An Economics Reading List by Ron Paul

This is a review of The Law (by Frédéric Bastiat), Economics in One Lesson (by Henry Hazlitt), What Has Government Done to Our Money? (by Murray Rothbard), The Road to Serfdom (by Friedrich August Hayek), and Economics for Real People (by Gene Callahan).

Note: This article is quite long, being as it is a review of five books, along with its context, conclusion and other notes. You may wish to skip ahead to the sections Which to read? and Conclusion after reading the introduction, as this may help you select parts to look at first.

Why did I read these books?

Recently I picked up a copy of Henry Hazlitt’s Economics in One Lesson (links follow after each book’s subheading). The first page inside the cover, under the title Praise for Economics in One Lesson, contains the following testimonial from US Congressman Ron Paul:

I strongly recommend that every American acquire some basic knowledge of economics, monetary policy and the intersection of politics with the economy. No formal classroom is required; a desire to read and learn will suffice. There are countless important books to consider, but the following are an excellent starting point: The Law by Frédéric Bastiat; Economics in One Lesson by Henry Hazlitt, What Has Government Done to Our Money? by Murray Rothbard; The Road to Serfdom by Friedrich Hayek, and Economics for Real People by Gene Callahan.

If you simply read and comprehend these relatively short texts, you will know far more than most educated people about economics and government. … If you care about the future of this country, arm yourself with knowledge and fight back against economic ignorance.

Well I’m not American (I’m British), but since the UK is in much the same financial state as the US (and the rest of the western world) I’m no less concerned about our economic, financial and political future. Ron Paul speaks a lot of sense about economics, so I set myself the task of reading the full list of books he recommends. What follows is a summary of each book, and a selection of my opinions.

The Law – Frédéric Bastiat

Links: Goodreads, Amazon US, Amazon UK, Terra Libertas, Full text – HTML

The Law is a very short text (my edition is formatted to 86 pages) first published in 1850. It asks the question: what is law? To Bastiat, it is the “collective organization of the individual right to lawful defence”. Bastiat’s foundation is that life, liberty and property are enduring human concepts that pre-date law, and that every individual has a right to defend them, by force if necessary. From this it follows that a group of people has the right to organise a common force to protect these rights. Because no individual may use force to deprive anyone else of life, liberty or property, and the law is merely the organisation of the individual rights, it also follows that the law may not by right be used to deprive and individual of these things either.

The current situation, where the law is used to for “lawful plunder” (think of most forms and uses of taxation, eg protective tariffs, and industry protection laws, eg copyright), Bastiat blames on a combination of “stupid greed” and “false philanthropy”.

It has been long seen that many people will choose to acquire wealth by plunder rather than labour as long as the former is easier. The law is intended to protect citizens from others who would choose this route. But if the same citizens who would plunder rather than labour are allowed to make the law, they now have an officially sanctioned route to plunder: to pervert the law for their own gain under the guise of “justice”. Bastiat neatly sums up the inevitable result:

As long as it is admitted that the law may be diverted from its true purpose – that it may violate property rather than protecting it – then everyone will want to participate in making the law.

The behaviour we see today, of course, is that every big business will want to participate in making the law.

The other source of perverted law – false philanthropy – is more complex, and Bastiat’s description overlaps with the other texts in this set. He criticises the socialists for acting as if they “have received from Heaven an intelligence and virtue that place them beyond and above mankind”. That is, if you accept all involuntary redistributions of wealth as forms of plunder, the best hope you have of it being done right is that it is planned by a superior intellect. The explanation for why this will fail is economic in nature, so I’ll defer it to the summary of the other books.

Bastiat gives a rule that can easily be applied to any law, existing or proposed, and determine whether it is in the spirit of the “Rule of Law”, or is actually just disguised plunder. That this distinction is so often muddied or not made made at all is the compelling reason to read this book. The Law is so short and makes its point so clearly, I can hardly not recommend it. And given that its full text is available free, there’s no excuse not to, unless you believe perversion of the law does not affect you.

