Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine - the special pleading of selfish interests.
Interpretation
Economics is complicated by widespread misconceptions and the influence of self-interest.
Henry Hazlitt argues that economics is plagued by numerous fallacies, more so than any other field, due to the complexities of the subject itself and the additional bias introduced by individuals with selfish interests. This makes understanding economics especially challenging, as personal agendas often cloud rational analysis and lead to misunderstandings about economic principles.
In practice
During a lecture on economic theory, one might use this quote to highlight the common misconceptions students might have.
A man with a scant vocabulary will almost certainly be a weak thinker. The richer and more copious one's vocabulary and the greater one's awareness of fine distinctions and subtle nuances of meaning, the more fertile and precise is likely to be one's thinking. Knowledge of things and knowledge of the words for them grow together. If you do not know the words, you can hardly know the thing.
Mere inflation-that is, the mere issuance of more money, with the consequence of higher wages and prices-may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not.
The only way we could remember would be by constant re-reading, for knowledge unused tends to drop out of mind. Knowledge used does not need to be remembered; practice forms habits and habits make memory unnecessary. The rule is nothing; the application is everything.
The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice.
If a government resorts to inflation, that is, creates money in order to cover its budget deficits or expands credit in order to stimulate business, then no power on earth, no gimmick, device, trick or even indexation can prevent its economic consequences.
Economics is haunted by more fallacies than any other study known to man
Governments don't reduce deficits by raising taxes on the people; governments reduce deficits by controlling spending and stimulating new wealth.
The real tragedy of minimum wage laws is that they are supported by well-meaning groups who want to reduce poverty. But the people who are hurt most by higher minimums are the most poverty stricken.
Let me put it very forcefully: No large economy has ever recovered from an economic downturn through austerity. It's not going to happen in the United States, and it's not going to happen in Europe.
What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914!
While we have created prosperity for many, too many are being left behind.
When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.
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