The basic premise of various economic theories is derived as ’scarcity’. In fact the study of economics is limited towards ‘economic goods’, that is, goods that carry use value to people but are scarce compared to peoples’ infinite desires. Prices for these scarce ‘economic goods’ arise out of an implicit process of bidding.
In short, the market allocates resources among the several bidders who can outbid their counterparts.
In short, the market allocates resources among the several bidders who can outbid their counterparts. Continue reading

I have always been empathetic to the cause of the poor, and had a special liking for charity. A huge influence in this regard comes from within my family and other close quarters. It wasn’t too long before I got enmeshed into the popular trap of associating charity with socialism, and ‘exploitation’ with the free market; goodness with the working class, and evil with the rich. Much of this distorted view of reality could be associated with interpreting economic issues based on what, taking some help from Bastiat, is seen prima facie and missing out on what goes unseen. Continue reading

People get enmeshed into a trap when they try thinking about the value of money. That is, why is a paper bill worth so many(tens, hundreds etc.) rupees, dollars or any other monetary unit. How exactly does the mint get about printing these numbers?



Was paper so acceptable?

To start off, lets ask ourselves some questions. Why did the vendor accept a 50 rupees note from me, in exchange for a kilo of sugar? The obvious answer many people give is, money(paper money to be precise) is a commonly accepted medium of exchange in today’s economies. Continue reading

I have dealt with this question already in one of my previous posts. But judging by the comments I got for that particular article, I found myself guilty of being too complicated. So, I decided to write a detailed article which can explain profits and losses to the layman. A few basic economic concepts to start with. Continue reading

One of the most important theories to make the rounds in 20th century world politics was the ‘exploitation theory’ proposed by the German Political theorist Karl Marx. Leftists all over the world have found it to their political convenience to blindly accept this theory, and to convince themselves of the morality of the workers’ hours of toil. Continue reading

It’s not been tough for me to get to hear of derogatory comments against ‘greedy’ capitalists; about how those selfish pests suck all wealth unto themselves, by selling their products to consumers at prices above production costs to earn ‘undeserved’ profits. Going even further, some distressed souls even expect Capitalists to sell the products they produce at prices below production costs, and suffer outright losses. Continue reading

One of the theories which tries to explain the cause of capitalist depressions is the under-consumption theory. This forms the thesis of writers like Prabhat Patnaik who often calls Capitalism a ‘demand-constrained system’; and also lingers around in the writings of John Maynard Keynes as the ‘lack of aggregate demand’. The under consumption doctrine goes as something like this: due to excessive business savings and reinvestment, production of goods and services increases, and leads to fall in prices. But the consumers cannot buy out this increased production because of the lack of purchasing power. That is, in simple words, people can’t buy the goods produced at prices above the cost of production of these goods. Hence, the State has to step in… Continue reading

Karl Marx and Fredrick Engels say in their famous work ‘The Communist Manifesto’:
“It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production.”

Venezuela is currently suffering from severe shortages in the supply of various goods, in particular rice. The nation reminds us of the erstwhile USSR in this aspect, as it does in many other perspectives. Only that direct physical force against the masses has not been let loose yet. Venezuela has been reeling under the impact of shortages in the supply of various goods since 2003, and now the crisis has hit rice supply as well. Keeping up with propaganda records, Chavez has launched a propaganda tirade against private suppliers. He has accused private suppliers of hoarding supply of rice. There could be a certain element of truth in it, suppliers could indeed be hoarding supplies to a certain extent. But that’s definitely not where the fundamental problem lies. The causal problem of this crisis lies in price-controls which have grown in size ever since 2003. Continue reading

Keynesian economics basically considers two major economic aggregates while checking the health of an economy: the income-output scale, and the savings-investment scale of the economy. The total income must necessarily equal total output, but savings need not always equal investments unless the economy is in a equilibrium. When people decide to save too much for any reason, Keynes argues, the economy would dive into a recession because businesses would have unsold inventories (which in turn induces them to cut jobs and halt expansion). The government could actually play an important role in this situation by encouraging people to spend, or even take the initiative itself and start disposing huge public public spending–all this to get rid off the lack of demand and make businesses sell their products. Continue reading