Tuesday, August 24, 2010

The Tragedy of Capitalism According to Schumpeter

I first learned of the famous Austrian economist Joseph Schumpeter as I imagine most economics students do, by his concept of creative destruction. In several of my classes, this merited a footnote or a short passage in a few of my textbooks. In its simplistic form, creative destruction is just the acknowledgement that capitalism is dynamic. That the process by which firms compete, perfectly or imperfectly, takes place over time. And, over time, many of these firms are destroyed and replaced by new firms with better ideas and more motivated owners. This, according to Schumpeter, is the real characteristic that makes free market capitalism so good at raising standards of living.

In studying his most famous work, Capitalism, Socialism, and Democracy, I soon learned that creative destruction is just one part of Schumpeter's work. It is part of, and integral to, his attempt to describe capitalism and its future. Thus, I shall present my interpretation of this system, so that the reader can understand the mind behind creative destruction.

*One important note about Schumpeter is that he seems preoccupied with the concept of
someone being right, but for the wrong reasons. A memorable phrase from his book is, "A prejudiced man may yet speak the truth." He seems to enjoy setting his peers straight by
providing his own logic to justify what they already believe.

Now to the Book:

The Main Argument: "The thesis I shall endeavor to establish is that the actual and prospective performance of the capitalist system is such as to negative the idea of its breaking down under the weight of economic failure, but that its very success undermines the social institutions which protect it, and 'inevitably' creates conditions in which it will not be able to live and which strongly point to socialism as the heir apparent" (Schumpeter 61).

1. The first four chapters of CS&D cover Schumpeter's thoughts on Marxism, which I will not belabor. It should suffice to say that the thesis of this book shows, in my opinion, that Schumpeter thinks Marx is right about the future of Capitalism, but for the wrong reasons. Thus, I will skip discussions of Marxism and save them for a later post.

Chapter V: The Rate of Increase of Total Output
  • Despite periodic recessions, robber barons, and the Great Depression, the western world experienced an average annual growth rate in total output of about 3 percent from 1870 to 1930.
  • This growth has not come at the expense of the poor, as socialists claim. On the contrary, mass production and electrification are examples of the nearly incalculable benefit to the masses of capitalism, while doing very little to improve the standards of living for the very wealthy.
  • The true frustration with capitalism in this period comes from the fact that, despite its remarkable success, it does not yet have the resources to cope with the bouts of high involuntary unemployment associated with the business cycle.
  • Since classical economics, with its comparative static analysis, denies the possibility of involuntary unemployment, it fuels socialist criticism by its inability to explain the business cycle.
  • However, if output continues to grow at this same rate of 3 percent, the capitalist engine will produce enough resources to properly aid the unemployed.
  • Neither the classical economics, nor the socialist economics, can properly explain this continued growth in output.
Chapter VI: Plausible Capitalism
  • In order to determine if output will continue to grow at a rate high enough to alleviate the involuntarily unemployed, one must discern a causal relationship between capitalism and output growth, and understand the mechanism by which this is achieved.
  • Free market capitalism, and the Bourgeois society associated with it, has fostered a more meritocratic elevation of individuals than any previous social structure. Thus, it should at least be concluded that capitalism fosters a more efficient distribution of talents and skills than past economic paradigms.
  • The classical economists were of the opinion that the self interest motive was channeled by free market capitalism in a way that benefited the whole society, and were staunchly against feudal and mercantilist practices. They would immediately attribute the steady rise in output to capitalism.
  • The chief contributions of the classical economists were the observation that the profit motive was actually beneficial to society, and that properly channeled savings were necessary to some degree for aggregate output to grow. But the logic behind their conclusions is flawed.
  • The neoclassical economists, such as Marshall, Walras, and Wicksell, refined the classical observations with partial and general equilibrium analysis which led to the exposition of the First Welfare Theorem. However, the strong assumptions behind this proof make its application limited.
  • The presence of some degree of market power in almost all industries mean that there may be multiple or no static equilibrium in most industries, and that there is no reason to assume that even these equilibrium are efficient. Thus, as Keynes also said, while the neoclassical proof is valid, it is also irrelevant.
Chapter VII: The Process of Creative Destruction
  • Though some degree of imperfect competition seems to be the rule, and it was the case from 1870 to 1930, it can still be true that output growth was due to capitalism. But, a better justification than classical or neoclassical views must be offered.
  • Some argue that, in the early 20th century, monopolistic practices began to destroy the perfectly competitive ideal. But, this is a fantasy history with no basis in fact. The truth is that economic growth and monopolization have increased together.
  • In reality, capitalism is a dynamic process of economic change. Economists real area of study should be how capitalism's meritocratic structure constantly allows for the creation of new things and methods, and irreverently destroys the old ones. This is creative destruction.
  • If it is understood that the timing of creative destruction is uncertain, but its movement is inevitable, monopolistic practices take on a new meaning. High prices, product differentiation, and advertising efforts, are all attempts by firms to extract the most profit from their products, while they last.
  • This will appear inefficient from a static neoclassical perspective, but a statically inefficient process can be dynamically more efficient. And this is true in this case.
Chapter VIII: Monopolistic Practices
  • Taking the process of creative destruction as given, many monopolistic practices turn out to be an attempt to secure long-term investment from the majority risk averse populace. Without them, the extreme uncertainty would make most investment unprofitable.
  • This also explains why price rigidity is observed in many firms over the short run, but is completely lacking in evidence in the long run.
  • The Keynesian observation of sticky prices and wages should be considered valid, and is actually beneficial to a real economy. Perfectly flexible wages and prices could actually lead to a business cycle that spirals out of control at the elation or fright of the population.
  • Considering that monopolistic practices allow for wage and price rigidities, allow some security for long-term investment, are increasingly able to exploit economies of scale, and yet are comparatively short lived due to creative destruction, the case is strong that they are actually a socially beneficial result of capitalism.
  • The neoclassical analysis of perfect competition reached the right conclusion about capitalism, but for the wrong reason. Using perfect competition as the measuring stick for social welfare creates fundamentally flawed regulatory structures, and unnecessarily boosts socialist criticism.

