More than a century after his death, Karl Marx remains one of the most controversial figures in the Western world. His relentless criticism of capitalism and his corresponding promise of an inevitable, harmonious socialist future inspired a revolution of global proportions. It seemed that—with the Bolshevik revolution in Russia and the spread of communism throughout […]| Econlib
Fiscal policy is the use of government spending and taxation to influence the economy. When the government decides on the goods and services it purchases, the transfer payments it distributes, or the taxes it collects, it is engaging in fiscal policy. The primary economic impact of any change in the government budget is felt by […]| Econlib
Armen Alchian, an American economist born in Fresno, California, is in many ways like ronald coase. Like Coase, Alchian has published only a few articles, but very few are unimportant. And like Coase’s, many of Alchian’s articles are widely cited. Many students and others who read economics are disturbed by economists’ assumptions that companies maximize […]| Econlib
Following the end of the Allied occupation of Japan, real increases in GNP averaged 9.6 percent from 1952 to 1971. From 1972 to 1991, growth remained strong but less dramatic, averaging 4 percent per year. The rest of the 1990s and early 2000s have been a different story. From 1991 to 2003, real economic growth […]| Econlib
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But […]| Econlib
“ Industrial concentration” refers to a structural characteristic of the business sector. It is the degree to which production in an industry—or in the economy as a whole—is dominated by a few large firms. Once assumed to be a symptom of “market failure,” concentration is, for the most part, seen nowadays as an indicator of […]| Econlib
Consumers pay a higher price for brand-name products than for products that do not carry an established brand name. Because this involves paying extra for what some consider an identical product that merely has been advertised and promoted, brand names may appear to be economically wasteful. This argument was behind the decision to eliminate all […]| Econlib
Years later, the extraordinary cost of the 1980s S&L crisis still astounds many taxpayers, depositors, and policymakers. The cost of bailing out the Federal Savings and Loan Insurance Corporation (FSLIC), which insured the deposits in failed S&Ls, may eventually exceed $160 billion. At the end of 2004, the direct cost of the S&L crisis to […]| Econlib
Many people believe that only government intervention prevents rampant discrimination in the private sector. Economic theory predicts the opposite: market mechanisms impose inescapable penalties on profits whenever for-profit enterprises discriminate against individuals on any basis other than productivity. Though bigoted managers may hold sway for a time, in the long run the profit penalty makes […]| Econlib
The fact that trade protection hurts the economy of the country that imposes it is one of the oldest but still most startling insights economics has to offer. The idea dates back to the origin of economic science itself. Adam Smith’s The Wealth of Nations, which gave birth to economics, already contained the argument for […]| Econlib
Intellectual property is normally defined as the set of products protected under laws associated with copyright, patent, trademark, industrial design, and trade secrets. The U.S. Constitution expressly allows for intellectual property protection, albeit for a limited time, in the form of protection of “writings and discoveries” in order to promote “science and useful arts.” This […]| Econlib
New Keynesian economics is the school of thought in modern macroeconomics that evolved from the ideas of John Maynard Keynes. Keynes wrote The General Theory of Employment, Interest, and Money in the 1930s, and his influence among academics and policymakers increased through the 1960s. In the 1970s, however, new classical economists such as Robert Lucas, […]| Econlib
Economists use the term “inflation” to denote an ongoing rise in the general level of prices quoted in units of money. The magnitude of inflation—the inflation rate—is usually reported as the annualized percentage growth of some broad index of money prices. With U.S. dollar prices rising, a one-dollar bill buys less each year. Inflation thus […]| Econlib
Positive externalities are benefits that are infeasible to charge to provide; negative externalities are costs that are infeasible to charge to not provide. Ordinarily, as Adam Smith explained, selfishness leads markets to produce whatever people want; to get rich, you have to sell what the public is eager to buy. Externalities undermine the social benefits […]| Econlib
A worldwide depression struck countries with market economies at the end of the 1920s. Although the Great Depression was relatively mild in some countries, it was severe in others, particularly in the United States, where, at its nadir in 1933, 25 percent of all workers and 37 percent of all nonfarm workers were completely out […]| Econlib
Until the so-called Keynesian revolution of the late 1930s and 1940s, the two main parts of economic theory were typically labeled “monetary theory” and “price theory.” Today, the corresponding dichotomy is between “macroeconomics” and “microeconomics.” The motivating force for the change came from the macro side, with modern macroeconomics being far more explicit than old-fashioned […]| Econlib
Origins Before 1890, the only “antitrust” law was the common law. Contracts that allegedly restrained trade (e.g., price-fixing agreements) often were not legally enforceable, but they did not subject the parties to any legal sanctions, either. Nor were monopolies illegal. Economists generally believe that monopolies and other restraints of trade are bad because they usually […]| Econlib
Economic analysis of advertising dates to the 1930s and 1940s, when critics attacked it as a monopolistic and wasteful practice. Defenders soon emerged who argued that advertising promotes competition and lowers the costs of providing information to consumers and distributing goods. Today, most economists side with the defenders most of the time. Advertising comes in […]| Econlib
In recent years, taxation has been one of the most prominent and controversial topics in economic policy. Taxation has been a principal issue in every presidential election since 1980—with a large tax cut as a winning issue in 1980, a pledge of “Read my lips: no new taxes” in the 1988 campaign, and a statement […]| Econlib
One of the most fundamental requirements of a capitalist economic system—and one of the most misunderstood concepts—is a strong system of property rights. For decades social critics in the United States and throughout the Western world have complained that “property” rights too often take precedence over “human” rights, with the result that people are treated […]| Econlib
“ Innovation”: creativity; novelty; the process of devising a new idea or thing, or improving an existing idea or thing. Although the word carries a positive connotation in American culture, innovation, like all human activities, has costs as well as benefits. These costs and benefits have preoccupied economists, political philosophers, and artists for centuries. Nature […]| Econlib
A monopoly is an enterprise that is the only seller of a good or service. In the absence of government intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit. Just being a monopoly need not make an enterprise more profitable than […]| Econlib
Investment is one of the most important variables in economics. On its back, humans have ridden from caves to skyscrapers. Its surges and collapses are still a primary cause of recessions. Indeed, as can be seen in Figure 1, investment has dropped sharply during almost every postwar U.S. recession. As the graph suggests, one cannot […]| Econlib
The Internet and Economics “The Internet changes everything”—or so we were told at the height of the Internet craze. According to a prominent Wall Street Journal article titled “Goodbye Supply and Demand,” one of the changes it was claimed to have brought about was a transformation of the basic economic forces at work in the […]| Econlib
Economic competition takes place in markets—meeting grounds of intending suppliers and buyers.1 Typically, a few sellers compete to attract favorable offers from prospective buyers. Similarly, intending buyers compete to obtain good offers from suppliers. When a contract is concluded, the buyer and seller exchange property rights in a good, service, or asset. Everyone interacts voluntarily, […]| Econlib
“ Capitalism,” a term of disparagement coined by socialists in the mid-nineteenth century, is a misnomer for “economic individualism,” which Adam Smith earlier called “the obvious and simple system of natural liberty” (Wealth of Nations). Economic individualism’s basic premise is that the pursuit of self-interest and the right to own private property are morally defensible […]| Econlib
One of the most important building blocks of economic analysis is the concept of demand. When economists refer to demand, they usually have in mind not just a single quantity demanded, but a demand curve, which traces the quantity of a good or service that is demanded at successively different prices. The most famous law […]| Econlib