Introduction
The book has been a great introduction to the big ideas of economics, as the author gives a thorough description of the way economy works. He has taken a larger subject and broken it down into simple elements that can be easily understood by the reader. The book gives a succinct description of how economy works, how banks work without using mathematical equations or jargon-ridden theory. Even though, it does not use most of the economics graphs, the book lays an emphasis on the proponents of microeconomics and macroeconomics, thus making it an appropriate supplement to economics courses. The paper will give a report on a detailed analysis of ‘Economics: The Remarkable Story of How the Economy Works’ by Ben Mathew. The paper will also discuss relevance of the book in the realm of political economy.
Book Review and Critical Analysis
From the book, it seems that the early chapters attempt to explain what is entailed in an efficient economy. Similarly, later chapters of the book attempt to explain the meaning of an efficient economy. The beginning chapters revolve around microeconomics, which revolves around the market system, as well as the interaction between the buyers and sellers. The later chapters of the book pertain to macroeconomics, where the author attempts to explain how the government intervenes within the markets through taxes, as well as tools of monetary and fiscal policy. This gives the reader a comprehensive and well-illustrated analysis of how economy works in both private and public sector.
Mathew’s book has been remarkable in explaining economic ideas in a brief and breezy style. According to Mathew, an economy is said to work well if it makes a good use of its limited resources, as it strives to satisfy its people’s desires. The sentiments of the author are real and practical, as it applies and conforms to the basic principles of economics. However, it would have first been vital to explain the different kinds of economic growth, as they can be classified in two broad categories. The first definition of economic growth is when there has been an increase in economic output within a given time period. Economic growth can also refer to what an economy is capable of producing, even at scarce resources. This can be reflected in a production possibility frontier. In this regard, an outward shift of the production possibility frontier is a reflection that an economy has increased its capacity to produce. However, Ben has constrained his definition of economic growth to what an economy can produce and not an increase in economic output. An economy can also grow when businesses and individuals succeed in recognizing new markets, as well as new opportunities.
Mathew further emphasizes on a fact that economies can increase their efficiency by implementing a functional rule of law that has the best interests of people at heart. Producers should be protected by the law and given incentives, which will give the impetus to produce more commodities that will boost economic growth. Therefore, the sentiments, put forth by the author, are true and realistic. However, he should have also touched on other factors that increase economy’s efficiency, so as to give the reader a comprehensive analysis. For instance, an economy can also increase its efficiency by exercising the economics of inclusion. The economics of inclusion will give every citizen a platform to own a factor of production.
Embracing such a system will not stifle growth and will enable citizens to build an economy from the ground up. Moreover, the government should also consider lowering taxation in the quest of promoting substantial economic growth by unleashing the productive genius of American people. The primary role of taxation is to fund essential constitutional services, such as national security. Taxation should not be used to fund corrupt agendas or foster crony capitalism. In fact, imposing excessive taxation and regulation is an impediment to economic growth because it is a discouragement towards job creation and business formation.
The government is also ought to acknowledge that the role of small businesses in enhancing economic efficiency should not be downplayed. Mathew has also touched on the role of small businesses, but his description was not explained in detail. Small businesses are the backbone of an economy, as they create the vast majority of job opportunities. Businesses are also at the forefront of technology advancements. Therefore, the government should pledge to strengthen their role by fostering small business entrepreneurship. Additionally, it is equally important to have an environment, where such businesses can access an adequate financing, as well as credit, which can be available for expansion and manufacturing.
In addition, it is also imperative to acknowledge that every economic system has managers and entrepreneurs who bring together natural resources and labour, required to distribute goods and services. However, there is also a concept of capitalist economy, which was coined by Karl Marx and refers to an economic system, where a small group of people controls large amounts of money. The capitalists are responsible for making vital economic decisions. The primary role of an economic system is to allocate resources, organize production, maintain economic stability and promote economic progress.
In his book, Mathew has also touched on the role of government in economy. The author clearly states that the government’s activities have an impact on four major areas of the economy. The areas are growth and stabilization, control and regulation, direct assistance and direct services. In respect to stabilization and growth, the government is confined to the role of ensuring a steady growth by observing the overall pace of economic activities. To achieve this role efficiently, the government has to consider some variables, such as government expenditure, prices, employment and the monetary policies. The greatest economic threat that a government should always avoid is high unemployment and slow economic growth.
