You will recognise yourself from my description. (Or you will recognise others who fit this description).
You are probably very smart. You are probably very well-educated — either formally, or self-educated, and probably both. You spend a lot of time on the internet reading economics blogs and commenting on those blogs. You maybe even have a blog of your own, where you write about economics topics. You are probably politically engaged. You are probably a lefty, but may be a righty, or someone who is not easily categorised on that political spectrum. You probably think of yourself as a critic of economics, or a critic of what you see as orthodox economics. You are probably sympathetic to what you see as heterodox economics.
But you have never once read a first year economics textbook.
You have probably many times told me, or people like me, that I really really should read something you want me to read.
Well now it's my turn.
I think you really really should read a first year economics textbook.
You have invested so much time in thinking about, reading about, and writing about, economics. Don't you think it would make sense to spend a tiny fraction of that time just reading a standard first year textbook, cover to cover? You could do it in one day. Maybe two, if you go really slowly and carefully. They were designed to be read by an average reader who is probably less smart and less motivated and less knowledgeable than you are. It's gonna be a breeze!
Even if you think you won't agree with it. Even if you think it's going to be all horribly wrong.
Because, at the very least, you will better understand how the people you are criticising view the world.
Because, at the very least, you will better understand the language that is used by the people you are criticising.
Because, at the very least, you will better understand what is and is not an idea that is seen as "heterodox" by the people you are criticising.
Because, at the very least, you would make this blog and other blogs better.
(The final straw that lead me to write this post was reading a comment on another blog which said that "loans create deposits" is a heterodox idea. Every first year textbook I can remember reading contains a description of how loans create deposits.)
This is said with the greatest of respect (and I do mean that, because I really do respect the amount of intelligence and effort some of you are putting in). But also with frustration.
Now, a second plea: does anyone know a free online source for any reasonably good and reasonably standard first year textbook? One that covers much the same topics and in much the same way as any of the best-selling first year university textbooks? Because I know you can pick up old editions of paper copies of the best-sellers for next to nothing, but I also know that people are much less likely to do this.
(P.S. Non-economists may be surprised that I haven't said which textbook I would recommend. That's because it doesn't really matter much. They are all fairly similar in coverage and treatment. And they are almost all good, in my opinion.)
Worthwhile Canadian Initiative 
At the link below, you can find twelve economics textbooks published under a Creative Commons license allowing you to share and modify them edited to embed link here NR
I don’t know which of them qualify as reasonably good and standard first-year textbooks. The link is edited to embed link here NR
Brett: good find! Thanks!
I have very briefly skimmed part of the Rittenberg and Tregarthen text, and it looks OK. I can’t say for sure without more time reading it.
Never. Going. To. Happen.
I’d add: and no, reading a book on about conversational economics – or listening to this – is not a substitute. You’d learn a lot, but it’s not the same.
I don’t know about this idea: I’m not sure I want to give up the rhetorical advantage in history/philosophy of economics debates that I often have as a result of reading contemporary economics textbooks. (And historical textbooks, including almost every of Samuelson’s to some degree.)
Getting familiar with a lot of contemporary economics textbooks is very useful for studying the history of economics (especially for those of us who didn’t study economics as undergraduates) because it makes reading that 1930s textbook on economics that includes interesting insights into mainstream South African opinion on floating currencies that much easier. Similarly, every serious economics student/professor I know who has dipped into historical textbooks has enjoyed the experience.
I particularly find that reading Sayers’ textbook “Modern British Banking” from the early 1960s is one of those experiences that can benefit everyone from economic historians to economists to historians of economics. This is partly because he gives one of the clearest explanations of the 20th/21rst century Scottish currency arrangements: he first explains how the Sterling Zone works, then explains the Scottish banks’ powers to issue their own notes as if they were like Sterling Zone countries.
I have not even skimmed the McAfee and Lewis micro book, but I am pretty sure it will be OK, because I know Preston McAfee is good (I don’t recognise Tracy Lewis’ name, but that is probably just because I never remember names well).
