 To be honest with you, and all of this, I'm honored when he mentioned those names, I was a little, I always get an adrenaline rush when I do things like this, and then I'm honored when he says, you know, Mises was here, and Hayek was here, and Hazlett was here, and Rothbard was here. It's like I'm speaking in the same place or for the same group that had those guys, and I'm thinking, what is a knucklehead from rural Virginia that's a firefighter in umpire? What does he have? Why should he have the right to occupy the same stage as those guys did? And it's just, it kind of blows me away, so I'm humbled by all that. I'm a regular guy, there's nothing pretentious about me. If you're out and you want to ask me questions, I'll answer, talk about anything you want to talk about, and all that kind of stuff. So you're in for a great treat, and you have some really great lecturers coming in here after me. I get to be the set up guy, and then you get the real good guys after, so we start you out really low, so we keep your expectations down a little bit, so we'll see how that goes, all right? I want to talk to you about economic way of thinking. I want to put you kind of, anytime you're going to farm or do any kind of planting or growing, the first thing you got to do is prepare the soil. So I'm going to set you up for how you ought to think about economic issues, so there won't be a whole lot of current events, and what I talk about except as I throw them in as we make examples. So I'm going to try to set you up for the way you ought to think about economics, and what we ought to think about in terms of economics. This is one of my favorite quotes I show to my students when we start all the time, is anytime you're pursuing knowledge or pursuing something new is to understand that every answer you know is an answer to a question, right? So we don't learn by answers, we learn by questions. We have to ask questions, and one of the things that's particularly important in a movement like fee or libertarian movement or what a classical liberalism or whatever you call it is not to look like you already know all the answers, right? The answers that you hear from these that have heard from the giants, the guys like Mises and Hayek and the younger guys like Pete Betke and Chris Coyne, if you know these names and all these guys, they're asking questions and they're bringing answers to questions. The key here is we really want to ask questions, and what I want to do is give you a method to ask economic questions. We don't know the answers. It might look when you ask somebody like me that I know the answer but I've been talking about introductory economics for 20-some-odd years and I develop what I do all the time so I may know already kind of where I'm going to go, but that doesn't mean that we're not asking questions. We're not here to give you answers, we're here to get you to ask questions. Good questions lead to good knowledge. Bad questions lead to bad knowledge, okay? Garbage in, garbage out kind of thing. I started off, I guess I don't have the, somehow I missed it. This is a quote from Cain's and you might ask, wow, what, why would the foundation of economic education, the guy talking for that, bring up Cain's to start with? Well, Cain's couldn't have been wrong about everything, right, any more than Rothbard was right about everything, right? Rothbard was mostly right, Cain's is mostly wrong. A little joke right there, kind of. But he's got to be right about something, right? And economics is not a body of settled conclusions, right? This is the key to that question. It's a method rather than a doctrine, an apparatus of the mind, right? It's a way to think and what I want to do is kind of talk about that economic thinking. All right, the basic premise and economic way of thinking is this, the world is orderly, right? Look out the window, the world is orderly. There's a famous phrase that I think is said to be uttered by Bastiat, but it's said that after all, Paris gets fed. Or as I say in my little town where I teach in Farmville, Virginia, is the closest big town, after all, Farmville gets beer. How is it that when two colleges in town on a Friday night, only those who are legally, of course, able to purchase adult beverages, manage to go over to Wally World, right? Go to Walmart and they have beer and you didn't have to call them up ahead of time. How did that happen? How is it that you could walk right now on the streets of Atlanta, you didn't tell anybody you were coming and say you wanted to go buy a bottle of water, you could find a store, walk in and buy a bottle of water? How does that happen? Think about that for a minute. You take that for granted, right? We take that for granted. Think about that. There are parts in the parts of the world where that doesn't happen. You can't wander into a city, wander around and go and buy a bottle of water or a bottle of beer or in a place like Atlanta. I'm pretty sure if you wanted to buy something, regardless of what it was, you could find it in Atlanta, right? Irvington on Hudson, maybe not, right? Where the main office is, maybe not there, but here I'm pretty sure you could find any doggone thing you wanted to find. How does that happen? How does that happen? Well, we're going to argue the basic premise in economics is this. All social phenomena emerge from the actions and interactions of individuals who make choices after weighing expected benefits and costs to themselves. Whoa, what does that mean? Well, that's what we're going to find out, right? We're interested in social phenomena. Social phenomena might be, I'm pretty sure that right now, when I come give my lecture after dinner, that you'll all be sitting in roughly these same chairs after. Why is it? How is it that you decided to sit where you're going to sit and why is it this is the pattern that's going to develop? Why is that the case? How is that the case, right? That's a social phenomena. Money is a social phenomena. Language is a social phenomena. Prices are a social phenomena, right? Lots and lots of things we see are social phenomena, right? Because a phenomenon means an actual thing, right? That's what a phenomena, an event. And what we're going to argue is these events emerge and they emerge from choice. So let's unpack. All of economics is about unpacking this basic premise. This is what economics is about. Looking out the window or looking out the classroom window and looking at the real world. That's what economics is all about, okay? There's three things that we have to concern ourselves with in economics. Actions, interactions and consequences. Actions, interactions and consequences. So let's take each one of those things in turn. Action. When we talk about action, the core problem in action, the reason that action is required is that scarcity is a problem. If scarcity were not a problem, we wouldn't need to act. And I'm going to talk about what action means and what it means to act in a minute. I feel like I want to get off the stage and run out there. So forgive me if I fall down off the