Economics For Children

The miracle of so many things.
How are there so many things? How are people

so rich?
(Introducing children to the economic way of thinking)
PRELIMINARY SKETCH for public consultation
Dated 5 October 2015
Coordinator: Sanjeev Sabhlok

Everyone welcome to join as contributor
[Source]
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Contents
1. BACKGROUND, AND NEED FOR SUCH A BOOK ........................................................................................ 1

1.1 THE NEED ................................................................................................................................................. 1
1.1.1 Why economics is so confounding difficult ....................................................................................... 1
1.1.2 Need recognised as long ago as in 1910 .......................................................................................... 2
1.2 THE APPROACH TAKEN BY THIS BOOK ............................................................................................................. 3
1.2.1 Plan ................................................................................................................................................... 3
1.2.2 Advance warning .............................................................................................................................. 3
1.3 BROADLY SIMILAR WORKS ............................................................................................................................ 3
1.4 COPYRIGHT OPEN SOURCE .................................................................................................................... 4
BOOK 1: FOR AGE 9-12 .................................................................................................................................... 5
2. DO YOU WANT TO BE A SMART DETECTIVE?........................................................................................... 6
3. WE WERE ALL VERY POOR, BUT TODAY MOST PEOPLE ARE RICH............................................................ 7
3.1 THEN SOMETHING HAPPENED, AROUND 200 YEARS AGO ................................................................................... 7
3.2 SO WHAT HAPPENED?................................................................................................................................. 8
3.2.1 All man-made things start as an idea ............................................................................................... 8
3.2.2 We need our kings, priests, and governments to let us think for ourselves ..................................... 8
4. HOW INDIVIDUALS PRODUCE WEALTH ................................................................................................. 10
4.1 WEALTH IS PRODUCED BY US, THE ORDINARY INDIVIDUALS ............................................................................... 10
4.2 THE WEALTH OF A COUNTRY IS THE SUM OF THE WEALTH PRODUCED BY ITS INDIVIDUALS. ....................................... 10
4.3 EVERYONE IS A PRODUCER AND CONSUMER................................................................................................... 10
4.4 PRODUCING MORE THINGS THAT PEOPLE WANT IS HOW THE WORLD GETS RICH .................................................... 10
4.4.1 Why are some singers and sportsmen so rich?............................................................................... 11
4.5 THE WEALTH OF A SOCIETY IS NOT FIXED ....................................................................................................... 11
5. SPECIALISE! ONLY THEN CAN YOU PRODUCE A LOT OF THINGS ............................................................ 12
5.1 PRODUCING EVERYTHING ONE NEEDS IS A REALLY BAD IDEA .............................................................................. 12
6. THERE IS NO POINT IN PRODUCING THINGS IF YOU CANT EXCHANGE WITH OTHERS .......................... 13
6.1 TRADE MAKES BOTH SIDES BETTER OFF ......................................................................................................... 13
6.2 MOST OF WHAT WE PRODUCE FOR OUR OWN NEEDS COMES FROM SHOPPING ..................................................... 13
6.3 TRADERS ARE ALSO PRODUCERS .................................................................................................................. 14
6.4 WHAT WOULD HAPPEN IF PEOPLE COULD PRODUCE BUT NOT TRADE?................................................................. 14
6.5 WHY ARE SOME COUNTRIES STILL POOR? ...................................................................................................... 15
7. HOW ARE YOUR PARENTS ABLE TO GET THE THINGS YOU HAVE IN YOUR HOUSE? .............................. 16
7.1 WHY DO MANY PEOPLE NOW LIVE IN CITIES? ................................................................................................. 16
7.2 SOME PEOPLE DONT LIKE US TO BECOME RICH. LETS WATCH OUT FOR THEM. ..................................................... 16
8. PEOPLE HAVE CHOICES ......................................................................................................................... 18
8.1 SHOULD WE BE FREE TO CHOOSE FOR OURSELVES? ......................................................................................... 18
8.2 ALL PEOPLE PREFER MORE MONEY TO LESS .................................................................................................... 18
8.3 EVERYONE LIKES TO PAY LESS FOR THINGS THEY BUY ........................................................................................ 18
8.4 EVERYONE WANTS A LOT OF THINGS BUT NO ONE IS RICH ENOUGH TO BUY EVERYTHING ......................................... 18
8.5 THE VALUE OF SOMETHING IS WHAT OTHERS THINK IT IS WORTH........................................................................ 19
8.6 PEOPLE CAN SPEND THEIR OWN MONEY BETTER THAN OTHERS CAN SPEND IT FOR THEM ......................................... 19
8.7 WHAT WE CHOOSE TODAY CAN AFFECT WHAT HAPPENS IN THE FUTURE .............................................................. 19
8.8 WE MUST LOOK AT THE FULL PICTURE WHEN THINKING ABOUT SOMETHING ......................................................... 19
8.9 VERY FEW PEOPLE ARE BORN WITH MONEY. THEY HAVE TO EARN IT. .................................................................. 19
8.10 IS THERE A FREE LUNCH? ........................................................................................................................... 20
8.10.1 We should pay people if we want something from them .......................................................... 20
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8.10.2 Why do people charge for things they sell? ................................................................................ 20
8.11 IF PRICES OF SOMETHING GO UP LESS OF THE THING IS BOUGHT.......................................................................... 21
9. WHAT IS THE GOVERNMENT AND WHAT DOES IT DO? ......................................................................... 22
9.1 SOMETIMES PEOPLE MAY NEED A GOVERNMENT TO MAKE RULES ....................................................................... 22
9.2 SOMETIMES MARKETS MAY NOT BE ABLE TO SUPPLY THINGS WE NEED ................................................................. 22
9.3 SOMETIMES PEOPLE DONT BOTHER ABOUT THE HARM THEY CAUSE .................................................................... 22
9.4 THAT DOESNT MEAN THE GOVERNMENT CAN DO THINGS BETTER THAN THE PEOPLE .............................................. 22
9.5 WE LEARNT EARLIER HOW WE EARN MONEY, BUT WHO CREATES MONEY? ........................................................... 22
9.6 PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY ...................................................................... 23
9.7 WE MUST REMEMBER THAT GOVERNMENTS CANT SPEND OUR MONEY BETTER THAN WE CAN ................................. 23
10. CHAPTER 4: CONGRATULATIONS! ..................................................................................................... 24
10.1 WELL DONE! ........................................................................................................................................... 24
10.2 SO YOU WANT TO BECOME RICH .................................................................................................................. 24
BOOK 2: FOR AGE 12-18 ................................................................................................................................ 25
11. BOOK 2 TOPICS ................................................................................................................................. 26
11.1 HUMAN BEHAVIOUR ................................................................................................................................. 26
11.2 BIASES ................................................................................................................................................... 26
11.2.1 Anti-market bias ......................................................................................................................... 26
11.2.2 Make-work bias .......................................................................................................................... 26
11.2.3 Anti-foreign bias ......................................................................................................................... 26
11.2.4 Pessimistic bias ........................................................................................................................... 26
11.3 VALUE .................................................................................................................................................... 26
11.4 SCARCITY ................................................................................................................................................ 26
11.5 MAGIC OF THE MARKET AND PRICE SYSTEM.................................................................................................... 26
11.6 MARKET ................................................................................................................................................. 26
11.6.1 Are markets immoral? ................................................................................................................ 27
11.7 RULE OF LAW ........................................................................................................................................... 27
11.8 TRADE .................................................................................................................................................... 27
11.9 CREATIVE DESTRUCTION AND INNOVATION .................................................................................................... 27
11.10 THE MAGIC OF PROFIT ........................................................................................................................... 27
11.10.1 Just producing machines does not make a nation wealthy ........................................................ 27
11.11 PRODUCTIVITY ..................................................................................................................................... 28
11.11.1 Why are wages in third world countries like India so low? ......................................................... 28
11.12 SEEN/ UNSEEN..................................................................................................................................... 28
11.12.1 Bastiat's broken window fallacy ................................................................................................. 28
11.12.2 The more animals you eat, the more animals are produced. ..................................................... 28
11.12.3 Price controls (rent control, minimum wage, maximum support price, etc) do more harm than
good. 28
11.12.4 Jobs are created by people, not by governments. ...................................................................... 28
11.12.5 Criminalization of vice only serves to create a black market that benefits criminal elements and
promotes disregard for the law. ................................................................................................................... 28
11.13 SAVINGS............................................................................................................................................. 28
11.14 COMPARATIVE ADVANTAGE.................................................................................................................... 28
11.15 ROLE OF THE GOVERNMENT ................................................................................................................... 28
11.16 TOOLKIT ............................................................................................................................................. 28
11.16.1 Measuring the economy ............................................................................................................. 28
11.16.2 Game theory ............................................................................................................................... 29
11.16.3 Public choice theory .................................................................................................................... 29
11.16.4 Cost Benefit analysis ................................................................................................................... 29
11.16.5 Moral hazard .............................................................................................................................. 29
11.17 MONEY .............................................................................................................................................. 29
11.17.1 Central banking........................................................................................................................... 29
12. BAD IDEAS TO BE ADDRESSED .......................................................................................................... 30
12.1 ECONOMIC EQUALITY IS MEANINGLESS AND IRRELEVANT .................................................................................. 30
12.1.1 Are we getting more unequal as we become richer?.................................................................. 30
12.2 WELFARE ................................................................................................................................................ 30
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12.2.1 Welfarenomics as propounded by Bernie Sanders. .................................................................... 30
12.3 SOCIAL JUSTICE ........................................................................................................................................ 30
12.4 MISUSE OF "MARKET FAILURE" ARGUMENT................................................................................................... 30
12.5 SOCIALISM.............................................................................................................................................. 30
12.6 POPULATION 'PROBLEM' ........................................................................................................................... 31
12.7 EXCESSIVE TAXES...................................................................................................................................... 31
12.8 PROTECTIONISM ...................................................................................................................................... 31
12.9 MINIMUM WAGE ..................................................................................................................................... 31
12.10 CENTRAL PLANNING ............................................................................................................................. 31
12.11 BUSINESS CYCLES: NOT CRISES OF CAPITALISM BUT GOVERNMENT INTERVENTION ............................................. 31
12.11.1 Asset Bubbles ............................................................................................................................. 31
12.12 THE SCANDINAVIAN MODEL / SOCIAL DEMOCRACY .................................................................................... 31
12.13 KEYNESS IDEAS ................................................................................................................................... 31
12.14 MARXIAN........................................................................................................................................... 32
12.15 BEHAVIOURAL ECONOMICS .................................................................................................................... 32
12.16 MIXED ECONOMY ................................................................................................................................ 32
12.17 THE PROBLEM WITH MACROECONOMICS .................................................................................................. 32
13. SUGGESTIONS RECEIVED................................................................................................................... 33
13.1 CAPITALISM ............................................................................................................................................ 33
13.2 THE FUTURE............................................................................................................................................ 33
13.3 DEFLATION ............................................................................................................................................. 33
13.3.1 Fears of deflation are unfounded ............................................................................................... 33
13.4 NATIONAL RESOURCES ARE NOT FINITE. ........................................................................................................ 33
13.5 TRADE AND WEALTH PRODUCTION .............................................................................................................. 34
13.6 ROLE OF MIDDLEMEN ............................................................................................................................... 34
13.7 FUNCTION OF PRICES ................................................................................................................................ 35
13.8 ALTERNATIVE TO PRICES: RATIONING............................................................................................................ 35
13.9 EXTERNALITIES ........................................................................................................................................ 35
13.10 PRICE SIGNALS .................................................................................................................................... 35
13.10.1 Price ceilings ............................................................................................................................... 35
13.10.2 Price floors .................................................................................................................................. 35
13.11 TRAGEDY OF THE COMMONS.................................................................................................................. 36
13.12 COMPARATIVE ADVANTAGE ................................................................................................................... 37
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1. Background, and need for such a book
When you first grasp the explanatory power of economic ideas, youll feel like the movie hero who
suddenly grasps The Matrix and realizes he can pull bullets out of the air. [Source]
1.1 The need