It says it’s an introduction to micro, but at the intermediate level. That probably means it would be a good start for someone better at math.
vimothy: I can only hope you are wrong. We can but try. If one person follows my plea, it has been worthwhile.
Stephen: agreed. Such things are good. Sometimes very good. But not close substitutes. Maybe even complements??
W Peden: interesting angle I hadn’t though of. BTW, did you know that Samuelson’s first edition was an incredibly short book? I counted (OK, I estimated) the number of words in it once. IIRC, it was less than half the word count in modern texts. (Mankiw shortened them a lot, but still not to Samuelsonian levels.)
I completely agree
I would love to know if there was a specific comment that inspired this post.
Nick Rowe,
I knew very little mathematical economics when I read it, so it felt long enough to me!
Mankiw is probably my favourite, not so much because of content but because I like his deflationary, everyday style. The way to stylistically please an analytic philosophy student like me is to discuss extremely profound issues in a casual way, like Mankiw does. (It doesn’t work for every issue, of course.)
Daniel: thanks. Hundreds of comments, on dozens of blogs. But this particular comment was just the final straw.
W Peden: I meant Samuelson’s first year textbook, not his Foundation (not so much math in the former).
I really like Mankiw too, for the same reason as you. (And my undergrad was analytic philosophy too!!) I was one of the co-authors on the Canadian edition of Mankiw. Left it a couple of editions ago.
Nick Rowe,
Good grief. Actually, I think that “Credit = debt” is even worse than “loans create deposits”.
(“Lending creates deposits” would be more accurate, of course.)
It’s a testament to how badly you guys have done at taking on the”heterodox” school that this reminds me of standing outside a scientology shop and being asked if I’d like something to read..
W Peden: yep. And after posting this, I go back there to see that Unlearning disagreed with my response. Oh well.
“does anyone know a free online source”
Principles of Microeconomics, v. 2.0
by Libby Rittenberg and Timothy Tregarthen
edited to embed link here NR
Price Theory: An Intermediate Text
by David D. Friedman
edited to embed link here NR
Read a textbook in one day? You must have a model of reading with instantaneous adjustment.
RD: I spend a lot of my working life explaining first year economics to people. I don’t want to spend all of my life explaining first year economics to people. My guess is that other economics bloggers feel the same way.
Oh, and BTW, nothing I have said above implies that all “heterodox” economists need to read a first year text. Some of them are very good economists, who just happen to think differently. That’s OK. Those aren’t the people I am talking about, obviously.
“Heterodox” people keep asking me to read their stuff. Sometimes I do. Sometimes I have done so even without them asking. Now I’m just returning the favour. Mustn’t I?
Don’t get me wrong Nick, I’ve enormous respect for you as a thinker. Love your blogging, but it didn’t appear like you read keen before criticising him, for example.
AC: “Read a textbook in one day? You must have a model of reading with instantaneous adjustment.”
Hmmm. Dunno. I think I remember reading the whole of Lipsey in one very long night as an undergraduate. Maybe I just looked at the pictures, which is where all the action is, and skipped some of the wordy passages, which don’t really say much. Or maybe books were shorter then. Or maybe nights were a lot longer up North in a Scottish Winter.
What do others think?
Nick: “(P.S. Non-economists may be surprised that I haven’t said which textbook I would recommend. That’s because it doesn’t really matter much. They are all fairly similar in coverage and treatment. And they are almost all good, in my opinion.)”
Like the ones that teach the money multiplier? 😮
BTW, Lorie Tarshis’s The Elements of Economics (1947) can be downloaded free at
http://archive.org/details/elementsofeconom030865mbp
Keynes before Samuelson et al mangled him.
RD: IIRC (and I really don’t trust my own memory, so you shouldn’t either) I have read a few things by Steve Keen, and I think I have watched at least part of two of his videos? (or have I muddled him with another economist?) In one particular case I stopped reading when he said something that seemed so obviously wrong, and I should have kept on reading for a couple more pages where he explained what he meant. My fault for jumping to a conclusion; his fault for not writing more clearly.
