The Wisdom of Alchian and Allen

November 20, 2009

My textbook for Microeconomics this semester was written by Armen Alchian and William Allen, and is called Exchange and Production: Competition, Coordination, and Control. It’s out of print for reasons that I cannot fathom. This may be the best book I have ever read about economics. Anyway, here’s a good excerpt:

It is hard to know when people who profess to be acting only to protect other people are being sincere and when they have ulterior motives. (For example, do you regard the remainder of this paragraph as sincere?) Like health, wealth can be ruined by carelessness. A broken leg can be reset; a broken budget can’t be. Wealth, like health, must be protected from personal ignorance. If a person invests $1,000 in some business and loses it, the person’s family suffers. Therefore, before making any investment, every person ought to be required to consult a licensed, certified economist, who would prescribe how wealth should be invested. Without this safeguard millions of people every day make foolish investments and irrevocably lose their wealth and harm their families. Many people follow the advice of economic quacks – stockbrokers, politicians, friends, and writers of tip sheets. They overinvest without consulting economists, who could prevent their going too far into debt or buying in the wrong area or taking the wrong job or the wrong kind of insurance.



One Response to “The Wisdom of Alchian and Allen”

  1. Rrrobert! Says:

    Are these licensed, certified economists going to give people advice out of the kindness of their hearts, or charge for their services. If they’re charging, how are they going to keep their fees below a point where it’s worth it for the average investor to pay for their advice? If they’re relying on other sources of income, how do they avoid conflicts of interest?

    Rich people often have competent financial advisors. It’s difficult to see how affordable advice doesn’t descend into quackery. It seems to me the only defense against financial quackery is good education – provide a man with good advice, and he’ll make one good decision, but teach a man to think critically, and he’ll make many good decisions.

    Not having the rest of the book, it’s difficult to tell whether the selection is tongue-in-cheek. Obviously, mandatory certified economist consultation isn’t a great solution to personal ignorance, but the homo ignoromicus problem remains quite serious for economists and normals alike.

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