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The FORTUNE Encyclopedia of Economics.

THE BOOK is not really an encyclopedia. It is a very thoughtful collection of brief but penetrating essays on modern economics. The essays are arranged in fourteen subject areas called chapters and then presented alphabetically by topic. Essays in the first chapter labeled Basic Concepts are titled demand, efficiency, marginalism, microeconomics, opportunity cost, political behavior, poverty, prisoners' dilemma, profits, property rights, public goods, supply, tragedy of the commons, unintended consequences and nine others. Some of the other topics include: industrial revolution, insurance, liability, natural resources, plus research and development. As seen by the first chapter, the taxonomy must be arbitrary and idiosyncratic in any classification. To appreciate the full value of this superb book, however, disregard any argument you may have with its organization.

The great strengths of the book are the selection of essayists, the scope of topics covered, and masterful editing of the material. By selecting a group of eminent economists, one of the potential problems of quality control is substantially reduced. The essayists are a virtual Who's Who of the economics profession. Nobel Laureates, presidential appointees, authors and scholars with specific expertise in their essay subject not only present the material accurately, they make it interesting, exciting, and accessible. The intended market is apparently the general public. The writers, along with the editor, have achieved their goal probably better than any contemporary volume. In addition, it would be difficult to find a high-profile topic not covered in the essays.

Business economists with advanced degrees will also find the book informative and valuable in their professional work. It will be informative to those senior economists whose formal education was completed more than twenty years ago. Academic economics is much more mathematical and quantitative today. There are very few equations, graphs, tables or numbers in this book. All of the ideas including concepts that are usually presented in mathematics, such as game theory, rational expectations, and econometric models, are explained in words. It is also informative because many of the topics were not in graduate programs a generation ago, such as public choice theory, privatization, free-market environmentalism, Coase Theorem, Nash Equilibrium, and Ricardian Equivalence. In the area of policy the book will be equally valuable. Whole chapters on economic regulation, environmental regulation, international economics, discrimination and labor issues focus on policy. These chapters are in addition to the one titled Policy. In addition, other essays covering health, S&L crisis, recessions, unemployment, takeovers and leveraged buyouts focus on policy issues.

Just reading the book is fun. For example, I knew generally about Bob Tollison's work on Sportometrics, but I thought of it as the economics of sports. It is really applications of economics to understanding sports. How does the number of runners in an Olympic race influence the speed? How does the organization of state high school basketball championships influence average careers in the NBA? Another fun area concerns the history of economic analysis. In the chapter on "Schools of Economic Thought," ideas range from Austrian Economics and Capitalism to Socialism and Supply-Side Economics. The brief essays on Keynesianism, Marxism, Monetarism, New Classical Macro, and New Keynesian are also very well done. I was amazed at how different the appraisal of these doctrines is today from that of just fifteen or twenty years ago. There are 141 essayists covering 157 topics. Here is a tiny sample matching subject and author: Human Capital - Gary Becker; Socialism - Robert Heilbroner; Monetarism - Allan Meltzer; Monetary Policy - James Tobin; Money Supply - Anna Schwartz; Airlines Alfred Kahn; Monopoly - George Stigler; Trucking Thomas Gale Moore; Balance of Payments - Herbert Stein; Exchange Rates - Paul Krugman; Free Trade Alan Blinder; Protectionism - Jagdish Bhagwati; Disasters - Jack Hirshleiter; Health Insurance - John Goodman; Econometric Models - Saul Hymans; Unemployment - Lawrence Summers; and Profits - Lester Thurow. Overall the selection of essayists seems to be balanced with those thought of as on the political Right and on the Left.

Although this is a rave review, the book is far from perfect. The first sentence on the dust jacket reads, "If water is more important to human survival than diamonds, why do diamonds cost more?" Unfortunately, there's no diamond-water paradox in the index, not even the mention of diamonds. The second essay on demand, by Henderson himself, mentions water but not the paradox. If you know that the issue is about marginal utility, you could correctly guess the answer was in the essay on marginalism. Of course, if you knew what the critical issue was you would not have to look it up in the first place. Also, it's not an encyclopedia in the sense that you will be able to find things like Ramsey Pricing in the section on public utilities or in the book at all. The book has many other minor imperfections, but none of them should deter you from adding it to your library.

An additional plus for the book is the biography section of noted economists at the end of the book. All but two are written by the editor. They are all little jewels. Unfortunately, all too few students of economics learn about the intellectual development of our field. Fewer still appreciate the human nature and personalities of our forbearers. Professor Henderson's concise and illuminating biographical sketches could go a long way to ignite a renewed interest in these topics. For example, the vignettes on Turgoi and Quesnay explain their advocacy of market solutions, such as reducing regulations, taxes, and converting from taxes in kind to payments in money. The economic issues are related to the political turmoil and their possible influence on the French Revolution. We also learn which one coined the term "laissez-faire." The seventy-eight pages devoted to contemporary and historic figures in economics yield as much value for money as can be found anywhere.

If I could recommend only one book to my fellow business economists this year, it would be the FORTUNE Encyclopedia of Economics.

Gerald L. Musgrave Book Review Editor
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Author:Musgrave, Gerald L.
Publication:Business Economics
Article Type:Book Review
Date:Jan 1, 1994
Words:986
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