Sometime in the middle of September, 2015, I came to a view that everyone needs to understand the
economic way of thinking, just like they need basic literacy, basic arithmetic and basic science.
Without a basic understanding and intuition about how an economy works and how wealth is (or can be)
created, most people will apply their untrained intuition and will go wrong. Just like without
understanding that there are bacteria, people made entirely wrong decisions about diseases caused by
bacterial infection, so also in the case of economics, people make entirely wrong decisions about the
operation of the economy
Economic illiterates often gain power over other people through the field of politics. In their ignorance
and arrogance, they cause untold harm to the people whose welfare they wish (or allegedly wish) to
support, and to the world.
The economic way of thinking can be called the economic method. It is a branch of the scientific method.
It is, however, more complex in many ways than the method used to understand the physical sciences,
since there is no linear relationship in economics. Everything in economics is a relationship between one
or more different forces. It is all about interactions, about further actions and reactions, about
consequences that ricochet across the entire world economy. Everyones economic actions affect
everyone else. Always, without exception. The outcomes of these actions can be predicted - as accurately
as the outcomes of physical actions, although as the impacts of these actions get into second and third
order effects, the outcomes become increasingly harder to predict correctly.
Good intentions fail to translate into good results precisely because of this complexity. The "do-gooders"
are not aware of how the first order effect they seek to create will come at the expense of widespread
second and third order effects which will overwhelm their good intentions.
I couldnt readily find an existing booklet for little children to teach them the economic way of thinking. ,
so it became necessary to prepare something new.
This is a preliminary sketch. I would like as many people as possible to get involved, and would like to
have them listed as contributors to this work.
Please review the sketch (below) and send your thoughts and comments at sabhlok@gmail.com.
1.1.1 Why economics is so confounding difficult

ECONOMICS IS SO DIFFICULT BECAUSE IT IS ALMOST ENTIRELY ABOUT THE COMBINED EFFECT OF THINGS
THAT ARE HIDDEN FROM SIGHT; INVISIBLE.
Since 99.99 per cent of economics is about things that are hidden from sight (the endless series of actions
and interactions) it is literally impossible except for a highly trained person to understand what's going
on.
Economics is a discussion regarding these invisibles. Not for nothing did Adam Smith call the price system
and the market an invisible hand.
In religion, too, people have failed to grasp the invisibility of God, so every religion has been forced to
create visible artefacts/ temples/ mosques. [Btw, you well know this doesn't mean I have a position on
the existence of any type of god, visible or invisible; economic systems are absolutely real, their
mechanics of operation entirely invisible.]
1
The question is how can one explain this to the ordinary person (including highly competent physicists)
who are not used to looking at a vast series of actions/ interactions. In the physics lab scientists looks at a
particular event, and then it is over. What happens further, and then further, etc. is converted into
general laws of entropy.
In economics, however, any action (even the most modest) has a direct effect on the **entire** world
economy. Its effects ricochet across the whole world, and not just in one generation: in multiple
generations (like the effects of Indian socialism in driving out its best talent from India).
It is truly hard to get people to think about these hidden effects. The fact that amazingly brilliant people
like Adam Smith, Bastiat and Hayek have been explaining this for hundreds of years but there is almost
zero awareness of these hidden mechanisms and effects of economics action even today, suggests that
that challenge to get the ordinary, untrained person to understand the economy is Herculean, close to
impossible.
Yes, this little book project would be a tiny drop in the ocean, but we need a widespread concerted effort
to simplify the key elements of economics so every child can begin to see through the confounding fog of
the price system, and stop railing against the only system that has taken mankind from a short, brutish
life of misery, to health, wealth and abundance.
1.1.2 Need recognised as long ago as in 1910

The desperate need for teaching economics to children was recognised as long ago as in 1910 in one of
the premier academic journals in economics. However, nothing (or almost nothing) has been done for the
past 105 years.
"we have a correspondingly large number of self-assertive citizens, who, whether they know anything of
economics or not, will take a practical hand in legislating on the subject" [John B. Clark, Economics for
Children, Journal of Political Economy, Vol. 18, No. 6 (Jun., 1910), pp. 432-434]
There is a simple truth in it which a boy ten years old can master; and I know this because I
have seen one of them do it. As he sits by a dining-table a child of ten is able to see that he
wants a first slice of bread more than he wants a second one, and still more than he wants a
third. It is not necessary to call this fact a "law of diminishing utility of successive increments of
consumers' goods," although after a time the boy would get the meaning of that formula. The
simple possibility of gradually satiating wants, by supplying more and more of the thing
wanted, is all that it is at first necessary to see.
The child can be made to perceive that if in the butler's pantry there were a given amount of
bread, which must be disposed of that day or go altogether to waste, and if the waitress were a
bread-merchant who owned this supply, there would be a limit to the price she could ask and
still dispose of the whole quantity. No one would want the last remnant of this commodity
enough to pay very much for it, and this fact, for the time being, would suffice to make bread
cheap. If, moreover, the supply every day were likely to be what it is on this particular day, the
bread would remain cheap.
This is one of the score of principles which, when stated technically and in abstract terms,
appear to most people strange and complex, though in simple terms they appear nearly self-
evident. It is entirely possible to strip of technicalities a very large number of economic
principles and make them simpler than the problems of mathematics with which a child of ten
years is expected to grapple.
To secure this result it is, in my judgment, best to impart the knowledge first in a
conversational way and with an abundance of questioning, which will enlist the pupil's interest
and set his reasoning powers at work. After such a preparation a very simple textbook is useful.
This plan exacts from the teacher something which may not always be supplied, but it would be
strange if in any large school it were not possible to find some teacher capable of supplying it.
The extent in the United States to which economics is now taught is all in favor of the plan.
John B. Clark Columbia University
Sone Ki Chidiya Total Reform Agenda

2
1.2 The approach taken by this book
We need to get the economic method or way of thinking understood by children. Everyone doesnt need
to know or understand the technical terms used in the economics profession.
In fact, textbook economics often limits itself to the toolkits of economics without providing an
understanding of the economic way of thinking. Such knowledge can lead to much harm.
There are a number of university trained economists who have never understood the economic method
or the economic way of thinking. It may be too late to change them, but there is a need to educate the
future generations.
1.2.1 Plan
I propose two books, one for ages 9-12 and the other (advanced) for ages 12-18. The children's book will
avoid jargon and any unnecessary concept/s. Concepts that are not critical will be excluded (e.g.
opportunity cost, sunk costs, most market and government failures).
1.2.2 Advance warning

Please note that there is an overarching theme to this book. The whole of human progress to date can be
summarised as a revolt against government and religion. That is the most start truth about human
history. There are deep vested interests among government/ religion to block reason and production.
These are highlighted, along with details of how ordinary people are able to produce enormous amounts
of wealth, without the assistance of any government or religion.
To the extent you blindly support government or religion, please dont give this book to your children.
They are likely to get "infected" with questioning. But without such basic questioning it is impossible to
understand the economy.
1.3 Broadly similar works

There do exist some (broadly) similar works. Most of these are targeted at teenagers or young adults.
These include:
Jonathan Gullible (free)
Letter to his grandson from Fred I. Kent.
Candynomics: Economics for Children
Economics For Children: What Is Economics (DVD)
Economics Made Simple: How money, trade and markets really work by Madsen Pirie
Ragged Dick and Mark, the Match Boy by Horatio Alger
Thidwick the Good-Hearted Moose by Dr. Suess
I Pencil
The Toothpaste Millionaire, by Jean Merrill
The Giver by Lois Lowry
A Financial Fable by Carl Barks
The Golden Helmet by Carl Barks
The Monarch of Medioka by Floyd Gottfredson
Whatever Happened to Penny Candy? by Richard Maybury
The Money Mystery by Richard Maybury
Capitalism for Kids
Little House on the Prairie by Laura Ingalls Wilder
The Giving Tree
The Giver by Lois Lowry (also Finding Blue)
Adventures of Primo Dinero
Heir Conditioned
A little bit more advanced (teenagers):
3
Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics by Henry
Hazlitt (Free)
Economic Sophisms by Bastiat (free)
Principles of Economics (MR university)
Free Market Economics: A Basic Reader (free)
Economics Made Easy by Les Livingstone (free)
Economics: The Remarkable Story of How the Economy Works by Ben Mathew ($3)
Connor has written these three books for children: http://tuttletwins.com/
1.4 Copyright Open Source

I intend a Creative Commons copyright on this book, which means anyone can modify and re-publish in
any form or shape.

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Book 1: For age 9-12
5
2. Do you want to be a smart detective?
This book is a story about how people make things, from where they get their money, how they become
rich, and, in fact, how you can become rich.
Everyone wants to become rich. But some people are not rich, and some countries are poorer than
others.
By the time you finish this book you would have become an economist. Anyone can become an
economist if they understand the economic way of thinking; just like anyone can become a scientist if
they understand the scientific way of thinking.
An economist understands how the whole society cooperates to produce the things we need. That
includes understanding what happens after something happens. For example, if you buy an ice-cream,
she understands what happens to prices of everything as a result, and to the total number of things that
are produced in the world. And how more ice-creams could get produced as a result particularly if the
ice-cream producer and seller are able to make a reasonable profit.
In fact, it would be fair to say that the more the paper that people consume, the more the trees that are
produced. The more the chicken that people eat, the more the chicken that are produced.
All this is really strange. Like Alice in Wonderland. But it is true.
And it is impossible to understand without being an economist.
The economist is a very smart detective who is able to piece together a complex jigsaw puzzle that most
people will never be able to bring together in their mind.
Do you want to be a very smart detective?