But thanks for saying what you just said. I appreciate it.
Some times I vaguely think about writing a post on equation 21(?) in Steve Keen’s Berlin(?) paper, where I think he is actually onto something, and just explaining it very badly (other bloggers pointed to loads of mistakes in that equation). But then I think…oh well. Is it really worth the hassle I know I would face?
Tom: yep! But reading Lorie Tarshis 1947 isn’t going to give people a sense of what (most) economists teach and think now.
Well Nick, once you realize that loans create deposits you are on your way to realizing some other things that might get you labeled ‘heterodox’. That the idea that banks lend out of reserves is wrong. That the money multiplier based on the reserve rate is wrong. That the idea that there is a supply of loanable funds that determines interest rates is wrong.
I had two first year econ textbooks. I am sure they were pretty standard (at least they were twenty-five years ago). Neither came to the conclusions above. Maybe newer texts are different. I will check one out. But many economists still seem to operate based on the idea that banks only act as intermediators between those who save and those who want to borrow.
Economics is so ridiculous that its defenders immediately assume that those who highlight it are straw manning, but the fact is that they have simply not thought it through. Chances are many heterodox economists are not only more widely read than you assume, but have also given economics far more critical thought.
The following are examples of things that will immediately be assumed to be straw men, but aren’t:
– To satisfy the conclusion that demand curves slope downwards, Mas-Colell assumes that a benevolent dictator redistributes resources to maximise social welfare prior to trade.
– The neoclassical theory of decreasing marginal returns assume that when a extra labourer is added, either the existing capital reassembles terminator 2 style into slightly less productive capital, the extra guy does whatever is needed without capital (usually completely ridiculous such as digging hole with his hands), else he fetches lemonade and cheers the rest on.
– Combinations of any sort – workers, big firms – reduce efficiency/social welfare (economists sometimes use one or the other, but it basically means ‘more q less p).’ Again you never see it stated like that, but it’s true. At the core monopolies are presumed to have no obvious advantages (though elsewhere economies of scale are taught).
– Bubbles are impossible (strong version of EMH).
– On aggregate, people/markets can predict the future (RET).
The last two are not necessarily a part of the core and are viewed with skepticism, but they are still notable theories that were taken seriously.
– Finally, not so ridiculous, but contrary to your repeated assertions, the MONEY MULTIPLIER model of banking. I already showed you this in my comment on Wren-Lewis’ piece.
The fact is that neoclassicals do not even know the core of their discipline. Steve Keen would find it far easier to reconstruct the neoclassical theory of demand curves from utility maximising individuals than Paul Krugman.
I came from philosophy, to the Austrians, then I read Krugman’s three books (Economics, Macroeconomics, Microeconomics, and Mankiw’s undergrad book. I can’t even remember what book we used in college. Then started with Keynes and Samuelson.
Now, i’d make the reverse complaint: can we please get more economists to read some basic philosophy about what it is possible for numbers to represent, and not? 🙂 And some Moral theory so that they understand politics and norms govern the limits of macro policy? 🙂
I just realised there are probably a large amount of possibilities for the marginal productivity example, such as two workers using the capital at the same time, or taking it in turns and the rest makes them more productive.
In any case it requires a large amount of contortion and always involves ‘squeezing’ more productivity, at a falling rate, out of a fixed amount of capital. This just flat out ignores that capital and labour are employed simultaneously.
Nick, until I see a proper engagement with keen, cf brad delongs recent pathetic unthinking critics, by you guys, keen has my vote. So I’d love you to do that.
But note I’m just one of those non economists – so what do I know.
jbrown: “That the idea that banks lend out of reserves is wrong. That the money multiplier based on the reserve rate is wrong. That the idea that there is a supply of loanable funds that determines interest rates is wrong.”
