THE ECONOMIC WAY OF THINKING,
Paul Heyne, formerly of the University of Washington,
Peter J. Boettke, George Mason University
David L. Prychitko, Northern Michigan University
"Ideal for those with little or no background in economics,
this book provides an in-depth discussion of a limited, but crucial
set of economic principles and concepts--then applies these tools
of analysis to a wide variety of familiar situations."
Way of Thinking develops the basic principles of micro- and
macroeconomic analysis, and rigorously employs them as tools rather
than ends unto themselves. This book introduces readers to a method
of reasoning; to think like an economist—teaching through
example and application."
CHANGES TO THE TENTH
The tenth edition remains true
to Paul Heyne's clear writing style, wit, and powerful reasoning. We
live in exciting - and uncertain - political and economic times. The
examples have been updated to reflect many of the new questions and
issues that students face today. Previous users will find that some
chapters have few alterations while other chapters have been significantly
reorganized and rewritten. Many end-of-chapter questions have been either
cut or streamlined in the hope that more students will be willing to
give the questions an honest try – the task looks less daunting
without so many long and probing questions. New questions, of course,
have been added. We believe we’ve improved the flow and logic
of the presentation.
We followed our own comparative
advantage and divided the labor with Prychitko revising Cahpters 1 through
8, Boettke revising chapters 9 through 22, and each of us exchanging,
discussing, and reworking our revisions. The final result is a true
Specific changes to the tenth
• A greater emphasis on economics as the study of choice and the
unintended consequences of choice is provided in Chapter 1 and continues
throughout the book.
• The discussion of efficiency, exchange, and comparative advantage
has been moved up front. Formerly Chapter 6, it is now Chapter 2 and
has been almost totally rewritten. We felt that the case for the wealth-enhancing
effects of specialization and voluntary trade should come before, rather
than after, the market supply and demand presentation. The students
are also presented with individual, linear production possibilities
frontiers in Chapter 2.
• The theory of consumer demand and marginal values now appears
in Chapter 3. Examples have been updated, with a clearer discussion
of the factors that influence price elasticity.
• Chapter 4 further develops the notions of trade-offs and economizing
behavior by focusing on opportunity cost and the supply of goods. The
production possibilities frontier is developed further to explain increasing
opportunity costs of production and the corresponding law of supply.
Given the events after September 11, 2001, we decided to retain the
discussion of a voluntary versus conscripted military force.
• The basic supply and demand model is developed and applied with
many updated examples in Chapters 5 and 6. These chapters (formerly
Chapters 4 and 5) have been thoroughly rewritten. We further clarify
a continuing theme in all previous editions of The Economic Way of Thinking
– the market as a coordinating process. Quantities demanded and
supplied are interpreted as plans among consumers and producers. Market
clearing is discussed as a meshing of these plans and as an unintended
consequence of individual economizing behavior. The problem of nonmarket
(socialist) coordination is discussed as well.
• In addition to thoroughly updating the examples in Chapter 6,
we’ve also completely rewritten the analysis of the relationship
between cost and price. A new appendix has been added to alert students
to common errors and abuses in the economic way of things, such as confusions
between demand and quantity demanded, and dire forecasts of growing
and permanent shortage of oil (which invariably ignore relative prices!)
• We’ve applied the notion of specialization and comparative
advantage – developed in Chapter 2 – to explain the cost-reducing
effects of middlemen and speculators in Chapter 7.
• Profit and Loss (formerly Chapter 11) now appears as Chapter
8, following directly after our discussion of middlemen, speculators,
and information. We think this is most fitting. The chapter itself has
been completely reorganized. We’ve added a lengthy discussion
of the difference between accounting profit and economic profit, and
we provide a focus on entrepreneurship and the role it plays in coordinating
the plans of buyers and sellers. Entrepreneurship is the driving force
of markets, yet it is something that few if any other principles books
discuss. (You don’t believe us? Go take a look for yourself.)
• Following on the theme of entrepreneurship as the driving force
of the market economy, we have emphasized the dynamic element of competition
and the importance of the competitive market process in teaching market
participants how to behave in an economically rational manner. The optimality
rules of marginal cost pricing are not the consequence of behavioral
postulates assumed by the economists, but, as Armen Alchian and F. A.
Hayek long maintained, emerge through the filter of the competitive
• In the macro chapters, we’ve updated the data throughout
the year 2000 on income distribution, unemployment, inflation, economic
fluctuations, and international economic growth.
• We’ve also added a discussion of the “boom-bust”
theory of the business cycle. This explanation of industrial fluctuations
emphasizes how a credit expansion can distort market signals and misguide
entrepreneurial expectations of profit and loss, creating malinvestment
in the industrial sector. Most mainstream textbooks, wedded exclusively
to the aggregate supply and demand model, fail to discuss this elementary
microfoundation of macroeconomic fluctuations. Our strategy is experimentally
to offer this discussion now and, if it seems to work well, expand quite
a bit upon the boom-bust theory in future editions.
• In our discussion of the performance of economic systems we
incorporate data from the Index of Economic Freedom to emphasize our
argument that the security of property, freedom of contract, open trade,
and monetary and fiscal constraint are essential policy ingredients
that explain why some countries perform well and others not so well.
This discussion of recent empirical research on the relationship between
economic freedom and economic growth fits well with the traditional
theme of The Economic Way of Thinking – the coordinative properties
of the market economy are largely a function of the institutional framework
within which they operate.