6
3. We were all very poor, but today most people
are rich
[This chapter shows that the biggest miracle in the world is the vast number of things and services we see
today. This is something entirely new and unprecedented. Knowing this basic fact and being able to
explain it holds the key to understanding economics]
Human beings, as we know them, evolved nearly 100,000 years ago. Before that some creatures
resembled humans, but were not humans.
The main thing is that humans have been as smart as modern man from for a very long time, but for most
of mankinds history, most people remained very poor. Mankind has struggled for most of its history.
Something crucial was missing, even though people were smart.
They chased and hunted animals or picked plants to eat. They drank water from the open river or pond
and had no shelter except when they learnt to make huts. They used animal skin as clothes, till they
learnt to make a crude kind of cloth. Mankind could barely to grow enough food for survival. There was
great scarcity. Children barely had a few toys. They played with sticks and stones, and climbed trees. And
half the children who were born died before the age of five, mainly from starvation or disease.
Only kings managed to get a few things and a somewhat decent house, but even these were of a poor
quality. You must have heard about the seven wonders of the ancient world. But these were built by
enslaving people. Many people died during the construction of these wonders.
Later, priests came on the scene and people created religions. But religions could not save the children,
and people, from dying.
3.1 Then something happened, around 200 years ago

Then suddenly, about 200 years ago, people started becoming rich. And healthy. Books had been very
rare 200 years ago. Today most children have books. It was rare for children to have clean clothes 200
years ago. But most children now have more than one set of clothes.
Great wonders exist all around us. The worlds big cities have skyscrapers more than five times taller than
the tallest Egyptian pyramid. And no was enslaved to make these skyscrapers.
There are thousands of things around us that are not found in nature, things like dolls, toy trucks, books
and airplanes. The shops are full of them.
We produce much more than we did in the past. In the past, a farmer only got four grains for every
planted grain. Today a farmer gets 60 to 70 grains of wheat for every grain he plants. In most other
things, too, people produce 40-80 times what their ancestors produced. Mankind has almost entirely
defeated scarcity in essential things.
In most cases, we use factories to produce things. Our factories produce millions of computers, cars, and
telephones.
People now have more spare time than they ever had. And they dont need to work from early morning
to late at night to earn a living.
Our life is also very easy compared with our primitive ancestors. Primitive man spent most of the time to
find water, to find or grow food and to cook food. Today, most homes have piped water and electricity.
Many people have airconditioners to keep cool on hot days. We can also heat our homes when things get
cold outside.
And there are around 10 times more people today in the world than there were about 200 years ago.
Today, even though there are some poor people, most people are amazingly better off (and healthier)
7
than their ancestors. It is fair to say that the world has become hundreds of times richer than it was in the
past.
This is nothing short of a miracle. There has never been a greater miracle in the entire history of the
Earth.
For Book 2, elaborate on this

See Hockeystick of Human Prosperity by Don Boudreaux
https://www.youtube.com/watch?v=t9FSnvtcEbg
3.2 So what happened?

Something happened around 200 years ago due to which most people are now able to create new ideas
and new things.
The main thing that happened was a change in the way people started thinking about themselves.
In the past, only kings and priests mattered. The common man was nobody.
But around 400 years ago, people in countries like Netherlands and England started believing in their own
ability to learn and to produce things. They began to respecting successful traders and producers; not just
the king or priest.
Many kings and priests didnt like it that producers and traders were becoming more important than
them. They tried to block those who produced wealth. But the people decided they will not allow kings to
tell them what to do. Many kings were killed by the people, till the kings and governments learnt the
lesson: the people are the masters, the kings their servant.
This change in the way of thinking about the world is known as a revolution.
It was a revolutionary idea that people would be the masters and kings their servant. It was a
revolutionary idea that people would not believe in religion just because someone said so, and would ask
questions and create new ideas.
But it was a necessary revolution. The revolution took many hundred years, and by around 200 years, it
was in place in many parts of what we call the Western world.
Today, people are respected if they produce new ideas and a lot of wealth. Bill Gates is respected more
than any king. He owns more money than any king could ever have imagined.
It is this dignity of the individual, the freedom to think, to ask questions, and to produce; and respect for
those who produce and trade, that changed 400 years ago.
It can be said that mankind became free. Thats what happened.
This idea was very new. It took time to spread, so vast amounts of wealth started getting produced only
from around 200 years ago.
In many countries (such as India) people are not yet free. The businessman is not yet respected. So many
Indians remain poor. If poor countries like India do the right thing, they will become extremely rich, as
well.
3.2.1 All man-made things start as an idea

Every man-made thing you see around you started, first, as an idea in the mind of someone. It is ideas
that are necessary for the creation of wealth.
3.2.2 We need our kings, priests, and governments to let us think for ourselves
Till today, many kings and priests today dont allow other people to become more important than them.
But if the king (or government) stops the people from thinking new ideas and producing things, how can
they possibly become rich?

8
But this is only the beginning. We need to understand how people are able to think new ideas and
produce new things by themselves. How do so many things get made and how do they reach the people
who need them?
Is there someone (a king?) sitting in the middle who invents all these things and orders everybody around
to produce them in the required quantity and provide them to the right place at the right price?
Not really.
9
4. How individuals produce wealth
[This chapter focuses on the actual dynamics of wealth creation. It focuses on property rights.]
4.1 Wealth is produced by us, the ordinary individuals

Kings do not produce new ideas or wealth. Priests do not produce new ideas or wealth.
It is always individuals who create wealth.
Kings and priests live off the wealth we produce. If we compare things with the story of the grasshopper
and ants, then we are the ants, and kings and priests the grasshoppers.
Kings do have a role to play (not priests), and I'll come to that later. But we never forget, even for a
moment, that kings and priests never produce a single new idea or thing, or any wealth.
We should not forget that they were in charge for the first 99,800 years of human history, and everyone
was poor and miserable.
It is very clear that kings and priests cannot produce anything. They can only take things from others or
stop others from producing things. When we understand this very clearly, we can start asking how people
(the ants) are able to produce so many new ideas, things and wealth. What is it about ordinary people
that is so unbelievably innovative and productive?
Kings dont need to create new ideas. They can simply take away things from people, and so they dont
need to have any ideas.
Ordinary people cannot take away things from others. They have to provide others with a useful thing or
service, so someone will pay them in return.
Ordinary people are afraid that what they produce will be stolen from them, either by a thief or
(sometimes) by the kings own men. If a king can assure people that their property will not be stolen from
them, they can spend their time thinking about new ideas and producing new things.
Creating a situation in which the ordinary person can spend time thinking new ideas, assured that his
produce will belong to him, is the key to understanding why they ordinary people are now so
miraculously productive.
4.2 The wealth of a country is the sum of the wealth produced by its
individuals.
But it is very important to remember that all the wealth is owned by those who produce it, not by anyone
else.
4.3 Everyone is a producer and consumer

Except for someone who is really sick, and for kings who have servants or slaves for their every need,
everyone is both a producer and consumer.
Your mother and father are producers. They produce things that you need.
Your father produces food by cooking a delicious dinner. Your mother produces light by replacing the old
light bulb when it gets fused.
4.4 Producing more things that people want is how the world gets rich
Some people worry that if more things are produced by fewer people, then jobs will be lost and some
people will become poor.

10
But the economist detective knows better than that.
The economist knows that people have an endless set of needs and wants. When something becomes
cheaper (such as clothes) because a factory produces a lot of clothes at a low cost, everyone now can
save some of the money they used to spend on clothes. They use this saving on other things that they
like, such as good food in a restaurant, travel, or learning tennis. This new expenditure creates new jobs.
Since everyone is good at doing many things, people who lose a job can take up one of the many new
jobs that are created.
Ultimately, we get the same number of jobs and clothes that we had in the beginning, plus many more
things (like more travel and good food). Each time anyone can figure out a way to produce something
cheaply, the entire society saves a lot of money. That spare money is then used to create more things.
That is how the world becomes rich: through better and better methods of production.
4.4.1 Why are some singers and sportsmen so rich?

Of course, there are people who dont produce a lot. But they may produce something of great quality,
like a great painting or song, or a great tennis match. People like quality, and therefore these people also
become rich. But remember, only a few of these people will ever become rich. Most singers and
sportspeople are quite ordinary, and no one will pay for their work.
To become rich, people need to produce a lot of things that people want, or things of great quality.
4.5 The wealth of a society is not fixed

Some people think that the total amount of wealth in a society is fixed. Such people think that the wealth
of the society must be redistributed.
But they forget a number of things.
Wealth belongs to individuals, not to any nation. If they try to redistribute wealth, that will be stealing
someones property. If people know that what they produce will be taken away by force from them, they
will no longer produce anything. After people have paid taxes on their earnings, it is theirs to keep and to
use.
Such people forget the history of our species, and how we have produced so much new wealth in the
past 200 years. The total wealth in a society is always increasing because human knowledge is always
increasing. It is this knowledge that allows us to produce ever more things, at lower cost.
Since the wealth of a society belongs to people, not to the entire society; and because it is always
increasing, there is no need to redistribute it. It is only necessary to look after those who are in extreme
poverty. That is, however, a different issue, and well come to it separately.
11
5. Specialise! Only then can you produce a lot of
things
5.1 Producing everything one needs is a really bad idea

Instead of trying to produce everything - our own food, clothes, build our own house and treat
our own illnesses - we can become better off by doing one thing well.
Someone who is good at making toys should produce toys. Such people will also often invent
machines to increase the production of toys. When people focus on producing one thing, more of
everything gets produced, than if everyone tried to produce everything.
This is called division of labour, where everyone specialises in something. The more the division
of labour and specialisation, the richer the society becomes. Tribal societies have low levels of
specialisation. Advanced countries have very high levels of specialisation.
After a lot of toys have been produced, people can buy whatever toys they need from the toy
maker. The toymaker can use the money made from selling toys to buy whatever he needs.
The doctor does not bake his own bread or manufacture his own instruments or weave or make
his own coat. Others do these things for him, and in return he treats the diseases with which his
patients are afflicted.
Everyone becomes better off.
It is important that people are allowed to make as many machines as they can possibly invent.
The more the machines, the more the stuff that we can produce, at a cheaper price. At one time,
a watch was very costly because it was made by hand. Now factories make it and some watches
are now cheaper than an ice-cream.
If left to themselves, people will invent new ideas and work out ways to produce things cheaply;
to do more with less. This is called efficiency.
Remember, this is not about being the best in the world in what you do. To be a teacher, you just
have to be better than others.
The teacher gets so good in teaching by spending time to constantly learn new things that she
can teach you. She specialises in teaching. She becomes better than most others in teaching, but
she may not be a very good tailor of mens suits.
This is what happens in a market economy. In a market economy everyone becomes better off
because everyone specialises, then trades with others, instead of producing everything
themselves.
This is different to the situation when man used to live in jungles. We now produce much more
because we specialise.
Not everything is sold in a bazaar. The teacher sells teaching services in a school. The doctor sells
medical services in a hospital. These places, too, are markets, or bazaars of a different kind. The
market where people sell their time (e.g. to treat patients) is called the labour market.
You must have heard that to be a Jack of all trades is to be a master of none. The Jack of all trades
has not specialised in anything so he cant be better than most people on anything.
It is always better to focus on doing one thing very well.
As a result of specialisation, no single person knows how to make anything, even a pencil.
Such complexity can only be managed through prices in the market. There is no single person
who can plan the whole process of making a pencil.