stairs, okay? So scarcity is the major problem we have. What does it mean to act? What does it mean to act? To act means apply, means to end according to ideas. We all do that. And we're going to come back to this theme over and over and over again. Economics, okay? Or what Famis is called praxeology, right? Which is the most well established, economics is the most well established branch of praxeology. To act means to apply means to ends according to ideas. So what are ends? Ends are our goals. What is it that you're after? I'm thirsty, right? I'm hungry. That's an end. Now there's many, many, many ways I can satisfy that end. The ways in which I satisfy that end are means. The ways in which I satisfy that end are means. There are many, many different ways to satisfy my ends, right? My ends are uncompletely unlimited. If I sat here and asked you what all your goals were, we could sit here and spend the whole week of these seminars talking about what we would like to do, what our goals are, what our ends are. Those are unlimited, right? The problem is the means we have to achieve those things are not unlimited. So that's why we have to act. If those means were not limited, we wouldn't need to act. We would live as Mises put it in the land of cocaine or in the biblical version it would be the land of milk and honey, right? You just wake up, go, I would like chicken. Nah, scratch that, give me beef. Nah, scratch that, I want a tofu. Whatever it is, you'd get it. You wouldn't even have to barely think about it. But we do. The means are limited and since the means are limited, we have to choose. Since the means are limited, we have to choose. Choice is a necessary outcome of means being limited. So therefore, means are limited, okay? Economizing, which we'll talk about, implies when we make choice, we have to economize and we have to make trade-offs. If I choose one thing, I can't choose another. If I choose A, I can't choose B. We also need to have as Manger put it way back when in the Grunzat, so that's what you say, by the way, if you want to sound around Austrian guys, like you're like you say, you guys are too young. There used to be commercials called for Starkis Tuna. They kind of came back again. There was a little fish in there named Tuna, in there named Charlie. Charlie would always kind of dress up in a nice suit and sit at the table and the guppy would come by and go, Charlie, what are you doing? He goes, well, Starkis, I want to be look good for Starkis. He goes, Starkis wants tunas that taste good, not tunas with good taste, right? If you want to show Starkis you got good taste, you say Grunzatza. For the rest of us, you just say principles, right? The principles of economics. And one of the things that Manger said, what makes a good, a good is you got to have the knowledge of a causal connection between the mean and an end. If you don't know that a certain thing that you see is edible, it can't be a means for your end, can it? So notice what knowledge can do for us, right? And why now we have to understand knowledge and culture and things like that in economics. There in some cultures, there are things that you would eat and other cultures, there are things that you would not eat, right? Just watch, was it Anthony Bourdain? Is he the dude on the travel channel that eats the strange food? Is that the guy Anthony Bourdain? Look at some of the stuff and then who's the fat, the round dude that eats like just stuff that you go? Are you kidding? What the heck's his name? I don't remember. But there's another, you look at that stuff go, you mean they eat that? Well, if you don't know the causal connection, then a thing can't be a means. So knowledge is important. So what do we have? We have ends, means, and knowledge, right? Ends, means, and knowledge are very, very important in economics. So economics is also about knowledge, which is where if you read Hayek, you get all that kind of Hayek stuff and we'll go back to that. Second thing is interactions, okay? Interactions. The core problem in interaction, what is an action means kind of autistic, not autistic is the wrong word. What I do for myself, right? I act, I choose to satisfy my goals. But each one of you when you came in here, you chose a seat. That action created an interaction with somebody else because somebody else couldn't also choose that seat, right? Or if he did choose that seat, you would have to choose something different. There's an interaction, right? If I choose to do this, that creates an issue for you. There's interaction. So if we're going to live in a social world, because economics is a lot of times accused of being about automatons, about people that don't engage in the social world, and Homo economicus, and economic man. Economic man is a non-existent character, okay? He exists in these textbooks to make economics look like physics and economics is not like physics. Economics is different, and I hope we get to push that across. But the core problem in interactions is how we meet our actions overlap with each other is the multiplicity of diverse and even incompatible individual projects. One of the problems we have when we interact with each other is we all have different goals, right? We all have different knowledge. We all bring different things to the table, and if we do that, we're going to have multiple goals, and sometimes we're incompatible. That creates problems, doesn't it? When they're compatible, it's easy. When they're not compatible, that creates problems. So one of the things that we have to think about when interactions is this idea of multiplicity of goals, okay? Everybody good with that? That makes cooperation necessary, especially with strangers. Think about, you just, somebody here, you just open up a bottle of Diet Coke, and we're in Atlanta, as they say down here, Atlanta, so you got to have your Coca-Cola, right? You got to say it right when you're in Atlanta, too. It's a Coca-Cola. You got to have your Coca-Cola. Don't drink Pepsi in Atlanta. You could get thrown out of here for that, okay? So do you have any idea about anybody that was involved in the production of that Coca-Cola to bring it to you? You still got the Coca-Cola, didn't you? Think about that. Think about the number of people that worked for you to bring you your breakfast this morning, that worked for you. Think about that. That's mind-boggling. That's what markets do for us. They make lots of people work for us, people we don't know, we've never met, we've never seen, that don't even know you, and they still are willing to work for you to give you your Coca-Cola, right? Or Coca-Cola, if you will, okay? So that means we need a coordinating process. We have to have a process to coordinate these interactions. And this is where things like rules of the game or rules of engagement, which later we'll call property rights, become important. Property rights are incredibly important in economics. Without property rights, we can't exchange because exchange, if you really think about it, all exchange is an exchange of property rights. Now I'm