Joseph 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 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.