
John Maynard Keynes created a theory that bridged microeconomics and macroeconomics. He also developed policy recommendations from these theories to deal with the Great Depression of 1929s. These recommendations are more medicine, not a way to pump the markets and economy (unlike Friedman and politicians made them out to be). I would beware of Keynesians and Neo Keynesians as they do not represent the true intent of Keynes’ ideas in totality - some of their points are valid most are not. I recommend you read Keynes himself and avoid all commentaries on Keynes. I also suggest that it is better to understand his point as a whole rather than hanging your hat on one-line quotes. [John Maynard Keynes]
Milton Friedman was a good orator with some flaws in his theory. His argument construction, style and evocative imagery are quite mesmerising. But it is flawed.
Friedman distorted Keynes' theories (as did students of Keynes and politicians) and then bashed Keynes for their distorted versions. He was successful because John Maynard Keynes was not alive to defend himself. He was a product of the Chicago School of economics. Again some of Friedman’s ideas are worth reading. Many are argumentatively sound but fail in real life. [Milton Friedman]
Fredrick Hayek countered it intelligently. He attacked the meat of the problem. Here are two videos explaining the ideas in a rap song. Keynes V Hayek Round 1 and Round 2. The Austrian school has put up a lot of literature in this regard. Austrian Economics is a sort of ideological counter to Keynes. Some important ideas of the Austrian School came from Ludwig Von Mises, and Murray Rothbard explained them further. Their writings can be found online at the Mises Institute Library.
Ronald Coase’s theory of transaction cost is one of the most important ideas (not valued enough) Coase presented the idea in the 1930s but got the economics “Nobel” prize only in the 1990s. [Ronald Coase]
Joseph Schumpeter is fabulous. His theory of creative destruction is a vital development in economics. If you want to understand firms and their life cycle, Coase and Schumpeter are critical. [Joseph Schumpeter]
We read Micheal Porter in the context of competition, but he is equally important for understanding trade economics in his book comparative advantage of nations. [Michael Porter]
Jagdish Bhagwati, too, dealt with trade and is worth reading. [Jagdish Bhagwati]
To understand poverty, read Hernando de Soto. His ideas for poverty alleviation are awesome. Jeffrey Sachs is useless. I have not read Abhijit Banerjee and Esther Duflo’s new book, but I do not have high expectations. [Hernando De Soto]
Behavioural economics aims to work on real-life actions and infer economic theories from them. The work of Dan Ariely, Richard Thaler and Daniel Kahneman. However, if you look at the work of Adam Smith and earlier economists, you will find discussions on behavioural aspects of economics.
One of the most important ideas in market economics comes from Benoit Mandelbrot. His books help us understand the disconnect between economic analysis and market behaviour. Mandelbrot is not an economist but a mathematician, and his contributions are top-rate.
The aspect of central banking and banking, in general, is not quite well understood. The paper by the Bank of England is quite popular.
If you want to learn about money creation by the banking system, reading Richard Werner will help you more. Richard Werner’s analysis of the Japanese growth model using a directed lending approach is important to understand. [Richard Werner]
Both Thomas Sowell and Walter E Williams have done much work on labour economics and economic policy related to African Americans. However, some of their ideas are flawed as their intellectual underpinnings are from Milton Friedman. Their work on American issues is important and interesting to read.
Modern Monetary Theory is a new concept in economics that asks interesting questions. Warren Mosler and Stephanie Kelton have written extensively in the space. I am not so sure of recommendations coming from MMT; they sound dubious. I need more convincing on these ideas.
Some tips:
I do not include many others, including Nobel Laureates. I believe their ideas are more specific to certain issues than the overarching arc of economics. Many introductory textbooks do not discuss concepts and ideas in a broad sense.
If you want to listen to economic ideas in the best ways presented, I recommend EconTalk Podcast by Russ Roberts.
Hans Rosling has done an insightful “look” into data.
Economics is also changing.
Firstly, Economics is a social science.
It is not yet fully developed, despite the reams of writings on the subject. It took rigorous research that took alchemy to real chemistry. Economics today is like alchemy. It needs a lot of research.
You will find that there is an effort to make it more mathematical and more akin to Physics than social sciences. This is termed “Physics envy”. For social science, this is not necessarily a good idea. As it has been said, we don’t teach gravitation to the planets, but we do teach economics to the players involved.
In the coming years, maybe decades, there will be a lot of development in Economics theory. I believe the fundamentals discussed by Mandelbrot will be central to understanding economics in the future.
I have proposed a theory myself. You can read it in two of my books, Subverting Capitalism and Democracy and Understanding Firms.