saying you own this, you get to keep this. I could give you my watch and we could make the exchange, but it's still my watch until we actually make a trade, right? Until I transfer the property right to you. And when I transfer the property right, now it's yours. I can give you the property very easily, but without the transfer of the right, we haven't made an exchange, have we? So property rights and how they're defined and what they mean become incredibly important. So property rights are important. Final thing is, the final thing that I talked about in the three things are consequences, in particular unintended consequences. The social phenomena that we see are the not the intended consequence of anybody. The order that exists in this room right now where you're sitting, the order that exists in the traffic are those little kids walking up there? I'm ADHD too, so I see everything. Okay? How many ADHD kids doesn't take the change of light bulb? Let's go ride bikes. Okay? Nobody intends for the order that we see to happen, do they? Nobody intends for the order of the traffic that's going to pass through on Peach Tree, whichever Peach Tree street we're on right now, because there's about 500 of them in Atlanta. Okay? Whatever Peach thing you're on right now, nobody decided what that order was going to be, but there's going to be order. When the people go into the Marta and the way they walk and the way that's all order, that's all social order, nobody intends that social order. Each person is concentrating on getting, achieving his own goals. Why is he riding Marta? Maybe he wants to go home. Maybe he just wants to ride up and down the Marta all day. Maybe he enjoys riding trains. I don't know. Right? But we could all have different goals. We're all going there. We're interested in doing what's going to bring us our goals. But somehow we end up with an orderly thing, and it's not our consequence, not our intention. The price of Coca-Cola is not our intention. The price of gasoline is nobody's intention. The price of gasoline is an emergent phenomenon. Right? So that word emergent in my original premise is really important. Okay? So the order we see emerges. Right? Order is an emergent property. It's not laid down on top of us. It emerges. It emerges out of what? The choices we make, and choices are important. Okay? Choices are important. All right. Some basic principles. I'm going to go through about, I think it's nine or ten. Every textbook in the world has a thing that says, these are the ten things that you need to know to understand economics. Okay? I'm going to take what I think of the ten, nine or ten things, and then I'm going to give you another list, which is another list of ten things at the end to conclude, and then we'll wrap up. So basically what I'm going to do is go through, I think it's nine I picked, and I've stolen this from various places. I've got to give Art Carden some credit. I've got to give Pete Betke and Paul Hain some credit and some other people some credit. I've stolen these from lots of different places, where they've been stolen from at this point I don't know. I think Art, I know Art is responsible, Pete, Chris Coyne, guys like that. All right. First thing we said, and we've already said this wants, is basic principles. Basic principle number one is individuals act. Okay? Individuals act. What does it mean to act? It means to choose, right? Means according to, to apply means to ends according to ideas. To apply means to ends according to ideas, right? And that's straight out of Mises, right? Apply means to ends according to ideas. That's what it means to act. So if we think about what I'm doing right now, it's, I'm not just up here randomly making noises. I, every word I choose, every move I make, everything I'm doing here is go, is moved toward an end. I have an end. I have a goal. I want you to be imbued with the idea of economics is way cool stuff, right? Every time I get to talk about economics, I get incredibly excited because it's the coolest thing in the entire world. Okay? It's the coolest thing in the entire world. Okay? I, I just love economics. And I have a goal, right? My goal is going to be to try to get you excited about economics. So now I have many, many means to do that, right? I could stand up here and tell jokes. I could juggle balls. I could talk about steel stuff from really smart people, right? Like Mises and Hayek and Coyne and Art Carden and those guys and then tell you about it and then try to hope that I can bring it across to you. So that's my, these are the means I'm using toward that end, right? But I have to have a knowledge, some knowledge about how to get those means to those ends. If I just have a bunch of, a big list of things here and I don't know how they apply to what I'm trying to get after, which is that all social phenomena emerge from the actions and interactions of individuals who make choices after weighing additional expected costs and benefits to themselves. How many times do you think I've said that over the last 25 years? At least once a day in every class I teach, probably multiple times every day, because that's the most important thing we have. That's what guides and all of this is guided toward that. What does it mean to have, again, act? We have goals, ends. There's multiple paths to those goals. So there's a variety of means, right? There's a variety of means. There's a variety of ways we can use to achieve those ends. And notice this opens up this idea of efficiency. Efficiency is a bizarre concept in a lot of ways because lots of people think of efficiency. How many of you ever been in like a Best Buy or a Appliance Store and they got the little yellow tag on there and it says this thing is 82.3% efficient or whatever that means, right? How many of you ever taken physics and they talk about efficiency in physics? We talk about efficiency as if it were like work in divided by work out, right? Or the other way around. Work out divided by work. I'm not sure which work out over work in. And physicists make it sound like it's really this concept that's not, that's cut and dried. Well, it's interesting because even physicists, if you think about efficiency and lots of people will say wouldn't it be more efficient if, how many of you ever been in line and you're at the airport or at the Walmart or at the restaurant and somebody's saying something to the effect of they shouldn't be doing it that way, why aren't they doing it this way, right? It would be better if they would do it this way. They're implying that they know a more efficient way to do it. Well, efficiency can't mean anything without a goal, without an end. Is it more efficient to cut wood with an axe or with a pneumatic splitter? What's more efficient? If you're studying any economics, you know the answer to that question. It depends. I think I heard somebody say that. It depends. What's it depend on? Depends on what your goal is, right? If you want some exercise, right? If you're interested in exercise, you get a mall and a sledge hammer and you go to town