Economics in One Lesson – Henry Hazlitt

Links: Goodreads, Amazon US, Amazon UK, Terra Libertas, Full text – HTML, Full text – PDF

Economics in One Lesson is a book with a very simple premise. It’s divided mainly into three parts – Part 1: The Lesson, Part 2: The Lesson Applied and Part 3: The Lesson After 30 Years (the last of which I will skip). Part 1: The Lesson consists of just one chapter, The Lesson, which is only five pages long, and explains that the lesson itself can be reduced to a single lone sentence:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

While he never refers to it as such (in general, the Austrian economists don’t), Hazlitt is effectively describing economics as a systems thinking problem.

Hazlitt argues that “nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson”, and goes on to demonstrate the effects in Part 2: The Lesson Applied, with 24 chapters each exposing a form of incorrect economic reasoning. I’ll pick three as examples, based purely on ones I notice myself most often. These summaries are not complete, so if you suspect they are incorrect I recommend reading the original chapters first (they are all quite short).

The Broken Window fallacy is the belief that if, say, a vandal throws a brick through a shop window, the work generated for the glazier to replace it is an economic stimulus. The logic is that by the shopkeeper giving the glazier, say, $250 for the window, the glazier has extra money to spend with merchants of his choosing, who will in turn spend that money with others. The reasoning is flawed because what is ignored is that the shopkeeper wanted, say, to spend that $250 on a suit, which he must now forgo. So rather than having a window and a suit, the shopkeeper now has only a window, and the world is a poorer place. The tailor is overlooked in the original analysis simply because he never enters the scene. While this is a simple example, the same argument applies to damage from civil unrest (I saw it myself on Twitter regarding the UK riots in August 2011), revolutions, and even world wars. There is no net economic benefit in rebuilding what was prematurely destroyed during a war.

The desire to Save the X Industry arises when members of industry X lobby the government to protect it, by tariffs, subsidies, price guarantees or similar. It’s argued that without saving the X industry (we’ve seen it happen in agriculture, manufacturing, banking and others), that industry will provide jobs, and the money it generates will be spent elsewhere, on the machinery it needs, and by its employees with butchers, bakers and other consumer merchants. To take the most direct solution as an example – subsidy – it could be argued that taxation used to subsidise this essential industry will redirect money for greater overall benefit. But every consumer taxed to pay for this now has less money to spend in other elsewhere, in industries that lose out. And, as demonstrated by the fact that industry X needs support, money is being diverted from more efficient businesses to prop up the failing ones. This means the productivity of the society is now lower, and overall everyone has lost out.

As a final example, Minimum Wage Laws initially appear to benefit workers, who will now receive a higher wage and be able to increase their standard of living. Hazlitt argues that wages are prices no different than any other (like the prices of oil, wheat or gold), but that our thinking about them have become emotionally clouded. Making it illegal for someone to charge less that a certain amount for their time does not automatically make them worth more. Businesses affected by minimum wage have to either charge more or reduce their margins. If they charge more, customers may buy less of the product, or switch to alternatives. By reducing the profit on products, marginal producers in the industry will be thrown out of business, which deprives consumers of the products they previously enjoyed. There is no guarantee that workers made unemployed by minimum wage laws will be sufficiently productive in other industries to justify paying them the minimum legal amount. All roads lead to lower productivity and higher unemployment overall.

Economics in One Lesson explains many more points, and does so in a very concise, readable way. While the topics are connected, each chapter is a short, largely self-contained application of “the lesson”. It’s very straightforward to read, and gives you powerful toolset to analyse the changes in government policy discussed in the news. I highly recommend it if you’re skeptical of the consistency of economic arguments put forward by politicians in the news.

What Has Government Done to Our Money? – Murray Rothbard

Links: Goodreads, Amazon US, Amazon UK, Terra Libertas, Full text – HTML, Full text – PDF

Murry Rothbard’s short text is a three-part book that explains first, what money is; second, how governments have meddled with it; and third, the history of the breakdown of money.

Money is introduced as coming naturally from exchange.

Clearly Robinson Crusoe had no need for money. He could not have eaten gold coins. Neither would Crusoe and Friday, perhaps exchanging fish for lumber, need to bother about money.

