Book Review: “Filthy Lucre: Economics for People Who Hate Capitalism” by Joseph Heath

Filthy Lucre: Economics for People Who Hate CapitalismJoseph Heath is a philosophy professor with an interest, but no formal training in economics. I first heard of him while taking a course he was teaching on Jürgen Habermas, a philosopher of the Frankfurt School (a neo-Marxist view of social theory).

A self-described skeptic of capitalism, Heath nevertheless believes that there is a big problem with economic illiteracy in many aspects of our society. The problem tends to be more obvious on the “left” of the political spectrum, though not necessarily more prevalent. The problem with high levels of economic illiteracy is that it makes critical examination of economics and capitalism, as it’s presented to us by the media and in politics, quite difficult. As Heath points out in the book’s introduction, Marx (possibly one of capitalism’s biggest critics and also one of its biggest contributors) was well versed in “mainstream” economics of his day. If we want to be able to think clearly about capitalism — both the arguments for and against it — we need to have at least a basic understanding of certain of economic principles.

Filthy Lucre: Economics for People Who Hate Capitalism has a somewhat deceptive title — this is a book for everyone; not just for people who hate capitalism. The book succeeds at bringing together economics and critical thinking (a rare feat, outside of academia) and is written in such a way that it tries not to scare readers away, in the same way that the traditional economics literature so often does.

The book is divided into two sections. Part 1 deals with six right-wing fallacies, such as “Incentives Matter… except when they don’t” (Chapter 2) and “Personal Responsibility: How the right misunderstands moral hazard” (Chapter 6).

Part 2 contains another six chapters that deal with left-wing fallacies, like “The Just Price Fallacy: The temptation to fiddle with prices, and why it should be resisted” (Chapter 7) and “Equal Pay: Why some jobs must suck, in every aspect” (Chapter 10).

The book is chock-full of examples that do a wonderful job of illustrating some rather complex economic concepts, without having to resort to graphs and mathematical models (the most complicated graph you’ll find in the book is one showing a normal distribution of the results of 100 coin tosses).

For example, my favourite section of the book was an examination of the ubiquity of shareholder-owned firms. Heath explains that firms are a “nexus of contracts between individuals who supply … four different types of input” — input, output, capital and labour. When examined in this light, there doesn’t appear to be any obvious reasons for any one of these groups to own the firm. In fact, if a firm is just a “nexus of contracts”, there’s no reason for it to be owned by anybody (as is sometimes the case, see: non-profit organizations). By law, any of the four groups could own the firm. Sometimes we do see firms that are owned by the suppliers, workers, or customers; they are usually referred to as “cooperatives”. So why is it that most firms are owned by shareholders?

The Firm

The key to understanding the shareholder-owned corporation is to see that it is no different in principle from any of these other cooperative arrangements. As Yale law professor Henry Hansmann has observed, the standard business corporation is essentially a “lenders’ co-op.”
–Heath, Filthy Lucre

Heath uses Hansmann’s example of a dairy cooperative to illustrate the problems cooperatives face in compensating owners when inputs are not homogeneous (i.e. when there is more than one type or quality of input). The reason that shareholder-owned corporations are so common could be as simple as the fact that when companies start producing complex goods and services using different types of inputs and labour, the money invested in the firm’s capital remains a homogeneous input, making shareholder compensation a simple affair (e.g. if you buy 10% of a firm’s stock, lending money for 10% of the firm’s capital, you’re entitled to 10% of the profits).

Though this book was explicitly written with the purpose of bringing economic literacy to the “left”, Heath’s brilliant examples, and nuanced and critical ways of looking at even the simplest economic concepts makes this book a must-read, regardless of your political leanings or prior education. I guarantee that it will change your perspective, even if it doesn’t change your mind.

18 Responses to “Book Review: “Filthy Lucre: Economics for People Who Hate Capitalism” by Joseph Heath”

  1. Evan Harper says:

    It’s a really, really, really good book, which changed my thinking about economics in politics greatly (or at least accelerated and focused changes in my opinions, which in turn owed a fair amount to Heath and Potter’s fantastic Rebel Sell.) At heart it’s a book for well-meaning lefties who understand that there are many serious problems with modern capitalism as it really exists, understand that many of the most common economically right-wing arguments are deeply unsound, but don’t really have any sophisticated understanding of what is actually going and rely on some vague mishmash of Marx and Keynes, probably filtered second- or third-hand through sloppy propagandists like Naomi Klein.