The previous chapters made up the heart of Schumpeter's book. His description of the process of capitalism was unique, and it has been lasting. I will briefly touch on the third part of his book, which concerns his thoughts on why this system of Capitalism cannot last.

The Fate of Capitalism According to Schumpeter

Like Marx, Schumpeter also believed that capitalism had within it the seeds of its own destruction. Unlike Marx, however, Schumpeter believed that it was the great success of capitalism, and not its shortcomings, that would eventually overpower it. He saw its downfall as an inevitable eventuality, and thought socialism was the most possible successor. Of course, this does not make him a socialist, nor a support of socialism, he saw this as a detached assessment of reality.
The simple fact, according to Schumpeter, is that the Bourgeois class is not a fighting class. It is a pragmatic class. While capitalism has allowed their class to exist and thrive, by their nature the majority don't hold onto it with any kind of religious fervor. Socialists, on the other hand, are endowed with such fervor, and a socialist society requires this religious fervor to function. Furthermore, as the capitalist enterprise grows and becomes more complex, a kind of socialized mentality will become increasingly necessary even within the firms. In the end, the Bourgeois class will not have reason nor heart to fight socialism, and it will take the place of the capitalist paradigm.

Too Long To Read Summary: The Austrian economist Joseph Schumpeter described capitalism as a dynamic process of creative destruction. His book, Capitalism, Socialism, and Democracy, is what appears to be his trademark attempt at explaining why someone is right for the wrong reasons. He believes Marx is right, that capitalism must end, but for different reasons. He believes that the classical and neoclassical economists are correct, capitalism is beneficial to society, but for different reasons. It is the meritocratic process of creative destruction that makes capitalism "good"; perfect competition is not useful for these purposes and leads to misconceptions. Monopolistic practices can actually be beneficial because they give some security in an uncertain world and also exploit economies of scale. Capitalism's demise will be due to the pragmatic mentality of the Bourgeois class, and the inevitable socialist takeover will not necessarily be an improvement.

Tuesday, August 17, 2010

From Keynes to Friedman, and Back Again!

As many undergraduates are prone to do, I took the words of one of my economics professors without any grain of salt whatsoever, and felt comfortable with the assumption that Milton Friedman was an idiot. However, if you really pushed me at the time, I probably couldn't have told you what it was exactly that made him this way. And, as you might have guessed, in time I noticed that this did not exactly mesh so well with my goal of examining primary sources in economic theory. This discomfort prompted me to purchase The Great Contraction (at an outrages price I might add). This "book" is actually a section from Friedman and Schwartz's Monetary History of the United States. I'm sure I'll get to it all in due time, but for now, I've only read the most famous chunk. Part of me thinks it is
inappropriate to discuss this work before I've covered The General Theory by John Maynard Keynes. But, "The Great Contraction" is a simpler work, and a kind of commentary within Keynesian theory. This is why, before I touch on the major points of the work, I'd like to skip a bit through time and tell you how I felt after reading both Keynes and Friedman.

