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Paul Heyne on THE economic way of thinking (1995)

The economist Paul Heyne (1931-2000) believed that there was a unique “economic way of thinking” about the world which was based upon a handful of key insights which were not well understood by the general public:

Is it presumptuous to speak about the economic way of thinking? Aren’t there several economic ways of thinking? There are surely many ways to think about economic life, at least once we’ve decided exactly what we mean by “economic life” (which turns out not to be all that easy). But there is a particular perspective on human actions and interactions that regularly emerges when economists analyze the world that many economists recognize as uniquely the economic way of thinking. This article will try to explain and illustrate that way of thinking, with teachers of introductory economics especially in mind.

I like to summarize the economic way of thinking in a short sentence that states its basic assumption: All social phenomena emerge from the choices of individuals in response to expected benefits and costs to themselves.

The Heart of the Matter

Why pay heed to economists? What do they know that is worth listening to? The answer differs, of course, among economists. Some know a lot about the form and functions of gross domestic product, labor force data, reserve banks, taxation and expenditure policies of governments, financial institutions and the markets in which they operate, and what economists usually call macroeconomics. Some know a lot about the history of economic systems. Most know a great deal of statistics and mathematics. But I shall emphasize what I think is most valuable in everything that economists know, or that at least the good economists know, with “good economist” circularly defined as one who not only knows it but believes strongly in its applicability and importance. A good economist knows how to employ the economic way of thinking.

Is it presumptuous to speak about the economic way of thinking? Aren’t there several economic ways of thinking? There are surely many ways to think about economic life, at least once we’ve decided exactly what we mean by “economic life” (which turns out not to be all that easy). But there is a particular perspective on human actions and interactions that regularly emerges when economists analyze the world that many economists recognize as uniquely the economic way of thinking. This article will try to explain and illustrate that way of thinking, with teachers of introductory economics especially in mind.

I like to summarize the economic way of thinking in a short sentence that states its basic assumption: All social phenomena emerge from the choices of individuals in response to expected benefits and costs to themselves.

About this Quotation:

Paul Heyne wrote a brilliant textbook which not surprisingly went through 11 editions. It was called The Economic Way of Thinking which might sound a bit presumptuous but I think he is correct – there is a special way of looking at the world if you understand a few basic principles of economic theory. In a mere five pages of text (and no equations) in this short article Paul Heyne brilliantly summarizes how good economists think about the world. I would go further and argue that there are other ways in which to view the world as well as the economic one – there is an “historical way of thinking” and a “political way of thinking” among others, all of which provide us with valuable insights. Heyne’s great skill is to choose five key concepts which define what it means to think “economically”, namely economizing actions, marginal decisions, opportunity costs, interactions which coordinate the actions of economizers, and markets and prices; and to clearly explain what they mean, why they are important, and how economists use them to understand the economic world around them. It is a tour de force of analysis and exposition.

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