PART I: FOUNDATIONS
1. Thinking Like an Economist . 3
Thinking Like an Economist 3
Is Economics a Science? . 5
The Scope and Boundaries of Economic Science . 5
Why Study Economics? . 8
2. How We Develop Economic Principles . 13
Purposeful Action versus Mindless Behavior 13
The Social versus the Natural Sciences 15
The Success of the Natural Sciences versus the Social Sciences 17
How We Develop Basic Economics 22
3. Economic Concepts Implied By Action . 31
Introduction 31
Only Individuals Act 32
Individuals Have Preferences 36
Preferences Are Subjective 37
Preferences Are a Ranking, Not a Measurement Using Numbers 39
Different Individuals’ Preferences Can’t Be Combined . 42
4. “Robinson Crusoe” Economics . 49
Introduction 49
Crusoe Creates Goods With His Mind Powers 50
Consumer Goods versus Producer Goods 52
Land, Labor, and Capital Goods . 53
Income, Saving, and Investment . 55
Goods Are Valued Unit by Unit 59
Pulling It All Together: What Should Crusoe Do With Himself? . 61

PART II: CAPITALISM: THE MARKET ECONOMY
5. The Institution of Private Property 71
Society Requires Rules . 71
Capitalism: This Is Private Property 73
The Market Economy and Free Enterprise . 74
6. Direct Exchange and Barter Prices 81
Why Do People Trade With Each Other? 81
Direct Exchange / Barter . 82
Prices 83
How Prices Are Formed in Barter . 84
7. Indirect Exchange and the Appearance of Money . 99
The Limitations of Direct Exchange . 99
The Advantages of Indirect Exchange . 101
The Advantages of Money 104
Who Invented Money? 106
8. The Division of Labor and Specialization 113
The Division of Labor and Specialization . 113
Why Specialization Makes Labor More Productive . 115
Enriching Everyone By Focusing on Comparative Advantage . 117
9. Entrepreneurship and Competition . 125
Entrepreneurship 125
Competition Protects Customers 127
Competition Protects Workers . 128
10. Income, Saving, and Investment 135
Income, Saving, and Investment . 135
Investment Increases Future Income 136
How Saving and Investment Increase An Economy’s Future Output . 141
11. Supply and Demand . 147
Supply and Demand: The Purpose . 147
Demand: Its Definition and Its Law . 148
Supply: Its Definition and Its Law 153
Using Supply and Demand to Explain the Market Price 155
Using Supply and Demand to Understand Price Changes .159
12. Interest, Credit, and Debt . 175
Interest: It’s About Time 175
Savings, Investment, and Economic Growth . 177
Common Credit Transactions 180
The Pros and Cons of Debt . 183
13. Profit and Loss Accounting 191
Profit and Loss Guide Entrepreneurs . 191
Interest Versus Profit 193
The Social Function of Profit and Loss Accounting 195
The Limits of Profit and Loss Accounting . 199
14. The Stock Market . 205
The Stock Market 205
Why Issue Stock? (Debt versus Equity) . 206
The Social Function of Stock Speculation 209

PART III: SOCIALISM: THE COMMAND ECONOMY
15. The Failures of Socialism—Theory . 221
The Vision of Pure Socialism 221
Socialism’s Incentive Problem . 223
Socialism’s Calculation Problem . 229
16. The Failures of Socialism—History . 239
Economic Theory and History . 239
Communism vs. Fascism 241
Socialism’s Body Count . 242

PART IV: INTERVENTIONISM: THE MIXED ECONOMY
17. Price Controls 255
The Vision of Interventionism . 255
Price Ceilings . 256
Price Floors . 261
18. Sales and Income Taxes 271
Government Spending 271
How Government Finances Its Spending . 275
Sales Taxes 277
Income Taxes 279
19. Tariffs and Quotas . 287
Mercantilism 287
The General Case for Free Trade . 289
Tariffs . 293
Import Quotas . 299
20. The Economics of Drug Prohibition 305
Drug Prohibition . 305
Drug Prohibition Corrupts Government Officials 307
Drug Prohibition Fosters Violence 314
Drug Prohibition Reduces Product Safety 320
Money Inflation vs. Price Inflation . 325
21. Inflation . 325
How Governments Make Prices Rise . 329
The Danger of Government Price Inflation 336
22. Government Debt 345
Government Deficits and Debt 345
Government Debt and Inflation 350
Government Debt and Future Generations 353
23. The Business Cycle 361
The Business Cycle . 361
How Governments Cause the Business Cycle . 363
The Inevitable Bust Following an Artificial Boom 368
The Causes of Mass Unemployment 369
Glossary 377
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