Initially people traded with barter, but this is hampered by finding people willing to exchange at the right time. Eventually someone will realise they can trade their own goods for something more desirable to the person owning what they want, and complete a trade by indirect exchange. Over time, some goods become more useful than others for indirect exchange, and eventually one a society will settle on one or two most exchangeable goods as money. People “buy” money when they exchange their goods for money, and “sell” their money when they exchange it for goods. Rothbard’s explanation of this and a few other related ideas is piercingly clear and concise.

The story of how Governments have meddled with money is equally intriguing and shocking (even if you are not new to the story). Rothbard starts with the nature of governments:

Governments, in contrast to all other organisations, do not obtain their revenue as payment for their services. … In a barter economy, government officials can only expropriate resources in one way: by seizing goods in kind. In a monetary economy, they will find it easier to seize monetary assets, and then use the money to acquire goods and services for the government. Taxation, however, is often unpopular. … The emergence of money, while a boon to the human race, also opened a more subtle route for governmental expropriation of resources … counterfeiting.

We now imagine that an economy has 10,000 gold coins, and that a counterfeiter can introduce 2,000 more, undetected. The early holders of this new money will be at an advantage: they can buy goods at the old prices. But this spending bids prices up, and people last to receive the new money will find that prices have been going up long before their income. “Whenever the newly issued money is used as loans to business, inflation causes the dread ‘business cycle’”. (This asymmetry of the effects of inflation is also discussed in Economics in One Lesson and Economics for Real People.)

Initially, governments monopolised the minting process, taking the right to produce coins from the previously free economy. Governments chose the denominations, not the people, and they named them so as to disassociate them from the underlying weight of metal: marks, francs, dollars etc, instead of grams or grains. This paved the way for debasement. The Saracens of Spain had a coin, the dinar, the which in the mid-twelfth century contained 65 gold grains. The Christian kings conquered Spain, and by the early thirteenth century the coin, now called the maravedi, had only 14 grains. Soon it was too light to circulate, and was replaced by a coin containing 26 silver grains. This was in turn debased, and by the mid-fifteenth century contained only 1.5 silver grains, again too small to circulate.

Governments learnt another trick: legal tender. By defining what money could be, rather than leaving it open to the market, governments gave themselves the power to define the poorest form of money as legal tender. For example, worn coins can be defined as good as new ones. The real power of this came with the introduction of paper money, when the metal backing each unit of currency could be gradually decreased. People redeeming gold still threatened the extent of this inflation, because banks that over-printed paper money would eventually lose their gold as suspicious depositors withdrew it. This inconvenience was resolved with central banking. Giving a false confidence in the backing of the banking system and centralising (co-ordinating) control of the money supply allows the banking system to almost inflate at will.

What Has Government Done To Our Money? is the shortest of the economics books in this list. It’s focused more on money that general economics, but the stories it tells should encourage you to pick up some of the longer ones if you want more details. If you think you may have an interest in the broader economic issues but want a short taster, this is a good place to start. If you’re relatively new to concepts such as fractional reserve banking (the current situation, where the banking system is inherently insolvent) and fiat currency (as opposed to a free money market), this book is an essential read. I especially recommend it if you’re angered by the constant banking bailouts: the act debasing our money by turning on the printing press and throwing the inflated supply at what Hazlitt shows is inevitably the least efficient businesses.

The Road to Serfdom – Friedrich August Hayek

Links: Goodreads, Amazon US, Amazon UK

If you’d like an even quicker introduction to this, the Ludwig von Mises Institute publishes an excellent illustrated version, The Road to Serfdom in Cartoons.

Friedrich Hayek (an Austro-Hungarian) wrote this book in the early 1940s in Great Britain, as a warning to a country he thought was unwittingly walking the same path that Germany took decades before. It is a description of how even the most well-intentioned socialist ideals will eventually lead to totalitarianism. In contrast to Bastiat’s The Law, which is focused on one point (justice), The Road to Serfdom traces a complex story at the boundary of politics and economics, and shows how and why justice and freedom are ultimately sacrificed on the path to collectivism.