The funny thing is, I think that all those ideas are both right and wrong. It depends. It depends on what the shock is. It depends on whether we are talking short run or long run. It depends on what monetary policy the central bank is following. Etc.
If there is one idea that I would really like people to understand better, it’s the idea of simultaneity. The idea that causation does not always flow in one direction. And that what causes what depends on what we are holding constant for the purposes of analysis. And that depends on the shock, and on short run vs long run. Etc.
jbrown981,
New ones do not. Here is one of mine:
“In any discussion of the creation of bank deposits it is customary to begin by recognizing that not all of the funds deposited with a bank will be withdrawn at any one time. Indeed, under normal circumstances inflows and outflows of funds will be such that on any one day banks will require only a fraction of the total funds deposited with them to meet withdrawals by customers. This implies that the remainder can be lent to borrowers. But this is not the end of the story because funds lent by one bank will flow back into the banking system, again a fraction will be retained and the remainder will be available for lending to other borrowers. This process is known as the money supply multiplier.”
Now I will slow down with the comments.
This is an excellent idea, probably one that applies to most fields. (How many people who pontificate about the LHC have never read an intro. physics text?) Probably there is more need with economics since everyone wants to talk about it. My only quibble: Just one or two days?! That is crazy talk.
I do like your line, “…they are almost all good…” This may be the best example of the salutary effects of competition. One can say similarly, “Just go and see a Broadway play. It doesn’t really matter which because they are almost all good.”
Here comes the deluge! Please God, give me the strength to try to do what I can do, to not try to do what I cannot do, and the good sense to know the difference. “Ours the task eternal” (Carleton’s motto).
Lol.
Curt: “I came from philosophy,…”
So did I. BA Hons Philosophy 1977. And yes I did get good grades. And this was a Scottish degree, so we specialised in our major discipline. But I am really unsure what you mean here:
“can we please get more economists to read some basic philosophy about what it is possible for numbers to represent, and not? :)..”
And even though there was a lot of moral philosophy in my program, some of the most interesting stuff I read I didn’t see till I was doing economics.
“And some Moral theory so that they understand politics and norms govern the limits of macro policy? :)”
(Maybe the moral philosophy in vogue then just wasn’t as interesting, since a lot of it was meta-ethics, IIRC)
Hm, maybe, just maybe, to improve all things economics it would be good to extend the advice of Friedman and stop publishing any economic textbooks at all? People do not read 1st year physics textbooks to live this world. And neither 1st year chemistry textbooks. And nor biology and medicine. Why do you think economic textbooks are such a required reading? Esp. given that most if not all of them read like help yourself books.
Nick, you dont need exogenous money theory to explain excess reserves/money multiplier – indeed the whole concept was invented by endogenous money writers – see – though the direction of caustion is reversed.
The fact that modern textbooks don’t have an accurate chapter on banking is a very good reason not to read them as they are teaching students nonsenense. Indeed students would be better off reading Macclkoud from 150 years ago for a more accurate model.
Unlearning:
I am a little confused by your response to jbrown.
jbrown said: ” Maybe newer texts are different. I will check one out. But many economists still seem to operate based on the idea that banks only act as intermediators between those who save and those who want to borrow.”
And you said, I think in reply to what jbrown said here: “jbrown981,
New ones do not. Here is one of mine:
“In any discussion of the creation of bank deposits it is customary….””
Now, I may be misunderstanding you here, but let me try this:
Here is my view, and I think it’s consistent with the standard textbook view:
The idea that banks just act as intermediaries between savers/lenders and spenders/borrowers is about long run equilibrium.
The idea that (bank) loans create deposits, and create further rounds of deposits and loans and deposits etc. (that may or may not peter out eventually depending on reserve ratios if any and the central bank’s response) is about the short run disequilibrium response to a shock.
In other words, both of these apparently totally contradictory ideas can be true. Roughly, the first is true in the long run; the second is true in the short run.