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6. There is no point in producing things if you
cant exchange with others
6.1 Trade makes both sides better off

The exchange of something for another thing is called trade.
When someone buys a toy from the shopkeeper, both the buyer and seller become better off.
The shopkeeper has too many toys and cannot make use of these toys at home. He wants money
for the toys so he can buy other things he needs. The buyer doesn't have enough toys in the
house so needs a toy. Better to buy a toy that works well, than to try to make a toy by oneself.
Therefore both parties benefit from trade.
Both buyers and sellers say Thank you! after a purchase.
The author of Harry Potter, JK Rowling, did not become rich by stealing your money. Your parents
paid money to JK Rowling because they thought you would like the book, and so it gave them
value. JK Rowling was able to give away the book because the money your parents gave her,
provided her more value than having one more copy of the book. Both sides gained, and in the
process JK Rowling became rich.
[Advanced] Bill Gates did not become rich by making others worse off. People paid money for his
products because his products saved them time and money and made them more productive
than the cost of the software they bought from Bill Gates. Trade creates new wealth.
This shows that the modern society create wealth without harming anyone.
All voluntary exchanges increase the wealth of each of the participants. Wealth is produced by
trading.
6.2 Most of what we produce for our own needs comes from shopping
But Im sure youve observed that they dont really produce everything from scratch by themselves.
In most cases they use their time to go shopping, and buy your shoes and toys. That is also production. It
doesnt matter how they get you the things you need: they are producers. They have produced the shoe
very efficiently, by saving their time.
Why dont they produce everything from scratch? The answer to this question is important. It holds the
key to wealth we see in this world.
If we had enough time to learn everything that mankind knows, and we had enough time to produce the
things we find in the market, then we could produce everything ourselves from scratch.
But no human being has the time in one lifetime to learn everything. It takes billions of people to know
everything. And it takes billions of peoples entire lifetime to produce these things.
We are the only animal on Earth that is not limited by instinct. Unlike pigs, we are able to store
knowledge in books. Most importantly, we can specialise. Each of us can do a small part of the work
necessary to produce a small part of a big thing. Each of us can produce a lot of a that small thing. This
way the world produces a billion different things, none of which is found in nature.
We have created an entirely new universe from what nature gave us. And that does not come from
producing everything ourselves. It comes from intense knowledge and intense specialisation. The more
the people on Earth, the better, so we can have even more knowledge and deeper specialisation.
Two things are therefore very good for all of mankind: more people to specialise, and trade. Without
trade all this specialisation will go waste.
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6.3 Traders are also producers
Some people think that production is only about factories. But production is also through trade. If you
want a particular brand name shoe, then you dont go to the factory to get it. You go to the local shop.
Because that shop provides you with the shoe you want, it can be said that it produces the shoe.
This is the proper way of thinking about trade: that the trader produces things that people want. Traders
and producers are part of the same system that produces wealth. Without traders there will be no
production of wealth.
6.4 What would happen if people could produce but not trade?
Imagine someone has produced a lot of bananas at a very low cost. If he is now unable to send the
bananas to the people who will pay the most, either because of natural obstacles like a damaged road or
a barrier created by the king (government), then his bananas will rot. People who would have liked to get
bananas (at a price) will not get them, and the man who has produced bananas will go bankrupt since the
people in his village can only eat so many bananas.
It doesnt matter how much we specialise. If we then cant trade, humanity is sunk.
Trade is the lifeblood of mankind.
If there is any fundamental role for the king (government), it is twofold: to facilitate specialisation and to
facilitate trade. To achieve that a government may have to provide for defence, police, justice and some
infrastructure, but these are all means to the end: of greater specialisation and greater trade.
Simplify the box below, for book 1
For Book 2, elaborate this

Self-sufficiency is death.
Each day I have a choice: produce economic policy for the government and buy things that I
need from the wages I get, or directly produce the things that I need.
You know, I am very smart guy - almost as smart as you. So you and I could, theoretically,
produce our own crockery, cutlery, computer, smartphone, bulbs, headphone, fridge, heater,
air-conditioner, TV, car, house, clothes, curtains, meat and bread. We could also produce our
own medicines, airplane, tennis racquet, tennis balls, spectacles, shoes and mangoes (an
average supermarket has 15000 items; an average family perhaps uses 10,000 items, including

14
the components of the house itself; so this list is not exhaustive).
However, the time taken for us to learn to produce these things, then assemble (directly
produce) each of the hundreds of thousands of raw materials, and finally produce the things
we need would exceed a billion lifetimes.
I consume today the output of a billion human lifetimes within one life. PLUS have more leisure
and entertainment than almost any human had in the past.
I am not one human being. I am a billion human beings within myself.
All this is because of trade and exchange; the market system, the price system.
Just like no human being can possibly produce all the things he needs (or wants), so also no
nation can produce all things the nation needs.
Anyone who seeks self-sufficiency (e.g. Swadeshi) is SUICIDAL. Or at least RAVING MAD.
6.5 Why are some countries still poor?

For Book 2, elaborate this
What distinguishes prosperous nations from poor ones are strong institutions, higher freedom,
and high economic complexity (productivity of an economy). The higher a country ranks in
these factors, the greater its correlation with prosperity.
15
7. How are your parents able to get the things
you have in your house?
Can anyone buy everything that is produced in the world?

We also know that all children like a variety of things. Some like ice-cream, some like balls, others like
other toys.
But no one can get everything they like. There may not be space in the house to store everything. There
may also not be enough money to buy everything.
So why cant what do your parents know what to bring, and how do they bring home the things you
have?
But for that to happen need to go back a few hundred years to find out why we have so many things in
the world today, and why we are so rich.
Lets get to the bottom of this mystery!
It is one thing to like something and another thing to get it. If people like something, they can either
make the things they like themselves, or they can buy them.
But it is hard for everyone to make everything. They have to learn how to make that thing and they have
to spend time to make it. Most people therefore don't make everything. They make one thing (that they
are good at), then they sell the thing they make and get the money. And from that money they buy the
things they want.
It may seem obvious that this is how the world works, but this is an amazing thing and it is interesting to
find out what it means and how it works.
But heres the there is not a single human being who can make even one of these things by himself. Not
even a pencil.
To make a pencil is not within the capacity of any single person. Making it involves creating paint,
growing and creating the rubber, growing, cutting and creating the wood, mining the lead, and the
mining and making the little metal strip that sticks the rubber to the pencil), each involving so many other
things. Thousands of people across the world are needed, doing different things, in order to make a single
pencil. Id like to refer you to a really fun story about the making of a pencil (I Pencil).
7.1 Why do many people now live in cities?

It is costly to live in cities. Even then people like to live in cities. Why is that so? Because as people live
closer together, they can specialise and produce more things. This is particularly so in the case of what we
call services. These are people who use their own hands and mind to directly deal with other people,
such as teachers, nurses, doctors, hairdressers, coaches.
It is more likely that you will find a good tennis coach or doctor in a city than in a small town.
7.2 Some people dont like us to become rich. Lets watch out for them.
Luckily for most of us today, the common man has a chance to work hard and become rich. You have a
very good chance of succeeding today because everyone is respected if they produce things that other
people want.
In a few cases the king (the government) is bad and doesn't let people produce. Such kings should be
thrown out.

16
There is another group of people: the producers, who often find it very hard to become rich through
competition with others. To succeed in the market people have to keep watching whether others are
doing better than them, and they have to keep improving themselves and their products. This is hard.
So most businessmen dont mind things that stop others from producing. One way is to stop things from
other countries bring brought in for sale. Such things that we get from other countries are called imports.
Such businessmen tell us that jobs will be lost if we allow imports. But the truth is that people will get
more things and cheaper things. That is always better so people can become richer. The businessmen
need to work harder to produce things that are cheaper and better. That will create jobs which are
worthwhile.
Let us never allow anyone to stop more things being produced or imported.
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8. People have choices
8.1 Should we be free to choose for ourselves?

Some people like it sweet, some like it sour. Some like it red, some like it blue.
Choosing one over the other doesnt harm anyone. People should be free to choose what they
like.
They should be free to change their mind, as well.
8.2 All people prefer more money to less

Have you heard of anyone who wants to be poor?
Everyone wants to be rich. All people like more money. Why? Because with more money they can
buy more things, or travel, or live in a good house.
Does this mean people are greedy? Not necessarily. If people have earned their money with their
own efforts, they are entitled to as much money as they can possibly earn. This doesn't, of
course, give anyone a right to get what they didn't earn. Being good and hard working to earn
money the right way is different to cheating others just because one wants a lot of money.
We should be happy that they have earned a lot of money. It is wrong to be jealous of others'
wealth which has been earned by them (or even inherited).
Having more money does not mean that qualities like love, trust, cooperation and equal
treatment of everyone are not more important. We will see how these good qualities can be
maintained even as people become richer through greater production and trade.
8.3 Everyone likes to pay less for things

they buy
Have you seen people bargain? People like to get things that cost as less as possible. Sometimes
people stand in long lines to get into a shop which is having a clearance sale.
When people have a choice to pay Rs.10 or Rs.20 for the same thing, they will buy the cheaper
one.
That is because people like to keep more money with them, so they like to pay as little as possible
for what they want.
8.4 Everyone wants a lot of things but no

one is rich enough to buy everything
No one has enough money to buy everything.
That is because people can only become as rich as the value of what they produce.
But everyone can only produce a small part of what others want. A toymaker can only produce
some of the toys that people want.
And people also want clothes, house, car, and other things. Including teaching, medical care.
So someone will produce these other things and earn money from selling them.
No one can earn so much money that he can buy everything in the world everyone wants
something they cannot afford.

