Madsen Pirie - Economics Made Simple: How money, trade and markets really work

Think Tank (2012)

101 Great Philosophers: Makers of Modern Thought (2009)

Freedom 101 (2008)

How to Win Every Argument: The Use and Abuse of Logic (2007)

The Sherlock Holmes IQ Book (with Eamonn Butler) (1996)

Boost Your I.Q. (with Eamonn Butler) (1991)

ECONOMICS IS VERY MUCH in the news in todays world. In ways that would have been inconceivable a half century ago, we are made aware that much in our daily lives depends upon economic events. Our standard of living, our ability to afford the things we value, our future prospects, and eventually our pensions are all influenced by economic activity. Some of this takes place close to home at a personal level, but some events happen in distant places, set in motion by people we will never meet.

Economics is all around our everyday lives, yet much of it seems opaque and mystifying to ordinary people. Commentators appear on our screens or in the pages of our newspapers, and make pronouncements about what they believe has been happening and will happen, and much of what they say seems arbitrary and baffling.

There has probably never been greater interest in economics, given global financial crises and domestic downturns. People are aware that what happens in financial news will affect them, and many of them wish to know how and why. Some see their spending power going down; others face the possible loss of their job. They want to know the reasons such things are happening.

Professional economists are rarely helpful. Some affect a jargon which makes their subject esoteric and inaccessible, such that meaningful discussions can take place only with their colleagues. Many academic economists have retreated from the real world into mathematical models which purport to show relationships between past data, but tell us little about the present and nothing about the future.

Yet the essentials of economics are not difficult to understand or explain. The subject is not a science like physics or astronomy, and can never be so because its subjects are human beings, independently motivated and quite capable of changing their minds and the way they behave, unlike the atoms and stars of the physical sciences.

Economics is about human behaviour. It is about the ways we have developed for dealing with each other in complex relationships. It is about how people whose time and resources are limited choose to allocate those resources, and how they interact with others to do this as effectively as they can manage.

No individual or group sat down and invented economics by setting out the principles that govern our exchanges. Economics was certainly devised by humans, but not consciously or deliberately. It developed naturally out of the ways people developed for dealing with each other and with their resources. It is a natural outgrowth of human personality and social co-operation.

The complex relationships and institutions of modern economics all have their origins in the ways we interact with each other, and in how we choose to live our lives.

The aim of the following pages is to introduce the subject of economics in ways that non-economists can readily understand. Without jargon or complex equations, the aim is to show how easy and intuitive the subject can be once its fundamentals are understood. Welcome to the world of economics.

Madsen Pirie

Cambridge, 2011