splitting wood, right? For those of you who don't know what a mall is, it's like an axe head without a handle in it. It's a big giant metal wedge. You bang it into the stick and then you take another really big hammer that weighs like 20 pounds and you whack it, right? And you'll whack it and you do that repeatedly. Swing around a 20-pound hammer for a while on the end of a stick this long, you're going to get a workout, right? If you're interested in exercise, that might be the efficient way to do it. If not, maybe you get a pneumatic splitter. If all you want is wood real fast, you put it on there, it's going to split it really quickly, right? What's the most efficient way to get from here to Stone Mountain? I think that's that mountain out there in the distance that you can see looking north, right? Isn't that called Stone Mountain? Stone Mountain? What's the most efficient way to get to Stone Mountain? Well, it depends on what it is that you want to do. Do I want to have a tour on my way to Stone Mountain or do I want to just get to Stone Mountain and do something there? What am I after? So efficiency doesn't mean anything without this idea of a goal. So economizing, which comes out of this idea of acting, which comes out of knowledge, right? This is the real cool thing. This is another thing that makes economics incredibly difficult for most people. If you don't follow me now, you're not going to follow me later. You can't learn economics, except for maybe macroeconomics, but we'll leave that aside for now. And all seriousness, you can't learn economics like history, right? You can't compartmentalize economics. All I'm going to do is, well, I don't get the early stuff now. I'll get it later. If you don't get it now, you're not going to get it later. If you don't understand these nine or ten, whatever number of basic things I'm throwing up here, you're not going to be able to understand economics later. But if you get these nine things, you're good to go, right? You're good to go. You're going to be able to ask and answer lots of questions, right? You're going to be able to ask lots of questions. So economizing, which means to be efficient, which means to get the most out of a choice we make, which means have to have knowledge in the way means apply to ends, all that stuff is really important. So again, first thing we do is we act. Individuals act. They choose, right? Individuals choose. So if you run into somebody who says individuals don't choose, he's not an economist. He may say I'm an economist because I've actually heard an economist once say in front of Ben Powell, maybe you can ask him the story sometime, that, well, I don't have a choice. And his response was, well, then you're not talking about economics. What are you talking about? We believe as economists, people have choices. And we're going to talk about what that means as we go along. Each action has a cost. You cannot act. And by the way, while we talk about act, you can also think of act and choose as synonyms because I'm going to go back and forth between the two, all right? Because the act means to choose, right? Because what does act mean? Apply means to ends according to ideas. So what is it that you have to choose? Means, right? If there was only one means to an end, would you be choosing? Right now, what's the only way for you to get oxygen into your lungs? Breathe. So are you choosing? No, you're just breathing, right? No, you're just breathing. That and the idea that air, there's enough air around here that we can all use it up. But I promise you, if air becomes scarce, things change a little bit. Going to a burning building sometime with 40 cubic feet of air on your back. Think about that 40 cubic feet. That's a brick of air like this. And it's only going to last you for about a half an hour. You change your behavior really quickly. I promise. I promise. Ben, they've done that. Don't ever do that, by the way. It's a firefighting, nastiest, filthiest job on the planet and you couldn't pay me to do it. Okay? You couldn't pay me to do it. But I think one of the things, there's a side note here, and you're going to have to get used to tangents with me because I can't help it because, like I said, the kids, the light bulb, the whole bit. I think when you're part of it, and this is important if you're going to be a libertarian, classical liberal, whatever it is that you want to talk about, you're part of a community. We live in a community. We live with people. And part of that is that you have to find some way to interact with that community and be part of that community. I would never say that anybody has a duty because I don't feel I have the right to obligate you to do anything. But it's really hard to claim to be a libertarian and talk about voluntary solutions to problems if you're not going to be part of the solution. We need firefighters. People's houses burn up. People do dumb things. They crash into cars, other cars, and they need me to go out and they need somebody to go out and help. That's the way I help. That's what I do. Other people might do other things. You got to be part of it. If you're not part of it, it's really hard to be a libertarian and talk about what we need is less government and more individual action and all that, and then not be part of that. It doesn't work because then you're a hypocrite. It's not a real productive strategy. It's not a real productive strategy if we want to be living a free society, right? If we want to live in a free society. Each action has a cost, right? Why are there costs? Because means are scarce. If I choose A, what does that mean? Can't choose B, right? To choose means to simultaneously not choose. So all choice implies not choice. So if I choose A, what have I done? I've given up B. Is B valuable? Well, B must be valuable, otherwise it wouldn't be a means to my end, right? Which we're going to come back to this tonight when I talk about demand. Why are means valuable? Because they apply to ends, right? If they didn't apply to ends, would they be valuable? Means in and of themselves are not valuable. Things in and of themselves are not valuable. Intrinsic value from an economist's perspective does not exist. If it doesn't apply to an end, it's not valuable from an economics perspective. If you want to go into intrinsic value, find a philosopher and go around, wrap yourself around the wheel with that guy for a while. But from an economics perspective, if it don't apply to an end, okay, it ain't valuable. It ain't valuable. We call that opportunity cost. What is opportunity cost? It's the value of foregone alternatives. It's the value of foregone alternatives, not just the foregone alternative, the value of a foregone alternative. And we're going to talk a little bit about value in a minute. A little bit more about value in a second. Notice that every word we put up there opens up another thing that opens up another thing that opens up another thing. This is why I love economics. Because on two slides, I could probably spend three days talking to you about two slides. And