I began to read "The Great Contraction" with a determination to throw away all my presuppositions about Milton Friedman. When I finished it, my mind had been changed. He is a talented historian, a relatively thorough economic theorist, and he makes convincing arguments. However, after reading Keynes, I found his work to possess a degree of genius far superior to Friedman. And, in fact, Friedman's contributions are largely indebted to the superior intellect of Keynes. Thus, my esteem for both economists increased absolutely, but I still feel that Keynes comes out on top.

As for "The Great Contraction"

1. The argument that Friedman and Schwartz make is that the severity of the Great Depression (1929-1933) can to a great extent be explained by FED policy that allowed the Money Supply to collapse. This happened both by allowing banks to fail, and using discount rate in conjunction with open market operations in contractionary ways. This froze credit markets and destroyed the already weak incentive to invest, and might have been the catalyst for turning the recession into a depression.

2. They make this argument by referring to several historical "episodes". Their goal is to use these episodes to extract a causal relationship between FED policy, the money supply, and the overall direction of the economy. The episodes are:

*The Stock Market Crash (October 1929): This event is known to most. The crash, and the great economic uncertainty that arose thereafter, gave individuals the incentive to hold cash. Thus, not only was a great deal of wealth wiped out by the crash, but the desire to hold cash meant less money for banks to lend out. Thus, the money supply contracted. The recession begins.

*First Banking Panic (October 1930): Runs on banks, prompted by fears about their solvency, actually cause major banks to fail. The FED largely chooses a policy of inaction, thinking it is proper to punish bad banks. The Money Supply shrinks further. The recession deepens.

*Second Banking Panic (March 1931): Continued uncertainty about the soundness of banks sparks a more violent run. Banks try to dump assets on the market to satisfy their depositors, these assets promptly plummet in value. More banks fail, and the Money supply shrinks further. The recession deepens.

*Britain Leaves the Gold Standard (September 1931): The UK severs its ties to Gold, because it feels it can no longer follow the deflationary spiral that seems to be in place. Fears that the US will follow prompt speculators to attack the dollar. The FED raises the discount rate (a contractionary measure) to restore confidence in the Gold Standard. The depression deepens.

*FED begins Expansionary Policy (April 1932): After years of inaction or contractionary policy, a faction in the FED raises enough support to experiment with expansionary Open Market Operations. The Money Supply expands. The depression eases!

*FED Expansionary Policy Terminated. Third Banking Panic Ensues. Glass-Steagall is Passed. Banking Holiday is Declared (1933): Factions against Expansionary policy regain control and terminate Open Market Operations. Another Banking Panic arises, and President Roosevelt responds by declaring a Banking Holiday. Glass-Steagall expands the powers of the FED. Money Supply shrinks. The depression returns.

3. Apart from this historical evidence, Friedman and Schwartz attempt to explain the seemingly odd behavior of the FED during this time. They assert that, following the death of a man named Benjamin Strong (a powerful influence in the FED), the collection of central banks lost their center of leadership and essentially suffered from gridlock. Friedman, a staunch Libertarian, might be expected to approve of this--but he doesn't!. This is because the FED was designed specifically for the purpose of keeping an eye on the economy through the money supply. Banks that suffered from a run counted on their help--and they did not get it.

4. True to his Libertarian roots, though, Friedman does point out that the banking system prior to the FED had a policy of acting together to restrict the ability of depositors to take out their funds. Thus, they had an internal mechanism for halting runs on banks. The FED dismantled this tool, and then essentially left them bleeding on the field when the next panic hit.

5. Friedman and Schwartz make the case for the preventative measures that should have been taken. Namely, that the FED should have taken action to maintain the money supply. The reasons for doing so can best be expressed by Friedman and Schwartz:

"Because no great strength would be required to hold back the rock that starts a landslide, it does not follow that the landslide will not be of major proportions."
--Friedman and Schwartz (pg 207).

Too Long To Read Summary: I assumed Milton Friedman was an idiot, and I was wrong. Still, I find Keynes to be the better economist. Friedman and Schwartz make a convincing argument that, in allowing the money supply to contract too far (and thus depressing credit and investment), the FED worsened the Great Depression. This happened due to a failure of leadership in a centralized organization that was designed to lead. The FED should either do this job, or return their powers to the banks. And, finally, just because something is easily preventable, doesn't mean it isn't serous.