- Peter Boettke
and Dave Prychitko
"I feel very positive about this
revision. I liked The Economic Way of Thinking before and now I like
it better." — Howard Swaine, Northern Michigan University
(Has used Heyne since the first edition.)
"It is a bit like Zen economics ...
It is an excellent introduction to economics text that explains not
only some of the technical aspects of economics (supply and demand,
comparative advantage, marginal analysis, etc.) but also the social
science dimensions of the discipline (and sometimes the philosophical
and ethical aspects of the discipline). It uses language, as opposed
to math or graphs, to convey the concepts. Heyne is very clever and
the book is beautifully written. I think it stands in the first rank
of introductory economics texts along with Samuelson and Alchain &
Allen..." — Mark McNeil, Irvine Valley College, California
"The strengths of this text are its
intellectual approach—it seems to be written as a whole and not
just a few principles chapters thrown together..." — James
Swofford, University of Southern Alabama
"The new authors have made a serious
and successful attempt to maintain the comfortable narrative style of
Heyne's previous editions. In my role as a teacher ... I am delighted
with the direction of change as well as the reordering of chapters.
From what I have seen of the Tenth Edition, there are discussions that
are entirely appropriate for my audience and they are pitched at approximately
the right level of reading skill and experiential background. —
Joseph Fuhrig, Golden Gate University
A TRIBUTE TO PAUL HEYNE
(1931 - 2000)
By Douglass North
On a rare occasion, if you are fortunate,
you will run across an individual who lives and acts upon the ideals
that we profess. I was fortunate. Paul Heyne came into my life in 1975.
Out of the blue, he sent me a letter that began as follows:
I’m going to be moving to Seattle
at the end of the current academic year and I’d like to find a
college or university in the city at which I could be an economics teacher.
Those are two separate decisions. I’ll be moving to Seattle whether
or not I find a position in an economics department there. But teaching
and especially the teaching of introductory economics is one of the
things I think I do well and something I would continue doing.
I had assumed the chairmanship of the
department of economics at the University of Washington in 1967 and
set out to make it one of the best in the country. My definition of
best included not only scholarly eminence, which we were in the process
of achieving, but the effective, caring teaching of the multitude of
undergraduates that populated a large state university. The University
played lip service to good teaching but the reward system was geared
to publication and most, but not all, of my colleagues acted accordingly.
Shortly after assuming the chairmanship, I decided I should go back
to teaching the introductory course to see just what we did. I was dismayed
to find that it had not changed an iota form my undergraduate days.
The textbooks were full of the formal jargon of economic theory elucidating
the perfectly competitive model, imperfect competition a la Chamberlin
and Joan Robinson, and monopoly replete with all the marginal analysis
and appropriate graphs. Following the tradition, I was in the midst
or my fourth lecture on perfect competition illustrating it with the
case of American agriculture when a student in the back of the auditorium
noisily took exception to what I was saying. I thought I would teach
him a lesson and invited him the address the class, explaining himself.
He did, describing effectively the myriad of price supports, milk marketing
acts, sugar production subsidies, etc. that pervaded agriculture and
made it far from the competitive model. I slunk back to my office and
began a search for a more effect teaching program. I was some year into
an attempt when Paul’s letter arrived. I wrote back asking what
he would like to do as a teacher. His reply, in part:
I would like to teach at a college
whose faculty was enthusiastically committed to providing a liberal
education for undergraduates. I would like to be a member of a faculty
that was continuously asking about the nature and significance of liberal
education and looking critically at its own efforts to provide one.
The members of such a faculty would use their own disciplines as bases
for venturing into other disciplines and not as castles within which
to enjoy untroubled lives. In the college of my fantasies, there would
be some core requirements for all to satisfy; not so much because anyone
can specify particular knowledge that a liberally educated person must
have as because a liberal arts college requires some common core if
it wants to be a lively intellectual community. Mastery of the core
would be expected first of all of faculty members. (I’ve often
thought how much more profitable faculty curriculum discussions would
be if every faculty member knew that he would be taking all courses
imposed on undergraduates and that his colleagues would be evaluating
any course he himself wanted to offer in the common core.)
Paul left a tenured professorship at Southern
Methodist university to come to Washington as a non-tenured lecturer
and he retained that untenured rank until he died in March 2000. I am
not sure we lived up to Paul’s fantasies of the ideal faculty;
I know we didn’t but he did change the way economics was taught
at the University; revamping the undergraduate program, overhauling
the introductory course, and meeting regularly with the graduate teaching
assistant to improve the quality of their teaching. But much more than
that, Paul was a continuing inspiration for those of us who took seriously
a quality liberal education for undergraduates.
The Economic Way of Thinking embodies
Paul’s approach to economics and to a liberal education. It was
a radical change from the textbooks of the time. Its focus on the problems
of a society and the way in which economic reasoning could shed light
on those problems made economics interesting to the students. More than
that, the book recognized that the strength of economics was precisely
described in the title of the book – as a way of thinking. Comprehending
that way of thinking was, and continues to be, the revolutionary contribution
of economics to the social sciences and to a better understanding of
the world around us.
I open the seminar for freshmen
that I teach every fall with a lecture on Paul, the human being –
his Seminary education, ordination, the way he got drawn into economics,
and the way he combined a rigorous economics (and make no mistake about
it, Paul’s economics is rigorous) with a broad and active concern
for community and social welfare. He believed in individual freedom
and the demands that that freedom imposed on responsible human beings.
And he and his wife, Julie, lived their lives accordingly.