if you give me half a chance, I will. All right. Incentives matter. Incentives matter. Economists believe that incentives matter. What does that mean? If the cost of something goes up, we're going to do less of it. If the cost of something goes down, we're going to do more of it. As the benefit goes up, we're going to do more of it. As the benefit goes down, we're going to do less of it. Right? What's interesting is how crazy this explains, things like this explain. This explains why in Vancouver, that kid that just, you see that kid that was an Olympic water polo player, his career's done, because he decided it was a really good idea to light a police car on fire. Because what did he believe? He believed that in a mob, he wasn't going to get caught. Economics explains mob behavior really, really easily. Here's how. Cost goes down. The cost of what? The cost of getting caught. If the cost of getting caught goes down, will you behave more poorly? So if we're in a mob, if we make a big circle around somebody in this room and somebody in the middle hits the dude in the head, what's the likelihood you're going to get caught? So if you have a prey, if an end for you is to punch somebody in the head, wouldn't you prefer to be in a big crowd than a sparse crowd? Walk up to the biggest guy in the room and punch him in the head when he knows who you are. Go ahead. What's going to happen? Probably not good for you, right? But if you like punching guys in the head, that's your end, right? Your end is I like to punch guys in the head and you're in a crowd and he can't see who punched him in the head. What's going to happen? You're more likely to punch the dude in the head, aren't you? The water polo kid didn't think he was getting caught. Uh-oh. That's why Ku Klux Klan guys wear hoods. Lowers the cost of getting caught, right? Economics explains that kind of stuff. We don't need to go into some crazy cultural explanation. Economics does it really pretty easily from what? People act. Notice everything I'm so far I've described. I've just got people act, right? People act. Prices are one of the major incentives that we see in economics, okay? And they emerge from actions and interactions and they're probably the most important incentive in economics and I'm going to talk tonight a little bit more about how they emerge. Supply and demand. When I talk about supply and demand, okay? We choose at the margin. Margin's not that little place on the edge of the paper but this is where margin, the idea of the word margin comes from. Margin also doesn't mean trivial, okay? Because we usually use margin to mean not important. So throw that out in economics. What margin means is this. We never choose all or nothing. We always choose a little bit more or a little bit less. We're in a situation and we have to make a choice. I get to choose in that situation I find myself in, right? The famous, we'll talk about this again tonight, the water diamond paradox. There's a famous paradox in economics. Would you rather have a cup of water or a cup of diamonds? If I put a cup of water and a cup of diamonds right here in front of you, you said pick one. I'm pretty sure I know which one every one of you would pick right now. If I put you in the middle of the Mojave Desert and you'd been there for three days and gave you the same choice, do you think you'd still pick the diamonds as he takes a swig of water? Do you think you'd do that? That's what we mean by the margin. We find ourselves in situations and we choose according to the situation we're in, right? Which explains why I might be willing to go in, go into like say I walked outside right now and a thunderstorm came and I didn't want to walk over from the Weston and look like a drown rat and there was a guy selling umbrellas for $35 outside the Weston. Might I pay $35 for an umbrella? Given that I could have bought one five minutes ago for $5? Sure. I'm in a different margin, aren't I? Is the value of the umbrella changed to me? Sure it has, right? Why? Because of the situation I found myself in changed. Do I like the fact that the guy's selling me a $35 umbrella? Yes and no, right? No, because I'd rather pay five bucks. Yes, because if I didn't pay him $35, he'd have no incentive to go get the $5 umbrella, bring it outside and sell it to me for $35, would he? Okay. Choices at the margin. All costs are marginal costs, all benefits are marginal benefits. They all have to do with the situation we find ourselves in. Somebody already stole my thunder on this one, I said I can just skip over this slide right now, right? You all got books and you don't like them, trade them, right? That's okay. If you trade, what do we know? What do we believe beforehand that the trade is mutually beneficial, right? All trade is mutually beneficial. Voluntary exchange is mutually beneficial. Voluntary exchange is mutually beneficial. What does that mean? It means if you and I make a trade and again think about what we're doing, we're trading means, right? If Jack has a basketball and Bill has a baseball, or we'll go with John, Jack has a basketball and John has a baseball, so when I get them backwards you won't, nobody will remember what I said, okay? If John has a basketball and Jim has a baseball, Jack has a baseball and they make a trade, Jim values the, see I've already screwed it up, Jack values the basketball more than the baseball and the other guy values the basketball more than the baseball, otherwise they wouldn't trade, would they? When you go to Walmart and buy a bottle of water for $2 or if you're up in the west in there and that big one costs you $5 and you buy it, guess what? You value the water more than $5 and they value the $5 more than the water. Are you both better off? Before hand, right? Could we make mistakes? Right? Could I go, man, I'll tell you what, those cocoa puffs look really good. I never had cocoa puffs before. I think I'll get some of those because I like the fruity pebbles. So I'll get me some cocoa puffs and then get them and go, wow, I shouldn't have done that. Sure, I'm not saying that we're perfect or omniscient, we make mistakes. But before hand, we wouldn't trade if they weren't beneficial. What would be the point of making the trade? What would be the point of making the trade? So trade is mutually beneficial. In two ways it's mutually beneficial. The first one I just talked about and the second one, when we trade, then we get to specialize. If I can get good at something and I can trade it for you, if I'm a better fisherman and you're a better bread baker, and you bake bread and I catch fish, we could have more bread and fish, couldn't we? I'll fish all day because I can catch a lot more fish than you do and you bake bread all day because you can bake a lot more bread than I can. Guess what? When we're all done, we're going to have more fish and bread than we had if we each did it. And why? Because we're going to trade with each other when it's all done. So trade also allows that through what we call comparative advantage. What is comparative advantage means? It