However, the proponents of macroeconomic theory dictate that a government can stabilize economy by using either monetary policy or fiscal policy. However, the manipulation of monetary policy is more effective and reliable because it is a directive of the Federal Reserve Board. Under monetary policy, the government can use different policy tools, such as open market operations, setting the discount rate and changing the reserve requirements. According to the author, the dynamics of monetary policy involve increasing the interest rates whenever the inflation exceeds the set target. Subsequently, the higher interest rates will reduce consumer spending, as well as investments. Higher interest rates will also have an effect of increasing the costs of borrowing and this will reduce the amount of money in the economy. However, in the event of an economy going into a recession, the retaliatory of the central bank would be to cut interest rates.
Mathew also pinpoints that the government has a role of regulation and control through antitrust laws or economic regulation. Economic regulation has an ulterior objective of controlling prices, while antitrust laws aim at strengthening market forces by limiting marketing forces that would impede competition. The third role of the government is direct services, which involve the provision of services, such as National defence and programs that assist workers to develop their workplace skills.
Mathew has also touched on the issue of free market economic system, which is an important aspect in the realm of economics. According to Ben, the dynamics of a free market system pertains to diverting deep-seated selfishness towards socially useful actions. The market is determined by the interaction of demand and supply forces. The author also makes it clear that the rules of a game should not be expressed as theft or other detrimental actions that would hurt others. With such a remark, Ben gives an impression that buyers and sellers can interact freely without governmental intervention. The transactions between the buyers and sellers are based on mutual agreement, thus giving businesses the autonomy to grow quickly by trying new techniques. However, the author fails to point out that a free market economy is not a fair business practice because individuals who care about profits might dominate the businesses. In addition, lack of government involvement implies that unscrupulous business practices will go unregulated.
Relevance to the Political Economy
Political economy pertains to the way economic theory and influences impact political ideology. It is essentially an amalgam of politics, law and economics. The doctrine of political economy takes into account how an economy is governed and managed through economic and political factors. Mathews’ book is relevant to political economy because it lays an emphasis on the major interactions between various groups of individuals and their interest towards economic development. The correlation between economics and political theory is interesting because the doctrine of political economy has been rooted in moral philosophy, which stems from a normative field of study.
The content of Mathews’ book has an impact on political economy, as it sheds light on the doctrine of capitalism in relation to economic system. Capitalism relates to political economy in the sense that it shows how economic and political shapes can influence freedom and equality in the light of the available factors of production. According to the author, capitalism embraces the invisible hand of price mechanism, which coordinates economic factors. Additionally, the government acts as the visible hand through which it acts as an administrator and an innovator. As a political economic form, capitalism incorporates market dynamics, social relations and contemporary government structures. Moreover, political economy should always comprise of economic property and property which can be an equivalent of factors of production. Capitalism incorporates a market, as it involves the interaction between the forces of demand and supply. Capitalism also includes property, which is a central characteristic, as it involves the exchange of goods and services. Ben’s book also explains the free markets economic system, where buyers and sellers interact freely. This insinuates liberalism, which is part of a political-economic system that favours the protection of private property. This is the essence of capitalism.
The book is also relevant in the realm of political economy because it has some aspects of mercantilism, which do not favour freedom or equality. Instead, it focuses on the increase of state power, as well as economic growth. However, in a mercantilism system, there are some states which encourage some industries more than others, thus establishing higher tariffs on commodities. Mathew’s book also has an impact on political economy, as it pinpoints some aspects of economic theory that have been successful in the realm of political economics. For instance, political economy has been associated with rational choice assumptions and approaches that have proved to be useful in game theory. In his book, Ben has briefly touched on game theory but, in a simple manner, understandable to a reader.
As a result, one can be in a better position to draw the line between game theory, as a part of economic theory and political economics. The principles of game theory focus on the overlapping areas of political economy, fair division and war bargaining. In this regard, the fact that the book has touched on what is entailed in game theory makes it important in the contribution of political economics and political economy, in general. The significance of the book in political economy is attributable to the fact that the information put forth equips the leader with the basics of political economics. Subsequently, one can draw the correlation between the two principles, as having perfect knowledge on one sheds light on the dynamics of the other.
However, the distinction between political economy and economics manifests itself on the way they differ on issues pertinent to international trade. For instance, economic analysis addresses the impact of tariffs on the scarcity of resources. In contrast, the political economy examines tariff policies, as a strategy that would influence neo-mercantilism. Therefore, a political economy fails to exhibit rigorous scientific methodologies, as well as a comprehensive analytic framework.
Conclusion
It is important for every citizen to have a general idea of how their economy functions. However, most economic resources explain some basic economic principles through technical jargons and graphs. Mathew has considered this by embracing a lucid writing style that substantiates the rudimentary principles of economics. He has also used appropriate examples that a reader can relate to throughout the book. Some fuzzy topics, such as inflation and recession, have also been explained in an easily understandable manner. The book has also been significant in political economics, because it has information that ensures the reader draws the line between the two.
