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Bonus Quotation of the Day…

… is from page xxv of the incomparable Armen Alchian‘s July 1996 Economic Inquiry article, “Principles of Professional Advancement,” as reprinted in The Collected Works of Armen A. Alchian (2006), Volume 1 (“Choice and Cost Under Uncertainty”; Daniel K. Benjamin, ed.):

41l5OkA4s9L._SY344_BO1,204,203,200_[T]he simplest concepts and propositions in economics have megaton power.

DBx: Without question, Alchian is correct.  A concept, a proposition, a theory should be judged only by how well it improves one’s understanding of reality (which improved understanding might, but does not necessarily, enhance one’s success at making accurate, specific predictions about the course of actual, observed reality).  A concept, a proposition, a theory should not be judged by how well it displays its originator’s or its user’s brilliance or work ethic.  The labor theory of value is no more valid for products of minds than it is for products of muscles.  The value of a concept, a proposition, a theory comes only from how well it enhances its user’s ability to comprehend reality, rather than from its logical beauty or from the amount of effort its creator(s) exerted to produce it.

Of course, logical beauty – like vast amounts of hard work put into developing a theory – might well help to make that theory valuable, but if so, this value comes not from the beautiful logic itself or the hard work itself, but, rather, from the improved and polished theory’s ability to cause those who use it honestly to say, to themselves or to others, “Ah ha!  Now I better understand the reality that I’m trying to grasp!”

There’s nothing awesomely ingenious about supply and demand analysis in economics.  Not even close.  This analysis is a very simple – indeed, rather plain – depiction of what our common sense tells us about human action.  But it has megaton explanatory power when used wisely and skillfully.  Supply and demand analysis is not kindergarten stuff, to be certain, but any decently attentive 14-year-old girl or boy can grasp its main features if these are explained by a competent and caring teacher.  And if that girl or boy ponders, soberly, supply and demand analysis for a few years, by the time she or he is old enough to legally buy alcohol in the United States, she or he will know about (I estimate) 60 to 65 percent of all that is worthwhile knowing in economic theory – or, at least, 60 to 65 percent of all that is worthwhile to know of economic theory for the purpose of enabling her or him to critically and sensibly assess the merits of the vast majority of real-world economic policies, both actual and proposed.

That young woman or man will know to ask, unceasingly, critical questions: Why this? Why not that? Why is that relevant? Why is this irrelevant? Where did this go? Where will that go? Where did this come from? Where will that come from? Who pays? Who benefits? Who says? According to whose judgment? How many? How much? How plausible? Which person? Which group? What else is likely to happen? (and above all, always, without fail) “As compared to what?