means I get to do something better than you do and you do something better than I do. What does better mean? It means it's cheaper for me to fish than you because I can do it more quickly, for example, and vice versa. Alright, individuals are rational. Individuals are rational. What do I mean by rational? I just had this fight with an economist the other day in a meeting. He made some, you know, it's kind of cool if you're an economist to go, are you suggesting that these economists are subject to money illusion? I'll stop it, please. I'm not interested in your nonsense. Here's what I mean by rational, okay? I don't mean spot, you guys would be the data, you'd be of the data. I guess though with the new Star Trek movie where they were old and back, you know who Spock is, right? I'm not suggesting that people are automotons and make perfect decisions and when we talk about rational, what I'm talking about is this. Rational means we respond to incentives. Costs and benefits aren't just about money, right? We respond to incentives. That's the marginal benefit, marginal cost thing, right? So when I say we choose after weighing benefits and costs, what I'm suggesting is we're rational. That's what I mean by the word rational. We choose after weight. Notice there's some repetition in here too. We choose after weighing benefits and costs. Those benefits and costs to me are subjective. Things I might really like to eat sushi and you may think raw fish is just not the way to go, right? I'm not eating it. We both have different goals. We both have different values, right? I might not be like to be the guy that reaches over the top in a fight and punch a guy in the head and you may like that. So when I will react different to the incentive to punch a guy in the head, then you will, right? For some of us being embarrassed in front of our peers is a huge enough cost that we won't ask questions. We won't sit in the corner and be quiet. For some of us, we don't care, all right? I'm going to be embarrassed. What's the big deal? I've been embarrassed before. I'll get embarrassed again. Who cares? It's no big deal, right? So I'm going to react differently to that, okay? So subjectivism is important. Value is subjective. What do I mean by subjective? Subjective means all value starts up here, occurs in your mind. This is one of my favorite quotes of all time. This comes from Tom Sowell, one of the best books ever written on economics and probably one of the least read great books in economics called Knowledge and Decision by Tom Sowell. It's one of the most fantastic books, especially the first section of it. The second section is a little bit dated, but the first section of it is absolutely incredible in terms of understanding what economics is. What subjectivism means is that, look, you could say, look, if I see that guy, I'm telling you I'm going to punch him right in the head, right? Or if I see that, if that ever happens to me, I'm going to do this. Well, we're not there right now, are we? So how do you know what you can say that and then it gets there, why didn't you do that? Well, I don't know. Because we don't know what our valuations are until we find ourselves in the situation that we're in, which we already know, right? Because we said we make decisions where? At the margin. And that means that we value the means at the margin, which means our evaluations all have to occur at the time we're in, which must mean they have something to do with how we perceive the benefits and costs at that time. So it's all about, there's no such thing as objective cost. There's no such thing as objective value. I might think I might sell my refrigerator then my stove, but I won't know that until it's time for me to be bankrupt. We also face a budget constraint. And I put that in quotes. A lot of people want to talk about rationality as if we don't face constraints. We do face constraints. Constraints are what? I'm better looking than you are. You're smarter than I am, right? You're taller than I am. I'm faster than you are. I can't stand the sight of blood. You can stand it and love it, right? I find that all the time with EMTs when I hang around with them. I don't want any part of EMT stuff. I'll drive you there and I'll drive you home in the truck with the big siren going, woo, like that. I'll do that. But don't make me get out and touch that stuff, okay? We all face constraints. There's some things we like. There's some things we don't. Those constraints could be pure mommage money you got. The constraint you have if you're going to trade those books is the book you have. That's a constraint, right? It could be your intelligence. It could be your proclivity for things. Lots of different things. Notice, lots of different things are going to affect the constraints you find yourself in when you're making choices. But what are you going to do? Given those constraints, you're going to weigh costs and benefits and make choices. We don't act in an unconstrained world. None of us lives in an unconstrained world. So we're rational in the sense that we make costs and benefits subject to constraints, okay? We're not omniscient. That means we don't know everything. We have intelligible motives. One of the cool things about being an economist is also one of the worst things about being an economist. We are what we study. So that's both a good thing and a bad thing. So when I see somebody doing something, right? I'm going to guess you're cold, right? You just stuck your arm up in your shirt. I'm going to guess you're cold, right? Why do I know that? Because I'm a human being, right? And she has an intelligible motive, right? Cold. I see that and I can imply I have what Hayek called their stand. I can understand from certain actions what your goals are, because I'm a human being too. So we have both the problem of being, unlike, say, a physicist. A physicist has never seen electricity. It's never seen gravity. We know the effects of those things, right? But we've never seen them. So we have the benefit and the tough thing of knowing what we're after, knowing what we are and being what we study. So we believe that individuals have intelligible motives. You have ends. You are applying means to ends. That's what rational means. You think about consequences. The number of times I hear that people don't think about the consequences. The heck you don't. Every choice you make, you think about the consequence. Sometimes not as much as you should have, right? Right? That hangover won't be all that bad. Oh, geez. That was a mistake. No, sure. I'll try that, whatever that is, with the worm in the bottle. Sure. I don't care. Oh, that food challenge, right? Man versus food, I'm in. You know, those spicy things that they'll, yeah, sure, I'm in. I should have thought more about that, right? He's thinking about consequences. Maybe just not, didn't understand the end of him as much. Okay? We don't behave. We act. Non-intelligible beings behave, right? Behavior and action are two different things. It's more than a stimulus response. We choose. We have intelligible