18
8.5 The value of something is what
others think it is worth
A stone on the ground has no value.
Now imagine that the stone is an unpolished diamond. Even that has no value to a cow or pig, or
to humans who live in jungles.
Why do you care for a piece of stone (diamond)? Because others like it and will pay money for it.
A thing is worth what others are willing to pay for it.
The value of a painting we make is determined by the amount of money others are willing to pay
for it. It has no economic value in itself. That doesn't mean it has no value. It simply means its
economic value is zero.
8.6 People can spend their own money

better than others can spend it for
them
No one knows better than us about what we like. No one knows better than us about how much
money we have.
People always try to think about their own situation and do the best they can.
They will buy from their money whatever gives them the greatest value for the money they have.
No one else can decide better than us about how we should spend our own money.
8.7 What we choose today can affect

what happens in the future
If you study a lot today, you could become a doctor in the future. If you do a lot of swimming
practice today, you could become an Olympic swimming champion in the future.
But if you eat a lot today, you could become fat and sick in the future.
8.8 We must look at the full picture

when thinking about something
One day while playing cricket, the ball went and hit a window. The window broke. Why was the
owner unhappy? After all, someone would now get paid to fix the window. Wouldnt that person
be happy?
The owner was unhappy because he had saved money to buy a suit and now he would have to
spend that money in replacing a window.
By destroying a window no new wealth was created, even though the person who fixed the
window received some money.
That is because that money would have been better used in paying the tailor to stitch a suit. The
owner would have then got both the window and the suit. Now he only has the window.
The man who repaired the window would not have got money, but the tailor would have got the
money.
It would be wrong, therefore, to say that the society has benefited because the window broke.
8.9 Very few people are born with

money. They have to earn it.
When people produce something that others value, they like to be paid for providing the valuable
thing.
Your teacher teaches. She produces teaching. That is very valuable. Who values the teaching?
Your parents value it most, but you also value it. It is fascinating to learn new things every day.
Now, is it possible for your teacher to teach you without being paid in return?
19
Remember, your teacher has to run her house and manage the costs of food, clothes, house, and
travel to the school
Your teacher can, of course, grow her own food, make her own clothes, build her own house,
treat her own illnesses. But if your teacher has to do all these things, she wont have much time
left in her busy day to teach you.
Of course, your parents can decide to teach you and not send you to school. But then how would
your parents earn the money they need to look after their needs? After all, time can only be used
in one way. Either your parents can spend their time teaching you or they can use it to earn
money for the house. They can't do both.
Time is money. Your teacher cannot teach for free. Your parents therefore pay the teacher in one
of two ways: directly through school fees or indirectly, through taxes to the government.
8.10 Is there a free lunch?

As children we get everything for free, but when we grow older we should not expect to get
things for free.
There is no free lunch. We must give something in order to get something.
8.10.1 We should pay people if we want something from them

Lets think some more about this.
Are you more likely to get a barber to cut your hair if you pay him or if you threaten him with
punishment for not cutting your hair?
Punishing people or threatening them is not the best way to get what you want.
People react differently to different incentives, but no one likes being forced to do something.
To get someone to work for you, it would be helpful to do something good for them in return,
such as paying a barber for a haircut.
8.10.2 Why do people charge for things they sell?

What would happen if a baker provided free bread? He would not be able to pay for the cost of
the flour and for the cost of running the oven. Soon, the baker would run out of money to run the
bakers and produce bread.
Providing things for free is not sustainable.
We should pay the baker so he can continue to be in business. This way parents don't have to
make bread themselves, but can produce other things that they are better at.
A famous man named Adam Smith said that bakers don't produce bread because they want to
make others happy. They produce bread because they want to earn money and make themselves
happy.
Does it mean that bakers selfish? Are teachers selfish because they expect to be paid for
teaching? Are barbers selfish because they expect to be paid for giving a haircut? Not really. To
get the money they need, the baker, the teacher and the barber first have to make sure that you
(or you parents) are being well served. Only then do their needs get met. The bread should be
tasty. It should not be costly. Only then will it serve your needs.
So even though the baker may be selfish (who knows?) he actually has to make you happy,
before he can think of being happy.

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8.11 If prices of something go up less of
the thing is bought
If the price of a big TV goes up, less people will buy the big TV and more people will buy the small
TV. If prices go up too much, then some people wont even buy a TV.
If price of a big TV goes down, more people will buy it.
There was a time when only very few people could buy a TV. Today, prices are lower (because the
TV producers have learnt
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9. What is the government and what does it do?
9.1 Sometimes people may need a

government to make rules
People follow rules on their own. Most rules are set by society. For example, when someone
leaves a bag on a chair in a cinema, it means the chair is occupied.
9.2 Sometimes markets may not be able

to supply things we need
Sometimes people, buying and selling things, may not be able to produce enough of the things
that people want. Things like some of the bigger roads and bridges.
Everyone thinks that building a tunnel across the mountain would be a good idea, but sometimes
no one comes forward to collect money from the people to actually build the tunnel. In such
cases, it may be better if we give this job to the government.
It is hard to own a road and sell the right to use the road. If someone cant control who uses a
road, he cannot recover the costs of building the road. In that case the road will not get built.
So the government forces everyone to pay (through taxes) and pays for the road which people
then use free of cost (there is nothing free; it has been paid by the people, through taxes).
9.3 Sometimes people dont bother

about the harm they cause
Sometimes a factory may throw poisonous waste water into the river, thereby killing fish and
plants, and making the water undrinkable.
In such cases one solution is to have the government punish the factory for doing this. That way,
the factory will install a system to collect the poisonous waste water and dispose it safely
9.4 That doesnt mean the government

can do things better than the people
A man named Friedman wrote: If you put the federal government in charge of the Sahara Desert,
in five years thered be a shortage of sand.
What does that mean?
He was trying to show that in most cases when a government tries to do something it will do it
badly and in a very costly way.
The government is made up of kings and priests. But the businessmen who want to stop others
from producing things also join hands with the government.
In general, we should try to ensure that the government doesnt do too many things, and only
does things where it is unavoidable - plus it can show that it can do things better than others.
9.5 We learnt earlier how we earn

money, but who creates money?
Is money the paper? Can anyone print the paper and make money?

22
In the olden days, money used to be backed by gold. Banks could print money which had a
promise to pay the owner of the note an amount of gold, if the person so wanted.
That was a good thing, because only a limited amount of money could be issued by banks.
Later the government took over the job of printing money.
The government did not back its money with gold.
This led to the government often printing money to pay for things. Each time such a printing
takes place, the value of money that people hold falls.
9.6 Prices rise when the government

prints too much money
When the government creates a large amount of money, the value of money falls because the
number of things to buy remain the same, but the total money available increases.
If a toy costs Rs.100 today, it will cost Rs.200 if you double the amount of money (by printing
another Rs.100). Prices rise when money is printed.
9.7 We must remember that

governments cant spend our money
better than we can
We saw earlier how no one knows better than us about what we like. No one else can decide
better than us about how we should spend our own money.
In the same way, a government cannot know best how to spend our money.
Government should only take that much money which is needed for roads, for police and for
judges. All other money should be left to the people to spend by themselves.
=
government should perform only the activities that cannot be performed in the private sector.
These activities are:
Maintaining the military, to protect us from hostile nations and dangerous groups such as
terrorists. Libertarians are willing to concede that an effective military cannot be privatized and
therefore must remain as a function of government.
Maintaining the justice system, to protect us from domestic criminals by means of police, courts,
jails and government lawyers such as prosecutors and public defenders.
23
10. Chapter 4: Congratulations!
10.1 Well done!

By reading and understanding this book you have learnt the economic way of thinking. That is something
very rare in the modern world since most people never get to learn it during their life.
You can now understand the great policy debates of your time.
10.2 So you want to become rich

Well, everyone wants to do that.
By now youve learnt that the way to create wealth is to specialise. So you should specialise in something.
But not just one thing. You should know other things, as well. So that when the worlds production
methods are changed (e.g. machines or robots take over the job you have specialised in), you are
prepared for other ways to remain rich.

24
Book 2: For age 12-18
The second volume (stand-alone) will include concepts that are bit more complex, as well as more
examples.
25
11. Book 2 topics
11.1 Human behaviour

Economics is about understanding human behavior. The incentives that drive human actions, nature of
the actions, as well as the outcomes. As such, a good economist has a good understanding of human
nature. Mises considered Economics to be sub-set of praxeology.
11.2 Biases
Four major biases that the general public has:
11.2.1 Anti-market bias

11.2.2 Make-work bias
11.2.3 Anti-foreign bias
11.2.4 Pessimistic bias
11.3 Value
Negating Marx's Exploitation labour theory/ explaining the subjective value theory
The money prices established in a market are not measurements of value. They are historical facts,
recording the ratio at which two items (the money good and some other good or service) exchanged in
the past.
11.4 Scarcity
The first lesson of economics is scarcity. There is never enough of everything to fully satisfy all those who
want it. - Thomas Sowell
If there was an unlimited supply of any particular good, everyone could have as much as they wanted,
and there would be no-one willing to pay even a penny for that good. For example, generally we have all
the air that we need to breathe. So air is free. But that changes if air becomes scarce. Imagine providing
air to an astronaut on the moon. That is very costly because it is scarce.
11.5 Magic of the market and price

system
11.6 Market
On entering Paris, which I had come to visit, I said to myselfhere are a million human beings
who would all die in a short time if provisions of every kind ceased to flow toward this great
metropolis. Imagination is baffled when it tries to appreciate the vast multiplicity of commodities
that must enter tomorrow through the barriers in order to preserve the inhabitants from falling a
prey to the convulsions of famine, rebellion and pillage. And yet all sleep at this moment, and
their peaceful slumbers are not disturbed for a single instant by the prospect of such a frightful
catastrophe.
On the other hand, eighty departments have been laboring today, without concert, without any
mutual understanding, for the provisioning of Paris.

26
How does each succeeding day bring what is wanted, nothing more, nothing less, to so gigantic a
market?
What, then, is the ingenious and secret power that governs the astonishing regularity of
movements so complicated, a regularity in which everybody has implicit faith, although happiness
and life itself are at stake?
That power is an absolute principle, the principle of freedom in transactions. In a free market, the
consumer is the king. Bastiat in Economic Sophisms
Economic liberalization
11.6.1 Are markets immoral?