Saturday, August 14, 2010

Economics and Net Neutrality

Given the current popularity of the subject of Net Neutrality, I thought I might present some of my own work on the subject, and point out some of my conclusions. I would first state that the goal of all of my work here is to share knowledge of economic theory and issues that I have acquired from exploring primary sources. Thus, it would be quite hypocritical of me to not urge you to check out my references for yourselves. This literature review is the culmination of my work in a graduate course on Public Economics. As far as peer reviewing is considered, it was criticized and revised according to the instructions of my Professor, and underwent further revision as a result of my correspondence with the author of the primary work I used for my analysis (Special thanks to Dr. Christopher Swann and Tim Wu). Most of the literature review material is my interpretation of other sources; the section on game theory, however, is to the best of my knowledge the result of my own unique application.

Having said all this, feel free to use any part of it at no cost other that the time it would take you to create a proper citation!

Net Lit

Too Long To Read Summary: The principle of net neutrality in the economic sense boils down to determining the effect that allowing firms in this market to differentiate their products would have on social welfare. Supporters of net neutrality claim it is a method of leveling the playing field, which encourages competition, and is beneficial in the short and long run. Opponents assert that forbidding product differentiation destroys the incentive to innovate, and is costly to enforce, making it harmful to social welfare in the long run.

I believe that the case is strong for market failure in internet service, and that specific net neutrality regimes based on price discrimination go a long way to reconciling both sides and providing a solution. This solution involves giving the FCC the legislative authority to preserve net neutrality, when it feels the principle is being violated, without legally compelling them to do so. Using this power as a tool of moral suasion could preserve the incentive to innovate, and protect the consumer.

Wednesday, August 11, 2010

A Mix-up at the Ludwig von Mises Institute

In the fall of 2009, I decided to order a book by the relatively mysterious but acclaimed economist Richard Cantillon. Due to his emphasis on entrepreneurship, I found that the Ludwig von Mises Institute had his work "An Essay on the Nature of Commerce in General". I ordered it, and in a few days I received "An Essay on the nature and Significance of Economic Science", by Lionel Robbins. I informed LMI about their mix-up, and like the good free market junkies that they are, they sent me Cantillon's book and allowed me to keep the one by Robbins. Yay Capitalism!

My interpretation of Mises and Cantillon will come later; suffice to say I decided to read Robbins essay. In this essay, Robbins seeks to clarify subject-matter of economics in general and discuss the limitations that its approach imply. Here is what I found:

1. Robbins feels that the common sense definition of economics as a study of wealth and its generation is mistaken. Rather, he argues that economics is the study of the behavior of agents when they face constraints or are endowed with scarce resources. This is a reiteration of the idea that economics is the study of scarcity.

I tend to disagree categorically with this definition. I think it applies to microeconomics. It is certainly true of the theory of the firm and consumer demand, but I think macroeconomics is exactly concerned with the study of wealth and its generation.

2. Economists should not judge the end goods to which individuals strive, nor are they meant to give advice concerning the technique used to achieve those ends. It is the way an individual prioritizes multiple ends and multiple means that interest economists.

Once again, I would categorically disagree concerning macroeconomics.

3. Scarcity has powerful roots in the perceptions of human beings, and it determines value to a great extent. One can easily recall seemingly priceless fad items that become worthless overnight, when the next rage hits.

4. Economists care about how the the relative individual valuation of scarce goods affect their individual decisions and others; they are not concerned about the origin of these differences in value, that is psychology or sociology.

5. Economists should not make comparisons between individual utility functions. This means that just because person A has higher utility than B according to our measurement, we have no grounds for assuming that A is happier than B or for transferring goods from person A to B. These values only matter within individuals. This is called incommensurability.

6. In the end, economics only really applies if we do make the normative judgement that rationality and coherence of ends and means are desirable. If this judgement does not hold for a situation, the application of economic theory to it is limited.

Too Long To Read Summary: Ludwig von Mises Institute sent me the wrong book, I read it anyways. It defined economics as the study of scarcity and not wealth, which I feel is a better description of the difference between micro and macro. The writer also asserted that economists should take ends and techniques as given, and only analyze the efficient allocation of means. But, to be of any use, economists must make the normative assumption that rational and coherent decisions are "good".

"I am not David Ricardo!"