motives, okay? Using markets as costly, okay? This is one principle I broke into two kind of pieces. Using markets as costly, it's not cheap to use markets. One of the things that'll come up is this idea of transactions cost. Transactions cost is any cost that I have to incur to bring about a transaction. So, if I right now had to walk over to you and trade my watch for your backpack or something and end the negotiation we did, that'd be all part of the transactions cost. The higher those are, the less likely we are to trade, right? So, transactions cost will make us poorer. This is why property rights are important. Can you imagine if every time you traded a dollar for a Coca-Cola, you had to do a title search on the dollar in the Coca-Cola? For those of you that have bought a house or have seen parents who've bought a house? When you buy a house, you got to do a title search, which means you pay somebody to go to the town hall, look for the title on the house, decide who is the last legal owner. Can you imagine if you had to do that every time you bought a Coca-Cola? How many Coca-Colas would you buy? Not very many, right? So, transactions cost could actually limit trade, okay? And transactions cost could therefore reduce wealth, because what do we know? If we both trade and we're both better off, are we both more wealthy? If I make a trade and I'm better off, I'm more wealthy, aren't I? I just got something more valuable in return for something less valuable. I studied a little bit of accounting, but if I remember, if I take something from the good column and it gets bigger and take something from the bad column and it gets smaller, more big, less small means bigger difference, we call that wealth. Assets went up, liabilities went down, I'm more wealthy. Trade makes us more wealthy. Trade is wealth enhancing. There's no difference between production and trade. You'll say, no, production is important, because what happens in production, we actually build stuff. Now, all you do is take existing things and rearrange the molecules and put them in a more useful productive and a more useful form. The stuff that you make that jacket out of already exists, right? All we did was put it in a more useful form. When Jack and Jim traded the basketball for the baseball, all they did was rearrange them into a more useful form. Trade is productive. Trade is wealth enhancing. That's why everything that reduces trade is not wealth enhancing. It makes us poorer. So using government can be costlier, because the idea is, look, government can help us. It can reduce transactions cost. Government can help us. It can reduce transactions cost. That's cool, right? The problem is that would work in property rights issues. Property rights are important, but there's times when it's more costly. Government can also reduce trade. Understand that government's made up of individuals who are not omniscient, just like you and me, and they face incentives just like you and me. We don't elect guys, and they suddenly become angels, and they're like, oh, they are omniscient. They know everything, and are only concerned about you. They still are concerned about what themselves, their goals, their means, their ends. So things like policies like price controls, taxes, and subsidies limit trade. Minimum wage limits trade. Somebody wants to work for under the wages offered. You don't allow them. You just made that guy poorer. Long term too, because now if he can't work for under minimum wage, who's going to hire him later? Ain't going to be you. You got any experience? No, I couldn't get a job. Why not? He doesn't know it's a minimum wage. That's the cool thing about it, because then Ted Kennedy, I won't say God rest his soul because I don't want it to. But that was kind of hateful, but that's okay. If you ever lived in Massachusetts, you'd understand. It's okay if you're offended. In a free country, you have the right to be offended, and I have the right to offend you. That's the beauty of liberty. You don't have to like what I say. I get to say it. And some decorum would indicate that there's some things I won't say. Okay, I got 10 minutes. All right, I think I can be all right. I think this is number, what are we on number seven? Eight? I'm doing better than I thought. All right. Profit and loss is give information. Profit means keep doing what you're doing. Loss means hey, you knock it off. We don't want you to do that anymore. It's not like President Obama said a market failure, right? Obama calls loss a market failure. No, it's a, hey, you stop it. I'm gonna talk about entrepreneurship a little bit later in profit, so we'll get to that a little bit more. We'll develop it a little bit more. But profit means you took some resources from over here. You applied them to this and people were willing to pay more for them what you paid. So you know what? That means you took resources from over here, brought them to a more valuable use. Loss means you took them from over here and you brought them to a less valuable use. Loss means hey, stop doing that. How else would you know without profit and loss whether you're doing what people want or not what they want? Profit and loss is not just an incentive. Don't ignore long-term unintended consequences. Think about the seen and the unseen. If you haven't read economics in one lesson, at least the first one, I saw some copies up there, right? Some of you got any of you get that book? Don't trade that one. Don't trade that one. Henry Haslett wrote this book a long time ago. He's a friend of Leonard Read and this book. I think this is still in publication, right? It's been continuously in publication since it was first printed in 1948, is that right? Close enough? 47, 48? I mean it's been continuously in publication for more than 60 years, okay? And he said that economics could be one sentence. The art of economics consists of not looking not merely at the immediate but at the longer effects of any act or policy. It consists of tracing the consequences of that policy, not merely from one group but all groups. Look at the scene. It's what Bastiat called the scene and the unseen. If you haven't read any Bastiat, get yourself some Sophisms or harmonies or something like that and read some Bastiat, okay? The scene and the unseen. And if I, after dinner, if I remember, I'll tell a story about the, for those of you who haven't read about the kid who throws the brick through the window, okay? Which is like floods in the Midwest. So here was the nine things that I said, right? These are the nine things that I told you. I think it's nine. Is that nine or is that ten? I think it's nine. And then I got a list of ten things I'm going to give you here in a second. And I got two minutes to do that and I'll leave five minutes for questions. Okay, these were the nine things that I said. And then there's ten other things. I can get these to you if you want or they'll have the presentation. Will you get, can you get that to them? Presentation somehow, some way. We'll figure it out if you want it. Let me know. But