Are markets immoral as the Pope claims?
11.7 Rule of law

A market cannot be free without rule of law.
It is the pursuit of one's own self-interest which makes the economy run, but can also lead businessmen
to cheat or collude to form cartels. Without strong rule of law to keep this in check, the economy will get
derailed.
11.8 Trade
We succeed by producing values and trading them with other producers, in exchanges where
both sides winand the more others have to offer, the easier our success becomes.
The desire for profits is the reason why we trade, innovate, and produce things.
The economy is not a fixed pie and not a zero-sum game.
The necessity of free trade with minimal regulations and no tariffs.
Globalization
11.9 Creative Destruction and innovation

Free economies are innovative economies. Closed economies and Socialist economies can never be
hotbeds of innovation. It is competition which forces businesses to constantly innovate, thus improving
quality and quantity while lowering prices. New products come out to serve the existing markets or
create new markets. This creates jobs and the improvement of productivity leads to increases in the real
wages of workers.
11.10 The magic of profit

The desire for profits is the reason why we trade, innovate, and produce things.
Profit made through voluntary exchange is good. It is a signal that the company has successfully provided
a service to others.
11.10.1 Just producing machines does not make a nation wealthy

While machines are important for producing goods, just producing machines is not the way to create
wealth. The machines must produce things that people want, and are willing to buy. Producing the
machines must be profitable. In central command economies, often a lot of machines are produced
without any reference to consumption.
27
11.11 Productivity
11.11.1 Why are wages in third world countries like India so low?
The reason is because they are low productivity countries. The wages represent the productivity of the
workers. Workers receive a wage reflecting their value in the production process. These low productivity
countries tend to produce products of low marginal quality.
11.12 Seen/ unseen

11.12.1 Bastiat's broken window fallacy
11.12.2 The more animals you eat, the more animals are produced.
Only those animals which we don't/can't eat and in which free production/ trade is not allowed (e.g.
tigers) are scarce. So if TOTAL animals increase by eating them then what's the issue? So long as you kill
them humanely, the total animal life lived increases by eating animals.
11.12.3 Price controls (rent control, minimum wage, maximum support price, etc) do
more harm than good.
11.12.4 Jobs are created by people, not by governments.
11.12.5 Criminalization of vice only serves to create a black market that benefits
criminal elements and promotes disregard for the law.
11.13 Savings
Savings is the driving force of the economy.
11.14 Comparative advantage

Even if one person is superior at producing everything, even so he benefits from cooperating with the
inferior partner. For example, a master chef benefits from hiring subordinates to chop vegetables and
prepare the other ingredients, even if the chef could have performed these tasks better than the
employees. This is because outsourcing the tasks to the inferior workers frees up the chefs time and
allows him to concentrate on those areas in which his advantage is greatest. [STUDY GUIDE TO HUMAN
ACTION by Rob Murphy].
11.15 Role of the government

Why society cannot function without a government
Regulations are necessary up-to an extent
A small government leads to strong economic growth, whereas a large government hinders it.
Property rights are the basis of prosperity
The necessity of minimal regulations in an economy, as well as the ills of over-regulation.
[Some of this can go into Advanced]
11.16 Toolkit
11.16.1 Measuring the economy
The GDP is how you measure the wealth of nations. GDP is not an indicator of economic growth, but
merely a measurement of the market value of final goods and services produced within a particular
geographic area over a specific period. What is meant by "economic growth" is not the production of

28
goods and services, but the creation of values that improves people's lives for the better.
[http://fee.org/freeman/fooled-by-gdp]
11.16.2 Game theory

11.16.3 Public choice theory
11.16.4 Cost Benefit analysis
11.16.5 Moral hazard
11.17 Money
Money has no intrinsic value.
11.17.1 Central banking

The ravages of central banking
Why separation of money and the state is crucial for sound money
29
12. Bad ideas to be addressed
12.1 Economic equality is meaningless

and irrelevant
There is an innate difference between men and regions of the world.
12.1.1 Are we getting more unequal as we become richer?

No, despite Piketty (provide some details).
12.2 Welfare
Social security is a fraud.
Subsidies (agricultural subsidies, student loans, etc) are both morally wrong and inefficient.
Welfarism entrenches poverty, creates inter-generational dependency, and engenders ever-
expanding parasitism, Poverty is empirically reduced by economic freedom.
Governmental redistribution of wealth is legalized theft'
People conflate welfarism with socialism. It is important to clarify the differences, and why 'Social
Democracy' and 'Democratic Socialism' are not Socialism.
12.2.1 Welfarenomics as propounded by Bernie Sanders.

It's based on Keynesian and Chicago school monetary theory and the law of diminishing returns. To quote
a proponent Dr. Sang-Mok Suh, "Welfarenomics means promoting a sustainable calitalism through
modifying the neo-classical market economy model in three ways: (1) strengthening the role of
government in the areas of formulating & implementing national strategy; (2) increasing social values of
business activities through developing new CSV (Creating Shared Value) activities; and (3) creating a
habitat for co-development through activating civil society. Welfarenomics also implies promoting a
sustainable welfare state through modifying the European welfare state model in three ways: (1) building
a foundation for 'workfare' through developing customized job programs for welfare beneficiaries; (2)
utilizing various welfare programs as means for social innovation; and (3) improving the effectiveness of
welfare programs through applying various management concepts to the field of social welfare.
Of course as appealing as it may sound to economic illiterates, Welfarenomics can never work as it leads
to a cycle of continual debt accumulation and currency inflation and devaluation by the Central Bank.
12.3 Social justice

Social justice; there is no social wealth. All property belongs to individuals.
12.4 Misuse of "market failure" argument

The state is just people, as human as the rest of us. They have incentive and calculation problems that
lead to resource misallocation and creates market distortions. Government failure leads to market
failure.
12.5 Socialism
Reduces incentive to work.
Creates an underground economy.
The Economic Calculation argument of Socialism.

30
Case study of India and the wonder which liberated economy, even at a small scale created
12.6 Population 'problem'

Population is our greatest asset, not a liability.
12.7 Excessive taxes

Negative consequences of high corporate taxes and heavy taxation of the rich
12.8 Protectionism
Protectionism is bad for the economy, hurts job growth, and negatively affects consumers (restriction of
choices, lower quality, and higher prices).
12.9 Minimum wage
12.10 Central planning

Impossibility of central planning
12.11 Business cycles: not crises of

capitalism but government
intervention
The following crises are commonly blamed by socialists on Capitalism rather than on government failure.
(1) Great Depression
(2) American recession. Socialists claim that government deregulation and corporate greed were the
causes.
(3) Eurozone crisis.
12.11.1 Asset Bubbles
12.12 The Scandinavian model / Social

Democracy
(2) The German model / Democratic Socialism
(3) Cuba / Communism. It is touted as an alternative to 'exploitative and unjust capitalism' by socialists.
They cite their very high social development indicators and successes in public healthcare.
(4) Chinese model / Command economy
(5) South Korea and Japan / Cronyist state capitalist economy where the state favors the chaebols and
zaibatsus respectively
Scandinavia where social welfare is at peak and hence close to zero growth rate.
12.13 Keyness ideas

Keynesian fiscal stimuluses and pump priming do not work and have been consistently shown to be
ineffective. Employment rates do not go up and the economy does not grow.
31
12.14 Marxian
12.15 Behavioural economics
12.16 Mixed economy

Some people bear the wrong notion that capitalism creates inflation and they even regard the so called
mixed economy as the great work by founding fathers of India..
12.17 The problem with macroeconomics

Nothing like aggregate demand.

32
13. Suggestions received
13.1 Capitalism
Capitalism is a natural system. Humans will trade and exchange goods and services after all. Every
country's economy, including the socialist ones, is built on capital, so every country is capitalist at its core.
There can be no alternatives. Socialism attempts to create an alternative system by subverting this
natural system of capitalism to cater to its unfounded and disproven unscientific dogmas. A mixed
economy which purports to combine the 'best' of both worlds cannot be an alternative, since socialism
has nothing of any validity to offer.
13.2 The future

Presently a lot of people have taken to talking about a post-capitalist era due to the sharing economy and
technological advances that might bring about a zero marginal cost economy (Jeremy Rifkin).
13.3 Deflation
13.3.1 Fears of deflation are unfounded
This following quote by Robert Zubrin points out that apart from factual misconceptions, it is
antihumanism that is the ideological driving force behind environmentalist's vendettas against population
growth, consumerism, nuclear energy, GMO crops, etc.
<<<< Ive been working on this book for more than thirty years, over which period Ive seen time and
again how important innovations that could advance the human condition have been repeatedly blocked.
Take nuclear power, for example, which is the field of my university degree. In the 1970s, the
antihumanists argued that economic growth must stop because fossil fuels are too polluting, and,
besides, we are running out of them. We responded that we have enough nuclear fuel to last for millions
of years, and it produces no smoke. They werent interested, and, in fact, they became increasingly
militant in their view that nuclear energy must be ruled out.
Antihumanists also said that population must be limited because there isnt enough food, although
militantly opposing the development or even deployment of higher yielding and more nutritious crops.
In every area it became clear that the antihumanists wanted the problem, not the solution, and
ultimately the question had to be asked: Why? As I delved into the matter, it became clear that there was
a longer history to all this, and an ideology, which conceived of humans as destroyers, rather than
creators, and which therefore justified all forms of oppression and tyranny.
If humans are fundamentally destroyers, or, what amounts to the same thing, only consumers of
natural resources, then their numbers, activities, and liberties must be severely constrained, and
someone must be empowered to do the constraining. If, on the other hand, humans are fundamentally
creators, then their freedom must be protected at all costs, because freedom is essential to the exercise
of creativity. >>>>
https://www.theobjectivestandard.com/issues/2012-fall/robert-zubrin/
13.4 National resources are not finite.

To quote Julian Simon:
"Incredible as it may seem at first, the term "finite" is not only inappropriate but is downright misleading
in the context of natural resources, from both the practical and the philosophical points of view. As with
so many of the important arguments in this world, this one is "just semantic." Yet the semantics of
33
resource scarcity muddle public discussion and bring about wrongheaded policy decisions. A definition of
resource quantity nlust be operational to be useful. It must tell us how the quantity of the resource that
might be available in the future could be calculated. But the future quantities of a natural resource such
as copper cannot be calculated even in principle, because of new lodes, new methods of mining copper,
and variations in grades of copper lodes; because copper can be made from other metals; and because of
the vagueness of the boundaries within which copper might be found-including the sea, and other
planets. Even less possible is a reasonable calculation of the amount of future services of the sort we are
now accustomed to get from copper, because of recycling and because of the substitution of other
materials for copper, as in the case of the communications satellite. Even the total weight of the earth is
not a theoretical limit to the amount of copper that might be available to earth. Only the total weight of
the universe-if that term has a useful meaning here-would be such a theoretical limit, and I don't think
anyone would like to argue the meaningfulness of "finite" in that context. With respect to energy, it is
particularly obvious that the earth does not bound the quantity available to us; our sun (and perhaps
other suns) is our basic source of energy in the long run, from vegetation (including fossilized vegetation)
as well as from solar energy. As to the practical finiteness and scarcity of resources-that brings us back to
cost and price, and by these measures history shows progressively decreasing rather than increasing
scarcity. Why does the word "finite" catch us up? That is an interesting question in psychology,
education, and philosophy; unfortunately there is no space to explore it here. In summary, because we
find new lodes, invent better production methods, and discover new substitutes, the ultimate constraint
upon our capacity to enjoy unlimited raw materials at acceptable prices is knowledge. And the source of
knowledge is the human mind. Ultimately, then, the key constraint is human imagination and the
exercise of educated skills. Hence an increase of human beings constitutes an addition to the crucial stock
of resources, along with causing additional consumption of resources.
http://www.ce.cmu.edu/~gdrg/readings/2007/09/27/Simon.pdf
A section on the fruits of Capitalism that we are beneficiaries of since the Industrial Revolution would be
great.
Six killer apps of prosperity by Niall Ferguson
https://www.youtube.com/watch?v=xpnFeyMGUs8
==
It is through respecting the son of a barber who produces wealth that the world started getting rich.
The social dignifying or honouring of those who contributed as industrialist made everyone an innovator.
Innovation was respectable, for the first time in human history.
13.5 Trade and wealth production

Wealth is not created just because someone produces a lot of things. What is produced must be
considered to be of value by others. They must be willing to trade (buy) the stuff that has been produced.
It is trade that releases value and creates wealth.
13.6 Role of middlemen

Middlemen are important participants in markets, because they serve several purposes, such as
facilitating contacts between buyers and sellers, and reducing transaction costs. Middlemen are not
parasites. They can be eliminated, but their functions can never be eliminated.
=
A jack of all trades is inherently inefficient. Self-sufficiency is the road to poverty.
Government failure
If you put the federal government in charge of the Sahara Desert, in five years thered be a shortage of
sand. Friedman
Businessmen like political favoritism or patronage.