According to Hayek, when “we find ourselves threatened by the evils associated by the past ages of barbarism, we blame naturally anything but ourselves.” So naturally, the unexpected situation that “the relative ease with which a young communist could be converted into a Nazi or vice versa” was not considered inherent in socialism itself.

Collectivism involves orienting a society around a “social goal” such as “general welfare”, but this “presupposes … a complete ethical code in which all the different human values are allotted their due place”. But “no such complete ethical code exists” because “people will have either no definite views or conflicting views on such questions”. As well as the conflict inherent in trying to co-ordinate a diverse society, trying to scientifically organise a society towards some end runs into the economic inconvenience that “far from being appropriate only to comparatively simple conditions, it is the very complexity of the division of labour under modern conditions which makes competition the only means by which such co-ordination can be adequately brought about”. Both Hazlitt’s Economics in One Lesson and Callahan’s Economics for Real People show that trying to make centrally co-ordinated economic decisions inevitably lead to failure and waste, as no central planner can have access to, or process, enough information to make an informed choice.

Hayek emphasises the distinction between the Rule of Law (in Bastiat’s sense of “law” – justice) and arbitrary law. In the former, “the government confines itself to fixing rules determining the conditions under which the available resources may be used”; in the latter “the government directs the use of the means of production to particular ends”. While it might be done in the name of “fairness”, “one could write a history of the decline of the Rule of Law … in terms of the progressive introduction of vague formulae into legislation”. Outright economic arbitrariness appears to have fallen out of favour, structural manipulation (eg central banks setting interest rates and buying government bonds) having taken its place; although we do still have redistributive policies via the EU. The most popular form of arbitrary law at the moment is probably anti-terror legislation.

That anti-terrorism is the fracture being used to wedge in arbitrary law today is not surprising according to Hayek. “It seems to be almost a law of human nature that it is easier for people to agree on a negative programme, on the hatred of an enemy, on the envy of those better off, than on any positive task”. Collectivism tends towards nationalism (to gain support) and to support a particular group (conflict would destroy it otherwise). To these ends, it must exclude or suppress intelligent opposition, and use the principle of negativity to rally the rest around its cause. No complex society can agree on all the issues towards one common goal, so large-scale central planning must be done by force. Hayek uses this explains the inevitability that “the worst get on top”, despite even the best intentions of the initial idealistic socialists.

In the UK today, we don’t see such a strong trend towards socialism that Hayek saw in the middle of the last century. But The Road to Serfdom is valuable even without imminent totalitarianism, as he explains step-by-step the various economic and political decisions, and the corresponding political and economic consequences. Maybe we won’t see National-Socialism again in its archetypal form. If not, I suspect it may be even more important to read this book sooner rather than later, as we may see the world play out in a more subtly oppressive way: most of the causality Hayek describes is quite timeless.

Economics for Real People – Gene Callahan

Links: Goodreads, Amazon US, Amazon UK, Terra Libertas, Full text – PDF

Economics for Real People is the densest and most detailed of the economics books here. But like What Has Government Done to Our Money? it’s written with such clarity that it’s accessible to anyone with the patience to read it.

Rather than derive economics from a Robinson Crusoe environment, Callahan uses a more contemporary metaphor:

In our alternative universe, Rich is still the winner [of the first series of Survivor], but as the film crew packs up, they decide that they are fed up with his antics. Instead of transporting him home, they quietly slip off while Rich is getting in a last session of nude sunbathing.

Rich arises to find that he is alone. He is now facing the most elementary human problem, how to survive, in the most basic of settings. What can economics say about his situation?

Callahan takes his definition of economics from Ludwig von Mises: “Economics … is the theory of human action. Human action is purposeful behaviour. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals”. Where the Austrian school’s definition of economics differs from the popular conception is that it has no basis in money (money is explained as emerging at a later point). If you have a sense of dissatisfaction, say you are “disturbed by a buzzing sound”, and you can determine a cause in your control, say “you look around … and see a mosquito”. You now “have to make a choice. Being rid of the mosquito would be grand, sure – but you’ll have to get up. And that’s a bummer. The benefit you expect to receive from being rid of the mosquito comes at the cost of getting up”. Human preference is subjective. “We take the thoughts and plans of humans as an ultimate given, and begin our investigation there.”