these are, when I teach economics, this is what I put on the board first day. If you know these ten things, then you're going to be really good at economics. Notice we've talked about them already. Scarcity necessitates choice. If there was no scarcity, we wouldn't need to choose, right? Opportunity cost is the value of alternative actions. When I choose, I got to give something up. Efficiency means between ends and means. It doesn't mean to be efficient unless you know what your goal is. We talked about that with the wood cutting, okay? To economize means to allocate resources in a way to give us the most valuable outcome. When we choose, we economize. We choose, think about what we do. Grandma gives you a bunch of money for Christmas. You try to buy as many cool things as you can with that money, right? That's economizing. The same is if you wanted to buy one thing, what would you try to do? Buy it as cheaply as possible, right? Both of those things mean the same thing, don't they? What does that mean? It means to choose. So when you choose, you economize, okay? And we can explore that idea. Comparative advantage we talked about means giving up something less valuable. Hey, I'll quit doing bread and I'll do fish. You give up fish, you do bread. We'll give up something less valuable and we'll trade. Specialization comes. This is the cool thing about trade. Trade, this is why Adam Smith started with his, right, started with the division of labor is the most important thing. If you open up the wealth of nations, the very first sentence talks about the division of labor and the division of labor is given limited by the extent of the market, which is kind of cool because it's a feedback. The more we specialize, the more we can trade, the bigger the market, the more we can specialize, which means the more we can trade, which means the bigger the market and that's what makes us wealthy. If you haven't read The Rational Optimist by Matt Ridley, read it. It's about Adam, all about Adam Smith from a biologist's perspective, a fantastic book. Rational Optimist explores all those. The law of demand, I'll talk about that a little bit later. That has to do with rationality. If it costs less to do something, you'll do more of it, right? If I can wear a hood when I'm being a racist, I'm going to wear the hood, right? I'm going to be a bigger racist with a hood on than without one, right? Okay. It'd be a lot easier for you to yell racial epithets in Buckhead than it would downtown. That's the law of demand. I mean, to make it stark, okay, to make it so you remember the idea. A market is a process of competing bids and offers. I'll talk about that later today. An informed exchange is mutually beneficial and growth, economic growth means producing stuff that we want. The Soviet Union didn't grow because they produced, not because they produced stuff, they didn't grow because they didn't produce stuff people wanted, okay? So economics is not a set of thinking, it's not a set of conclusions, it's a way of think. It's addictive. Once you get it, I can't tell you the number of students come back to me and go, I hate you because now everything I look at is about economics. I can't think about anything without margins in it. It's making me nuts, okay? And make sure when you do your economics, and that's one of the cool things you're going to see in this lecture series is economics is not a body of thought, it's a social science. So we need to understand history because that gives us constraints, psychology, culture, sociology. All of these things matter, right? All of these, because what matters means are means in some cultures and not in others. Means were something in history and not another. We can't be mad at George Washington for not flying across the Delaware, right? He didn't have an airplane, right? It matters, doesn't it? It matters. Anybody got questions? I think I got two minutes, three minutes for questions. Anybody got any questions? Somebody got to have nothing. They just want to eat. They're hungry. You've been starving them. Go ahead, turn to your right. Thanks for the inspiring lecture. I have a question because I'm from China and I heard a lot about debate about the trade. Since you mentioned the trade is mutually beneficial and I totally for it. And some people say the trade between China and the US leads the US to lose a lot of jobs and the unemployment rate is so high and they blame for the trade from China. And I'm thinking about the question is what do you think about this? That's a marvelous question. It's one that's kind of standard. It's the old kind of school mercantilism question is understand there's a couple things, a couple ways to attack or think about that problem is one is only individuals trade, right? Only individuals choose. Groups don't choose. So US doesn't trade with China. I trade with China, right? I trade with another Chinese entrepreneur, right? Or a Chinese person trades with an American entrepreneur or an American, right? Individuals trade with individuals, okay? If we don't, if we prevent that trade, here's what happens. If I prevent that trade, that means for example, let's suppose I could buy the iPad, right? Because this is the one that came up most recently. Like Apple goes over there and they beat Chinese people to death to build them iPads or something like that. Not quite that, but that's kind of the implication. Well, if they can build iPads and sell the iPads that can come back here and now sell for $500, I can get an iPad for $500 and then maybe get the fancy roll-up cover that shuts it off, right? If I had to pay $600, I'd buy an iPad and no cover. So what happened to the dude that produced the cover? Or if I spent $600 on that, that's, you know, that's 50 cups of coffee at Starbucks I can't buy. And if I got can't buy those 50 cups at Starbucks, does the guy who's working at Starbucks work anymore? Do they need the same number of people working at Starbucks? Or the same number of guys that are building TVs or whatever it is? So anytime we reduce trade, we raise prices. If we raise prices, that means I pay more for the same things, which leaves me less means to go buy other things. So in the long run, what happens is yes, in specific places, if I build TVs in China or iPads in China instead of in the US, iPad jobs will leave in the US and they'll go to China. But that frees up all of those resources for what? Use in other opportunities. And so that gives us other opportunities. So trade is always good. Generally speaking, could it be bad for somebody in particular that tour to trade? Yes. But think about the other answers. Think about this. Suppose we never let buggy whip manufacturers go out of business at the turn of the last century. Because automobiles came in, right? What would happen? So the problem is, is that change, dynamics, an economy that's dynamic has costs and benefits. And those benefits and costs are real to real people. So we have to kind of balance the two, but trade generally is better than not trade. Thank you. That's actually all the time we have.