In the fall of 2009, my graduate program at UNCG had the honor of hosting the famous Nobel Prize winning economist--Dr. Paul Krugman. He gave us a brief but enlightening lecture on exploring the origins and the direction of our recent financial crisis and resulting recession. After the lecture, I was fortunate enough to have time to speak with him. Though I hadn't read any of his books at the time (no longer true), I still wanted something for him to sign. At the time, I was reading David Ricardo's "Principles of Political Economy and Taxation". Since Ricardo was the father of comparative advantage in International Trade, and Krugman's Nobel winning work was in that area, I thought I had enough of a connection to justify using this book to get Krugman's autograph. Of course, he noticed what the book really was, made a quick joke, and proceeded to write in it "I am not David Ricardo!". This leads me to the point of this post: who is, or rather who was, David Ricardo.

While I would consider Adam Smith every man's
Economist, David Ricardo is more of every Economist's Economist. He lived during the early 19th century, and was the man who did the most to turn Adam Smith's work into an extended theoretical model. This model, known today as the classical model, still has a lot to tell us about how economies work and trade. Finally, he also introduced the concept of making use of how changes in increments or margins can inform us about optimal decisions and responses.

Here are the important points in his work, according to me:

1. The relative scarcity of a good with other goods is one of the fundamental determinants of its value, and should be taken in conjunction with its utility to consumers and its marginal production cost.

2. Labor spent on the production of capital (investment), must also factor into the cost of production of goods for immediate consumption.

3. When labor is not the sole input in a production process, but also capital of varying durability, a rise in wages has an ambiguous affect on the price of the good.

4. A rise in wages is most often associated with a fall in profits, and vice versa.

5. The implementation of land, labor, and capital are subject to diminishing returns.

6. A productive activity should be undertaken until its marginal return to the producer just equals the cost. And, if an agent can monopolize this product, it can extract all of the surplus from consumers up to that equimarginal condition.

7. If transactions costs are not too great, labor and capital will gravitate to where they are most productive, reducing the return in these industries to the average return, which is set by societal preferences and institutions.

8. All else held constant, the wages of the worker tend to fall toward the subsistence level, which is also set by societal preferences and institutions.

9. Wages tend to rise as the economy grows, because of the diminishing returns to the cultivation of land (perhaps no longer true).

10. If children are normal goods, rising wages mean a rising population, which will erode wage gains. Thus, making children inferior goods might be beneficial to workers in the short run.

11. Profits fall as the economy grows, assuming there is no improvement in technology or the division of labor.

12. As the economy expands and profits fall, wages rise but can be eventually eroded by increases in population. Thus, all else held constant, an expanding economy eventually results in a redistribution of wealth to monopolists.

13. Limited factor mobility within nations allows them to benefit from their own unique division of labor so that they can trade with another nations in a way that can leave at least one party better off without leaving any others worse off. This is true absolutely as well as comparatively.

14. Attempting to control the balance of trade by laws or taxes will either be totally ineffective, or leave both parties worse off in the long run.

15. In a static economy, the consumption of the government must eventually come out of wages, rent, or profit. They ultimately require workers, entrepreneurs, or landlords to reduce consumption or to liquidate capital stock. Either of these can be harmful to overall national output.

16. The ability of a tax to meet Adam Smith's requirements depends on elasticities of demand and the availability of substitute goods.

17. In the long run, the money supply should not affect the equilibrium output of an economy. (Take this with a huge grain of salt, and think about the limitations of this true statement).

18. Placing a tax on goods that a country exports and has a significant comparative advantage might be the least disruptive to overall output.

19. Profit inequalities are what determine the flow of capital at home and abroad.

20. Increasing output per capita should be the overall goal of all national economic policy.

21. An increase in value, and an increase in riches are NOT the same thing. A product can increase in value by becoming scarcer or harder to produce. This will reduce the wealth of society. Thus, declining value of products is usually a sign of the increasing wealth of a nation.

22. Increasing output per capita through the division of labor and technology is better that relying on pure savings and capital formation.

23. Real interest rates are ultimately governed by expected profits, but these are so volatile in the short term that any point estimate is usually unreliable.

24. Monopolists have more to gain from from protectionist policies than those facing competition.

25. Paper money is a good that derives its value most from its scarcity.

26. Banks are, by their design, vulnerable to consumer panics. Thus, no private bank should be allowed too much control over the money supply.

27. The economy as a whole benefits from substituting machines for workers, but the workers themselves may be harmed by frictional unemployment. Wealth redistribution of the surplus generated by the machines can compensate for this inconvenience.

28. Classical Doctrine for Output Growth: Division of Labor ==> Increased Savings ==> Capital Accumulation ==> Output Growth ==> Increase in Labor Demand ==> More Workers ==> Division of Labor.