    I get the feeling you were already pretty sympathetic to liberal economics before you read this book, but as someone rather closer to the target audience of “people who hate capitalism,” I would emphasize Heath’s very careful presentation. He starts with six common right-wing fallacies in order to A) introduce important concepts in economic reasoning and B) get on my good side. The result is that once he starts talking about dumb ideas on the Left, he’s challenging me with lines of reasoning very similar to the ones I happily agreed with when they were skewering the Right. It becomes very difficult to reject his arguments against Left-wing fallacies without being a complete hypocrite. Heath, you sly dog!

    Anyway, yeah, highly recommended.

  2. Gorebug says:

    Of the 2-dozen non-fiction books I have read over the last year, this has been the most impacting.

    A highly recommended read from me.

    ~bug

  3. jtradke says:

    Looks like it’s got a completely different title for the U.S. edition: Economics Without Illusions: Debunking the Myths of Modern Capitalism

    • Thanks for the heads up. I was unaware it was being sold under a different name in the US. I guess the whole “people who hate capitalism” thing is a tougher sell down south.

  4. Jason says:

    Heath and his sometimes co-writer Andrew Potter are always good reads.

  5. Evan Harper says:

    Well, I got Potter’s latest, The Authenticity Hoax, and found it irritating even though I basically agreed with it. But yeah Heath is gold.

  6. Greg James says:

    Sadly, this book fails for exactly the reasons that skeptics are supposed to protect against. The author challenges established economic theory by publishing a popular book (not peer-reviewed papers), that trades on his status as an outsider (bailed on economics course, see Kevin Trudeau), and is reviewed for its “impacting” nature rather than its truth.

    This is exactly the sort of book that we should be skeptical about because it tells us what we want to hear, rather than what the author has empirically determined.

    • Out of curiosity, have you read the book? It wasn’t written as the opinion of an outsider swooping in to save a field from itself; it was written as a layperson’s introduction to certain economic topics. Heath is clearly familiar with the arguments and literature and the book is well referenced. It’s not perfect, but he’s nothing like Kevin Trudeau.

      Be skeptical, by all means, but don’t make offensive comparisons because you disagree with the man’s politics.

      • Greg James says:

        Here’s the argument laid out better for you. If a self-taught physician wrote a “layperson’s introduction” to curing cancer through homeopathy, miracle foods, and cleanses using hand-wavy arguments, you’d rip them apart. But when a self-taught economist argues against standard economic wisdom using hand-wavy arguments, it’s apparently offensive to make the comparison.

        I mean, it’s trivially easy to find holes in his arguments. Chapter 1. Heath argues that libertarianism is logically inconsistent because it’s, “a house of cards, founded entirely upon a fallacy.” (p.25) That fallacy is that, “in a hypothetical world in which individuals are motivated entirely by self-interest, one cannot get the foundations for a market economy in place.” (p.35) Well, except for the real-world example of the drug trade. On p.35 he seems to be basing his whole argument on the idea that humans can’t (or won’t) self-enforce contracts. Again, the drug trade is a counter-example. Live by the hand-wavy argument, die by it, too.

        Out of curiousity, when you mimiced the standard charlatan response of indignation and ad hominem argument, you were being ironic, right?

  7. @Greg: Do you always accuse those who don’t share your views of libertarianism of being frauds? If you don’t see how absurd a comparison your first paragraph is, then I’m afraid your ideology might be getting in the way of your understanding of his arguments.

    Again, not saying his book is perfect. I’m saying it raises interesting points, makes some good arguments, and is thoroughly referenced.

    And by no means “argues against the standard economic wisdom”. Unless your idea of the “standard economic wisdom” comes from Ayn Rand.

