kings and ministers pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society.

   --  Adam Smith

Problems with economic theory

Economics is not seen as a science but it should like physics. We say there are truths in Physics, but not economics.
Economic analysis is currently seen more as a toolbox.
The old joke is, if you get 3 economists in a room, you will end up with 10 opinions.

Economics summary


People act to improve their conditions. To achieve ends. (This is to avoid some kind of uneasiness they have)
They must be able to conceive of a better future.
They must be able to conceive of a way to improve their condition
Otherwise they do not act.


There are not enough means to satisfy all human wants.
When a technology is discovered it is not scarce
time is scarce, so people prefer to achieve a goal sooner rather than later
Because you are acting now, you are pulling some goal closer and therefore showing a time preference
We do not create anything, we only transform resources


Because you cannot achieve all of your goals you must chose.
We do not know the future, we must forecast. It involves error.


Subjective measure a ranking of goals
Satisfaction cannot be measured because we do not have the units to do this. They can only be ranked.
Cost is the next most valuable alternative on our value scale
Marginal utility explains why some goods that are luxury’s cost more than necessities.
More is better than less (at least more is not worse than less) 6 sacks are better than 5
The more money you have , the less its value is in relation to other goods.


Every single action is an exchange
Can be aggressive or voluntary
All exchange is exploitation, as you are getting value from someone else’s need

Economic attributes

Relies on

  • Voluntary cooperation
  • Exchange among legal equals

 Capitalist culture celebrates

"There is nothing selfish about capitalism. Like every economic model, it is a matrix within which individual actors can behave morally or immorally."

   --  Daniel Hannan
  • The entrepreneur
  • The scientist
  • The risk-taker
  • The innovator
  • The creator

Derided as

  • Materialistic by some

Capitalism is at its core

  • Spiritual and cultural enterprise. 
As Joyce Appleby noted in her recent book The Relentless Revolution: A History of Capitalism, “Because capitalism is a cultural system and not simply an economic one, it cannot be explained by material factors alone.” Far from being an amoral arena for the clash of interests, capitalist interaction is highly structured by ethical norms and rules. Capitalism rests on a rejection of the ethics of loot and grab, the means by which most wealth enjoyed by the wealthy is acquired in other economic and political systems. For much of human history, those who were rich were rich because they took from others, and especially because they used their power to gain monopolies and to confiscate the produce of others through taxes. It’s only under conditions of capitalism that people commonly become wealthy without being criminals.

Capitalism is 

  • Uniquely powerful
  • Uniquely liberating system
  • Legal system( decentralised innovation)
  • Social system( decentralised innovation)
  • Economic system( decentralised innovation)
  • Cultural system( decentralised innovation)
  • Creative destruction(Joseph Schumpeter)
Capitalism is not Welfare populism,cronyism,statism,nepotism,protectionism and paternalism

Capitalism is about

  • Creating value, not merely working hard, or making sacrifices, or being busy

In many countries, if someone is rich, there is a very good chance that he (rarely she) holds political power or is a close relative, friend or supporter – in a word, a crony – of those who do hold power, and that his wealth came not from being a producer of valued goods and services but from enjoying the privileges that the state can confer on some at the expense of others.

Table 016

Crony capitalism

Under American crony-ism  the many are bought off with subsidised home loans, the economy generates a huge bubble, the financial system crashes and the powerful get bailouts, only to be followed by more bailouts, easier money and another cycle.


IDEA - category called Quiet economics
This is about the unseen economics

For instance 
"for all the public jobs created by public investment(funded by private taxes) , rather more jobs will quietly disappear from the private sector in consequence."

12 economic concepts

1. Gains from trade: In any economic exchange, freely chosen, both parties benefit–at least in their own minds.
2. Subjective value: The value of any good or service is determined by the individual human mind.
3. Opportunity cost: Nothing is free, and the cost of anything is what you give up to get it.
4. Spontaneous order: Society emerges not from top-down intention or planning but from individuals’ actions that result in unplanned outcomes for the whole.
5. Incentives: Individuals act to maximize their own reward.
6. Comparative advantage: Cooperation between individuals creates value when a seller can produce a given item or service at a lower cost than the buyer would spend to produce it himself.
7. Knowledge problem: No one person or group knows enough to plan (and force) social outcomes, because information necessary for social order is distributed among its members and revealed only in human choice.
8. Seen and Unseen: In addition to the tangible and quantifiable effects, there are quite often invisible costs and unmet opportunities to any action or policy.
9. Rules matter: Institutions influence the decisions individuals make. For example, property rights extend from the reality of scarcity which demands that ownership must be vested in individuals and not a collective.
10. Action is purposeful: Each person makes choices with the intention of improving his or her condition.
11. Civil society: Voluntary association permits people of all backgrounds to interact peaceably, create value, cultivate personal character, and build mutual trust.
12. Entrepreneurship: Acting on an opportunity to gather underused, misused, or undiscovered resources and ideas to create value for others.

Morality of Capitalism

Capitalism is :It’s a legal, social, economic, and cultural system of decentralised innovation.
Capitalist culture celebrates the entrepreneur, the scientist, the risk-taker, the innovator, the creator.
Capitalism rests on a rejection of the ethics of loot and grab.
When you lack capitalism, you get famine, disease, misery, and oppression.