To give you another, similar example, take the theory of the rate of interest (in a closed economy) that you will find in (say) Mankiw’s text.
The short run theory is liquidity preference: the rate of interest is determined by the supply and demand for money (and if the central bank chooses a very short run policy of setting a rate of interest, that means the money supply curve is horizontal, and the rate of interest is whatever the central bank wants it to be).
But the long run theory is loanable funds (saving and investment curves).
Again, two apparently totally contradictory theories of the rate of interest. One short run and the other long run.
Nick: “Tom: yep! But reading Lorie Tarshis 1947 isn’t going to give people a sense of what (most) economists teach and think now.”
Yes, and some people think that this is the problem. Paul Krugman has often said this, although Post Keynesians think that Krugman is one of the manglers of Keynes in advancing the neoclassical consolidation.
I’ve just put up a link to your post at MNE and commented at length there. I’ll be interested to get your reaction if you have time to comment.
Nick,
I have just lent some money to my daughter and I debited my checking account and credited her checking account. Last Friday, in anticipation of that loan to my daughter, I asked a bank manager to transfer funds from my savings account to my checking account, but she told me that I could borrow from my credit line and I followed her advice. I don’t know from which account the bank debited the funds that it lent to me but I assume from one of the bank’s accounts with the Central Bank or another commercial bank. Most likely –albeit a Sunday– all around the world millions of people are lending some money to relatives and friends and funds are being debited and credited from checking accounts as it was the case with the loan to my daughter. These debits and credits are how payment systems work today, but once everything is settled, someone has lent and someone borrowed whatever goods and services the latter bought in exchange for a promise to pay back in the future. This would be Econ 101 except for the fact most Econ 101 courses rarely explain how payment systems work and how lending and borrowing takes place. Now tell me if my explanation is orthodox, heretodox, or just wrong.
Andrew: “Nick, you dont need exogenous money theory to explain excess reserves/money multiplier…”
When people say “exogenous money” I generally find they often mean totally different things by those words. Debates over whether money is or is not exogenous always seem to cause needless confusion.
But if you are saying that the money multiplier story, understood as a short run disequilibrium story of successive rounds of interaction between loans and deposits can be told as a response to many different types of initial shock that gets the ball rolling, I totally agree. The usual textbook story assumes the shock is coming from the central bank. But it really doesn’t have to be. It could be an increased demand for loans. Or commercial banks increasing the supply of loans. Etc.
Is that what you are saying? If so, I agree.
Tom: Thanks! But I gotta see how snowed under I get here. (And I really should get out of my pajamas, have a shower, and do all the normal things that normal people do on a Sunday!)
Deirdre McCloskey, The Applied Theory of Price: link here pdf NR
Armen Alchian, Exchange and Production, is also very good but unfortunately out of print so would have to get it second hand or the library.
Both deal with microeconomics.
For people who already’ve completed intermediate micro would also highly recommend Samuel Bowles, Microeconomics: Behavior, Institutions, and Evolution. Unorthodox but not heterodox (as use rational choice and game theory as a framework). Combines standard micro with behavioral econ and evolutionary game theory to institutions (in the Northian sense).
Here is perhaps where the political relevance of economics comes in: mainstream economics (whatever that may be at a particular period in history) is inherently offensive to a lot of people. Economic issues are relevant to so many political debates and we feel that we have a right to an opinion on political debates, even if we haven’t studied consensus opinions in those areas. Suddenly, however, we find a shady group of individuals- “economists” – claiming to have expert knowledge in this field. Even worse, many of them say things with which we disagree. Under such circumstances, we can do one of three things-
(1) Defer to those who claim to have expert knowledge.
(2) Study up the discipline, starting with introductory textbooks, and then critically engage with the arguments of economists.
(3) Find some argument (trading off quickness/clarity with reasonableness) that allows us to dismiss the opinions of these “economic experts” wholesale. If some heterodox group of economists say what you already believe, then so much the better.
