How Should A Student Start Their Economics Library?

Books are often the products of the economics field.  Our field is also one that consistently builds upon its previous work.  I like to think of this feature as a long game of telephone with citations being the links between generations work.  There are many, but Eugene Fama is a good example of this.  He wrote a famous paper declaring that firm ownership is irrelevant, "Agency Problems and the Theory of the Firm."  He cites earlier work by Armen Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," and Ronald Coase's landmark, "The Nature of the Firm" (amongst others).  So previous work can be considered an indispensable part of an economist's tool belt.  These are all academic articles, but even more so, books form the foundation of our economic academic knowledge.  With that in mind, which books should a student begin building his library with?

(photo: BBC)

Which books form the core of economics?  This question is probably as fraught with variation as economics itself.  Because much is still somewhat in debate, the books we have often inform those positions end up displaying those positions as well.  Here is my first attempt at a short list for students and beginners to the field:


The Basics of Economics:

An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith
The Principles of Political Economy and Taxation, David Ricardo
Value and Capital, J. R. Hicks
The General Theory of Employment Interest and Money, John Maynard Keynes
Principles of Economics, Alfred Marshall
Foundations of Economic Analysis, Paul Samuelson
Elements of Pure Economics, Leon Walras

Miscellaneous Economics:

Social Choice and Individual Values, Kenneth Arrow
The Calculus of Consent, James Buchanan & Gordon Tullock
The Theory of Interest, Irving Fisher
Monetary History of the United States, Milton Friedman & Anna Schwartz
Price Theory, Milton Friedman
Prices and Production, Friedrich Hayek
A Theory of Economic History, J. R. Hicks
Essays in Persuasion, John Maynard Keynes
Risk Uncertainty and Profit, Frank Knight
The Economics of Welfare, A.C. Pigou
Economic Analysis of Law, Richard Posner
Capitalism, Socialism, and Democracy, Joseph Schumpeter
Interest and Prices, Knut Wicksell
Natural Value, Friedrich von Wieser

Politics:

Capitalism and Freedom, Milton Friedman
The Road to Serfdom, Friedrich Hayek
Human Action, Ludwig von Mises

Philosophy:

A Treatise of Human Nature, David Hume
Second Treatise on Government, John Locke
The Virtue of Selfishness, Ayn Rand


These are just some recommendations for starting points.  Many of these books have seen their theories updated in more recent articles and being familiar with the following articles is also important.  Also, if an individual decides to specialize, for example in Monetary Economics, a larger range of books such as Inflation Targeting by Ben Bernanke, et al become essential works.  I've likely missed many and there are many jump off points in that list, so please feel free to add books in the comments section!

Most of these books are out of print and even somewhat rare, so finding them going from store to store might be a nightmare of a process.  Most book stores don't have dedicated economics sections and if they do they are usually lumped in with books on business so you'll have to sort through mountains of books by the likes of Jim Cramer and Suze Ormann to find one or two books (often these will be pop economics books rather than actual academic economics books).  There are some book websites that cater to used book buyers.  Alibris is one of these sites, but some of these books are quite rare so be prepared to spend a substantial amount of money (Elements of Pure Economics by Leon Walras being an example of a book that is quite essential and quite rare).

Building a library is also an academic discovery process so everyone's library will vary quite a bit, but this list is designed to give a basic understanding of what might make a good economics library.  My hope is that this can help be a small guide on that process.  I know as I've been on this process, I've looked for resources like this.  If I can be a small help to someone else, than this has worked.

AA+ Has Never Looked So Bad

Last Friday, one of the major ratings agencies, downgraded U.S. Treasury Bonds for the first time ever.  This was not a complete surprise, I was one of many that were speculating about it last week.  What surprised me was their reasoning.  Standard & Poor's downgraded us for political reasons.  They wrote in their report on the downgrade, that "the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."  Furthermore they argued, "we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon."

I would remind S & P that our nation has had debt to income ratios higher than this one with more political strife (U.S. Civil War) and we have always managed to pay it all down in a timely fashion.  Not that I think S&P is being completely foolish.  I simply reject their rationale.  The reason that we should be downgraded is not because of political troubles, but rather because of our central bank interfering with Treasury Bond markets with fantastic amounts of new dollars as indicated in Charts 4 & 5 of Did We Kill the Golden Goose.

George Mason University economics professor, Tyler Cowen, was on NPR this morning, saying that blaming S&P is a distraction.  Cowen says that we were on the verge of defaulting on our debt.  He argues that we need to have a combination of spending cuts and tax increases, and that any notions that we can do it with simply one or the other is foolish.  It is a fantastic amount of debt that we have accrued, $14.5 trillion.  Clearly we need to get this under control and balance our budget again.



Tyler Cowen

 

If Cowen is correct that we need to take a balanced approach to tackle a problem this large.  How should we do it?  There is quite a bit that can be cut out of the Federal Budget (still).  Surely not from any agency that might give me a job, but y'know... other parts of the budget.  We still give enormous amounts of subsidies, rebates and refunds for all manner of special interest groups.  All of that could easily be cut out, as it is unhelpful in a macroeconomics sense.  This would all help make our tax code more easily understandable, and would not skew our incentives which then skew our price signalling process.


All of this reminds me of an old argument about why a nation should not go into debt in the first place.  David Ricardo wrote that nations should not go into debt to stimulate demand because consumers understand that even if their tax rates are not high now, they will be raised later to pay for the debt.  His argument is that they save the extra money to pay it in taxes later.  This has come to be called the Ricardian Equivalence.

David Ricardo

Today's United States probably shines as a beacon against that idea.  It seems that most Americans haven't any notion that we would ever have to balance our budgets and pay down our debt.  Naturally, we can continue to do this, as long as we have individuals, firms, or nations willing to purchase our debt.  We've had such a long ride of everyone having a high demand for our debt, that it seems that Americans have been enabled to forget that we have to pay this all back.  So perhaps Ricardo's supposition that all citizens internalize the debt and save to pay it down later hasn't taken into account such a long period of holding debt.  Ricardo probably couldn't imagine anyone giving anyone else a $14,500,000,000,000 loan!  So perhaps Ricardo's theory is a bit off the rails, but he isn't likely to worry about it.  He's been resting in peace for 200 years, and we'll be the ones working to pay off this enormous sum.