    • Greg James says:

      The “Evidence or GTFO” macros don’t include, “unless it’s a popular book,” or “unless it’s economics,” or “unless the author is a professor from your department *and* alma mater.” It means, “extraordinary claims require extraordinary evidence.” (Sagan) And Heath provides no extraordinary evidence, like for his claim that The General Theory of Second Best was “‘suppressed’ by the economics profesison,” (p.65) or “ignored.” (p.66) In fact, he refutes the latter claim himself by pointing out that about 200 articles tried to refute it within a decade.

      I didn’t trash the anti-Libertarian argument because I’m a Libertarian. I trashed it because it’s flawed, poorly reasoned, poorly presented, misrepresents evolution, and I didn’t have to search very hard to find something like that.

      • So if your point is “be critical of his arguments”, then I agree. But that doesn’t seem to be what you’re saying. You’re accusing him of perpetuating fraud and, quite frankly, you seem a bit angry. Not to mention that Heath’s claims aren’t as incredible as you think they are.

  8. Greg James says:

    Well, Skeptico defines “extraordinary claims” to parallel to Hume’s Maxim. So to use my previous example, you have to judge which is more likely: a worldwide economist conspiracy (and left-wing idiocy) against Lancaster and Lipsey, or that our self-taught economist doesn’t grasp the theory, its implications, and its role in economic literature properly. The fact that some of his other arguments are somewhat south of cocktail party-grade doesn’t help his case.

    I guess I am mad. Not at the book or the author. It’s an entertaining, interesting read, but its truth value is more or less random. I’m more mad at you for such a milquetoast review. I guess I expected a skeptical review from a skeptical site. My bad.

    • That type of charm will get you everywhere in life. Keep it up.

      I stand by my review of the book. It is just as rigorous as an introductory book to economic concepts, written specifically for non-economists, should be — or needs to be.

      There’s plenty of academically rigorous mainstream (and non-libertarian) economists out there who were not covered in this book review. Maybe go read some stuff by Krugman? I have a feeling you won’t like what he writes, either.

      • Greg James says:

        And I stand my my assessment that you fluffed it. A skeptical approach to review holds all books to equal standards for evidence. So when Heath writes an introductory book to economics, he only gets to speak intelligibly to beginners, not argue like one.

        The same standards apply to both Trudeau and Heath. Extraordinary claims need extraordinary evidence, and neither provide them. Both use shitty logic and slight-of-hand to make points. They are not as different as you’d like to believe.

        And instead of calling him on this, you spend your commenting space accusing me of libertarian bias. Seriously? Ad hominem attacks? Even if I *was* a Libertarian, you know that that doesn’t invalidate my arguments (or validate his).

        Give Heath the same grilling you’d give Trudeau. Treat him like an equal, a guy who needs to put his money where his mouth is. Powderpuff “skeptical” reviews serve nobody well; no you, not your readers, not Heath, and not even Trudeau, who should be shown the same uniform rigour as everyone else.

      • Sorry, you’re wrong. And you don’t seem to understand skepticism or its purpose. Please either stop name calling, or go away.

  9. HaveRead says:

    To answer one of Greg James’s assertions, this is not a book that contradicts scholarly economic theory – instead it criticizes *common* economic pseudo-theories through the use of established, scholarly, peer-reviewed sources.

  10. Jason says:

    The thread is thoroughly entertaining.
    I’m going to buy the book.

    Mr. Gerskup, well played sir.

    I do have a degree in economics and have studied it for the past 10 years or so. It’s mostly nonsense. It’s no more a science than alchemy, astrology or theology is. It’s “science” for right wingers who can’t do real science. (I know, I used to be one of them.) It’s solipsism hidden behind beautiful and wholly useless math.

    I’m eager to read this and see if it’s accurate or not.

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  • Mitchell Gerskup

    Mitchell Gerskup recently graduated from the University of Toronto with a degree in Economics and Philosophy. An avid atheist and skeptic, he has served as the President of the University of Toronto Secular Alliance, helping to promote science, reason and critical thinking around Toronto. He also volunteers with the Centre for Inquiry’s Ontario branch, and currently sits on the CFI’s Committee for the Advancement of Scientific Skepticism. Mitchell is also an accomplished competitive debater, having debated all across Canada. In addition to issues of economics and philosophy, Mitchell is interested in the fields of science and technology.