34
13.7 Function of prices
Fundamentally prices serve three functions. . . . First, they transmit information. . . . This function of
prices is essential for enabling economic activity to be coordinated. Prices transmit information about
tastes, about resource availability, about productive possibilities. . . . A second function that prices
perform is to provide an incentive for people to adopt the least costly methods of production and to use
available resources for the most highly valued uses. They perform that function because of their third
function, which is to determine who gets what and how muchthe distribution of income. [ Friedman,
Milton. 1988. Market Mechanisms and Central Economic Planning. In Ideas, Their Origins, and Their
Consequences by G.Warren Nutter.Washington, DC: American Enterprise Institute for Public Policy
Research: 2746.]
=
13.8 Alternative to prices: rationing

Rationing by quota is inefficient because it restricts personal freedom to choose, and it results in
corruption, crime, black markets, and other ways to game the system.
13.9 Externalities
what if the steel mill that produced the steel for the cutlery polluted the air with sulphuric acid that
caused acid rain, and polluted the water table with chemicals used in the process. That pollution harms
people in the area who breathe the air, while acid rain damages nearby agricultural crops, and chemicals
in the water table seep into neighborhood wells used for drinking water, causing cancer in local residents.
The cost of the pollution falls on people in the area who suffer illness, premature death and expensive
medical treatment.
These unfortunate people in the area bear part of the cost of producing the steel, and the steel mill
escapes paying for those costs that are inherent in making steel. Economists call this an externality
because part of the cost of making the steel is paid by parties external to the steel mill.
13.10 Price signals

When a society interferes with these price signals, by curtailing free markets in favor of centralized
planning, price signals are lost. Then supply and demand become uncoordinated and the results are
shortages and surpluses.
13.10.1 Price ceilings

Price ceilings always cause shortages, because prices cannot rise when there are shortages in order to call
forth greater supply. Rent control has been imposed in New York City and in Santa Monica, CA. In both
cases the result was that landlords cut back on maintenance of rental buildings, and ceased to build more
rental units.
ECONOMIC IGNORANCE CAN BE FATAL, JUST AS IGNORANCE OF HYGIENE CAN BE FATAL
"after hurricanes in Florida destroyed houses and blew off roofs, there were lengthy shortages of building
materials needed for reconstruction. If prices had been allowed to rise, supplies of building materials
would have poured into Florida, attracted by the higher prices, and the shortages would have soon been
eliminated, with prices then falling back to more normal levels. People displaced from their homes could
have speedily rebuilt and moved back home. But the anti-gouging laws caused shortages of building
materials that often lasted as long as a year or more, and greatly slowed recovery from the disaster."
13.10.2 Price floors

Price floors also are well-intended, but inherently harmful. One example of a price floor is the minimum
wage. Setting a minimum wage is intended to protect unskilled workers by providing them with a living
wage. That is the visible idea. But what actually happens is that employers of unskilled workers find that
35
the increase in the minimum wage now makes it more expensive to hire unskilled workers. So employers
cut back on hiring, fire less productive employees who are no longer worth their increased pay, and
search out substitutes for unskilled labor, such as outsourcing jobs to developing countries where labor is
less expensive, or hiring illegal immigrants, or purchasing machines that can do the work more cheaply.
As a result, the lowest-skilled workers lose their jobs, and go from low pay to no pay. The very lowest-
skilled workers that the minimum wage was supposed to help, end up unemployed and unemployable. In
some countries where the minimum wage is relatively high, such as France, youth unemployment is as
high as 405, and there are no baggers in the supermarkets. The French have to bag and carry their own
groceries because the high minimum wage has rendered baggers unemployable and unaffordable.
Another form of price floor is agricultural price supports. Farmers are subsidized to grow certain crops.
These subsidies on top of market prices cause farmers to increase their crop production, resulting in
agricultural surpluses. These cannot be sold, and are left to rot in government storage, or burned, or
otherwise inefficiently wasted.
13.11 Tragedy of the commons

One of the key arguments in favor of private property and against socialism is the Tragedy of the
Commons. People will over-use and destroy the resources, and there won't be enough for future
generations.
The tragedy of the commons comes about as follows. Imagine a pasture open to use by all. With open
access, each herdsman will try to feed as many cattle as possible on the commons, because the pasture is
a free good. This kind of arrangement may work more or less satisfactorily so long as wars, disease and
poaching hold down the numbers of man and beast below the carrying capacity of the pasture.
Eventually, however, the day of reckoning may arrive, when wars, disease and poaching can no longer
hold down the numbers of man and beast, and overcrowding becomes a reality. At this point, the limited
carrying capacity of the commons relentlessly results in tragedy.
As a rational being, each herdsman acts in his own self interest. More or less consciously, he asks, "What
is the harm to me if I add one more animal to my herd?" Since use of the pasture is a free good to each
herdsman, they have no hesitation in adding more and more animals to graze on the pasture. Therefore
each herdsman keeps adding cattle to the commons, until overcrowding turns the once-fertile pasture
into a bare and barren wasteland. Then all herds and their herdsmen face starvation. When access is free
to everyone, no-one limits his use of the scarce resource, and everyone becomes ruined.
This same problem afflicts other shared resources. For example, lakes, rivers and oceans become fished
out because of excessive catches that wipe out most of the fish. In similar fashion, wild animals may eat
and trample the crops of farmers, so that the farmers turn to hunting and killing these wild animals. After
the animals are
6 Hardin, G. (1968) The Tragedy of the Commons, Science 162, 1243-1248. Commons are resources that
are publicly owned and open to use by the public, such as public grazing lands, lakes and rivers, and sea
coast.
wiped out, tourists stop coming on safari to see the wild life, and the farmers find that the demand for
their crops has dried up because the tourist business is dead.
How can this problem of the tragedy of the commons be avoided or solved? It has been successfully
solved by converting the commons into private property. For example, if the commons was put out to
auction, and the winning bidder could now charge grazing fees to users, then there would be no more
free good. The private owner would not allow his property to become over-grazed, and herdsmen
would limit their use to what they could afford to pay. This solution has been successfully used in Africa,
where the ownership of wild animals have been awarded to village chiefs. In order to stimulate safari
tours, the chiefs hire villagers to protect the animals from poachers, and to keep the animals out of the
farmers fields. As a result, the animals are kept in the wild, the farmers sell their crops, and tourism
flourishes, bringing money to the villages.

36
1. When property is owned by everyone, it is cared for by no-one. Public ownership is not economically
efficient, and can lead to the tragedy of the commons. But with private ownership and secure property
rights, property is efficiently used, to everyones benefit.
2. When access to a resource is free, that resource will be overused. In a world of scarcity, nothing is
really free. As economists like to say: there is no such thing as a free lunch.
==
13.12 Comparative advantage

Jack and Jill are shipwrecked on a desert island. Fortunately there are coconut palms on the island and
clams to be gathered on the beach. Jack can pick 12 coconuts in an hour or find 10 clams in an hour. Jill
can pick only 9 coconuts in an hour, but she can find 14 clams in an hour.
Clearly Jack is better at picking coconuts, and Jill is better at catching clams. Therefore both are better off
if Jack specializes in picking coconuts while Jill finds clams. Jacks skill at picking coconuts is what
economists call his comparative advantage, and Jills comparative advantage is her skill at catching clams.
Since each has specialized, they will trade coconuts for clams.
So far we have shown that specialization, based upon comparative advantage, leads to increased trade,
which in turn helps all parties to become better off in this Pareto efficient process, regardless of whether
these parties are individuals or entire nations, and regardless of whether the trade is only domestic, or
crosses national frontiers.
. It still pays for the country with a comparative advantage in all goods to concentrate on producing those
goods where its comparative advantage is greatest, and importing those goods where its comparative
advantage is smallest from less efficient countries.
that trade, whether it be domestic or international, is wealth-producing and efficient for all participants,
whether they be individuals or countries. . Globalization increases the wealth of all nations, not just rich
nations. Globalization is by no means a cause of job losses and unemployment. On the contrary,
globalization causes job growth and increases employment.
DEMAND-SUPPLY
If you are selling lemonade on a hot day, you can raise the price and people will still buy it.
Consequences of actions
People are responsible for their actions
Public sector industries are inherently inefficient in contrast to their private sector counterparts, as they
are insulated from the market forces of competition and financial accountability that drives innovation,
prevents wasteful misallocation of resources, and reduces costs.
==
Question
Should this book aim to impart financial literacy? E.g. things like compounding?
No.
Bryan Caplan's critique of the failure of Austrian Economics to posit an alternative to mainstream Neo-
classical Economics as well as Austrian economist Tom Wood's response:
http://econfaculty.gmu.edu/bcaplan/whyaust.htm
https://www.youtube.com/watch?v=hst0Wpg-dAM
An interesting debate between an Austrian and Neoclassical economist:
'https://www.youtube.com/watch?v=lIPq3eXdofk
Law of unintended consequences
The feminist demand of Equal pay for Equal work is counterproductive and harms women
37
This is a good resource for your work.
http://www.economicshelp.org/economics-a-z/
Limitations of Democratic Institutions - Democracy is seen as a process where voters express their
choices via the ballot box. Now, there is a huge difference between voting in the ballot box and voting in
the market. While voting via prices in the market, a person who might want to have a villa along with a
Rolls Royce Car is immediately constrained by the prices and he has to reveal his relative preferences but
while voting via the ballot box, a lot of voters might simultaneously vote for a strong military, massive
welfare programs, balanced budgets and Tax cuts all in one. Democracy simply lacks a feedback
mechanism of communicating back to the voter the relative costs and benefits of the choices he has to
make. Thus there are severe limitations to Democratic Institutions and what they can do.
https://www.youtube.com/watch?v=Q1EOZ8Qn_Xc
Why can't we just print money to pay off debt?
https://www.youtube.com/watch?v=EobPnLZiOo8
Each society choose its future each day
"You have to choose between two roads, and one of them leads necessarily to poverty." - Bastiat
- EVEN THE SLIGHTEST TRACE OF SOCIALISM/ STATISM/ PROTECTIONISM IS POISON.
==
The confusion begins with the term "trade deficit".
Self sufficiency is a antediluvian concept that precedes the industrial age with which mass production,
break through in transportation etc. ushered in concept of core competence, collaboration and trade,
antiquating "self-sufficiency" tribalism.
After "independence" Indian politicians starting with Nehru got doped by this stupid concept of "self
reliance" which was never fundamentally disputed or debated by anyone and cultural/religious
organizations like Swadeshi Jagaran Manch with their band of ignorant zealots latched on, funded by
domestic companies that feared competition and relied heavily on patent violations.
==
It is difficult to free fools from the chains they revere Voltaire
This has always remained true. In Voltaire's time, in Bastiat's time, in our time.
I claim that people are rational, and they actually behave very rationally in matters of pure (direct) self-
interest. Which is very good, indeed.
But their brains become jelly when anything complex, such as the effects of various people's self-interest
on society. Then they imagine the worst, and fail to understand how individual self-interests check each
other and neutralise any ill-effects on each other. Each time they exchange/ trade, this neutralisation is
on display. Both parties gain. Both parties don't get as much as they want. But hard to understand this, it
would seem.
And so there is a plaintive cry for God and Government. For chains to enslave everyone.
Natural sciences like physics are easy to understand in general because of one to one direct effect of
action and taxation and it's authentic proof (posteriori). Whereas economics is a social science based on
logical deduction (a priori) with little in terms of direct one to one effect because purposeful human action
is much more complex than natural events.
WHY ECONOMICS TRIPS EVERYONE: Its conclusions are vastly counter-intuitive.
- selfishness and self-interest create the best results for society
- good intentions almost always create bad results in public policy
- minimum wages harm the poorest of the poor
]- government regulation to prevent monopoly creates monopolies

