How Markets Work
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How Markets Work

Supply, Demand and the ‘Real World’

Robert E. Prasch

An accessible and enjoyable look at the way the market REALLY works! How Markets Work presents a new and refreshing introduction to elementary economics. The venerable theory of supply and demand is reconstituted upon plausible and defensible assumptions concerning human nature, the law, and the facts of everyday life – in short – the ‘Real World’. The message is that markets differ in ways that matter. Starting with a brief survey of property and contract law, the lectures develop several ‘ideal types’ of markets – such as credit, assets, and labor – while illuminating the similarities and differences among them. Care has been taken to ensure that the reformulations presented are accessible to students and compatible with a variety of non-mainstream traditions in economic thought.
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Chapter: Lecture IX: Values and prices: reintroducing ethical considerations into economics

Robert E. Prasch


LECTURE IX Values and prices: reintroducing ethical considerations into economics INTRODUCTION Non-economists often perceive economists to be immoral or, at a minimum, amoral. Periodically, this view receives strong affirmation. An example that captured the public’s attention occurred in the early 1990s when Lawrence Summers, then the World Bank’s Chief Economist, set off a controversy with his famous memorandum that concluded that “the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that” (New York Times, Feb. 7, 1992, p. D2; Washington Post, February 10, 1992, p. A9). Non-economists, not surprisingly, took this statement to be another sign of the profession’s moral bankruptcy. Characteristically, Summers attributed the resulting controversy to “political correctness.” While I will not review the specifics of this controversy, I do believe that substantial insight may be gained if we understand that Summers was simply drawing out an inference from mainstream economic theory. Underlying the “clash of cultures” between many economists and the rest of the citizenry is a way of thinking about choices and policy that periodically reveals that the former are often prone to confuse values with prices. For example one can simply, and correctly, refute Summers’ memo by observing that in our post-aristocratic era most thinking people believe that each life should be accorded an infinite value. Since this idea is unworkable in practice, ethical reasoning ascribes a high and equal value to each life. It follows that systematically imposing...

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