Too Long to Read Summary: Paul Krugman signed my copy of David Ricardo's book. Ricardo formalized a lot of Adam Smith's work with his classical model of an economy. He argued that long run production costs at the margin make up natural prices, wages and profits move inversely, wages gravitate to subsistence levels and profits to zero as the economy expands, international trade is not a zero sum game, paper money should be regulated, monopolists play the subversive role of Adam Smith's Merchants, and the end goal of economic policy should be growth in output per worker.

Tuesday, August 10, 2010

A Glance at the "Wealth of Nations"

I took a course entitled "History of Economic Doctrines" (ECON 434) when I was an undergraduate at UNC-Chapel Hill. Our primary textbook was Ekelund and Hebert's "A History of Economic Theory and Method". Over a year has passed since that time, and in my personal and professional studies as a graduate student at UNCG, I look back fondly on that book with a better understanding of its shortcomings. Apart from the historical knowledge, the best piece of advice that book offered to me was this--read the Wealth of Nations.

For those of you who might not be familiar with it, "An Inquiry into the Nature and Causes of the Wealth of Nations", is the masterwork of Adam Smith, who can be considered the father of classical economics. The tome contains as much history as it does economic theory, and a great deal of philosophy. I began to read it during my course on Economic History, but spent over a year reading it. I can proudly say that the book lives up to its hype. Furthermore, after reading it, I feel popular impressions of the book have been skewed by personal bias in addition to outright ignorance. Adam Smith might be the father of the famous "invisible hand" metaphor, but he was also a staunchly progressive supporter of the rights of the worker, and a realist on the role of government and taxes in the economy.

Here are some of what I feel are the most important points:

1. The division of labor within an economy is an important source of increases in productivity. It allows specialization, which feeds a cycle of innovation expand the amount of output and reduces the amount of time required for production with a given amount of resources.

2. "Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life." It is real income and its distribution that matter, as I interpret it.

3. The total income of a society can be divided into wages (for the workers), profit (for the entrepreneurs), and rent (for the capitalist). I have embellished Smith's definitions a bit, as I agree with other writers that he uses profit and interest ambiguously.

4. Effective demand and current supply determine the price of a good in the short run, but in the long run this price gravitates to its "natural price" or average cost.

5. Trade secrets, monopolistic practices, and simple public ignorance can keep prices high almost indefinitely.

6. High wages (to workers) are beneficial to society, but require a growing economy. They are still offset by the ease with which management can organize compared to labor, so that workers often find themselves earning subsistence wages.

7. The relative danger of a job, the education required, and the trust placed in the worker all affect its standing to the "average wage".

8. Efficiency wages, or paying more than a subsistence wage, might actually be better for the general economy because it may increase the productivity of the workers.

9. The state of profits in an industry can be ascertained by looking at the rate of interest required to enter that industry relative to the average rate.

10. The interest rate tends to fall as capital becomes more plentiful, ceteris paribus.

11. High profits tend to raise prices more than high wages.

12. Many people, especially the young, overestimate their abilities, and are willing to task risks that would not fit the required reward of a risk averse individual.

13. Laws aimed to artificially restrict the labor supply of an industry are harmful by reducing output and promoting the formation of black markets.

14. Artificially inflating the labor supply of an industry is less harmful, especially if the industry performs a public service.

15. An economic rent is the result of scarcity that results from a market failure.

16. Free trade between different economies allow them to make favorable exchanges by trading those commodities that their own division of labor has given them an advantage in producing. This benefits (or at least does not harm) all economies involved.

17. Businessmen usually organize to advance interests that run counter to the economy as a whole, and thus can damage national and public income.

18. Tax revenue should be spent by the government on defense, the justice system, and the provision of public goods. Public goods include infrastructure that is beneficial to the economy as a whole, and should be paid for by the users when possible.

19. Taxes should be leveed with an eye for equality, their amount should be certain to some degree, they should be easy to pay, and they should not be costly to collect (but they should be collected by the public authority).

20. Taxes must ultimately fall on wages, profits, or rents. And taxes on luxury goods with relatively inelastic demands are likely to be the least disruptive.

21. The government should not run a budget deficit which market spirits judge as unsustainable.

22. Religions should be allowed to compete without state sanction or interference.

23. Markets, when they function properly, are the best mechanisms for allocating a fixed set of resources.

Too long to read summary: I read the Wealth of Nations. I learned that free trade and the division of labor help economies grow, workers need a hand against management, that tax collection should be sane, and that markets work very well when business owners are afraid of rent seeking.