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Some of the Many Economic Myths Slain by Alchian & Allen

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After reading my recent list of some commonly held economic myths [2] – myths that spring from the widespread misconception that the economy is far simpler than it really is – Jerry Jordan sent to me this slice from the forthcoming Universal Economics by the late Armen Alchian [3] and William Allen.  This new volume is an updated version (minus most of the macroeconomics) of Alchian’s and Allen’s justly famous and brilliant text, University Economics [4].  I share this list here with Jerry’s kind consent.)

Our Intent

We want your study of economics to be interesting and even enjoyable.  But we promise one unanticipated result: you’ll be brainwashed—in the “desirable’ sense of removing erroneous beliefs.  You will begin to suspect that a vast majority of what people popularly believe about economic events is at least misleading and often wrong.  A few examples of such common errors are:

  • price controls prevent higher costs to consumers;
  • reducing unemployment necessarily requires creation of more jobs;
  • larger incomes for some people require smaller incomes for others;
  • free, or low, tuition reduces costs to students;
  • all unemployment must be wasteful;
  • stockbrokers and investment advisors predict better than the alternatives of throwing a dart at a list of stocks or the use of horoscopes;
  • taxes are borne entirely by consumers of taxed items;
  • employers pay for “employer provided insurance”;
  • minimum wage legislation helps the unskilled and minorities;
  • housing developers drive up the price of land;
  • foreign imports reduce the total of domestic jobs;
  • “equal pay for equal work” laws aid women, minorities, and the young;
  • economic efficiency is a matter only of technology and engineering:
  • agricultural and other surpluses stem from productivity outrunning demand;
  • capitalism requires a social “harmony of interests”–but also capitalism is the source of competitiveness and conflict;
  • property rights commonly conflict with human rights;
  • business people are self-centered and rapacious, while government people are self-sacrificing and altruistic;
  • labor unions protect the natural brotherhood and collective wellbeing of workers against their natural enemies, employers;
  • charging a higher price always increases the seller’s profits;
  • the American economy is increasingly dominated by monopolists who arbitrarily set prices as high and wages as low as they please;
  • rent control improves and expands housing;
  • there is unemployment because workers outnumber jobs;
  • fluctuating prices create wasteful uncertainty and rising prices constitute inflation, so government should make it illegal to raise prices;
  • we cannot compete in a world in which most foreign wages are lower than wages paid to domestic workers.

…….. and on and on and on.