38
- imports assist a society more than exports
- economic inequality lifts the poor (in most cases)
When even many economists fail to support the rather astounding conclusions, imagine how hard it is for
the common man (no matter how "educated") to do so.
Please provide further examples. I'll try to include in book 2 for children.
SOME OF DON BOURDEAUX'S INSIGHTS
- the purpose of trade - any trade - is to enrich people as consumers and not to enrich people as
producers. The ultimate purpose of all economic activity is to improve our standards of living (loosely
described as 'increasing our consumption'), what ultimately matters is how well an economy serves us as
consumers. "Consumption is the sole end and purpose of all production" (Adam Smith)
- exports are a cost and imports are a benefit
- the specific jobs lost to imports are not the only employment consequences of trade
- domestic producers protected by government from competition have diminished, rather than
intensified, incentives to improve efficiencies of their operations
Money is a medium of exchange. It is something you pass on to acquire what you really want. Money is
not the same as wealth. A society is only wealthy if it has an abundance of goods and services.
Money arose naturally and was used in many different forms. Historically, people used what they readily
recognized. Money had to be a commodity that people were familiar with or it wouldnt have emerged as
a medium in the first place. Some people used shells and beads as a form of money. Other things used as
money include tobacco, grain and other types of food.
Rush to market failure

http://cafehayek.com/2015/11/economists-should-be-more-like-biologists.html
WHY ECONOMICS IS VERY HARD - IT IS MUCH HARDER THAN CHESS
39
Economics is like chess - only more complex by an order of magnitude.
It involves working through an initial action, then reaction - not just by one person but reactions of
potentially tens of other people; then once again, their further actions and reactions. And so on.
It is not just a two person game. It is potentially a hundreds of persons game.
The greatest charitable activity anyone can undertake is to teach liberty and reason.
I encourage everyone to undertake this charitable work. It requires your time and knowledge; not
money.
the failure of modern economic training to teach young economists to ask, always to ask,
why. [excellent article by Don Bourdeaux]
monopoly : https://www.facebook.com/groups/fahayek/permalink/10153164450875848/
free trade: https://www.facebook.com/sabhlok/posts/10153724964413767
Never look at prices. Think of them as equivalent time. So, if an aluminium staircase costs $100, think
how many hour of your time that costs. Then think if you had to make it on your own how much it
would cost. You will see clearly that you are getting excellent value through the market system.
The only question then is whether you could get it even cheaper. And that's what the market system
does: it drives down all super-normal profit.
I challenge those who complain about the market system to produce ALL the things they consume in
their own, and see if that's even feasible.
The free market system of exchange is critical to human progress.
The Economic Way of Thinking by the late Paul Heyne, Peter Boettke, and David Prychitko.
MYTHS
http://cafehayek.com/2015/11/some-economic-myths-slain-by-alchian-
allen.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CafeHayek+%28Ca
fe+Hayek%29
Key problems of economics
- cooordination problem
- information sharing (price system) problem
- innovation problem (mccloskey)
- productivity problem (related to innovation)
==FURTHER SUGGESTIONS RECEIVED==

Dear Sanjeev,
Marginal Revolution University is a good youtube channel you could use as a reference.
https://www.youtube.com/user/MrUniversity/playlists
Here are a couple of ideas:

40
(1) Law of supply and demand
(2) What is microeconomics and macroeconomics?
(3) What is GDP?
(4) What are the causes of inflation and what can be done to contain it?
(5) Discuss the effects of a class warfare tax policy (high progressive income taxes and high corporate
taxes) on the economy.
(6) What are the factors that account for the strength of a currency?
(7) China which is more corrupt than India and ranks lower on economic freedom is progressing at a
much faster rate than India. They rank much higher in the Human Development Index, and by the rate at
which they are progressing, should be a developed country in another 20 years. China has a larger
government than India. Doesn't this negate your assertion that small governments and free markets is
the best path for a country to follow?
(Note: I don't believe in the Chinese social market economy nonsense, but this is a question that can arise
among ignorant people.)
(8) Do trade deficits between countries really matter? Why does it matter that we import more from
China than we export to them?
(9) Why don't countries print more money to pay off their debts?
(10) Why has Indian rupee devalued from around 5 per $1 at independence to around 60 per $1
today?
(11) What makes the welfare state wrong and harmful?
41
(12) Minimum wage and its effects on employment
(13) What's wrong with subsidies if they help people?
(14) Why do we need regulations? Aren't regulations a barrier to economic freedom? Isn't it true that the
market will self-correct as a company's reputation will suffer if it harms its customers?
(15) Effects of prohibition on vices (narcotics, gambling, guns, etc)
(16) Effects of "positive discrimination" (affirmative action programmes and reservations) on human
freedom and the economy
(17) Why shouldn't the government run healthcare and education? Isn't free education and free
healthcare a fundamental right? It's true that public hospitals and schools are in shambles, but the
answer might be to fix them and make them function well.
(18) Shouldn't India pursue a mixed economy that combines the best features of both socialism and
capitalism?
(19) How should a free society manage its environment?
(20) Our local industries and companies may not be able to survive under the pressures of international
competition. As such, wouldn't it be a good idea to protect them through tariffs and encourage them
with subsidies? Some degree of protectionism is followed in many advanced economies, such as US,
Japan, and South Korea.
(21) What's wrong with corporate bailouts? Rescuing a company may preserve thousands of jobs and
rescuing a bank will save the deposits of customers? Some companies are too big to fail.
(22) What is the recipe for rapid economic growth and prosperity?
(23) Why anarchism is an impossibility! We need a strong state to preserve our economic freedoms,
enable prosperity and civilization itself.
42
(24) Keynesianism
(25) Compulsory unionization
It violates freedom of contract by infringing on the rights of employees and employers to entering into a
contract with mutually agreed terms. It entails coercion by forcing workers to pay dues to a union he
doesn't want to be a part of, and by forcing employers to abide by the demands of labour unions.
(26) Isn't taxation theft?
(27) Dangers of big government
(28) Social justice
(29) Income inequality is meaningless and the ideal of economic equality is a dangerous delusion
(30) If capitalism is so good, then why do so many people oppose it?
(31) A large population is an asset, not a liability
(32) Equal work for equal pay
(33) Rigid labour laws
43

Economics For Children

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The miracle of so many things.

How are there so many things? How are people

Coordinator: Sanjeev Sabhlok

1. BACKGROUND, AND NEED FOR SUCH A BOOK ........................................................................................ 1

1.1 The need

1.1.1 Why economics is so confounding difficult

1.1.2 Need recognised as long ago as in 1910

Sone Ki Chidiya Total Reform Agenda

1.2.2 Advance warning

1.3 Broadly similar works

1.4 Copyright Open Source

Sone Ki Chidiya Total Reform Agenda

Sone Ki Chidiya Total Reform Agenda

3.1 Then something happened, around 200 years ago

For Book 2, elaborate on this

3.2 So what happened?

3.2.1 All man-made things start as an idea

Sone Ki Chidiya Total Reform Agenda

4.1 Wealth is produced by us, the ordinary individuals

4.3 Everyone is a producer and consumer

Sone Ki Chidiya Total Reform Agenda

4.4.1 Why are some singers and sportsmen so rich?

4.5 The wealth of a society is not fixed

5.1 Producing everything one needs is a really bad idea

Sone Ki Chidiya Total Reform Agenda

6.1 Trade makes both sides better off

Simplify the box below, for book 1

For Book 2, elaborate this

Sone Ki Chidiya Total Reform Agenda

6.5 Why are some countries still poor?

Can anyone buy everything that is produced in the world?

7.1 Why do many people now live in cities?

Sone Ki Chidiya Total Reform Agenda

8.1 Should we be free to choose for ourselves?

8.2 All people prefer more money to less

8.3 Everyone likes to pay less for things

8.4 Everyone wants a lot of things but no

Sone Ki Chidiya Total Reform Agenda

8.6 People can spend their own money

8.7 What we choose today can affect

8.8 We must look at the full picture

8.9 Very few people are born with

8.10 Is there a free lunch?

8.10.1 We should pay people if we want something from them

8.10.2 Why do people charge for things they sell?

Sone Ki Chidiya Total Reform Agenda

9.1 Sometimes people may need a

9.2 Sometimes markets may not be able

9.3 Sometimes people dont bother

9.4 That doesnt mean the government

9.5 We learnt earlier how we earn

Sone Ki Chidiya Total Reform Agenda

9.6 Prices rise when the government

9.7 We must remember that

10.1 Well done!

10.2 So you want to become rich

Sone Ki Chidiya Total Reform Agenda

11.1 Human behaviour

11.2.1 Anti-market bias

11.5 Magic of the market and price

Sone Ki Chidiya Total Reform Agenda

11.6.1 Are markets immoral?

11.7 Rule of law