Unsurprisingly, in democratic societies, opinionated people will rarely opt for (1). As for (2), it’s a lot of work and seems like a waste of time if you feel strongly that economists are wrong anyway (I would never have bothered going through Marx if I hadn’t thought that he might be right). So there are a lot of people undertaking (3), so there’s a market for the literature devoted to that very type of argument.
And that is why your request, Nick, is reasonable but almost entirely futile. (3) is just such a tasty option.
(You find exactly the same logic applying in climatology, another political important discipline, and in both cases a majority of the critiques are written by outsiders to the discipline, perhaps because they have the biggest incentive to even up the playing field with the climatologists and economists.)
(3) is also the intellectually lazy and dishonest option.
another strawmen. I have read a textbook.
DavidN,
The first sentence isn’t, if it’s a sound argument. (It never is.)
I should add that the second sentence part isn’t essential, but in practice it’s an irresistable conjunct to the first. So, having patiently sat through a monologue from someone at a college meal about how all neoclassical economists are operating on the basis of “ideology” and totally unscientific, I was promptly told how Hae-Joo Chang is a great impartial thinker and all the policies that he’s proven to be right all along. The person was not amused by the suggestion that Chang may have some ideology of his own.
We philosophers are the worst at this, because our discipline is the most general of all disciplines and so a lot of philosophers do this with ALL disciplines. This is because they have trouble accepting that anyone could be a cognitive authority over them, since we philosophers are obviously better than everyone else at their own disciplines (we just never need to prove it- see Aristotle’s work on speculation and acquiring wealth for a very old example).
In fact, the issue here can be stated fairly simply as an informal logic problem: arguments from authority are only reasonable in a dialogue if (a) there can exist expert authority in the area of argument and (b) the authorities in the argument are experts. Since arguments about the economy are an integral part of political discussion in a modern democracy, people reluctant to accept the conclusions of most economists will be inclined to reject (a) and/or (b) as far as economics goes, in order to neuter arguments from authority in dialogues about the economy.
The last thing you’re going to do, if you don’t believe (a) and/or (b) apply to economics, is read an introduction to economics textbook. If nothing else, it’s demeaning to even have it suggested that you need to be treated as a freshman in a bogus science. Steve Keen’s “Debunking Economics” or something by Mirowski will do the job just as well and will make you feel that you are much smarter than those charlatan economists.
Nick, FWIW, I took intro micro/macro, intermediate micro/macro, and read an econometrics text book for some research I did one summer. I received an A, A, A-, A+, respectively. This was at a very competitive university, only a couple of years ago. Now, I fully admit there is a difference between studying to get a good grade and studying for deep understanding. I try to do the latter but I probably ended up doing more the former. For that reason, I keep an open mind towards the orthodoxy even though I am sympathetic to the heterodoxy these days. I realize I could probably benefit from going through the text books once more, now that I am motivated by a real passion to understand this stuff. But I still think the orthodoxy has a lot to answer for, at least as it is portrayed at the undergraduate level. Also, I think your response to BT London is baloney. The intuition behind ‘loans creates deposits’ was never taught to me in an econ course. I only grasped it because I took several accounting courses and then read it on the blogosphere/papers.
Excellent comments from W. Peden. I’m afraid that he’s all too correct in his characterisation of a lot of would-be critics of the mainstream.
wh10: “The intuition behind ‘loans creates deposits’ was never taught to me in an econ course.”
I’m a little surprised. Now it’s true that lecturers sometimes skip stuff, because there’s just too much damn’ stuff to cover, or we get so involved in our pet topics we don’t watch the clock and calendar. I wonder if it has been left out of some texts? (It’s in all the first year macro texts I can remember, but I haven’t seen them all, of course.)
Does anybody know of an intro macro text that does skip that idea?
Or maybe it’s just the intuition behind that idea you think was left out? But there’s really not much to it to leave out?? Even if a bank writes a cheque, or even lends cash, rather than just writing up your deposit account, that cheque or cash still gets deposited.