An astonishing number of concepts are introduced before even a second person appears on the island: economisation of means, preference, utility, marginal units (one extra bucket of water), the law of diminishing marginal utility, error and regret, consumer goods, capital goods, capital stock, complementary goods, time preference. All of which might sound overwhelming, but is actually told effortlessly in the story of Rich choosing to invest his time in making barrels (to collect water) and traps (to trap rats, which is the primary local food supply), all while deciding at which point he’d like to go back and sit in his hammock.

An economic community forms when Callahan introduces a second person to the island: Helena Bonham-Carter.

What does Rich decide to do? One possibility is that Rich might react like a bear does, [and] try to drive the intruder away. Now, he might refrain from doing so due to moral constraints or benevolent feelings. But there is another reason for him not to drive Helena off – as long as there are sufficient unused resources on the island, it will materially benefit both of them to co-operate rather than fight. They can initiate the vastly enriching process of the division of labour and voluntary exchange.

In Callahan’s version of this post-Survivor scenario, “Rich, the more dexterous of the two, will make traps, while Helena, the more cunning, will do the hunting”. From here we are taught the way direct exchange plays out, in terms of each of their subjective preferences for rats and traps. As more people join the island, we see goats and corn introduced, and a market start to form. But, notably, there is still no money on the island.

As the economy in “Richland” grows more complex we see the difficulty in economic calculation, and finally money emerge, but as the most marketable medium of exchange. No special status is granted to money, it’s merely an economic good that meets certain criteria, and is subject to the same supply and demand rules as any other.

It’s in this careful, step-by-step way that Gene Callahan works through a broad range of other economic topics, including: fluctuations in money supply, socialism, government interference, business cycles, externalities (for example pollution, which is connected to tragedy-of-the-commons situations), and a brief summary of political economics. With a couple of minor exceptions, everything is as clear and grounded as the foundations in chapter 1.

This was by far the most enlightening book in the list to me, although it took correspondingly the most investment in time.

Which to read?

If your interest is mainly politics, the choice is easy: either read The Law if you want something quick, or The Road to Serfdom if you’re prepared to invest more time. The Road to Serfdom glosses over the economic principles behind its arguments though, so I’d still recommend picking up one of the other books on the list.

If your interest is more in economics there is more choice. If you would prefer a quick read, or are mainly interested in the history of how we ended up with such a disastrous monetary system, start with What Has Government Done to Our Money?. If you suspect that most of what you read in the mainstream media is based on faulty or even absent reasoning, start with Economics in One Lesson, it’s also a quick read, and to an extent you can even pick and choose the topics that interest you. If you’re prepared to invest more time (although at under 350 pages it’s hardly immense), or want a more thorough grounding, choose Economics for Real People. This last book is my favourite by some distance, and whichever of the others you choose, I highly recommend picking this up after.

Note that all but one of these books is available to download free (see the “Full text” links) – even Economics for Real People, which was only published in 2004. So you don’t even have to pay to read the full texts, never mind get a taster.


Ultimately, the purpose of my experiment in reading these books was to see if I’d achieve the claimed goal of “know[ing] far more than most educated people about economics and government”. It’s a little premature to judge if that’s true, I’ll need to read many more news articles and have many more conversations. But there are already many, many things I see in the papers whose fallacious logic is directly identified in one of the books here, so it has certainly got off to a good start.

What did you think? Were you persuaded to read any of these? Have you already read them and agree/disagree on my summaries? I don’t claim to be an expert on this subject matter (far from it), so I welcome other perspectives.


Thanks to Martin Rue for proofreading this and picking up many typos and unclear sentences. Any remaining errors are, of course, my own.

2 responses
Just wanted to thank you for the reviews... I too wanted to get a better understanding of economics and so followed your link from Google Books. You have perked my interest in at a couple of books that were not already on my reading list.

Thanks again for taking the time to write your well thought out reviews.

Geffory - glad you found this post useful. I find myself applying the economics ideas in these all the time. Feel free to share any thoughts you have on the new books you found, as and when you read them!